McDonalds Advertising and Marketing

“Welcome to McDonald’s what can I get for you today?” A very warm saying that might sound similar to many consumers, who attend fast food restaurants on a frequent basis. Have any one ever wondered why we keep on going back to McDonalds week after week? This is mainly because of McDonalds advertising and marketing. McDonald has an image that is more than just food; it is a place for the families. Over 9500 restaurants in nearly 45 countries is the strength of McDonalds. None of the single brand name has ever matched McDonalds marketing budget. McDonalds approximately spends more than $800 million dollars each year on their marketing and promotion. McDonalds began a major advertising campaign in the year 1987 that aimed to neutralize the misconception of junk food about their good food. This marketing strategy of theirs did not last long as newspapers started to write that the food in McDonalds is not so nutritious and people do not come to McDonalds for nutritious food. From then onwards McDonalds started to offer only a nourishment card rather than trying to stamp their food products as nutritious one. According to Mr.Peter Cox, a former consultant of marketing belonging to the vegetarian society, did quotation from the book, “Behind the Arches”, the reason why Japanese people are small and have yellow skin, because they have consumed only fish and rice for the past 2000 years. McDonalds soon came out with the marketing slogan that if you eat Hamburgers and potatoes for nearly 100 years then you will grow taller and have a white skin with blonde hair” this slogan was ruled out. However, their marketing to children was not ruled out. Most of the McDonalds marketing are aimed towards children. According to the researchers, they say that when a child looks at Ronald he or she thinks only of French fries and hamburgers. Researchers also say that many children admire Ronald and want to be like him, as Ronald loves McDonald and so will they. According to the Children’s thinking it doesn’t matter how much fast food they should be eating because Ronald says it’s always good and fun. In the 1980’s Children’s love towards Ronald went haywire and the major man Geoffrey Guillano, Ronald, give up and apologized for his actions. He personally believed that he brainwashed the children into doing things that are wrong, he also admitted that he was sorry to the children everywhere for selling out to concerns that make millions by killing animals. In the UK McDonald’s also does marketing to young children, aged between 2 and 8. Their McDonald’s adverts contained a simple song that was easy to remember for children. According to John Hawkes, the McDonald’s United Kingdom Chief Marketing Officer their song was to reach each family through their children. He said the song was stored in the front position of the brain of the children’s mind. This made children to attach hunger with McDonald’s and inquire their parents to take them there. McDonald’s also tried to target young adults, ages 16-25. McDonalds took a new move toward to target young adults, where they used discounts and coupons. McDonalds offered twenty nine cent and thirty nine cent hamburgers and cheeseburgers. McDonalds never make cash off the price the customers pay to these burgers but rather they did from the soda they bought and the fries they bought. This leads to the subliminal marketing, also known as the trade-off result. For example, when the customer went to pay money for a small coke they usually end up buying a large one. This is mainly because the small one is $1.09, the medium $1.24, and the large $1.29. A customer looks at the prices and tries to figure out the most excellent deal possible for their money. The medium sells for $0.15 cents more than the small that gave the customer 5 more ounces of drink but the large sells for $0.05 more cents than the medium one and the customer will end up getting 11 more ounces for their nickel. This makes the customer to buy their soda that is two sizes larger than what they originally planned to buy. Even though the customer spends $0.20 more than their usual, however McDonalds spends close to nothing. The customers will also do the same process for their french fries. A medium portion of fries costs $1.29, large is $1.59, and a super is $1.79. The large sells for $0.30 more than the medium but the super are only $0.50 more than the medium and $0.20 than the large. The customer in their mind will think, that if they spend the extra $0.30 to get the large fry they might as well spend $0.20 more cents and get the best value possible for their dollar. In conclusion, everyone are targeted for something. Whether it is for McDonald’s or or some other fast food chain. Marketing is what makes one store better than the other, and McDonalds are very good in that.

