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A market analysis of the McDonalds corporation

McDonalds is a popularly known Market Leader in the Fast food Industry or better known as the ‘Burger’ Industry. Started in the year 1948, it has managed to emerge triumphant in spite of a number of companies entering the industry. The company has successfully established a popular brand image. In fact the growth of fast food has been named after the organization as ‘McDonaldization’.

Marketing involves identifying what customers demand and striving towards meeting their demands. Marketing Audit involves analyzing the company’s various aspects and evaluating the company’s marketing strategy. It involves in bringing out the pitfalls in the organizations functioning.

The following pages contain the analysis of McDonalds Corporation. We have researched the various facets of the organization functioning as to how well they have managed to reach customers. There has been an analysis of the industry aspects like the customers, competitors and the suppliers. Also the Macro Environmental analysis along with the SWOT has been performed. We have analyzed the current Marketing techniques. On analyzing the current situation of the company and the market in the fast food industry we have provided some recommendations which might prove to be useful for the organization on its successful implementation.

Introduction

The statistics figures show that the global fast food market reached a value of $102.7 billion in 2006, growing by 4.8%. Meanwhile, analysts forecast that in 2011, the global fast food market will “have a value of $125.4 billion, an increase of 22.2% since 2006” (“Fast Food: Global Industry Guide”, n. d.).

McDonald’s is the worlds leading company in the fast food industry. It has more than 30,000 restaurants in more than 100 countries serving millions people around the global. The company’s success was as a result of the policy they follow, known as the Q.S.C. &V. (Quality food; Fast, Friendly Service; Restaurant Cleanliness; and a menu that provides Value).

The company was first started as a drive-in restaurant in San Bernardino by the two brothers Mac and Dick McDonalds in the year 1948. It was later bought by Ray Kroc, who was their franchising agent in 1961 and opened his first McDonalds in Illinois. The company’s menu initially consisted of Hamburgers, Cheeseburgers, French Fries, Sodas, Milkshakes, milk and coffee, although it has grown considerably since.

The company follows a unique business model described as the “three legged stool” wherein the three legs are the owners/operators, suppliers and Company employees. It is an organization that develops, operates, franchises and services a worldwide system of restaurants that prepare, assemble, package and sell a limited menu of quickly prepared, moderately priced food. McDonalds has pioneered food quality specifications, marketing and training programs, and operational and supply systems, all of which are considered the standards of the industry throughout the world.

Marketing Mix

Every business organization must develop an effective marketing strategy. The 7 P’s is used to continually evaluate and re evaluate business activities. The seven Ps are product, price, promotion, place, packaging, positioning, and people. The 7 P’s are used to ensure that the company is on track and achieve maximum results.

Product

Predominantly sells Hamburgers and cheeseburgers which forms the part of the standard menu worldwide

Also sells various types of chicken sandwiches and products, French fries, soft drinks, breakfasts, and desserts.

They sell a variety of products during limited promotional time periods.

The company tests new products on an ongoing basis. Example: Chicken Nuggets in the year 1983

DIRECTION

People

Focuses on Friendly and Prompt service which helps them to maintain their reputation

Employees have a standard uniform.

Statistics of staff composition

Restaurant staffRestaurant managementOffice staffFranchisees' staff44,000300050025,000They have high recruitment standards, employ local staff and proper training.

PATH

Process

Manufacturing process is transparent and visible to customers.

Customers are invited to check the ingredients used in the food.

Maintain high quality control standards.

Use of innovative ideas and having latest technologies installed.

Drive through facility

Price

Have “Specials”, two dollar burgers

Competitors find it difficult to follow

Generally use a value-based approach to pricing,

Aim at giving consumers the best value for money

Promotions

Best methods to maintain high awareness and promote their image

Advertising through Billboards, Television, Radio etc.

Sponsorships like Ronald House and local Basketball

Sales Promotion, Examples: Two dollar burger, Happy Meal

Direct Marketing through Birthday and Clubs

Publicity

Place

Placed extensively and easily accessible

Have Drive through where customers can pick up food

Mc Delivery offers options for home delivery

Holds a different place in the consumer's mind

Fun place for children

Physical Evidence

Means looking for aspects customer uses to assess a product and evaluate its position

High quality standards are maintained

Emphasizes on clean and hygienic interiors of its outlets

High importance to the appearance of the staff and the service provided.

ACTION

Current Marketing Strategy

McDonalds as a world Market Leader has certain goals which it strives to achieve 100% customer satisfaction, increase its market share and optimize profitability by reducing costs.

On analyzing the company’s marketing position, the following are a part of the current strategy in order to reach its customers:

Healthier foods

To handle the change of trend towards healthier food this McDonalds have changed the way the food is prepared. It makes sure that 100% vegetable oil is used, low fat milk is used for milkshakes and the amount of sodium has been cut down.

