3.1.2 Panic of Foot and Mouth Disease
It is well known that McDonald's menu is based on five main ingredients: beef, chicken, bread, potatoes and milk. Scares of mad-cow-disease, also called BSE, that weakened profits in 2000-01, has put the company on pace for a second straight year of lower earnings. The eating desire may be destroyed if the customer gets the information about the consequence of eating infected beef.
3.1.3 Changing appetite and obesity in USA
Obesity has been ranked as public enemy number one in USA. A recent assessment of obesity in the US found that more than half of all adult Americans were overweight, and hundreds of thousands of deaths each year are attributed to obesity-related diseases.
In the year of 2002, McDonald's has been sued for several times, since those obese people believe McDonald’s has mislead consumers into thinking their cheeseburgers and other products were healthy and nutritious. Although the organization has declared its innocence, the affect of these lawsuits has become severe, since people’s attitudes towards its food range has been changed. The new appetite is more healthy, with more vegetarian, less salt, and more natural. This social factor has kept the customers away from buying fast-food, because they are regarded as junk food, and part of customers related McDonald’s with obesity, or, death.
3.1.4 Anti-globalisation and anti-American
McDonald's came to be seen as leading a homogenisation of world culture around the American model. Not surprisingly, anti-globalisation protesters adopted the burger chain as a symbol of everything they despised. Growth markets embraced with glee in the early Nineties by McDonalds, Coca-Cola, Philip Morris and other US consumer giants, are proving more difficult to crack than expected.
Due to political and religious reasons, anti-American in mid-east is more severe than anywhere else. Represented as the symbol of American sprit, western style of life and culture style, McDonalds are antagonized by anti-American group. In some violent strike or riot, McDonald is always the first target to be attacked. This is one crucial reason McDonald withdrawn from some Mid-East countries recently.
3.2 Micro-economic:
3.2.1 Increasing competition in fast food industry
McDonald’s has identified 3 basic competitors. Namely, the Total Eating Out Market, which includes all restaurants, hotels, pubs, and any other outlet where people eat. Secondly, it is Quick Service Restaurant sector. This includes all the obvious competition and also fish and chip shops, and sandwich shops - any outlet where food is served quickly. The final sector is defined as the Burger House Sector. This looks only at restaurants serving hamburgers including Burger King, Wimpy, Wendy's and all independent burger bars.
Intense competition from rivals offering alternative fast food options such as pizzas, sandwiches, and tacos has put McDonald under further pressure. When McDonald's first started exporting its formula of quality, cleanliness and service, it was something of a novelty in countries such as Britain, where customers were used to being served bad food in dirty cafes by slow and surly staff. However, the formula was all too easily copied. These days, quality, cleanliness and service are a given in the fast-food industry and people are becoming more interested in what they are eating.
Bizarrely, just as the rest of the world is moving up-market, McDonald's has been going in the opposite direction. “Price is an important choice criterion when buying brands”, Wenling Liu (2002). While McDonald's is focused on its new message of lowering its price, the strategy seems misguided. In the fourth quarter of 2002, in spite of mouth-watering price cuts aimed at stimulating customers' appetites, sales at existing outlets were down 1.6 per cent in October and November, even worse in December. With its sudden conversion to lower prices, McDonald's is playing a desperate game of catch-up. However, Wendy's in USA, has had a national low-price menu in place for more than a dozen years, and Burger King announced its own "99 cent" menu last month. By slashing prices, it has increased the distance between its burgers and the premium products that are growing more popular.
3.2.2 Fast-food Market saturation:
McDonald and other major rivals have dominated burger-market, such as: Burger King, Wendy's. McDonald's has been losing market share since 1999 while some rivals, most notably Wendy's International, have gained, according to industry consultant Technomic. With the competition arouse from individual burger bars, the market has become saturate gradually. All of these unfavorable factors have stated that customers pulled back their steps from McDonald’s gradually. The deeper-seated phenomenon is that the world is losing its appetite for the Big Mac. This situation is more obviously in western countries like USA and Europe.
3.2.3 Competition from other food industry
Philip Kotler (2003) stated that buyer’s decisions are influenced by personal characteristics, such as occupation, economic circumstances, lifestyle and personality and so on.
Americans increasingly are forsaking burger places for pizza chains, more elegant food and "fast-casual" dining - everything from sandwich shops to burrito shacks and bakery cafes. A request for healthier and more sophisticated food presents a tall order for the purveyor of Big Macs. The more specialized gourmet food, with freshly made, high quality ingredients are taking more market share from fast-food chains. More affluent people want more nutritional and better taste foods.
At least in developed countries, McDonald's is on the wrong side of a trend towards more up-market eating and drinking, best illustrated by the rapid growth of Starbucks, the specialty coffee house
As well as Starbucks, countless smaller companies have sprung up to serve this growing market. In the US, Panera Bread has a growing chain of "bakery-cafés" serving fancy sandwiches such as Sierra Turkey - "sliced turkey breast with smoky chipotle mayonnaise, field greens and red onion on our Asiago cheese focaccia".
"The fundamental core of their market has changed," cited by industry consultant Jerry McVety, of McVety & Associates in Farmington Hills, Mich. "There's more competition. Kids today have more money, and many of them don't necessarily feel that going to McDonald's is a cool thing to do."
4. Possible Strategic Options
Regarding to the shrinking of its business, Kevin Clancy, who heads the Copernicus marketing and research consultancy in Auburndale, Mass, cited that "It's an ideal-type brand that's in trouble. They have not had a really successful new product or many marketing successes in more than a decade. The brand has been moving ever so slowly and quietly toward oblivion for years." From this statement, it is clearly that McDonald’s current marketing strategy has not performed well to achieve its company goal and objective.
