The Strategic Marketing Plan of the McDonald's Franchise - Case Study Example

Strategic marketing plan for McDonald’s Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Executive Summary This paper McDonald addresses the strategic marketing plan of the McDonald’s franchise. Ray Kroc established McDonald in 1955 after pitching the initial McDonald’s brothers with the idea of setting up a national franchise. It currently operates in over 100 countries with over 2500 outlets. The company has three hierarchical strategies at the corporate level based on public relations developed in its formative years, at the business level based on a franchise model that develops individual businesses, and the functional strategy based on quality, service, and cleanliness. Competitions is analysed using the porter’s five forces model that includes threat of new entrants, existing competitors, bargaining power of suppliers and customers, and threat of new substitutes. The analyser strategy is then used to maintain existent products and develop new products. In addition, the paper assesses the macro, microenvironment that the business operates, appropriate market research, and relevant questions to ask various stakeholders and the 4p’s of marketing mix. Moreover, it explores the market segmentation, target market, product differentiation, and positioning strategy employed. Table of Contents Executive Summary 2 Table of Contents 3 Company overview 4 Hierarchy of strategies 4 Five competitive forces 5 Analyser Strategy 6 Macro and micro level analysis 7 Market Research 8 Product/Price/Place/Promotion policies 8 Segmentation and targeting 10 Differentiation and positioning 10 References 12 Company overview McDonald’s started as a small restaurant in Chicago by brothers Mac and Dick McDonald. In 1955, Ray Kroc established the McDonald’s corporation after pitching his idea of creating a national franchise to the brothers. The restaurant has since expanded to be a global brand easily recognised by its golden arches. It is in the business of delivering fast foods such as burgers, French fries, and beverages through its four fundamental goals of quality, service, cleanliness, and value. The mission of the franchise is providing their customer’s with a unique eat and drink experience at their favourite place. It values good business ethics through top standards in honesty, fairness, and integrity. It values individual accountability and collective responsibility. Being a top brand, it also values social responsibility. It has established the Ronald MacDonald House Charity an initiative that helps local communities build better neighbourhoods. In addition, it has a three-pronged strategy focused on balancing the interests of their customers, suppliers, and employees (McDonald’s, 2013b). McDonald is a public traded company and is thus sensitive to environmental concerns such as rising labour rates and commodity prices. In reference to SMART objectives, the sales for the quarter ending March 2013 decreased by 1.2% in the US, 3.3% in Asia Pacific, Africa, and Middle East, and 1.1% in Europe averaging $6.61 billion. Market share was $1.26 per share. Net income was at $1.27 billion (Mark, 2013). Hierarchy of strategies McDonald’s corporate strategy is hinged on the aggressive public relation efforts developed in the 1960’s and 1970’s. Paul Schrage, a former marketing executive at McDonald during these years asserts that the efforts helped in endearing the brand targeting kids to the general community. In 1957 for example, a prominent Chicago newspaper in the US ran a front-page article showing McDonald giving free burgers to the Salvation Army workers (Kate, 2005). This showed the community that despite the products low pricing, the company valued giving back to the community from which it operated. This set the benchmark for the fast food industry. In addition, the franchise pooled funds for corporate marketing in by supporting local league teams and national television advertising. The success of this strategy led to the establishment of Operator National Advertising Council (OPNAD) that requires franchisees to contribute 1% sales to the council. At the business-level, the franchise model has contributed to the brand’s success. In the initial years, the franchisee contract required 2.5% of sales be channelled towards business development and expansion. The contribution was increased to 4%. In addition, the support of OPNAD in terms of advertising on behalf of the franchisees has increased development at the business level (Kate, 2005). The functional strategy at McDonald’s involves quality, service, and cleanliness. As early as 1957 when most fast food restaurants focused on delivery of products only, McDonald offered clean premises as well as washrooms. It has since continued with this trend. By employing youthful staff, the franchise ensures quick service delivery and the management ensures that all franchisees undergo special training for uniform quality in its product and services. Five competitive forces Porter’s model recognises five competitive forces that include the bargaining power of consumers, bargaining power of suppliers, threat of new entrants, threat of substitutions, and existing competitors (Iadah et al., 2011). To stand out