Food Quality and Nutrition

The quality and safety of food items are of paramount importance in McDonalds. This is achieved through strict product standards, strict enforcement of operating procedures and work in close relationship with the suppliers.

Larger Menus

McDonald’s aims at achieving the other important expectation from the consumers (“want for choice”). To this McDonalds reacted by introducing the breakfast menu with a variety of food products. Apart from this they have also introduced a lot of other products.

Restaurant Diversity

The restaurants in each location are customized and their menus are according to the needs and demands of the customers in the location, the food on the menu would conform to the regional and ethnic tastes.

Brand Positioning

McDonald’s Brand positioning is mainly carried out through sponsorship of events and sports. It sponsors events like Dome’s community programme and learning experience and Child Safety Week.

Industry Analysis

Industry analysis of an organization involves the analysis in the following categories:

Customer Analysis

This refers to buyer force. The buyer has a great deal of selecting power due to the fact that if they are dissatisfied with the food or service they can easily switch or purchase from an alternate product. But it is undeniable that any organization cannot satisfy the needs of all the consumers. Therefore organization divides the market into segments which display similar characteristics or behavior is necessary. McDonald’s market segmentation is based on demographic variables Age and Lifestyle. The primary target markets are seniors, adults and teenagers, but the most heavily targeted segment is children.

The market segmentation of McDonalds can be visualized as follows:

Market Segments

Seniors

Adults

Teenagers

Children

Customers are those who pay money to acquire an organization's goods or services. For many years McDonald's mostly targeted the young people, however this has changed in this decade; McDonald's has turned towards a more general market. By doing this McDonald's concentrates on the family, targeting a diverse market

Competitor Analysis

It was said that “the Fast Food industry is highly competitive” (“Data Warehousing Case Study: Fast Food”, n. d.). McDonald's major Competitors include that Burger King, Taco Bell, Subway, and Panera Bread. Especially, KFC, which offers chicken nuggets and fries on its menu, operates over an 11000 restaurants in more than 80 countries.

Fast food, especially fries, hamburger and so on, are thought as garbage-food because of high-calorie. There are high possibilities of healthy substitutes posing a threat to these companies. Of course, McDonalds is concentrating on the health side by introduction of healthy food items in the menu.

The following are the findings of the competitive position of McDonalds based on the Porter’s five forces:

Rivalry:

This involves how the company differentiates itself from its competitors. In case of McDonalds, as discussed above the major rivals are Burger King, KFC and Wendy’s. Though McDonalds is the Market Leader currently, with the capacity of the rivals growing the competition seems intense. The rivals are trying to increase their sales by concentrating on the health factors.

New Entrants:

With so many popular fast food companies in the industry new entrants are not much if a threat when seen globally. McDonalds has an edge over its competitors as it is globally spread.

Buyers:

With reasonable prices and quick service provided by McDonalds, there is less scope for customers to move to competitors for the products. With the introduction of the wireless facility in the some of the outlets has added to the attraction.

Suppliers:

Except for the cold drink from Coca Cola, the company does not have a single supplier at a global level. For meat it has its own farm and other raw materials are from local store

Substitutes:

There are high possibilities of healthy substitutes posing a threat to the company. Though McDonalds is concentrating on the health side by introduction of healthy food items in the menu, it might still be posed with the challenge of substitutes.

Supplier Analysis

Supplier is an organization that provides resources for other organizations. In McDonalds three legged stool philosophy the third leg is supplier partners. McDonald's has practiced a backward vertical integration, by replacing most of its suppliers. It has done so for two reasons,

To reduce costs, and

To ensure that its products are of top quality.

These supplies include beef and milk to be used in its products, which it gets from its farms. Other suppliers include local grocery stores that supply McDonald's with fresh vegetables. Soft drinks are supplied exclusively by Coca-Cola, which is also its ally. McDonald's supplies also include raw material such as flour, sugar, yeast, etc.

.

MACRO ENVIRONMENTAL ANALYSIS

Companies always operate in a larger macro environment of forces and trends that shape opportunities and post threats. These forces represent “non-controllable” forces, which the company must monitor and respond to. In most cases, we identify macro environmental factors by an acronym, PESTEL.

P: Political System of the country.

E : Economical Factors

S : Social / Cultural factors

T : Technological factors

E : Ecological factors

L : Legal factors

POLITICAL FACTORS

McDonald's employees and job applicants are selected, trained, promoted and treated on the basis of their relevant skills, talents and performance and without reference to race, color, nationality, ethnic origin, gender, marital status or disability. In support of this, McDonald's also has a policy on Sexual and Racial Harassment. All McDonald's restaurants work to standards which meet the highest' best practice' guidelines for Building and Health and Safety regulations.

