Current Marketing Environment of McDonalds in India - Essay Example

McDonalds in India Table of Contents Introduction 3 Background of Company and Nature of Business 3 Business Model of McDonalds in India 3 Current Marketing Environment and Location 4 Evidence of International Expansion Strategies, Adaptation and Standardization 5 Cultural Issues and Trading conditions 6 Hofstede’s Cultural Dimension 6 Implications of the Hofstede’s model 8 Market Segmentation 8 Targeting 8 International Marketing Mix 9 Branding 10 Ethical Consideration and Criticisms 10 Conclusion 10 Reference List 11 Introduction This paper is based on the critical review of the international marketing strategies employed by McDonalds in India. The paper covers the current marketing environment, details of the market locations in India where McDonalds has expanded its business and the cultural issues faced by the company and how it has handled them in its favour. It also discusses about how the company has modified its marketing mix to make it prosper in the Indian market along with details of the branding strategies which has been customized to fit in to the Indian market environment. Background of Company and Nature of Business McDonalds is best known as a global fast food chain, which holds the leading position in the Industry in terms of market share (Statista, 2014). The company operates in around 36,000 locations spread over more than 100 countries. The wide spread geographical diversification has allowed the company to cater to large customer base. It relies on the franchise business model to operate its overseas business units. McDonalds has business if primarily focused on selling fast foods items like burgers, beverages, etc. The company is best known for its food items like Big Mac, Chicken Mc Nuggets and Quarter Pounder. Apart from the highly popular taste of McDonalds, it is also known for its high customer service quality and adhering to its value of customer oriented business model (Kannan, 2014). The fast food industry in the US is highly competitive in nature owing to the presence of several well established brands which offer almost identical products and services and seeking out for new ways to increase their market share. In order to sustain in this competitive environment and to increase its revenue generation, McDonalds decided to expand its geographic presence in overseas locations where its products and service offerings can be considered to be unique and would draw more customers (Mcdonalds, 2015). Business Model of McDonalds in India McDonalds operates in more than 100 nations apart from its home country and it is quite natural that the market environment of different countries bears different marketing scenarios. This as a result has compelled McDonalds to employ different marketing strategies in different countries. This report focuses on the marketing activities of the company in India (Kannan, 2014). The entry into the Indian market was made in the year 1995. The company entered in India as a franchisor who gave franchisee licences to Amit Jatia and Vikram Bakshi, thereby beginning its business with Hardcastle Restaurants and Connaught Plaza Restaurants. The Connaught Plaza Restaurants operated in the North and East region of the country, whereas the Connaught Plaza Restaurants covered the West and South regions (Samuel and Chakravarty, 2013). Currently, the Hardcastle Restaurants, which is now known as Westlife Development is the master franchisee of McDonalds. There are no sub-franchisees in India. The internationalization strategies of McDonalds throughout the world are primarily based on the franchise model. More than 80 percent of the McDonalds outlets are based on the franchise model. This business model is considered to be of low risk and has low hassle for the parent company. This as a result allows McDonalds to offer the licence and permission to the local business players to use its brand name and recipe and certain operational conditions to conduct the business operations. In return, the company charges a royalty fee based on the sales volume. However, in India the expansion strategy of McDonalds is slightly different. In 1995, when the company entered in the Indian territory it did so by forming a joint venture of 50:50 proportion with two individuals Amit Jatia and Vikram Bakshi (Samuel and Chakravarty, 2013). The entire Indian market was divided between them. The joint venture was supposed to last till the year 2020; however the company decided to sell off the shares of Amit Jatia in his favour in 2010. The business deal was rewritten and it now follows the company’s favourite royalty based franchise model (Kannan, 2014). Current Marketing Environment and Location The internal market entry factor varies from country to country. In case of the Indian market, the company recognized the high popularity of fast food items which has eventually increased in favour of the company. In India fast food market is rapidly growing at a rate of almost 30-35% per year. However, when McDonalds entered in India the propensity of the Indian consumers to spend on fast foods was not so high, as the average consumers preferred