from its competitors such as Starbucks and KFC, McDonald introduced free Wi-Fi in its outlets. McDonald’s target market is the children and youth and it introduced the free Wi-Fi to maintain the youth market. Faced with the threat of substitutions such as healthier menus challenged the management to improve on their existing menu and introduce more health conscious products. Most of the favourite menu items are now less than 400 calories. The threat of new entrants such as KFC in India where McDonald’s dominates has not affected sales as much. This is because KFC was shrouded in controversy of buying their chicken from large farmers at the expense of small farmers. This actually strengthened McDonald’s image (Dana & Claudio, 1998). The bargaining power of suppliers has increased especially after the global financial crises as they try to cash in on lost revenue. This increased supply costs and consequently revenue increased by only 1% in quarter ended March 2013 (Mark, 2013). The global financial crises also reduced income for its customers, reducing their purchasing power that also caused low revenues. Analyser Strategy Miles and Snow developed four strategies adopted by businesses based on their relative growth and maturity levels. These strategies are prospector, defender, reactor, and analyser (Barnat, 2005). McDonald is a mature franchise since it has over 50 operational years. The best strategy to use is the analyser strategy. According to Barnat (2005) companies that use analyser strategy have strict financial and accounting controls, are highly flexible, efficient production capacities, and general low costs. McDonald franchisees enjoy relatively low costs especially in research and development because the head company carries it out for them. Companies that use this strategy want to maintain their current efficient production and at the same time develop new products. This is observed in the company’s retaining the Big Mac burger despite claims that the burgers are calorie rich and responsible for health diseases such as obesity. Rather than abolish it, it reduced the calorific content to below 400 (McDonald’s, 2013b). In addition, Tim Frenton, the company’s COO highlighted the introduction of new menu items labelled spring menu for the health conscious consumer. The new additions include Blueberry Pomegranate Real Fruit Smoothie, Egg White Delight McMuffin, and Premium McWraps. The products will be introduced at $2 to gauge market reception and if positive, they will be sold at $4 (Mark, 2013). Macro and micro level analysis At the macro level, the cost of commodities and labour has increased. The economy is soft and very vulnerable to external forces and there is a general decline in the take-away market. Pete the company’s CFO acknowledges these challenges that led to decline of the profit margin in the quarter ending March 2013 by 1.4% to settle at 16.2% (Mark, 2013). In general, the market has a stagnant growth. Consequently, the company is willing to sacrifice their profit margins for the sake of gaining more market share. This may imply a reduction in its product prices in the next quarter. At the micro level, the company is facing increased pressure to conform to better production methods using unsaturated fats as the market leans towards healthier diets. The company is currently on a mission to reduce their product sodium levels by 15% by 2015. The company is also committed in reducing their products sugar levels, calories, and saturated fat by 2020. In addition, the company is developing additional fruits, vegetable and low-fat milk diets. To improve on the above measures, the management organised listening tours across the US market in 2012 seeking information from nutriotinists, teachers, students and other key stakeholders (McDonalds, 2013c). Market Research Market research is appropriate when an organisation identifies a market gap or emerging need that it is not satisfying currently. The research process involves five basic steps, which are problem identification, exploratory research, hypothesis development, conclusive research, and result (Shukla, 2008). Problem identification is the initial process that identifies the need for research. McDonald’s identified an emerging need for more health conscious menu items. Exploratory research involves gathering of more information concerning the need. McDonald’s did this through the listening tours explained above. This leads to hypothesis development whereby the information is measured quantitatively. Then the information is tested on a large scale during the conclusive stage before finally getting the results. McDonald is at the conclusive research stage. It developed a vegetarian burger that had pineapple but it was a complete failure and they abandoned it (Mark, 2013). There are undergoing experiments on certain menu items such as the New Happy Meal. It comprises 1% low fat white milk or fat-free chocolate milk, apple slices, kids size fries, and apple juice (McDonald, 2013c). Questions at this point should be directed to nutritionists who will give an insight on whether the combination is nutritionally balanced, customers on the products they envision having, the government on the best practices as outlined by law, and market analysts on