This is a research about McDonalds and their marketing strategy under the credit crunch situation. In this research I aim to explore on the below mentioned objectives. First of all I am going to start with the research background, where I will go through McDonald’s history, their hold in the market, their main competitors etc, that will hold as a base to this particular research. Next I will talk about the different literatures that, regarding where research has been done on the similar topic. According to my though previous literatures will not have much information on the effect of credit crunch, however my literatures will include more on the marketing area involving fast food chains. After the literature review I will give the methodology for the research, where the research methodology for the purpose of the research will be discussed based on the research objectives and the type of the research. In the next section I will do the main research, where the primary data will be collected relevant to the research that is based on the research methodology. After doing the primary research the findings will be analyzed and possible results will be arrived at before conclusion.

OBJECTIVES

1. Effect of tight economic condition on the food industry.
2. What do people perceive about McDonalds even in the tight economic condition?
3. McDonalds brand management
4. Marketing strategies adopted by McDonalds to attract people keep coming towards their shop.

RESEARCH BACKGROUND

With over 35,000 locations in hundred countries, McDonald’s (NYSE: MCD) is the world’s largest fast food restaurant chain. McDonald’s operates its own restaurants and franchises its brand to local businesspeople (about seventy percent of the world’s McDonald’s are franchised.) The company experienced a theatrical turnaround in 2003, driven by a two-pronged plan. In countries such as the US and the UK., McDonald’s focused on rising sales at existing locations by renovating their stores, increasing menu options and also extending store hours. Globally, McDonald’s expanded aggressively, opting to franchise rather than operate its new locations which provide new income with little overhead.

Both strategies have paid dividends- despite its dimension, sales have full-grown by a 3rd since 2003 Domestically, McDonald’s continues to do strongly in spite of a pullback in customer spending and is even benefiting as customers trade-down from more expensive eating options. During this same time, global operations were driving profit growth. A rising global middle class, particularly in emerging markets like China, India and Latin America, is a massive opportunity for McDonald’s. McDonald’s violent efforts to get bigger its global presence- most notably in 2008 Beijing Summer Olympics- have produced strong similar sales and profit growth.

McDonalds Business Strategy

McDonald’s has pursued 2 strategies since 2003. To be in the run with the fast changing customer preferences, demographics and spending patterns, McDonald’s has introduced novel items in their menu including angus beef burger and premium chicken sandwiches and does campaigns to create more healthy foods including salads on the side. This strategy basically reflects the beliefs that innovation as opposed to reliability to traditional products is the key determinant towards success in the fast food industry.

They have also focused more on increasing their sales at their current restaurants instead of opening new ones. To do so, McDonald’s has redesigned many of their restaurants, kept their stores open till late and increased menu options. Nonetheless, new restaurants are still getting opened around the world at a rapid pace – the company plans to open nearly 1,000 units in 2010, and continues to produce its new restaurants at a 1%-2% rate each year.

Size Matters

Size of McDonald’s has three main advantages:

• McDonalds has a strategy of uniform menu offerings that can be accumulation produced, lowering production costs.
• Bargaining power with their suppliers reduces input costs with improved margins.
• Large advertising costs mean lots of exposure towards domestic and international market.

International Expansion

McDonald’s is well-established in Europe, the Middle East, Asia/Pacific Islands, and Africa. Its enlargement in Europe is dominated mainly by Germany, France and the UK. In Asia, the general management has indicated that there is important potential in the China market. McDonalds have adapted its menu items to different local cultures, such as the Teriyaki Mac in Japan, Filet-O-Fish in China, and using lamb instead of beef in India.

Although McDonald’s is the obvious leader of the fast food industry in terms of revenues generated and restaurants recognized, it faces rivalry from other fast food chains, which are introducing new products themselves.

Major direct competitors in the (hamburger-based) fast food industry include:

• Burger King Holdings is the 2nd largest hamburger fast food chain. Although more of their restaurants are franchised than McDonald’s restaurants, revenues of Burger King Franchise fall behind that of McDonalds, mainly due to the their size advantage.
• Wendy’s is the 3rd largest hamburger fast food chain. They have a lower operating margin than that of McDonald’s, hence it is more likely that they suffer negative impacted during a recession.
• Yum! Brands runs Kentucky Fried Chicken, Taco Bell, Pizza Hut, Long John Silver’s, and A&W All-American Food Restaurants. Currently, Yum! Brands are dominating the Chinese market, posing a threat to McDonald’s in their attempts to enter the market. Where McDonald’s Corporation focuses on its core brand, Yum! divides its resources among a wide variety of different restaurants.
• In addition to the above competitors, McDonald’s also competes with non-hamburger-based fast food restaurants (such as Panera Bread Company (PNRA), Panda Express and Qdoba), local and national dine-in restaurants (such as Red Robin’s and Shari’s), pizza parlors, coffee shops (Starbucks), street vendors, convenience stores and supermarkets.

