This report will be looking at the following topics:
- Analysing the market of McDonald’s and its internal/external and industry environment by applying relevant strategic marketing theories, models and applications.
- Analysing McDonalds’ marketing strategies on its 5 P’s.
- Discuss and conclude the success of the company’s marketing strategy.
Chapter 2: SWOT, PEST & Porter’s 5 Forces
2.1 Introduction
The purpose of this chapter is to analysis the market and environment of McDonald’s. This is important for a company to fully understand its market and environment in order to establish the right marketing plan and to adopt useful strategies. There are several theoretical models which are useful for analysing a company’s internal and external environment, self-awareness and recognition of a company and its competitors. This report will be using the well known SWOT and PEST theoretical models to analysis its internal and external environment, and follow by the Porter’s 5 Forces for analysing its industry environment.
2.2 Market
McDonald’s is operating in the fast-food market which has been growing rapidly around the world. Due to the fast and continuously changing in the market, companies has to react fast in order to stay in the game. In the past, McDonald’s has used the mass-market approach in targeting customers, although their core customers were based on children. In recent years, McDonald’s has been trying to increase customers by attracting other age groups of customer such as the adults and teenagers. Global marketing campaigns such as the ‘I’m loving it’ and to team up with pop stars like Justin Timberlake and R & B super group Destiny’s Child was designed to attack the teen and adult market. It has been very successful and now forms the strategic framework for all worldwide marketing and advertising campaigns (). Furthermore, McDonald’s has also been working closely with food experts and nutritionists to develop more choices of foods for the more health concern customers.
2.3 Internal Environment
A useful tool to analysis the company’s internal environment is SWOT which is the short form for Strength, Weakness, Opportunity and Threats. This involves an internal analysis to set out the marketing strengths and the weaknesses of the organisation. It will examine the resources available to marketing and the relationship between these resources and the objectives and strategies of the organisation. It will also involve an analysis of the marketing department to see if it has the required expertise to deliver effective marketing strategy. The SWOT will then go on to analyse the opportunities and threats in the market place. Opportunities relate to the development of new products and markets, as well as the development of new technologies, whereas threats often relate to what the competition is doing, or other external factors such as changing consumer tastes. The following are the SWOT analysis of McDonald’s:
Strengths
- The first and the strongest strength of McDonalds’ is its brand. The name “McDonald’s” is known by most people in the world especially children.
- The other strength of McDonald’s has been its products. Some of its products has been successful and is well-known by consumers such as the Big Mac, Happy meal, Fries and Egg McMuffin.
- Promotion has also been a strength of McDonald’s. They have spent huge amount of money on promotion each year.
- Another strength of McDonald’s is its massive presence in the world. There are more than 30,000 McDonald’s in 119 countries. Their aim is to have restaurants in places where customers are never more than few minutes away by foot or by car in the city.
Weaknesses
- Due to the increases in competition within the fast food market, McDonald’s has been loosing its market share in the world.
- Increasing consumer demands has forced McDonald’s to spend huge amount of time and money to meet the demands.
- Another weakness of McDonald’s is its product development. Huge amount of money have been spending on introducing new products but not all of them were successful such as McPizza, which is no longer exist.
Opportunities
- The growing market is a big opportunity for McDonald’s. The global food service industry was predicted by the Euromonitor in year 2002 to grow more than 200 billion dollars for the next 4 years until year 2006.
- Another opportunity for McDonald’s is to open more outlets in economic growing countries such as China. It has huge amount of population and the consumer spending power has been increasing.
Threats
- There is one threat to the company which is the newfound emphasis on healthier eating. McDonald’s has been having difficulties on complaints of being responsible for the increasing incidence of cancer, heart disease, and diabetes
2.4 External Environment
External environment is important because it affects the company’s ability to make profits. It contains large amount of elements including factors such as economic, social, cultural, political, competition, technology, industry environment and customer. A useful model to analysis the external environment is known as the PEST which focuses upon the Political, Economic, Social and Technological forces at work in the macro-environment. The following are the PEST analysis of McDonald’s:
Political
Government policy can have a major impact on the operation of a business. In recent years, McDonald’s has been facing legal trials of possibility in breaching the health legislation by providing unhealthy foods to customers. This had made some damage to McDonalds’ image. However, McDonald’s has already been trying to introduce healthier foods on its menu such as salads, and fruits and milk for the kids.