homemade foods. However, this has changed over time and owing to the adoption of the western culture and the gradual increase of the disposable income of the Indian citizen, out of home eating became quite popular. It has been forecasted that by the year 2016, the Indian fast food market will have a valuation of $ 1.12 billion (Gauba, 2015). As the Indian fast food industry became lucrative for the company, at the same time the McDonalds also faced the increase in competitiveness in the market. International fast food firms like KFC, Subway, Dominos, Pizza Hut has made their presence quite strong. In terms of market share Dominos is ahead of the competition, but at the same time the aggressive expansion strategies of McDonalds has pushed it ahead of its competitors in terms of the number of stores in the country (Rudarakanchana, 2013). The fast food companies are trying to seek out for new ways to increase their market share by attracting the customers by aggressive promotional activities and increasing the product portfolio. Amidst the intense competition, McDonalds has managed to ensure its steady growth and increase its brand awareness in the country (Kannan, 2014). Evidence of International Expansion Strategies, Adaptation and Standardization The key behind McDonald’s success in India is its customized marketing strategies. It can also be stated that the franchise model is also responsible for the proper management of the company. The franchise partners being Indians are knowledgeable about the Indian psychological profile and were able to make necessary changes in the marketing strategies. Furthermore, the idea of the parent company to localize has given the business partners the freedom to tweak the product offering of the company (Kaur, 2012). Since, almost half of the population of the country is vegetarian and on top of that the consumption of beef and pork is extremely low, so it became imperative for the company to change its product offering in terms of ingredients. The signature offering of the company is the Big Mac, which is primarily made out of beef. This product is extremely popular in rest of the world and is considered as the trademark of the company. However, in India it was not going to attract the customers, since beef consumption is extremely low in the country (Kulkarni, 2012). Therefore, the company designed a new burger made of chicken and named it Mc Maharaja, which became the signature of McDonalds in India. At the same time, all the food items that were made of beef and pork were replaced by that of chicken. In the year 2003, the survey of the company showed that most of the meals that were consumed were at home. In response, the company introduced a cheap version of their burger made out of potato and Indian spices. It was supposed to be the McDonalds alternative of Indian street food. This item was quite cheap and was priced at $0.3 (Rupees 20) and was called “Aloo Tikki”. It is believed that this strategy has revolutionized the Indian fast food industry as the Aloo Tikki became extremely popular among the customers. Over the next 10 years, the eating out habit has increased by tenfold which has also increased the customer base of the company in India (Sharma, 2013). The company has also recognized that owing its solely non-vegetarian menu items, it is not being able to cater to around half of the customer base who are vegetarians (Mukherjee and Bailay, 2012). Therefore, the company decided to introduce a range of vegetarian food products which as a result increased the customer base of the company even more and it was reflected in increasing brand equity of the company. Although the menu items provided by the company are highly different from that of its home country but it has ensured that the service quality and value proposition is still the same. The high service quality and low response time is what is best known for. The company maintains a high level of cleanliness, warm gestures from the staffs, and efficient workflow management that does not make customers waiting in a queue. Thus it can be stated that McDonalds has successfully been able to adapt to a different consumption pattern of India which is drastically different from most of the countries that it operates in. The localized version of the menu along with the globally standardized service quality is the key behind the success of McDonalds in India (Dash, 2005). Cultural Issues and Trading conditions The internationalization of a country will only offer lucrative results when the company has considered its cultural background. Since the cultural practices and psychological profile of the customers vary across different cultures, so it is imperative for the company to design its marketing strategies accordingly. Hofstede’s Cultural Dimension The cultural background of India has been discussed by using the Hofstede’s model of cultural dimension. The six dimensions are power distance, individualism, masculinity, uncertainty avoidance, long term orientation and indulgence (The Hofstede Centre, 2015). Power Distance: India scores 77 in power distance dimension, which is significantly high. The high score in this dimension suggests