McDonald’s revenue decreased by 7% to $5.65 billion in Q2 09 (ending March 31st, 2009), a decrease from $6.08 billion the previous year. However, operating income increased 2% over the previous year, from $1.65 billion to $1.68 billion. Much of the decline in revenue can be attributed to company-operated restaurants, whose revenue numbers decreased by 10% from $4.3 billion in the previous year to $3.8 billion. Revenue from franchised restaurants, on the other hand, actually increased 1% from $1.78 to $1.80 billion Since the margins on franchised restaurants are higher than those of company-operated restaurants, the higher contribution from franchised restaurants in the revenue mix positively impacted McDonald’s operating margins (from 27.2% to 29.8%).

McDonald’s also noted that McCafe, which they labeled as a “long-term home run”, had met sales expectations and has benefited from the high level of advertising that McDonald’s has committed to it. Coffee sales now make up 5% of McDonald’s total sales.

The effect credit crunch has driven a record numbers of consumers from across different social spectrum to buy food under the golden arches of McDonald’s.

The fast-food giant is serving close to 100 million customers every month at its 1,200 restaurants in Britain, revealed in the recent times. That is about 12 million more than its own previous record last December, which is typically the busiest month. The UK chief executive Mr.Steve Easterbrook, in the recent times have said that it is the 10th consecutive quarter of growth for them in the UK,Which s a real momentum in the business.

McDonald’s UK delivered like-for-like sales growth, taken from restaurants open for 12 months or more, of more than 8 per cent for the three months to 30 September. Mr Easterbrook declined to provide a specific sales figure for McDonald’s UK, but said it was above the 8.2 per cent underlying growth at the American company’s European division. He said the sales figures were a further testament to the changes McDonald’s had made over the past few years, with improvements to its menu, extended opening hours and new restaurant formats.

It also illustrated that companies perceived to offer value for money were attracting more middle-class customers, he added. Mr Easterbrook said: “Those people who are coming back to McDonald’s, and who have not been there for a while, are finding a whole new McDonald’s.”

Discount retailers, such as Aldi and Poundland, are also profiting as hard-pressed customers seek out bargains. Mr Easterbrook said: “We have always had a very broad appeal and we are picking up more people across the board, but some people are trading down. A family of four can come in and have a meal for £15.

“We are seeing growth across the menu from the Extra Value Meals to our Rainforest Alliance coffee and premium burgers.”

McDonald’s is also reaping the rewards of extending the opening times of its restaurants. Some open at 5am and 200 British branches trade for more than 24 hours at weekends.

Mr Easterbrook said early opening was having a positive effect because if had increased the numbers of people coming into its stores throughout the morning. Sales of its coffee were up by more than 20 per cent, he added.

Globally, McDonald’s operating income rose by 20 per cent over the three months to 30 September to $1,823.7m, and its total worldwide sales increased by 7.1 per cent.

Marketing at McDonalds

McDonald’s is one of the best known brands worldwide. Through marketing, McDonald’s establishes a prominent position in the minds of customers. This is known as branding. Branding develops a personality for an organisation, product or service. The brand image represents how consumers view the organisation. Branding only works when an organisation behaves and presents itself in a consistent way. Marketing communication methods, such as advertising and promotions, are used to create the colours, designs and images which give the brand its recognisable face. At McDonald’s this is represented by its familiar logo – the Golden Arches. In all its markets, McDonald’s faces competition from other businesses. Additionally, economic, legal and technological changes, social factors, the retail environment and many other elements affect McDonald’s success in the market. Marketing involves identifying customer needs and requirements and meeting these needs in a better way than competitors. In this way a company creates loyal customers. By identifying their target audience McDonalds

Marketing department will determine the correct marketing mix.