Oak Brook, Ill.-based McDonald's has done more experimenting than a mad scientist lately to maintain that margin, inventing new food, and installing a made-to-order computerized cooking system. The innovations, however, have not prevented the hamburger business from becoming shrinking. It can be seen that the company is trying too many small things at once in a desperate bid to restore strong growth. However, McDonald's difficulties -- market over saturation, increasing competition, price war, and more -- are too big for a quick marketing fix. What it need is a long-term marketing strategy.
Dominating the fast-food industry are a few giant firms, McDonald, Burger King, … most of them serve the whole market and make their profits mainly through high volume and lower costs. Surrounding these dominant firms is a multitude of market nichers, including market specialists, product specialists, and customizing firms.
However, the rate of sales growth of the industry is slow. The sales of McDonald decline in recent years because of market saturation. The sales slowdown creates overcapacity in the industry, which lads to intensified competition. The market enters a stage of stable maturity. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand.
Under this mature market, there are several strategic directions available:
Intense growth can take place when current products and current markets have the potential for increasing sales. There are three main strategies for intense growth: market penetration, market development and product development.
Diversified growth occurs when new products are developed to be sold in new markets. More important, it allows companies to make better and wider use of their management, technical and financial resources. It includes horizontal diversification, concentric diversification, and conglomerate diversification.
Integrated growth can occur in the same industry that the company is in and in three possible directions: forwards, backwards or horizontally.
4.1 Suggested McDonald’s marketing strategy
The suggested McDonald’s marketing strategy is while keeping the core business within fast-food industry, diverse to the whole food industry or even further.
4.1.1 Core business in fast-food industry
As the market leader of the fast-food industry, there are still several ways to keep up the market share, improve the profit and sales.
Development on product
In marketing theory, managers could stimulate sales by modifying the product’s characteristics through quality improvement, feature improvement, or style improvement. Quality improvement aims at increasing the product’s functional performance. Featuring improvement aims at adding new features that expand the product’s versatility, safety, or convenience.
Possible tactical marketing plans:
- Overtake its competition by launching a ‘new and improved’ product, or even launch a new product, soft drink line for example, under McDonald’s name.
- Innovative product differentiations, made in different versions, low calorie or super taste,
- Increase amount used on each use occasion, such as can more drink be put in each package at a higher price?
- Close existing product and price gaps: should new sizes of drink be introduced?
- Create new product-line elements: should drink introduce new flavours, food with different versions?
Development on market
The sales of McDonald’s could also be promoted by market development and penetration.
- Try to achieve increased market share through aggressive advertising and winning competitors’ customers.
- Try to expand the number of brand users by stimulate nonusers - elderly people be persuaded, and light users - children be reminded to eat,
- Entering new market segments, like appeal to teenagers, young adult singles, young adult parents.
- Expand distribution coverage to new areas and increase distribution intensity in current chain, like Asia or new developed urban areas.
- Convince current users to increase their brand usage, like use the product on more occasions, and consume more of on each occasion.
- Defend McDonald’s present position: satisfy the current users more so that they remain loyal.
4.1.2 Diversify marketing strategy
Robin Wensley (1988) claimed , “ a proper analysis of the strategic aspects of any competitive marketplace may not result in certain success, but it almost always helps to avoid failure.” By carrying out previous analysis of environment scanning, customer and competitor analysis, it is suggested that moving into different consumer markets by offering new products will be appropriate. That means the new possible new marketing strategy could focus on product diversification.
Inspired by a case study discussed by Dibb et al. (2001), it is recommended that McDonald’s could develop a new marketing strategy by making the similar decision. Coca-Cola, it finds itself with a core product whose growth is slowing. It has diversified into faster-growing soft drink categories such as juice drinks, bottled water and sports energy drinks. Also it moved into the fashion business with the launch of “Coca-cola Ware”.
McDonald’s could broaden its business into other food industries, providing differentiated food categories, such as: elegant and specialized food, steak and drinks pizza, sandwich, to target different consumer segments. In addition, building up some fancy restaurant, steak house, coffee house to innovate its Golden Arches image.
More widely, McDonald’s could extend into other industry like TESCO did. As the market leader of retailing industry in UK, TESCO has shifted its focus from low price/value to represent "one stop convenience shopping." This has put them in direct competition with food retailers, banks, specialty retailers and petrol stations. Besides the significant position on insurance, loan, credit card producer, TESCO is also leading the virtual market, the pioneer of the e-shopping.
From the conservative point of view, the management is suggested to adopt this part of strategy after the success of the diversity strategy in food-industry.
It is well known that like fast-food market, other market or industry are also highly competitive as well, success is hard to achieve. However, Company seeking such a movement of extension must have three crucial strengths: expertise, image and reputation. Surely, McDonald’s possesses all of these qualities.
5. Conclusions
Based on the audit of the environment and competition, a possible market strategy is suggested for McDonald in the fast-food industry – the maturity market:
While keeping the core business within fast-food industry, diverse to the general food industry or even further with the strength of brand notability, management team, and tangible assets.
Besides above suggested marketing strategy, McDonald also could carry out the following tactical practice to optimize its marketing situation.
- This new diversified possible marketing strategy is supposed to be used to support and communicate its brand values, rather than to detract from its original burger business.
- The long-term goal is to extend the business and brand by leveraging physical assets, retail know-how and brand strength to innovate and develop new business concepts.
- The company would better to rebuild marketing team, making sure they have the right person to do the right thing.
- The company should stop aggressive expansion worldwide, instead, consolidate their burger business by developing more options in their menu. Satisfying more customers, more often by delivering superior quality, service, cleanliness and value should be the foundation of McDonald’s history success and an imperative for capturing growth opportunities in the future.