ENVIRONMENTAL / ECOLOGICAL FACTORS

McDonalds is analyzing every aspect of its business in terms of its impact on

the environment and is committed to waste minimization with a target of a 50% volume

reduction. McDonalds works only in partnership with suppliers with sound environmental practices. It also has a manager responsible for environmental affairs.

A revolutionary new static waste compactor is now in 60 restaurants, which reduces waste volumes by an average of 40-50%. McDonald's is committed to using recycled materials wherever possible in its packaging and business in general. Waste oil makes up 10% of a restaurant's waste and is recycled via local collectors at regional refineries, into animal feedstock and other by products.

In April 1988, McDonald's switched to non-CFC foam packaging which carries the CFC-Free message. McDonald’s is playing an active role in global efforts to develop more environmentally friendly refrigerants.

SOCIO- CULTURAL FACTORS

McDonald’s feels that it address public concern regarding nutrition through a combination of stringent product standards, strictly enforced restaurant operating procedures, and close working relationships with suppliers to assure that McDonald’s food is safe and of the highest quality. It also discloses nutritional and ingredient information regarding its menu items through in-store posters and brochures distributed upon request. In the early 1990’s, international expansion into new cultures and corresponding eating habits resulted in new product introductions in several locations. McDonald’s new items generally receive no advertising and little sales promotion during the test period.

TECHNOLOGICAL FACTORS

McDonald’s corporation has built a whole range of systems such as intranets, wireless applications or innovative kiosk systems, all based on Day’s Commu­niqué. In their most recent initiative, the company migrated their global internet presence mcdonalds.com to our platform.

An important component of McDonald’s operational strategy is to anticipate customer traffic patterns and food selection based on a detailed analysis of sales history and trends. Restaurants use this information to prepare menu items in the right quantities and at the right times to have the food ready for customers when they arrive. To ensure freshness, all food not served within 10 minutes must be discarded.

ECONOMIC FACTORS

During the late 1990’s and the beginning of the new millennium, McDonald’s found itself in a regression, the first one since its conception in 1955. The Gold Arches weren’t shining like they once did, however there are in the process of being polished, figuratively speaking. In 2003 McDonald’s ranked eighth out of 100 brands in the Global Brand Scoreboard assembled by Interbrand Corporation and Business Week, proving that McDonald’s is one of the world’s best known and most valuable brands. However, that wasn’t the case during 2001 and 2002.

LEGAL FACTORS

The legal framework includes that any company in the Food and Beverages industry must not transport commodities that are hazardous to life and property or that are contraband in nature. Example: illegal drugs and unlicensed arms and ammunition. McDonald’s serves 100% beef, 100% chicken, and Grade A eggs. McDonald’s food comes only from certified suppliers who are audited and inspected on a regular basis. More than 2,000 safety, quality and inspection checks surround McDonald’s food as it moves from the farms to our restaurants. McDonald’s requires that 72 safety protocols are conducted every single day in McDonald’s restaurants.

McDonalds’s Strengths Weaknesses Opportunities and Threats

Strong Player

Global Existence and Massive Size

Strong Brand Marketing

Outlets easily accessible

Consistency and Fast Service

Weak Product Differentiation

Slowed Revenue and income growth

Mature Industry

Strength of competition

More health conscious consumers

International Expansion

Only serving 1% of worlds population

Growing dining-out market

Strengths

McDonald is a strong player in international market with his competitors hardly half the business.

Global existence and massive size allows him more diversification in food menu.

Exceptionally strong brand recognition and aggressive marketing.

A strong real estate selection makes its outlets located in the areas which are easily accessible

It has the consistency in his fast food supply and success of its food items

Weaknesses

Lack of product differentiation. The competitors also brought about the development of similar products.

Too many competitors entering the market which reduces the company’s ability to increase revenue and also leads to slow income growth.

Opportunities

More international expansion, as it still required penetrating in many countries especially in Asia, Europe and Latin America covering only 1% of world population

There has been an increase in the number of people who dine out, thus paving way for growth

Threats

Market saturation leaving less scope for expansion and revenue generation.

Competitors are quite strong and gaining good market share with new innovations.

More people are getting health conscious and switching to different eating habits.

Findings and Implications

Domination of the industry

McDonalds Corporation services the world’s largest chain of fast food outlets and has established as a Market Leaders. It has a market share of around 7.7% in the quick service industry in the United States. It holds a market of 43.1% in the burger segment. But it may need to grow in the non-burger fast food market.

Growth

As far as domestic market is considered there has the growth has slowed down.

