Business Strategy In Global Environment Mcdonald Marketing Essay

McDonald’s is one of the world’s leading fast food makers, 1995 when Ray Kroc started the franchising system till now McDonald’s have seen an era of constant growth in both in terms of reach to the customers across the globe or in terms of sales and profits. There are number of driving forces of its basic aims that kept it at above all system wide sandwich market throughout its most magnificent years. The idea of making a system of restaurants with low priced menu items available to local community in a fast, efficient and hygienic way as well as a enjoyable environment lead McDonald’s to become world’s largest sandwich chain. (Marino, 2004. p.C213)

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After a years of hard work McDonald’s has developed its customer loyalty and brand image across the world and strong financial base to counterbalance the impact of extreme competition by the similar sandwich industry players such as Subway, Burger King, Wendy’s. During early 1990s, when MacDonald’s intensified its international operations to balance the impact of growing competition in USA, its brand image became so popular outside USA that on its opening in Beijing 1992 more than 40,000 customers flooded the restaurant. Earlier in 1990, an opening of a new restaurant in Moscow drew about 30,000

people. (Marino, 2004, p.C214)

throughout 1990s McDonald’s have seen many year of radical transformation in its strategic policies besides its glorious years, particularly in the later years of 1990 most of its efforts to overcome its falling performance, customer satisfaction and monetary profits resulted in further decline in brand image as well as sales. The top management launched a plan to further boost restaurants growth and diversification away from just a sandwich maker by adding no less than 40 new items in the menu. In order to achieve the target of 10 to 15 percent of profits an investment of $420 million was made to upgrade few things such as kitchen and research and development. Despite all these efforts it appeared that nothing was working to put McDonald’s back on track. (Marino, 2004, p.C215)

This was the first time when McDonald’s posted its first time ever fourth quarter loss in 2002. It is the same time when Jim Cantalupo took over the charge of the corporation and introduced “Plan to Win” strategy to win back the lost empire of unprecedented history of McDonald’s. Jim Cantalupo preferred to focus company’s generic strategy on marketing mix of the company in order to overcome the declining brand image and negative publicity experienced just before him taking over the company. His plan focused on offering customers a better experience of enjoying their fast food as compared to competitors. (Marino, 2004)

WHAT IS A BUSINESS STRATEGY

By all the management scientist and academicians business strategy has been defined in many variable ways. Strategy can be simply defined as a plan to reach from one point to another or it can be as composite as the global market place. In a global corporate industry environment strategy is a complex and comprehensive framework of actions put together after careful analysis of capabilities and strengths and the environmental impacts of peripheral forces manipulate the organization (Elkin, 1998) Strategy can also be defined as a framework which steer those choices that determine the nature and direction

of an organization. (Tregoe & Zimmerman, 1980) Leadership in a highly competitive market depends on narrowing the focus of business strategy instead of broadening it. Business strategy includes identification of organizations operational excellence, its customer intimacy, and the product leadership.

These three elements are the powerful dynamics of a business strategy. (Treacy & Wiersema, 1989)

To achieve objects an organization can exploit its unutilised resource strength and capabilities or it can altogether develop a core competency. A company’s strategy is a “plan of its management to achieve and sustain a market position, conduct its operations, attract and please customers, compete successfully, and achieve organizational objectives”. (Thompson & Strickland, 2003, p. 3)

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INTERNAL STRENGTH AND RESOURCE CAPABILITIES

STRENGTHS:

The assessment of in-house resources of an organization is evaluated in relation to the competitors. (Thompson & Strickland, 2003) MacDonald’s business strategy still upholds the philosophy of Ray Crok who in 1958 said that, “the basis for our entire business is that we are ethical, truthful and dependable. It takes time to build a reputation. We are not promoters. We are business people with a solid, permanent, constructive ethical program that will be in style years from now even more than it is today.” (mcdonalds.com)

a) Market Leadership

In the fast food chains in the world McDonald’s has one of the strong international presence, in the USA alone it has over 13,500 restaurants and 16,500 restaurants worldwide. It was operation in 120 countries of the world with Burger King at number two in 2002 was operating in 120 countries of the world with Burger King at number two with only 58 countries. Its operating income from worldwide operations almost compared the income from domestic operations. In USA McDonald’s secured over 32 percent of the sales of top no less than 30 chains in 2003 out of which about 30 percent of the sales come from its international operations. The leadership of McDonald’s amongst restaurants chains have widely been recognized and have placed it in a very strong position to increase and retain a major part of this market share. (Marino, 2004)

