Market Segmentation of McDonalds Corporation - Research Paper Example

Market Segmentation: McDonald’s Corporation By: Executive summary The paper will discuss the idea of segmentation. It will specifically use the example of McDonald’s corporation. It will explain why segmentation is the idea of targeting the homogeneous components of a heterogeneous market rather than the market as a whole. The paper will explain the importance of market segmentation and how it has enabled McDonald’s achieve immense success. The analysis will cover the marketing mix used by McDonald’s, and it will give recommendations to McDonald’s management. Table of Contents Executive summary 2 Introduction 3 A brief history 4 McDonald’s market segmentation 5 Market segmentation objectives 8 Specific McDonald’s segmentation 10 Conclusion 15 References 17 Appendix 19 Introduction Market segmentation is dividing the market into meaningful, relatively similar and identifiable segments or groups (Dibb, 1998). With the segmentation of the market, the marketer can distinguish which marketing mix will be more appealing for a particular group of consumers. Market analysts argue that this process helps in developing effective strategic planning. Segmentation helps utilize necessary resources and power. The paper will conduct a detailed analysis of segmentation, targeting and positioning model of McDonald’s. McDonald’s is a company that understands its target customers. From this understanding, the company has been able to communicate itself to the consumer market. This is the reason McDonald’s is the world’s largest fast feeder (Monger, 2013). A brief history McDonald’s has more than 30,000 restaurants worldwide. It grew quickly to become the biggest fast-feeder outlet in the world. According to statistics, McDonald’s serves almost 47 million customers each day (Monger, 2013). With this large customer base, the company racks up sales of over 50 billion dollars annually. In 1960’s, McDonald’s rode the baby-boomer trend. The company offered inexpensive menus, thereby attracting many customers. During the 1970’s and the 1980’s, the company was an influence to globalization. It transferred the American way of life to many countries around the world. In addition, McDonald’s franchised to locals, therefore adopting the social context of each country (Lassar, 2009). In the 1990s and 2000s, McDonald’s transformed its corporate image. Its management launched the ‘Fast and Convenient’ campaign. The campaign saw radical adjustments of the company’s product portfolio to emerging food trends. The company wanted to transform its restaurants into a banded, updated, and which promotes a more natural dining environment (Monger, 2013). During the campaign, the ‘fast’ and ‘convenient’ elements were supplemented by ‘healthy’ and ‘more natural element’ (Monger, 2013). It saw the addition of salads, fruits, and carrots sticks to their menu. Nowadays, McDonald’s offers high-quality coffee and healthy drinks. The introduction of these drinks is implementation of their competition strategy (Baines, 2014). McDonald’s has achieved a lot from implementing this, for instance, expansion of their customer base and benefiting from local trends like austerity in Europe (Dibb, 1998). McDonald’s have many strategies. The best strategy is the franchise business model (Brady, 2010). The model allows for a collective entrepreneurship that allows its franchisee-members and shareholders to share both the risks and the rewards. Another strategy that has enabled McDonald’s thrive is the market segmentation. The company has divided its entire market products. McDonald’s market segmentation Before segmenting the market, the company did a market research, which could help them ascertain information key to determining the correct way to divide the market. Accurate research were done in questions such as which programs are well received, what prices consumers are willing to pay, what TV programs, newspapers, and advertising consumers read and review, and which restaurants are frequently visited (Moschis, 1994). A good market research is crucial in segmenting the market and creating the right marketing mix. According to the management of McDonald’s, the research would help in winning the customer loyalty and increase the sales (Monger, 2013). Researchers argue that as the economy and social attitudes change, the buying patterns changes. Therefore, before segmenting their markets, McDonald’s had to identify whether the number of target customers is growing or shrinking and whether their buying habits will change in future (Palmer, 2012). A good market research will consider everything that affects the buying decisions of the customers. Many of these buying decisions are affected by factors bigger than the product itself. Many literature reviews point out at psychological factors as an important factor (Baines, 2014; Boone, 2010; Elmore-Yalch, 1998). The factor gives the image of a particular product to the customer, and how the image will influence the consumer’s feelings when purchasing it. McDonald’s considered psychological factors because they are of significant importance to the customers. McDonald in his book argues that these factors can be more important than the product’s physical benefits (McDonald, 2007). Through segmentation of the market, McDonald’s establishes