McDonalds Marketing Strategy - Case Study Example

Strategic Management Name Instructor Institution Date Table of Contents Introduction 1 PEST Analysis 3 Porter’s five forces 8 Recommendations and Conclusion 10 Strategic Management Introduction Strategic analysis is one of the most important processes of strategic management. The reason many strategies fail is because many managers want to formulate and implement strategies without carefully analysing the overarching goals as well as the internal and external environments. Quoting professor Les Worall of the Wolverhampton Business School, Downey (2007) describes strategic analysis as “a theoretically informed understanding of the environment in which an organization is operating, together with an understanding of the organization’s interaction with its environment in order to improve organizational efficiency and effectiveness” (p. 3). Lessard (2003) says that in a global setting, strategic analysis “involves competition in industries that extend across national boundaries and among firms with different national home bases that may tap into strategic resources in more than one location” (p.1). This is paper gives an evaluation of McDonald’s marketing strategy using the PEST analysis and Porter’s five forces analysis. Several reasons led to carrying out this analysis on McDonald’s. First, its international presence; McDonald’s is one of the world’s largest fast-food chains in the world. There are over 20,000 McDonald’s restaurants in over 100 countries around the world (Vignali 2001). Secondly, the Company faces increasing competition and lack of strategies to match with the changing customer needs. Although McDonald’s have become synonymous with globalization stereotype, Dumitrescu and Vinerean (2010) say that globalization has lost its hold since customers have stopped feeling the connection with the generic products and communications. Thirdly, Current eating trends skew towards eating healthy habits which pose a serious challenge to McDonald’s since it is a fast food company. Fourthly, it faces a major challenge because it offers the American traditional foods while facing competition from local restaurants that offer the country’s local dishes, for instance, in Europe McDonald’s have had to change from their fast food roots in order to gain competitiveness with companies like Starbucks. They offer healthier meals and offer more upscale and comfortable restaurant space. In his opinion piece “McDonald’s International strategy: squander brand equity?”, Sundar Ganapaty argues that, McDonald’s changing its strategy “not only dilutes the brand equity by adapting to local tastes, but it also McDonald’s even further away from its core competency as a fast food” (online). While this is a contentious view, it holds some indications that McDonald’s need constant strategic analysis in order to remain viable. Another reason for settling on McDonald’s is the outcome of the analysis. Strategic analysis of McDonald’s will help it to be more sustainable, it will also help it to be more resilient since it will be able to anticipate the risks in the future and respond proactively. As a result of their familiarization with cutting edge practices, McDonald’s will be able to become more innovative and come up with new solutions to emerging problems. Most importantly, the organization will be able to remain relevant. This is because strategic analysis aids in knowing the needs, preferences and expectations of their customers. PEST Analysis Globalization and the IT advancement have resulted in the merging of the world economy into a single economic area. The national boundaries that acted as economic barriers have been broken and the world is slowly becoming a ‘global village’. Vignali (2001) says that in coming up with strategies that work, organizations have to consider the aspects of globalization and internationalization. Globalization entails coming up with marketing strategies by looking at the world as a single entity thereby marketing standardised products in the same way everywhere. On the other hand internationalization involves “customising marketing strategies for different regions of the world according to cultural, regional and national differences to serve specific target market. The strategy needs to group countries by social, cultural, technological, political and economic similarities. Kotler et al (2009) observes that the global marketing strategies aim at maximising standardization, homogenization and integration of their activities throughout the world. Nevertheless, these organizations need to address certain issues in order to ascertain their success. The issues include political, economic, social and cultural environments (Dumitrescu and Vinerean 2010). The pest analysis scans the external environment in which an organization is in. It seeks to understand the political, economic, social-cultural and technological environment in which an organization exists (Downey 2007). The following is a ranking of the four factors; political, economic, social and technological; based on their order of importance to McDonald’s marketing strategy. 1. 