B) Financial Strength

Another very important policy of McDonald’s is to own all real estate’s for franchised or company operated location. This gives a large rental income and asset base for the company. Beverley Vasquez in his article; ‘McDonald’s Takes Bite from its Land holding’ published in ‘Denver Business Journal’ in 1998 says that “McDonald’s generate more money from its rent than from its franchise fees”. (Denver Business Journal 50, p. B9) its strategy to own its real estate’s has given it even more control over what it can do with the land. The major advantage of this policy was to choose a piece of land to build a restaurant in any suitable location to generate maximum sales and to make financial assets and remove the impact of development McDonald’s keeps about 100% of profits from company owned restaurants. (Marino, 2004) like any other company in the same business McDonald’s liquidity is within the industrial standards. McDonald’s current ratio in 2003 was 0.76, maintaining or improving current ratio help meet current liabilities and short term debts without putting further constraints on company operations.

c) Brand Image

In 2003 McDonald’s brand value was placed at 8th number among world’s most valuable brand with $24.69 billion (source: interbrand). Brand image is the totality of consumer perceptions about the brand, or how they see it. Companies have to work hard on the consumer experience to make sure that what customers see and think is what they want them to. (Temporal, 2002 & Marino, 2004)

d) Innovative Skills

In a global market place a company needs to be well aware of particular needs and requirements of the people defined by their cultural and religious affiliations and their particular eating habits. Due to changing eating habits of its customers McDonald’s has improved its menus many times. This was due to many reasons such as innovation in food processing and cooking and growing health awareness in people. (Marino, 2004) Its menus in almost all countries reflect the local traditional elements and tastes. Kosher for Jewish people in Israel, introduction of low fat food across the chain, and menus according to particular French, Chinese and South American tastes are a few examples. It has integrated local eating trends and traditions successfully across the world by changing the local menus in several regions of the world, McDonald’s have almost always adapted to the changes in the costumers preferences despite some of its failure to regain sales revenues in late 1990s.

WEAKNESSES:

a) Weak Strategic Direction

Chairman and CEO Alan Greenberg took the full responsibility of its poor performance and resigned after face the first ever loss In fourth quarter 2002. The collapse was mainly cause of launching many concordant initiative and be deficient of will to completely implement them or waiting for the outcome of any particular initiative. Due to this deprived strategic decision making, management was left with no clear directions. Increased competition and hostility among the franchises forced company to review its policies regarding development, association, quality and customer services. At one stage company publicized 40 new menu items and customized cooking system which cost company a hefty $420 million. (Marino, 2004) A week strategy or failure to fittingly launch a strategy may result in a week performance of the overall business. (Thompson & Strickland, 2003)

If a company alter its business strategy it may result in customer confusion, price oriented customer may switch to another low cost leader if the business employing a low cost strategy shifts its focus to differentiation strategy At the same time those customers willing to pay a premium price may not identify the organization’s strategic change. (Parnell, John A.,2003)

b) Customer Services

McDonald’s discontinued its principal of restaurant evaluation system in early 1990(namely QSVC, Quality, Service, Value, and Cleanliness) in order to reduce the tension among franchises and to pave way for international growth and to improve its partnership with leading superstores. It was expected that company’s image would regain When Greenberg reinstituted its Quality, Service, Cleanliness inspections and mystery shopping in 2001, but in 2002 company was ranked lesser than its main rivals including KFC, Wendy’s, Burger King, and even US internal revenue services.

c) Revenues Losses and Share value

In the start of 2003, McDonald’s had to face a loss of $343.8 million in its first quarter Followed by a constant decline in revenue during 12 months to April 2003. Company’s share value dipped to all time low. At one point in March 2003 it was being traded at $12.50. Putting further pressure on short term and long term liquidity and constraining the company to keep equity at sustainable level.

d) Employees Turnover

Employee turnover is very important in any organization accurate, efficient and quick customer service mostly relies on staff training and experience. McDonald’s has 300 percent high employee’s turnover than industry average. This clearly means McDonald’s not only have to train more than average employees but also have to wait until they are fully functional and experienced. It is 40 seconds slower than its close rival Wendy’s in drive-thru operation but still it generates almost 60 percent of its revenue from them.

EXTERNAL MARKET FACTORS

OPPORTUNITIES:

a) Revenue Generation

The strong worldwide presence of McDonald’s provide it an opportunity to produce revenues from public offering and this was experienced successfully in case of Japan. Public offering could be phased out in 120 countries of the world once McDonald’s could grow strong in each country.

b) Diversification

materialization of mega-store and expansion in their process has unlocked a new market segment for McDonald’s retail products. Further new opportunity include launching McDonald’s novelty products like watches and toys to be sold across the world and going into joint schemes with non rival companies to use MacDonald’s premises to uphold their product.