• Which products are well received
• What prices consumers are willing to pay
• What TV programmes, newspapers and advertising consumers read and view
• Which restaurants are visited

Accurate research is essential in creating the right marketing mix which will help to win customer loyalty and increase sales. As the economy and social attitudes change, so do buying patterns. McDonald’s needs to identify whether the number of target customers is growing or shrinking and whether their buying habits will change in the future.

By Doing SWOT analysis on McDonalds

1. Strength

   E.g. the brand, and detailed market research to create the right marketing mix.

   Weakness

   McDonald’s has been around for a long time. (therefore important to keep innovating).

   Opportunities

   E.g. increasing numbers of customers looking for food that is served in a quick and friendly way.

   Threats

   New competitors, changing customer lifestyles.

LITERATURE REVIEW

According to Nazlin Imran(1999), in one of his works says that the study of consumer perception regarding food quality and acceptability is complex and interdisciplinary, encompassing scientific disciplines including food science and technology, nutrition, psychology, physiology, marketing and hospitality. Food having possessed with physicochemical characteristics arising from ingredients, processing and storage variables resulting in the sensory characteristics of the food product. These sensory properties are detected by consumers using the human sense organs producing experiences of the taste, appearance, smell and texture of the product. The basic study of the interaction between these human senses and the physicochemical properties is known as psychophysics. In food science, sensory evaluation is nothing but applied forms of psychophysics. The sensory attributes of a food product interact with consumer physiological, behavioral and cognitive factors within the consumer experience to exert influence on consumer perception. Context and background also affects this interaction, e.g. cultural setting and psychosocial influences in which the consumers encountered the food product which also affects the consumer hedonic response, i.e. the individual feeling of like or dislike, of the consumer. Sensory and hedonic experience interacts with post-consumptional experiences to produce responses that feed-back into the consumer physiological state, the learning process and memory building. Consumer expectation is in turn affected by this process. Expectation can be generated from cues such as packaging, labeling, product information and stereotypes. Thus, consumer food choice is determined by many factors as shown in the below figure. Food choice factors were being individually studied in the past by other disciplines, e.g. psychobiology, social psychology, cognitive psychology, nutrition and marketing. However, in the recent times, the the factors involved in the perception and acceptance of the food quality food quality are being studied collectively in sensory science. Sensory science has been described as a place of meeting in science, bridging the gap between humanities and the pure sciences.

It has been shown that many individual factors affect the perception of a food product. These factors include taste, odor, information from labeling and images, attitudes, memory from previous experience, price, prestige, nutritional content, health belief, familiarity and brand loyalty (Krondl and Lau, 1978, 1982; Raats et al., 1995). Sensory attributes have been known to play an important role in overall perception and acceptance of a food product. It has been well recognized that the intensity of food-related sensory attributes affect the level of pleasantness or unpleasantness of a food product (Cardello, 1994). Texture and flavor have been shown to have a profound effect on perception and acceptability (Szczesniak, 1972). However, “the first taste is almost always with the eye”, i.e. visual sensations always help contribute to this perception since the first encounter with food products is often the contact of the eye and will affect subsequent willingness to accept a product. The effect of visual sensations should never be underemined. Human perception of quality is dependent on the visual image (Hetherington and MacDougall, 1992). It has been well established that color and appearance can have a halo effect which modifies subsequent flavor perception and food acceptability (Hutchings, 1994; Kostyla and Clydesdale, 1978). Appearance, flavor and texture are important quality attributes which characterize raw food materials and processed products (Schutz and Wahl, 1981). Kramer and Szczesniak (1973) use a circle diagram to describe the sensory quality of food. In this sensory circle, the perimeter of the circle is divided into three merging zones defined by appearance, flavor and texture. These zones are often regarded as an individual and seperate characteristic, however some properties do overlap indicating that the perception can be affected by more than one sense. However, the significance of different product attributes varies with the situation and time. For example, a product that is seen on a supermarket shelf may have different attributes affecting perception when compared to the same product seen on a plate. The same product on a plate would be affected by anticipatory and participatory attributes (Hutchings, 1977). In other words, at the point of consumption, anticipatory factors such as the initial product appearance and also consequent participatory factors such as product flavor and texture may dominate the acceptance level for many foods. Appearance encompasses several basic sensory attributes such as colour, opacity, gloss, visual structure, visual texture and perceived flavor. Of all these visual aspects, the effect of color is the most obvious and well-studied. The strong association between food and color was established as early as 1936 by Moir and 1939 by Dunker. Extensive research has confirmed the importance of color in taste recognition and intensity (Johnson and Clydesdale, 1982; Kostyla, 1978; Maga, 1974), in flavor detection and recognition, in food preference (Christensen, 1983; DuBose et al., 1980) and food acceptability (Johnson and Clydesdale, 1982; Maga, 1974). Consumer perception of an acceptable color has been shown to be associated with other quality attributes: flavor, nutrition and level of satisfaction (Christensen, 1983). Rolls et al. (1982) showed that manipulation of color in some products can be used to enhance intake and presumably to enhance sales. The effect can be achieved by manipulation of one or more variables: color within a formulation, incident light, packaging color and even color and appearance nomenclature and brand name (Martin, 1990) (Nazlin Imran, 1999)