that the distribution of power and authority is unequal and the people accept the steep hierarchical order of the society. A top-down structure is quite popular in the country. The Indian people are highly dependent on higher authorities and they accept the unequal distribution of rights between an average person and a privileged one (The Hofstede Centre, 2015). Individualism: The dimension of individualism indicates the level of interdependence in a society. The people belonging to an individualistic society are more self centred and only care about themselves and their immediate family. On the contrary, the collectivist society care for each other and are often characterized by large social groups. India scores 48 in this dimension, which is an intermediate score. The Indian people exhibit certain characteristics of both individualistic and collectivist nature. Indians have close relationship with their family and extended family as well, and they also bear large social groups. On the other hand, the people also believe that the each individual is responsible for their own action (The Hofstede Centre, 2015). Masculinity: The dimension of masculinity indicates the level of competitiveness in the society and drive towards success. India score 56 in this dimension, which suggests that it is a masculine society. Although the score suggests an intermediate score, however, Indians exhibits a strong tendency towards display of power, authority and social status. On the other hand, India is considered to be spiritual country with several philosophical school of thoughts. This as a result allows the people to understand and value the importance of humanity and people around (The Hofstede Centre, 2015). Uncertainty Avoidance: This dimension is a measure to which a society feels threatened by unknown and uncertain situations. India scores 40 in this dimension, which states that the country shows slightly low tendency of uncertainty avoidance. The Indian society is known to have a high level of tolerance towards unexpected things and often welcome new changes as a means to break boredom. The culture is bounded by rules and strong legal system but one often finds different ways to bypass them and make an innovative measure to achieve desired results (The Hofstede Centre, 2015). Long term orientation: The long term orientation of a society is related to the society’s view towards past traditions and their perception towards future and social changes. Indian scores 51 in this dimension which is quite intermediate, but the society shows characteristics of both ends. Although certain social changes are welcomed, however the country also prefers to carry on with their own traditional practices. The concept of “karma” is quite prevalent and exhibit high tolerance towards religious views (The Hofstede Centre, 2015). Indulgence: Indulgence indicates the degree to which the people of a culture try to control their desires and impulses. India scores 26 in this dimension which is quite low. The people have a tendency towards suppressing desires and bearing a cynic and pessimistic attitude. They also believe that the social norms bind their actions (The Hofstede Centre, 2015). Implications of the Hofstede’s model The high score of power distance suggests that the people accept the presence of higher power in the society. As a result, the employees of McDonalds prefer to have a centralized management system and receive clear guidance and regulations from the higher authority. The acceptance of unequal distribution of privileges also stops the small local market players to challenge McDonalds. They are not bothered to operate among well established players. The individualism score also suggests that the people try to form large social groups. As a result, it has been found that the customers often visit McDonalds in large groups (Kannan, 2014). Having attached to a social group also helps in spreading word of mouth and influence the purchase decision of others. This particular social factor is quite beneficial for the company. The low score of uncertainty avoidance also indicates that the customers happily welcome new menu items offered by the company. Market Segmentation McDonalds has opened several outlets in India in both highly urbanized seas to smaller cities. This suggests that the company has not segmented any particular area for its business operations; instead it has decided to cater to a wide geographical region (Nandini, 2014). Targeting The target customers of the company in India are quite different from that of the other nations. In other countries, the customer base of the company is mostly composed of middle aged people, who have their meals out of home owing to the hectic professional life. However, in India the McDonalds cater to a customer base which is mostly of young population with age ranging in between 19 to 30. The McDonald outlets also attract families with kids. Thus it can be stated that the target customer of the company is composed of a wide demographic range (Mishraand and Dwivedi, 2013). International Marketing Mix Product: In India McDonalds’ product offerings are quite different from that of the rest of the