THREATS:

a) Trends in Sandwich Restaurant industry

McDonald’s has faced challenges by the new trends in eating healthier food alternatives along with the other industry players. Customer dietary awareness grew after findings of various scientific researches advocating eating healthy food with lesser fats, oil and sugar contents. Sandwich chain have to keep modifying their menu in order to be concerned about customers wellbeing. McDonald’s has to continue focusing on adjusting its policy to reflect healthier aspects of menu items or it could be an easy target for negative publicity. McDonald’s main rivals Burger King and Wendy’s have addressed current consumer health trends more successfully. Particularly, Wendy’s has responded to this with the introduction of their gourmet salad line. Typically 30% of those consumers visiting Wendy’s do so specifically for the purpose of purchasing salads from their Garden Sensations salad line. (Marino, 2004) Soon after recognizing the market, the super store jumped into sandwich industry by offering readymade meals and sandwiches at competitive prices further increasing competition for McDonald’s and its rivals as well.

b) Intense Competition

After 2003 it was expected for systemwide sandwich industry in USA to grow around only 2 percent for foreseeable future. There was a shrinkage in local restaurant industry due to increased competition amongst traditional rivals, many chains were copying McDonald’s theme at that time increasing market share was more difficult in both USA and worldwide. (Marino, 2004) a large number of customer was shifting to other low price outlets of similar quality and service as they were becoming more price conscious. The ideal condition is for the strength/ competitive assets to outweigh its weakness/ competitive liabilities by an ample margin-50/50 balance is definitely not the desired condition. (Thompson & Strickland, 2003, p120)

PEST ANALYSIS

The analysis of macro environment in which business operates is called PEST analysis its consist of four elements Political, Economical, Social and Technological.

POLITICAL FACTORS

Individual state policies enforced by the government greatly influenced the international operations of McDonald’s. Many groups in Europe and USA clamor for the actions taken by the state pertaining to the hygiene, health and fitness proposition of eating fast food. They have pointed out that things like cholesterol are harmful for human body and adverse effects like obesity are attributable to consuming fast food products. (ivythesis 2010)

On the contrary, there are number of internal policies and regulation in order to control the company, specific segments of the market focus on different fields of concern for example environment, worker protection and specially health. In all parts of country and outside the country government check all these elements before issuance of any kind of license in the respective states. In countries like India it is a looming legal dispute in the franchise of McDonald’s where certain breach of rights and violation of religious laws pertaining to the contents of the food, it is highly offensive to the Hindu religion in that region to have meat in their menus. There are also other studies that points to the infringement of McDonald’s Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonald’s stores have to contend with the issues of employment procedures as well as their tax obligations so as to succeed in the foreign market. (ivythesis 2010)

ECONOMIC FACTORS

It is seen that there are always numerous problem available to fast food industry and no organization in this business are excused for any disputes and troubles, all have concerns up to certain extant regarding economic factors individually. Branches and franchises of fast food chains like McDonald’s are likely to experience difficulties in case the economy of any country is hit by inflation and a rapid change in exchange rates. In conditions like this customer have to go over the usual budget and they have to think whether or not they should use up more of these foreign fast food chains therefore these businesses must think of some solutions to deal with the effects of the economic environment specially when the problem are caused by the consumer behavior these issue can lead to a serious problem as it could influence their general sales. In regarding the operations of the company, food chains like McDonald’s tend to import much of their raw materials into a specific territory if there is a dearth of supply.  Exchange rate fluctuations will also play a significant role in the operations of the company. if a franchise operates in a particularly economically weak state, hence their products shall cost higher than the other existing products in the market, then these franchises must take on certain adjustments to maintain the economies of scale. (ivythesis 2010)

SOCIAL FACTORS

The surveys and articles on the international strategies of McDonald’s have been working in many areas to assure worthwhile returns for the organization. The company put so much effort to improve on establishing a favorable mind set from their basic consumer. McDonald’s indulge a particular variety of consumers with definite types of personalities. It has also seen that McDonald’s has provide the market such as United Kingdom an extra option in their dining needs and requirements as they have introduced a valued and reasonable set of food that affectionate a reliable level of quality for the respective market where it operates.  Additionally, those who are aged just below the bracket of thirty-five are said to be the most frequent consumers of McDonald’s franchises. ( 2005)

TECHNOLOGICAL FACTORS

McDonald’s produces demand for their own products. Television advertisement is one of the company’s key tool for marketing. It has also been seen that McDonald’s are inclined to the interest the younger populations more, this can been seen in different ways such as distribution of toys in their meals offered by the company and the existence of play spots in the restaurant areas. Similar demonstrations can be seen in the commercial they make it clearly reflects their marketing strategy. They employ animated depictions of their characters like Grimace and Hamburglar. On the other hand they hire popular celebrities in order to promote their products. Their campaign regarding their logo “I’m Loving it” is renowned across the globe and is recognized well in people of all ages. Moreover McDonald’s has significantly been infused with new technology in their operating system and their biggest achievement is to introduce a Just In Time strategy Elements like the inventory system and the management of the value chain of the company allows for easy payments for their suppliers and other vendors which the individual stores in respective markets deal with. The integration of technology in the operations of McDonalds tend to add value to their products. Basically, this is manifested in the improvements on its value chain. The improvement of the inventory system as well as its supply chain allows the company to operate in an international context. (ivythesis 2010)