1=Social Factors Social factors are the most important for a marketing strategy since most of McDonald’s outlets are international. The social factors impact on the needs of the consumers and also the potential market size. Multinational companies grapple with the issue of adjusting their entire marketing strategy so that they fit with the new market demands. This requires them to alter and adjust the determinants of the marketing mix in order to suit the local tastes and meet the non-identical requirements and needs of their different consumers (Czinkota and Ronnenken, 1995). Success in this quest demands for what Taylor (1991) calls ‘think global, act local’ maxim. This means that the firm ensures that it fits in the international environment while at the same time have the internal flexibility required to execute its strategic goals (Taylor 1991, cited in Vignali, 2001). Although McDonald’s aims at creating standardised items, other factors force them to adapt to the different environment to ensure success. In Israel they serve their products without cheese, in India, they serve vegetable McNuggets and mutton Big Macs. Religious preferences in some places have called for innovations since Muslims do not eat pock, Hindus do not eat beef and Jains do not eat any type of meat (Vignali, 2001). Dumitrescu and Vinerean (2010) give an example of China where McDonald’s had to “replace the Ronald McDonald clown, because his white face denoted death in china and thud was not a good image to inspire lunch” (p. 154). McDonald’s attract the community through their social responsibility initiatives. It encourages responsible purchasing and has taken efforts towards protecting the environment. The organisation also integrates diversity in its workforce. Their promotion messages include advocacy for healthy eating habits, which has led them to include healthy menus. At the same time, they have started offering gender-based meals for children. In addition, they have also taken on promotional packaging 2. 1=Economic Factors Economic factors are important to the company since they are important for the company’s profitability which is the reason it is in the market in the first place. Economic factors include aspects like cost of capital and purchasing power. It also touches on prospects and opportunities for economic growth. Being a company with heavy international presence, the overall company strategy is affected by the world economy inflation rates as well as currency exchange rates. McDonald’s is one of the premier franchising companies in the world with over 80% of its restaurants owned and operated by franchisees. This means that McDonald’s do not have to deal with a lot of entrance regulations and taxes. McDonald’s focuses on having core offering globally and having a universal taste all over the world. However, in its marketing strategy, it has embraced glocolization which enables it to retain its core values while satisfying the needs of the divergent consumers. It has introduced the McValue dollar menu and passing value to the consumers in order to ensure that it remains competitive and increase profitability. Use of Promotion strategies, for instance endorsements by Coca-Cola and the ‘feeding the athletes’ Olympic sponsorships, have increased its appeal globally. Dye and Stephenson (2010) observe that the low birth rates and greying economies may pose the challenge of a steady growth. Therefore, there needs to be continued efforts to make sizable gains in labour productivity. The strengths that work for McDonald’s are that it has a good company image and good brand recognition. Its intellectual properties and the strength of franchising also give it a good economic standing. In addition, it uses economies of scale and the packaging composition is at least 80 per cent renewable resources. However, the lawsuits it has been involved in and a diminishing company image pose a threat. 3. 2= Technological Factors Technological factors are important as they influence barriers to entry. However, since McDonald’s has over 80 per cent of its ownership and management done franchisees, it does not have a lot of barriers to entry. Technological factors also affect the make or buy decisions as well as investment in innovation like automation, technological change and investment incentives. Its strengths are that it supports online and on-site job application, it has reinforced its information systems and offers Wi-Fi in their locations. McDonald’s aims at 90 seconds service goal. It ensures that that their menu items are available on a daily basis and they are served hot and fresh. They use refrigerated trucks to ensure freshness. On offering Wi-Fi, and having to change its structures to have restaurants have been cited as some of the reasons its 90 seconds service strategy has failed. People argue that, if you have Wi-Fi, why do you need fast services? (Ganapathy 2009). McDonald’s adapt to different regions by remodelling their product lines and retail space in ways that appeal to local tastes. This means that they have to cater for local tastes in every country they enter. 4. 3=Political Factors Political factors are ranked third for McDonald’s because of its strategy of franchising. Political factors have to do with government regulation especially in employment laws and running the organization. They also have to do with political stability of different countries as well as trade restrictions. McDonald’s have to blend the US human resource practices with those of the host-country. Again franchising helps in identifying and employing a diverse workforce. Franchising also helps in dealing with the question of the labour laws in the host country. Taking a purely global marketing strategy may not serve most of the multinational firms. Dumitrescu and Vinerean (2010) say that taking het ‘Glocal strategy’, a merging of global and local strategies or the idea of ‘think global, act local’, is the best way to ensure success in current times. The strategy entails firms should utilize their global experiences and customise and tailor their products and services in a way that appeals to local markets. Although McDonald’s has come to represent the globalization stereotype, it has adapted ‘glocolization’ tactics to ensure its success. For instance, it serves mutton pies in Australia, beer in Germany, McSpaghetti in Philippines, Wine in France, Teriyaki burger in Japan and Malaysia and serves burger with rice in Indonesia among others (Dumitrescu and Vinerean 2010; Vignali 2001). Porter’s five forces According to Downey (2007) the Porter’s five forces is a frameworks that aids in assessing and evaluating the competitive strength of an organization. He says that “.this is useful in understanding the strength of an organization’s current competitive position and strength of a position that an organization may look to move into” (p. 5). 