whether the results are tangible to warrant mass production. Product/Price/Place/Promotion policies In 1950, Neil Borden introduced the marketing mix concept that comprises product, price, place, and promotion policies (Nakhchian, Boorani, & Gorji, 2012). Product represents a physical product or service bought by the consumer to satisfy a particular desire or need. This mix distinguishes one company from another. At McDonald’s, the product is a wide range of fast foods ranging from burgers, French fries, salads, snack’s, meat items, to beverages (McDonald’s, 2013a). However, the best seller is the Big Mac burgers. The company tailor its products as per market demand and culture. For example, in Israel, the Big Mac is served without cheese whereas in India it is served with special vegetables, and lamb meat and no beef due to culture. However, all the franchises offer the same standard in product quality. Price is the monetary value attached to the product or services. McDonald’s uses different pricing strategies in different countries based on target strategy used, cost of production, plus a certain profit percentage. For example, in Nigeria, the cost of a Big Mac is based on several work hours whereas in the US its equivalent to 14 minutes of work (Nakhchian, Boorani, & Gorji, 2012). Promotion refers to the communication strategies used in relaying the product’s message to the target audience and may include different forms of advertising, public relations, and sales. McDonald invested in celebrity advertising for example the use of Alan Shearer, former England football team’s captain in England and Fabian Barthez, former France’s goalkeeper in France (Nakhchian, Boorani, & Gorji, 2012). Place refers to the physical location of an establishment and the various marketing distribution channels used in ensuring the product reaches the consumer (Reid, & Bojanic, 2009). McDonald’s has over 2500 outlets in over 100 countries strategically located in shopping malls, subways, driveways, and popular streets where there is easy customer access to the premises (Nakhchian, Boorani, & Gorji, 2012). Segmentation and targeting Sally and Robin (2002) assert that segmentation is based on two fundamental principles: The customer characteristics also known as the target market and cost benefits of the segmentation in relation to the customer requirements. McDonald’s target is the children and the middle-aged population. A global TGI study carried out in France, United States, Italy, Germany, and Britain found out that McDonald is the number one teen favourite among international brands (Beach, 1999). This is attributed to the store’s location convenience, the convenience of eating especially in take away, and the general preference for fast food among teenagers. However, McDonald has diversified its target market through the introduction of McCafe’s started in Australia as a co-brand of the McDonald’s brand (Owen, Lorelle, & Bill, 2007). The management introduced the cafes after realising that they were losing out on sales from the parent’s who brought in their kid’s at McDonald’s but did not eat the fast foods. The cafes target these parents and other working-class clientele through serving coffees and cakes, and pastries. Differentiation and positioning Raphael (2007) asserts that it is important for marketing executives to understand the concept of product differentiation before they adopt product-positioning strategies. Burger King is McDonald’s greatest competitor with product store design and image, employee uniform, menu items, and pricing being very similar. Fig. 1 Overall perceived similarities of fast food outlets Note. From Positioning of fast-food outlets in two regions of North America: A comparative study using correspondence analysis (p. 115) by Kara, Kainak, and Kucukemiroglu, 1996, Journal of Professional Services Marketing 14 (2), 99-119. The most appropriate positioning strategy in this case is the location. A study by Raphael (2007) on product positioning and competition asserts that McDonald’s and Burger King should pursue different location strategies. In a large market, McDonald’s being the stronger of the two should be centrally located and try to monopolise the market. In a smaller market, McDonald should also be centrally located to deny Burger King a certain percentage of customers. Rather than locate the store opposite each other or adjacent to each other, they should be set at least 2 miles apart. Raphael (2007) found out that the distance will allow McDonald to increase its prices as opposed to adjacent location that forces both to lower the prices due to competition. References Barnat, R. (2005). Differentiation versus low-cost strategies. Retrieved August 9, 2013, from http://www.strategy-implementation.24xls.com/en121. Beach, D. (1999, February 8). 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Segmentation analysis for industrial markets: Problems of integrating customer requirements into operations strategy. European journal of Marketing, 36 (1), 231-251. Shukla, P. (2008). Marketing Research. Essential of Marketing Research. Paurav Shukla and Ventus Publishing ApS. Retrieved August 9, 2013 from http://dl.is.vnu.edu.vn/bitstream/123456789/255/1/marketing-research-an-introduction.pdf. Read More