FIVE FORCES ANALYSIS

1. Rivalry Amongst Existing Competitors

It has been seen that the competition in restaurant industry is too high as there are large number of many fast food businesses that are fighting with each other in order to get the bigger market share and to improve their customer base, McDonald’s is not an exception to this, it has excelled in this sector of the market since its commencement in 1940. Nevertheless to stay competitive they started with McCafe and gained a huge success as a fast food providers. Another major step came out when McDonald started Breakfast to compete with the existing business serving breakfast. Hence, this industry is extremely competitive and the MDC should be up to date with customer taste & preferences.(quickmba 2010)

2. Threat of Entrants

It is hard to set up a different brand name as well as to enter the restaurant business, The cost of entry in the market is extremely high there is big research and development costs. Large established companies with strong brand identities such as McDonald’s do make it more difficult to enter and succeed within the marketplace, it is difficult for new entrants to find their place as they are faced with price competition from existing chain restaurants.(quickmba 2010)

3. Threat of Substitutes

There are many substitutes in this industry. Since there are a wide variety of products that people can choose, they could either be substituted by MDC Burgers, Beverages, dairy products, and others.

4. Bargaining Power of Suppliers

Power of suppliers within the fast food industry would be relatively small, unless the main ingredient of the product is not readily available.

5. Bargaining Power of Buyers

Relatively strength of buyers is low in this industry

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SCHOOLS OF STRATEGY

Mintzberg, Ahlstrand and Lampel discuss various approaches to strategic planning and they identify 10 different schools of thought which are divided into Prescriptive and Descriptive. We can apply Prescriptive schools for Strategy formulation and Descriptive School for Strategy formation.

A) PRESCRIPTIVE SCHOOLS

Prescriptive means “what can be done most realistically”. The prescriptive strategy takes other factors into consideration while analyzing multiple criteria and conflicting objections. After this, then chooses what strategy would or could be done realistically based on the objectives previously listed. According to the prescriptive strategy, the second best decision might be more appropriate. The prescriptive approach includes an analysis of possible decisions around a chosen solution known as sensitivity analysis.

1. Design School:

This strategy is adopted by McDonald’s in a way they have matched their internal situation of the company with the outside situation caused by the environment. Thus the strategy of the company is made and function to signify the best likely fit.

2. Planning School:

Here strategy arrangement is seen as a prescribed procedure, which follows a thorough set of steps from scrutiny of the condition to the growth and exploration of different substitute scenarios.

3. Positioning School:

This is very important approach as it is very much influenced by the Porter’s work, formation of strategy as an logical process that place the organization in the same context of the business the company is in, McDonald as a business used this as a strong tool of their strategy.

B) DESCRIPTIVE SCHOOLS

Descriptive means “what is usually done”. The descriptive strategy is done based on past evidence. It is something that has been most likely done in the past.

1. Entrepreneurial School:

In McDonald’s this approach look upon strategy formation as a visionary process, that is going on within the mind of the captivating founder or leader of the company.

2. Learning School:

The whole function of this strategy is to educate people where the management of an the company take care of the workers that they work efficiently and does not work over time and incorporates these ‘lessons learned’ into their overall plan of action.

3. Power School:

Here strategy progress is appear to be a process of cooperation between power holders within the company, and or between the company and external stakeholders.

4. Cultural School:

This strategy talk about developing a culture that makes the working condition comfortable for all this school takes the strategy formation as collective process that includes multiple groups and departments within the organization

the strategy developed is thus a reflection of the corporate culture of the organization.

5. Environmental School:

In response to the current challenges imposed by the external environment, this strategy structuring is seen to be a reactive process.

6. Configuration School:

This is the last school and the purpose of strategy formation can be easily seen as method of altering the organization from one type of decision making structure into another.

CONCLUSION

McDonald’s have increase its product line to ensure they have multiple products to choose form and to remain competitive to their rivals, and have focused to provide better and continuous service, they also have reduced their cost by reducing their supply chain expenses. In order to retain customers they have expanded their happy meal choices and took further step by adding premium and different coffees in their beverages menu as well as cakes and pastries. The concept of toys introduced by McDonald’s for all kind of generations specially for kids was new to everyone in the market. As a suggestion they must provide special promotion during the festivals, apart from organizing birthday parties they should move on to one step ahead in organizing or sponsoring college festivals. After analyzing the marketing mix of McDonald’s, it is clear that the company can be said to be `global’, i.e. combining elements of globalization and internationalization. McDonald’s have achieved this through applying the maxim, `think global, act local’

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