Economic
Economic factor will influence the future potential profit of a business. One of the economical forces which may influence McDonald’s is the change in interest rate. Most of McDonald’s restaurants are franchises, therefore, franchisees would suffer on their borrowing if interest rate increases.
Social
Consumers reflect changes in lifestyle over time. This means businesses must observe shifts in the characteristics and habits of the population. The fast food industry has been heavily targeting by public of health concern due to the increasing amount of diabetes and overweight children. In order to overcome the problems, McDonald’s has been introducing healthier foods and educational programmes to bring a healthier environment. McDonald’s also has been heavily contributed in the charity events in order to make contribution to the society.
Technological
An external audit must monitor developments in technology. These can affect the production methods employed by the organisation. Due to the increasing importance of internet, McDonald’s has recently modified its website to a more friendly use website with more details and information available. The company also has been trying to work with more technological companies such as SONY to provide customers with free music download for its customers.
2.5 Industry Environment
McDonald’s is operating in a very competitive market. In order to maintain on the top position of the competition, it is important to understand the company’s industry environment to be prepared for actions. Porter’s 5 Forces is a useful model for analysing the industry environment, it identifies five competitive forces that shape every single industry and market.
Supplier Power
If suppliers have strong bargaining power, competitive pressure will be greater (Pearce and Robinson, 2004). McDonald’s works in partnership with most of their suppliers to protect the quality of their foods and minimise the bargaining power of suppliers.
Buyer Power
Consumer’s buying power in the food market is high. With the continuously changes in tastes and the increased concern in healthy eating, companies in the food market has to make changes and improvements to satisfy its customers. Otherwise there is a high possibility in getting bad publicity and lost in profit.
Threat of Substitute
The threat of substitute is high in the fast food market due to the strong competition and the increasing amount of ready to eat foods. Customers have many choices other than McDonald’s, and ready to eat meals are cheaper and convenient.
Competition
The competition in the fast food market is very high. McDonald’s has to compete with strong competitors like Burger King, Pizza Hut, Wendy and KFC.
Threat of Entry
The threat of new entrant is low in the fast food industry because of the amount of competition with the big players in the market. New entrants will not likely to win due to lack ok economic of scale.
Chapter 3: Retail Marketing Mix
After analysing the market and environment of McDonald’s, this chapter will be focusing on the plans and strategies adopted by the company to overcome its weaknesses and avoid the threats. In the past few years, McDonald’s has been having problems on losing market share, reducing profit and bad publicity. In the year 2003, the company have aligned their global system around a common mission with a common set of customer focused goal oriented actions. It is called “McDonald’s Plan to Win” which was to put the company’s concentration on the five drivers of exceptional customer experiences – Product, People, Place, Promotion and Price. This plan was aimed to increase profits by improving its services to increase customers. These 5 variables are also known as the Retail Marketing Mix or the 5 P’s. They are the variables that marketing managers can control in order to best satisfy customers in the target market. (Please refer to appendix 2 for further information on the 5 P’s)
Product
The following are the strategies applied by McDonald’s on their Products:
- To satisfy customers’ desire for premium products at affordable prices.
- More choices on the Happy Meal such as fruit options and milk for the kids.
- To address the desire for foods that fit into today’s lifestyle. McDonald’s has added new choices like meal-size salads, fruit options and sandwiches in order to fit the increased concern on health eating.
McDonald’s is controlling the quality of the foods by working in partnership with its suppliers and to work closely with food experts to ensure the quality is in the highest standard.
People
The following are the marketing strategies adopted by McDonald’s on its People:
- Speeding up service by simplifying the restaurant environment for their staff and customers.
- Ensuring the restaurant staffs are focused on being friendly, as well as fast with hospitality training.
- Providing cost-efficient, relevant training for their world-wide workforce. There are more than 1.6 million people worldwide working for McDonald’s. McDonald’s has placed emphasis on the training and development of its employees, aiming to provide career opportunities for people to achieve their potential.