a prominent and important position in the minds of the customers. Researchers call this branding (Elmore-Yalch, 1998; Lamb, 2008). The company decided to segment its markets in order to meet the needs of key audiences. The market has a limited number of customers. Therefore, to build an empire or a long-term business, it was important to retain customers once they posed as potential clients. All the customers in the market are not the same. The table below highlights the different types of customers present in the market. A parent with four children Visits McDonald’s to give the children a treat Children Visits McDonald’s as it is a fun place to eat Business customer Visits McDonald’s because the service is quick, food could be eaten in the car without affecting a busy working schedule Teenagers Attracted by cheaper and saver menus, which is affordable to them. There is internet access available in McDonald’s restaurant The above table represents a sample of McDonald’s possible customer profiles. In summary, the information in the table proves that each customer has different reasons for going to McDonald’s (Pride, 2008). The above information assisted McDonald’s in segmenting its markets. Segmentation assisted in communicating the needs of specific groups. According to market analysts, it is the customer needs that determine the type of products and services offered by the company, price charged, and where the restaurants are located (McDonald,2012). Before creating this market segmentation strategy that will enable the needs of key market to be met, the organization identified and analyzed its strengths and weaknesses. The SWOT analysis will examine certain parts of McDonald’s business stated below: McDonald’s products and how they are appropriate for the future Quality of employees and their levels of training Systems in the company that serves the customers, for instance, marketing databases Financial resources available for marketing in the company After analyzing its strengths and weaknesses, the results were combined with the opportunities and threats in the markets. The SWOT analysis was crucial in segmenting the market effectively (Grewal, 2012). Market segmentation objectives Any marketing strategy is created in order to determine the means by which a set of objectives would be met (Wedel, 2000). From the objectives, the marketers communicate what they want to achieve and their marketing actions. Objectives could be related to market share and sales. It creates awareness in the market place (Wedel, 2000). The management of McDonald’s often breaks down the long-term objectives into short-term measurable targets. These measurable targets are usually used as milestones along the way. The company analyses the results of these milestones regularly in order to confirm whether the objectives have been met. According to market analysts, this arrangement by McDonald’s is to allow the management to change plans and give room for flexibility (Milne, 1999; Baines, 2014). After establishing the objectives, the next plan is to define how these objectives will be met. Segmenting the market was a way of delivering McDonald’s objectives. In order to ensure the segmentation of the market was a success, the management put together a marketing mix (Voudouris, 2007). (A) Product There are huge amounts of choices available to potential customers in McDonald’s. The company developed a menu which most customers want. However, customer needs are not constant. For example, what is trending today, may not be trending tomorrow. McDonald’s always introduces new products in their segmented markets and phased out the old ones. McDonalds is aware that sales of products present in their menu will vary at different points in their lifecycle as illustrated by the graph in the appendix. Therefore, the type of resources allocated and marketing used is dependent on the stage a product is in. (B) Price The price charge depends on the customer’s perception of the value. Any customer has a mental picture of what the product is worth. According to experts, a product has a physical connotation on the customer. In all its markets, McDonald’s does not offer low prices. Low prices will make customers feel that the product has a compromised quality. In addition, competitors in a given area may match the low price offered, reducing the profit margin in the long run. (C) Promotions Promotion covers all aspects of marketing communication. A common method used by McDonald’s is advertising. The advertisements are conducted on televisions, cinemas and more. In other times, the company employs other promotional methods such as sale display, door drops and such (Burkard, 2013). An effective communication to the customer has the right message, uses the right medium, and reaches the right target market. The purpose of promotion is to make the people aware of an item and to feel positive about it. Promotion requires the company to go close to the people. For this case, the more McDonald’s knows the people, the more it can communicate messages that appeal to them (Grewal, 2012). All advertising messages have to gain customers’ attention. After it has captured their attention, the company gets them what is offered (Baines, 2014). (D) Place According to marketing experts, place is not just about the physical location. Place entails