Perceived service value has been a critical construct in marketing because it is assumed to have a significant influence on purchase or patronage behavior (Bolton and Drew, 1991; Zeithaml, 1988). Although value is an indistinct and elusive construct, service value as perceived by consumers has narrowly been defined as a trade-off between perceived quality (or the benefit component) and perceived sacrifice (or the cost component) regarding a service being evaluated (Dodds and Monroe, 1985; Dodds et al., 1991). Consumers would make their value judgment on a service by trading off the positive utility of the quality against the negative utility of the cost inferred from various service characteristics. Then, what specific aspects of a service imply the quality and the cost for the value judgment? This question is dealt with in the sections below.

Perceived service quality. Perceived quality is one of the major determinants of perceived service value. It is assumed that consumers consider various dimensions of a service to reach their overall judgment of service quality. Parasuraman et al. (1988), based on a survey with 200 consumers about five different service categories, have developed a standardized instrument called SERVQUAL, which can be used to measure customer perceptions of service quality. They then have retested and refined their original SERVQUAL instrument (Parasuraman et al., 1991). SERVQUAL consists of 22 items measuring customers’ expectations and another 22 items measuring their perceptions of five dimensions of service performance. Specifically, they have suggested that when consumers make their judgment of service quality, they would generally consider the service provider’s:

• Physical facilities and equipment (tangibles);
• Ability to perform promised service dependably and accurately

• (Reliability);

• Willingness to help customers and provide prompt service

• (Responsiveness);

• Knowledge, courtesy and ability to inspire trust and confidence

• (Assurance); and

• Caring and individualized attention to its customers (empathy).

However, SERVQUAL is a generic measure; researchers have found that the relative importance of the five dimensions varies across different service industries (e.g. Crompton and Mackay, 1989; Johnson et al., 1988; Parasuraman et al., 1988, 1991).

Perceived service cost. Consumers compare service quality with cost to determine service value. Service cost is basically what consumers have to give up or sacrifice to obtain a desired service. Since it has a negative impact on consumers’ budgets, it would have a negative influence on their perceptions of service value. The concept of cost can be extended to include nonmonetary cost such as service time (see Murphy and Enis (1986), for a detailed review of time costs). Service time is the amount of time during which a service is provided. Since most customers would like to have faster services, service time would affect perceived service value in the same way monetary cost would. Some services require customers to be present physically where the services are provided (e.g. hairstylists, hotels and motels, restaurants, etc.). For such service categories, service locations, like service time, are an important cost/benefit factor determining service value because the more convenient the locations are, the fewer amounts of time consumers need to get there, and vice versa. (Moonkyu Lee, Francis Ulgado, 1997)