The company’s revenue grew by 9% to record a $21.6 Billion. The comparable sales of the organization increased to about 5.7% from the year 2005 and the system wide sales increased to 7%. Income from continuing operations per common share was $2.30 with $2.03 in 2005.

The following is a five year analysis of the number of McDonald's UK retail outlets and their pre-tax profits:

 

1997

1998

1999

2000

2001

No of restaurants

836

928

1016

1117

1184

Pre-tax profit (£m)

100.2

82.3

127.9

137.5

141.4

The Growth of Mc Donald’s in terms of restaurants can be viewed as below:

International Sector

McDonalds has expanded to many countries throughout the world.

It has opened 744 restaurants in 2006, ending the year with more than 31000 outlets worldwide.

The company has clearly demonstrated extensive and impressive growth by expanding into markets across the globe, increasing penetration into the existing markets and stretching its product range to include exciting breakfasts. It is often conceived that McDonalds is approaching the end of its extended growth phase. But with increasing population throughout the world, assuming people consume three meals a day, it serves around 1% meal a share position that provides possibilities for plenty of growth within the industry. Competition is however aggressively snapping at the base of golden arches. A new genre of restaurants seems to have emerged in the market, dubbed as the ‘fast casual’. They are offering consumers fresher, healthier and more variety of food in a more inviting ambience.

Recommendations

Prospects for growth

Strategy

High Market Share

Mature Markets

Market leader in one product market

Maintaining Market Share

Substitutes entering the market

Maintaining Dominance in the market

Increase of Market size

Innovative redefinition of existing markets.

Expand into related product market

Maintaining good relationship with customers and suppliers.

If high prospects for growth then entry into substitute market

Buying some of the emerging firms in order to reduce competition through expansion.

McDonalds is the company with the highest market share in the Fast food industry. In order to expand and grow further it is necessary for the organization to expand the market itself. This can be done by the introduction of innovative food items in the menu in order to attract all kinds of consumers. Without innovation expanding the market size might prove advantageous to the competitors too.

Mature markets can be handled by redefining the existing markets in a way that from redefining new markets are created in order to expand. In order to redefine the market they can introduce jumbo sized burger and sandwiches at reasonable price which is sure to attract more customers from all categories and hence expands the market.

Since McDonalds is a Market Leader in the Fast food industry, it can continue with the expansion into other related industries. Like McCafe in the coffee industry, it can expand into another field like having their own drinks produced and manufacturing.

In order to maintain its current market share it should continue to maintain good relationship with customers and suppliers by ensuring more quality to its consumers

When there is a threat of healthier substitutes entering the market, McDonalds can also enter into the substitute market if it has prospects for growth and it is developing in its early stages which will avoid McDonalds from facing threats. The major substitutes McDonalds have are the healthier ones. In order to face the threat from substitutes, McDonalds can make their menu healthier, they can have a low fat menu items with sandwiches, wraps and burgers that are healthier

In order for McDonalds to maintain its market dominance, it can buy small but emerging firms in the industry so that the competitors reduce in number.

ANSOFFS PRODUCT EXPANSION GRID

PRODUCTS

CURRENT

NEW

M

A

R

K

E

T

S

CURRENT

Market Penetration Strategies

Current Products: Big Mac, Grilled Chicken Foldovers, Beverages, French Fries etc.

Current Market: Students, Working Professionals, families.

Collaboration with institutes, universities

Opening outlets at campuses, easily accessible places, commercial areas

Investments on advertisements, vouchers, coupons etc

Product Development Strategies

Introducing Vegetables food

Healthy and Nutritious products, e.g. Brown bread instead of white one.

Successful product launches in U.S. included Premium Roast Coffee, the Asian Salad and snack wrap.

Combination of continental food with local food at affordable price

NEW

Market Development Strategies

Entering into more developing countries

Offering franchise in new market

More Advertisement and promotion

Inaugural discounts

Providing membership cards

Buying some emerging firms

Diversification Strategies

New restaurants offering various cuisines

Cake shops, bakery items

Improving distribution or delivery service.

The Ansoff’s Matrix depicts the Market expansion strategy for McDonalds.

Conclusion

The extensive research of McDonalds Corporation has been pursued. The company being the major player in the fast food industry has a competitive edge over the others within the industry. It has created great popularity amongst its customers especially amongst the kids who are McDonalds key target customers. The company does face a threat of expanding in the mature market and taking over by the competitors which has been highlighted. It has several key strategies which if maintained will continue to stay as the leader in the fast food industry. The key points being its quick and fast service, quality food, easily accessible and fair pricing of the food items. The Health factor towards which the trend is moving is to be considered by the organization which will be added advantage to its growth and expansion.


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