the management of a range of processes involved in bringing products to the consumers (Baines, 2014). Specific McDonald’s segmentation The paper will now pay attention to market segmentation used by the company. The company made segmentation accurately according to geography, population, and the psychological elements (Zonis, 2009). All this segmentation was based on the above-discussed strategies to achieve the objectives of the corporation. Experts argue that the segmentation of the market has enabled the company achieve great success (Hirschman, 2012). (i) Element of Geography Geographical segmentation divides the market to such variables such as climate, region and population density. Analysts argue that climate is important for many products. McDonald’s caters to regional preferences. For example, they offer a breakfast of Spam and rice in Hawaii, tacos in Arizona, and lobster rolls in Massachusetts. McDonald’s has restaurants all over the world. There are many eating habits and cultural habits both in the US and the overseas markets. Before implementing this strategy, the management often analyses the difference among various regions (Zonis, 2009). When the corporation entered the Chinese markets, it popularized the American culture in China. It used many resources to spread the philosophy of American life, for example; the company offered American-styled beef hamburger to the Chinese. However, researches and studies indicate that majority of the Chinese people love chicken products. Therefore, in order to be accepted quickly by the Chinese people, McDonald’s changed their previous strategy and launched chicken products. They began to sell chicken hamburger in China. This accelerated McDonald’s development pace in China (Belohlavek, 2007). The pie chart in the appendix indicates the amount of money McDonald’s makes after segmenting their market based on geographical element. The advantages of geographic segmentation include (Michman, 2003): It is effective for companies with large markets because different customers have different needs. Therefore, it will make the company fulfil the needs of all the customers. It is effective for small businesses with limited budgets. This does not apply to McDonalds. However, it applies to small businesses. These businesses can focus on their defined areas. It works well in different areas of population density. For example, customers from an urban setting have different needs from people in rural areas. It is easy to break the markets based on geographical element. (b) Element psychology The mind of the customer is a great determinant when purchasing products. There are two psychological categories: lifestyle psychographics and benefits sought by consumers (Moschis, 1994). Benefits segmentation addresses the consumer needs. The customers are interested in the benefits of consuming certain products. Lifestyle psychographics is more complicated. Lifestyle could be defined from many perspectives. Many view lifestyle as social class. The lifestyle could influence how consumers purchase certain products available in the markets (Singh, 2013). When it comes to fast foods, there are two potential market segments: convenient oriented and relaxing oriented (Burkard, 2013). Those who are convenient oriented buy McDonald’s products for convenience of eating and purchase. Those who are relaxing oriented go to McDonald’s in order to kill time. McDonald’s initiated the ’59 second rapid service’ for convenient oriented people (Lassar, 2009). Customers have to leave the counter after 59 seconds. For relaxing oriented customers, McDonald’s paid attention to the decoration of the restaurants. Majority of McDonald’s outlets are comfortable and relaxing. Customers always feel comfortable and relaxed as much as possible. Statistics indicate that many people view McDonald’s as a good place for relaxation with unique culture (McDonald, 2007). (c) Element of population Many companies, including McDonald’s, rely on bureau of statistics for updates on socioeconomic data. These bureaus always have programs of continuing surveys. After being given the data, the companies now segment the markets based on population. The element of population divides the market into groups based on demographic variables such as age, gender, family size, and life cycle (Reid, 2009). Consumer needs and wants always change with age. Therefore, when doing marketing, it is important for the company to be flexible depending on which age segment or segments targeted. In addition, division of market based on gender has been a common thing in the market. Furthermore, dividing the market into different groups based on which stage in the lifecycle is common in the markets. The table shows how the market could be divided based on lifecycle (Elmore-Yalch, 1998). Bachelor stage Young, simple people not living at home Newly married couples Young, no children Full Nest 1 Youngest children under six Full Nest 2 Youngest children six or over Full Nest 3 Older married couples with dependent children Empty Nest 1 Older married couples, no children living with them Empty Nest 2 Older married couples, retired, no children living at home Solitary Survivor 1 In labour force Solitary Survivor 2 Retired Also, the market could be segmented based on neighbourhood and dwelling classification. This classification