The UK fast-food marketplace is value an estimated £7.82 billion annually (Keynote, 2003), an average amount spends of twenty pound per month per adult (McDonald, 2003). Due to busier client lifestyles and dual-working families with children, stress is increasingly being placed on fast meal solutions (Atkins and Bowler, 2001). This has resulted in a market enlargement of more than 18 per cent in fast food since 1998 (Keynote, 2003). United Kingdom customers tend to look upon expediency and wholesomeness as polar opposites, rather than a balancing type of food value (Jack et al., 1997, 1998). These researchers found that convenience is likely to be associated with wide food processing, as in the example of manufactured snack foods; such snacks are apparent as suitable but unhealthy, while natural “fruit as a snack” are perceived as healthy but inconvenient. Fast food meals based on burgers and fried chicken (e.g. MacDonald’s, KFC) also tend to be perceived as suitable but unhealthy. There has been a sustained increase in the demand for expediency foods and snacks over a number of years (Traill, 1994; Keynote, 2003). Moreover, a better volume of fast food is enthused in the United Kingdom than in any other country in Europe (Schlosser, 2001). Recently, the thought that processed convenience foods are contributing to a fatness epidemic has led to litigation proceedings against McDonald’s. At the same time, a figure of fast-food companies and food manufacturers have reviewed the fat and sugar contents of their manufactured goods ranges, and reconsidered the dimension of the portions they offer. New “healthy options” (e.g. pasta salad, fruit bags,) can now be purchased from fast-food outlets next to customary burger and chicken meals. Another new innovative strategy by McDonald’s and KFC enables nutritional information for each meal to be accessed via nutritional calculator tools on each company’s web site (see www.mcdonalds.co.uk and www.kfc.com). From the early stages of post-war nourishment policy in the UK, food manufacturers have responded to nutritionists’ calls for better products to some degree. However, they have also asserted there are no “good” or “bad” foods – only good or bad diets (Richardson and Brady, 1997). In the meantime, the UK Food Standards Agency’s (FSA) present diet and nourishment strategy emphasizes a key role for the food manufacturing in helping to get better the nutritional excellence of dietary intakes (Scottish Food Advisory Committee, 2002). For caterers, this means offering a greater option of healthier tableware, and for manufacturers and retailers, rebalancing foodstuff ingredients, in particular, reducing the attendance of fat, salt and sugar and rising that of fruit, vegetables and complex carbohydrates. Health branding initiatives, such as the Department of Health’s “5-a-Day” campaign promoting fruit and vegetable eating, have clearly helped to lift the profile of nutrition targets (Department of Health, 2003; Parker, 2003). Food companies desire the logo but obtainable processed foods may not meet its strict supplies (Laurance and Mitchell, 2003). As a result, manufacturers and retailers have begun to open their own logos and claims. Customer value plays a vital role at the heart of all advertising activity as it refers to things of worth that have been created for a specific marketplace (Holbrook, 1999). Customer value is a highly multifaceted concept in that it integrates a collection of possible product excellence attributes, process-related attributes and less touchable sources of value, in particular, brand image (Schro¨der, 2003). For fast foods, manufactured goods attributes may be further broken down into dietary, sensory and clean quality. The nature of food production and processing is becoming more significant to customers (Baltas, 2001; Bredahl et al., 1998), even if these aspects cannot be established through the real consumption of the food (credence attributes). Ethical manufacture in terms of animal and human welfare, and environmental guard are key issues here (Wier and Calverley, 2002;Harper and Makatouni, 2002; Grankvist et al., 2004). Holbrook’s (1999) typology serves as a mapping tool for generic customer value and is highly applicable to the food background. For example, it highlights both functional customer value (which might be interpreted as food security and dietary make-up) and ethics. However, business image is only partially built on touchable product and process attributes. Equally significant is the manner in which company’s converse with stakeholders through their marketing strategies, including CSR initiatives. CSR may be defined as an organization’s rank and activities with admiration to perceived communal obligations (Brown and Dacin, 1997). Through the Business Excellence Model (British Quality Foundation, 1998), the crash of an association on society has been highlighted alongside the require for worker and customer satisfaction. Clearly, the better the perceived power and influence of an association the more likely it is to draw the attentions of campaign groups. The activities of influential organizations will be improved understood by the community and have an effect on more customers than those of smaller competitors. When campaigners single out such organizations for inspection or even assault, they can wait for more media interest for the issues they want to make public. It is therefore not surprising that worldwide players in the fast-food sector, such as McDonald’s, be inclined to find themselves in the dismissal line of groups concerned with the a variety of aspects of food quality. (Schroder & McEachern, 2005)

According to Peter Jones & et al (2002) there are a wide variety of elements in the UK’s retail catering industry but fast food are perhaps the most prominent, the most dynamic and the most rapidly growing. While there are va