world. The menu items are highly customized to fit the consumption pattern of the Indian customers. The beef items have been replaced by the chicken items and a new product line consisting of vegetarian items have been introduced for the vegetarian customers (Rudarakanchana, 2013). Price: The price of the McDonalds products has been quite reasonable for the Indian customers. The signature Mac Maharaja is priced around $1.6 (Rupees 100). Other food items are also reasonably priced to attract the mass market. The company has also introduced certain low priced items like “Aloo Tikki” to compete with the cheap street foods (Kannan, 2014). Place: The McDonalds outlet have been strategically positioned in high traffic areas particularly in malls and near places usually visited by frequent shoppers. The McDonalds outlets are also placed near offices to attract working individuals (Yeu et al, 2012). Promotion: The promotional activities of the company are mostly dependent on the television commercials, billboards and hoardings. The promotional campaigns are focused on the Indian culture, depicting friends and family enjoying the McDonalds food products. It also highlights highly preferable taste and the localized menu items which have been specially designed to match the Indian taste preferences (Drori, Höllerer and Walgenbach, 2014). People: The service personnel are highly trained to deliver the best service quality to the customers. They are also guided to maintain a good relationship with the customers by interacting with them with great warmth and care. This as a result has further increased the brand preference of the company. They also ensure that the home delivery service is also conducted in the promised time (Paul and Roy, 2014). Process: The operational process of the company is highly standardized. The food preparation process and service delivery process is almost same as that in the home country. This as a result allows the company to maintain its trademark and brand identity, while at the same time adapting to the preferences of the Indian customers. Thus it can be stated that the company has followed the philosophy of “think global, act local” (Drori, Höllerer and Walgenbach, 2014). Physical Evidence: The in-store ambience of the McDonalds outlet portrays a clear image of cleanliness, hygiene, proper lighting, etc. This is as a result has managed to create a perception of high service quality and status. Branding The branding strategies of the company are in line with its mission of localizing in the Indian market while maintaining the standard service quality of the company. The brand image created by McDonalds is mostly characterised by the Indian taste of the food products at an affordable price. It also highlights the fact that the company offers its services to a wide range of customers (Reddy and Vyas, 2004). Ethical Consideration and Criticisms The company has successfully managed all the ethical considerations by properly responding to the local culture of the nation. The food products have been properly modified to avoid any religious criticisms and disputes (Yeu et al, 2012). Conclusion McDonalds has successfully expanded its business in overseas location and has gained high brand preference owing to its business model and marketing strategies. McDonalds pose a very good example of how a company should adapt to the host country’s cultural trends and win the customers’ hearts. The company has maintained its mission statement of delivering value to the customers by providing them highly standardized service quality. It mostly operates its business through franchise model which has worked in favour of the company. In India, the company has been able to successfully recognize the consumers’ behaviour owing to the local franchisee partners who were successfully able to make the required modifications in the product offering of the company to make it successfully work in the country. Moreover, the cultural study of India shows that the customers exhibit a welcoming attitude towards new product experiences. This as a result helped the company to win the attention of the Indian customers and implement the concept of “globalization” which is a hybrid marketing strategy that adopts local practices while standing on the ground of global trends. Thus, it can be concluded that the “act local, think global” philosophy has worked in favour of their success and ensure their future sustainability. Reference List Dash, K., 2005. McDonald’s in India. Thunderbird-the Garvin School of International Management, 3. Drori, G. S., Höllerer, M. A. and Walgenbach, P., 2014. The glocalization of organization and management: Issues, dimensions, and themes. Global Themes and Local Variations in Organization and Management: Perspectives on Glocalization., pp. 3-23. Gauba, V., 2015. Indias fast-food industry is becoming a major market. 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S., Leong, K. C., Tong, L. C., Hang, S., Tang, Y., Bashawir, A. and Subhan, M., 2012. A Comparative Study on International Marketing Mix in China and India: The Case of McDonalds. Procedia-Social and Behavioral Sciences, 65, pp. 1054-1059. Read More