involves dividing the market into groups, based on the assumption that the type of dwelling and area a person lives in is a good predictor of their purchasing power. ACORN means A Classification of Residential Neighbourhoods. ACORN classifies homes. It is very dependent on census bureaus. The pie chart indicates ACORN segmentation used by McDonald’s in the UK (Weinstein, 2013). After that, each of the above classification is subdivided more into smaller groupings. For instance, the older housing of intermediate status is broken down into: Mixed owner-occupied and council estates Small town centres and flats above shops Villages with non-farm employment Older private housing skilled workers McDonald’s has specialized more in segmenting according to age and lifestyle. McDonald’s restaurants usually perceive the children as their centre-main customers. They pay attention to the children’s loyalty. Children who visit McDonald’s are given balloons as a sign of appreciation (Wedel, 2000). In China, McDonald’s has a club called Uncle McDonald’s Club. Children aged 3 to 12 attend this club. Inside the club, there are activities which favour the children. Experts call this a successful market segmentation which grasps the characteristics and positioning of the segment market (Voudouris, 2007). There are ways in which McDonald’s use to select the segmentation variables. First of all, McDonald’s communicates with the clients in details. The aim of the communication is to know the market objectives. Usually, market objectives directly influence the selection of segmentation variables and the result of market segmentation. Priori segmentation depends on some defined indexes. McDonald’s uses the prominent segmentation standards that exist currently. It is an effective method. Dealing with data technically is very simple because, by a simple cross analysis, one can derive characteristics of different groups such as status, occupation. There is use of behaviour. This involves the use of time, purpose, occasion, frequency, purchase decision-making process, key purchase considerations, purchase channel. Consumers’ awareness and attitude of the brand, degree of preference, and loyalty. Using Consumers’ psychology. Conclusion The paper has conducted a detailed analysis of market segmentation used by McDonald’s. From the analysis, the paper will recommend key requirements for effective segmentation. In any business setting, any marketing activity has to meet certain requirements. From the analysis, the crucial requirements are substantiality, accessibility, differential response, identification, stability, and accessibility (Love, 2008). (a) Substantiality Experts argue that what may be adequate to one firm may be inadequate to another. There is no scenario where two companies face identical strengths and weaknesses. Therefore, despite how a company operates, and its internal capabilities, the segment company chooses have to fit its objectives and resources (Shimp, 2013). (b) Differential response Each defined segment must have unique market response characteristics. The response company choice on a particular market segment bearing selective traits have to be different from other market segments (McDonald, 2007). (c) Identification McDonald’s has to choose a market segment that is identifiable quantitatively. All segments have to be reduced to statistics because segmentation is a method of resource allocation and must be subject to mathematical analysis (Schlosser, 2001). (d) Stability All segments chosen in future by McDonald’s have to relatively stable over time. The management has to be aware that segments that change radically in a short time are precarious investments. Market analysts argue that unstable segments are attractive to marketers because they offer quick fortune in short trend, but they are not attractive to long-term investors. Therefore, McDonald’s has to weigh their options wisely (Pride(b), 2012). The paper has discussed how McDonald’s have segmented their markets based on element of geography, element of psychology, and element of population. It is from this segmentation that McDonald’s is the world’s biggest feeder (Boone, 2010). References Baines, P. (2014). MARKETING 3E P. Oxford University Press. Belohlavek, P. (2007). Introduction to Unicist Market Segmentation. Blue Eagle Group. Boone, L. (2010). Contemporary Marketing 2011. Cengage Learning. Brady, D. L. (2010). Essentials of International Marketing. M.E. Sharpe. Burkard, N. (2013). Market Segmentation and Branding in the Hotel Industry with Special References to Hilton Cooperation. GRIN Verlag. Dibb, S. (1998). Market segmentation: strategies for success . 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Service Chain Management: Technology Innovation for the Service Business. Springer Science & Business Media. Wedel, M. (2000). Market Segmentation: Conceptual and Methodological Foundations. Springer Science & Business Media. Weinstein, A. (2013). Handbook of Market Segmentation: Strategic Targeting for Business and Technology Firms, Third Edition. Routledge. Zonis, N. (2009). Market Segmentation in European Markets. GRIN Verlag. Appendix (a) Graph showing the product lifecycle (Brady, 2010) (b) Graph showing revenues generated by McDonald’s after segmenting their market based on Geographical element (Lassar, 2009) Read More