McDonald’s has five commitments to their employees, which are:
- Respect and Recognition
- Values and Leadership Behaviours
- Competitive Pay and Benefits
- Learning, Development and Personal Growth
- Resources to Get the Job Done
Place
McDonald’s has over 30,000 restaurants in 119 countries. It opens in places where has high consumer flows such as high street, shopping malls, train station, airports, retail parks, gas stations, and even schools. Freestanding restaurants are positioned so that customers are never more than a few minutes away by foot in the city or by car. The following are McDonalds’ strategies on Place:
- To make the environment the gold standard for cleanliness. They have recalibrated their standards and are consistently enforcing them.
- McDonald’s has added additional service to customers by providing Wi-Fi accessibility in some of the restaurants so customers can stay connected to the internet while enjoying their foods.
- Giving customers more reasons to visit McDonald’s by adding more products offering such as coffee and to locate in the right place.
- Relocating, renovating and rebuilding some of the restaurants to give McDonald’s a fresh edge.
Promotion
Every year McDonald’s spent huge amount of money on promotion. The company has been trying to maximise the impact of the advertising spending and broaden their reach through public relations and by placing adverts in media well beyond the traditional prime-time network television format. The objective of spending so much money on promotion is to build brand loyalty and bonds of trust. The following are the strategies:
- The new creative brand direction “I’m Lovin’ It!” is designed to connect with customers around the world, especially young adults, moms and kids. It has became McDonald’s signature brand voice in 119 countries, generating awareness figures as high as 96% in some parts of the world.
- Appealing to young adults with relevant advertising. McDonald’s is bringing top creative teams from around the world to gather ideas, study trends and find inspiration to create world-class advertising.
Price
McDonald’s has a rigorous pricing process that is used to determine the price for that particular market in each country. The reason is to be able to offer affordable prices to customers and also to be profitable for the company. The following are the process which sets out the basic framework that allows the company to set localised pricing:
- Selecting the price objective
- Determining demand
- Estimating costs
- Analysing competitors’ costs, prices and offers
- Selecting a pricing method
-
Selecting a final price ()
Chapter 4: Conclusion
After analysing the marketing strategies of McDonald’s, this chapter is aiming to discuss and conclude the successfulness of the marketing strategies. In year 2003, after the company announced the Revitalising plan called the “McDonald’s Plan to Win”, it has established a target to increase 3% to 5% of sales and revenue, 6% to 7% of operating income by the year of 2005. However, in year 2004, the company has managed to generated a record of $3,9 billion in cash, up more than $600 million over 2003. This has clearly shown an improvement comparing to previous years.
In conclusion, the establishment of McDonald’s Revitalising plan was proved to be successful. The plan did help to reach the goals and enable the company to stay on the top of the competition. Moreover, the company did not reach its goals only by the establishment of Revitalising plan. It believes one strategy is not enough, they should be synergistic. McDonald’s has also adopted a strategy referred to as Relationship Marketing. It is defined as marketing to protect the customer base. The customer is viewed as an asset and the company's marketing goal is to attract, maintain, and enhance customer relationships. McDonald’s has generally had a very successful relationship marketing strategy and it had worked very well with its Revitalising plan. However, the success was not enough. To ensure the company will stay on the top of the competition, it must focus on constantly modifying and improving its services to give customers the best experience.
(Please refer to appendix 3 for further information on the company’s profile, strategies, financial indicators and business models)
References
Baker, M.J. (2000) Marketing Strategy and Management, 3rd Edition, New York: Palgrave.
Blythe, J. (2003) Marketing Strategy, Maidenhead: McGraw-Hill.
Gilligan, C. and Wilson, R, M, S (2003) Strategic Marketing Planning, Oxford, Butterworth Heinmann
Hooley, G., Saunders, J. and Piercy, N. (2004) Marketing Strategy and Competitive Positioning, 3rd edition, Pearson Education Limited
Johnson, G. & Scholes, K (2002) Exploring Corporate Strategy, 6th edition, London: Prentice Hall.
Pearce, J. & Robinson, R. (2004) Strategic Management 9th edition, McGraw-Hill.
Wood, M. B. (2003) The Marketing Plan: A Handbook, New Jersey, Prentice Hall.
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