1. Supplier Power This is an assessment of how easy it is for suppliers to drive up prices. McDonald’s strength is that it has a higher bargaining power over its suppliers. It lowers the cost of raw materials and offers a high competitive price to suppliers. The company ensures supply chain controls through truck inspections and carrying out of ransom audits. All franchisees must purchase supplies from McDonald’s. It has continually maintained relationships with key firms like Newman’ own, Coca Cola and Minute Maid. They also encourage farmers to reflect on diversity in their supplies. 2. Buyer Power To keep and gain new customers, McDonald’s has to keep performing market research in order to offer products that match the customer’s ever changing needs. For instance its response to the healthy eating awareness, it has been offering healthy menus as well as salads with Newman’s own dressing. They have also changed the oil they use to cook their food for healthier substitutes. It has taken steps in response to bad PR and media backlash especially with the movie ‘Super Size Me”; they now show the ingredients on their restaurants and on their websites 3. Competitive rivalry One of the issues that McDonald’s have had to deal with is competition. According to Han (2008), one of the reasons that McDonald’s is struggling is because its consumers have switched to its competitors like Subway, Wendy’s and Burger King. To deal with competition, McDonald’s have introduced some changes in their menu; for instance they serve McChicken Premiere and Zesty chicken in Italy, Belgium and UK. They also included the McGriddles sandwiches features in their breakfast in both US and Canada. It is also concentrating in making its environment more attractive as well as differentiating itself by providing Wi-Fi experiences to its customers. 4. Threat of substitution Threat of substitution entails customers switching to alternatives in response to price increases and other factors. McDonalds rides on its core competence of producing and delivering affordable food to a big number of its customers. Their strategy is that of low cost, high speed and consistency which works to ensure that it remains a favourite in the industry. McDonald’s faces a great amount of substitutes especially in the wake to healthy eating. Grocery stores, classy restaurants and other substitutes pose a threat to the corporations marketing strategy. The Mcdollar menu, McDonald’s ensures that its customers get value for money which acts to shield it from the threat of substitution. In addition, it has adapted to offering healthier alternatives as well as children’s menus. 5. Threat of new entry. With its presence, over 30, 000 restaurants all over the world, McDonald’s has established for itself a global image and dominance (Bengtsson, Barthi and Venkatraman 2010). It uses its growth strategy and franchising strategy which makes it hard for new entrants to enter the industry. The corporations have also used its alliance strategy to set operations in sports stadiums as well as in Wal-Mart’s which supports its presence. The threat that McDonald’s represents the American culture has posed a challenge to its marketing. However, its adoption to the glocolization marketing strategy has helped deal with this threat. Recommendations and Conclusion The main reason for carrying out a strategic analysis is to inform the strategy formulation process in a way that increases a firm’s strategic position. The PEST analysis demonstrates that McDonald’s marketing is dealing with the major threats of social and economic factors in its quest to maintain its strategic position and increase its competitive advantage. Therefore, the marketing strategy to be adopted should be guided by ways to overcoming the social-cultural factors involved. The strategic analysis shows that the firms has been moving in that direction by introducing cultural and religious-friendly menus and environment by adopting the glocolization marketing strategy. However, the efforts need to be revamped through offering more local menus in different countries. Most importantly, the strategy has to strengthen its efforts for healthy eating since different government have started supporting healthy eating. Technologically, McDonald’s marketing may not be facing a big threat. However, the 90 seconds service strategy need to be revised since with Wi-Fi offering and café structures, people would want to stay longer and eat from the café. Franchising is one of the strengths McDonald’s has in terms of political factors. This is because the franchisees, being local organizations, are able to deal with trade legislations in the country. Therefore, encouraging more franchisees and offering better terms will give McDonald’s a strategic advantage. McDonald’s marketing cannot ignore the kind of competition it is facing both in the US and all over the world. Apart from working with its strengths, it needs to adopt new ways of dealing with the threats in its strategy formulation. In addition, it needs to carry out strategic analysis on the other departments so that the changes which have to be made and the new strategies that are to be adopted syncs with all departments. References Bengtsson A, Bardhi F, Venkatraman M, 2010, How global brands travel with consumers: An examination of the relationship between brand consistency and meaning across national boundaries, International Marketing Review, Vol. 27, No: 5, pp.519 – 540. Czinkota M, and Ronnenken, 1995, International Marketing, 2nd ed, Dryden Press, Chicago, IL. Ganapathy S, 2009, McDonals’s international strategy: squander brand equity? 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