Through its franchise model, McDonalds has been a leader in the fast food market. However, understanding the success of the business requires an analysis of its environment and strategies. With that, it is crucial to understand how the competitive environment it operates affects it and how it responds. Further, understanding the brand’s global marketing strategies is crucial. To achieve that, this report provides an industry analysis and the brands marketing mix analysis. To begin with, the competitive industry analysis uses the Porter five forces to analyze the competition the business faces from rivals, competitors and substitutes and the strategies it applies to address them. Further, the forces identify the brands bargaining power over the suppliers and the customers.
McDonald‘s Industry competitive analysis
The theory of industrial organization is the basis of the Porter’s Five Forces. The assumption by IO is that an industry where the company operates as well as its attractiveness is affected by the structure of the market due to reason that the structure of the market has a great effect on the participants’ behavior.
Rivalry among Existing Firms
Businesses operate in industry where there are many players who can be considered direct competitors. The competitors have an effect depending on several factors such as the businesses resources, their strategies as well as the nature of the customers being served. The effect is in that they can take away the business’ customers through various strategies hence a need for it to device means to address the competition.
McDonald’s that is run by McDonald's Corporation is a fast food restaurant competing directly with several fast food businesses such as the Burger King, Taco Bell, Wendy’s, Subway and KFC. The Fast and casual restaurants also make close competitors. The group includes the Chipotle and Panera Bread Company and Starbucks Corporation that is can be referred as a specialty and quick service restaurant having an offering that overlaps with that of McDonald’s. In addition, McDonald’s competes with takeout as well as casual restaurants. In the international market, McDonald’s also has its competitors including global fast service chains further to the regional competitors as well as the smaller and local restaurants (McDonald, 2014).
Given the stiff competition that the business faces, it seeks to enhance its competitiveness through differentiation. The strategy entails offering unique products as food bundles and the under 400 calories as well as a suitable environment in its restaurants. The business also addresses the competition through suitable pricing that offers value to customers (Farahmand & Chatterjee, 2008). With that, the business delivers value to customers that they cannot get from the existing rivals.
Threat of Substitute Products
As an alternative to product, although substitutes do not comprise key competitors, they present a risk to McDonalds given the potential of the current customers switching to them. In that respect private- labels growth reflects both the product buyer’s power and substitute goods risk. With that, the McDonald seeks to enhance its competition against the substitutes through programs that increase the switching cost. Such programs include the loyalty cards such as the Breakfast Club Card that the customer would have (Senauer & Seltzer, 2010).
Threat of Potential Entrants
Market entry can be determined by various factors such as the cost of entry, the revenues attractiveness and technology advance. The fast food industry is marked by the low cost of entry and substantial revenues hence attract many investors in-turn being marked by substantial entry of new businesses. The spread of deep-discount retailers for food and supercenters illustrate the new entrants’ threat. That is after the supermarkets had dominated the food retail for a long time. However, McDonalds seeks to protect its market share by applying the differentiation and innovative operations that sets it apart with the entrants’ brands (Senauer & Seltzer, 2010).
Bargaining Power of Suppliers
The terms by which suppliers provide goods and services to a business determine a significant part of its costs. In that respect, businesses that get supplies of goods and services in good terms can generate suitable margins (Senauer & Seltzer, 2010).
McDonald’s journey in pursuit of sustainable sourcing starts with its direct suppliers while extending to complex networks of the indirect suppliers sourcing ingredients for its menu items. In that respect, McDonald’s partners with key suppliers to ensure that its supplies are guaranteed and to bargain for sustainable contracts with better terms. With that, the business can easily access its inputs and raw materials at a suitable price giving it a substantial bargaining over the suppliers (McDonald, 2014).
Finally, when it comes to technology, analysis of data at point-of-sale (POS) which is generated by the checkout scanners has helped in shifting the bargaining power which was previously with the suppliers to the restaurants such as McDonald who are increasingly concentrated (Senauer & Seltzer, 2010).
Bargaining Power of Buyers
Buyers have many choices including a brand’s competitors and substitute products, and that defines their bargaining power. However, businesses devise strategies that seek to enhance their power over the buyers (Grundy, 2006). In that respect, McDonald’s customers have limited choices given the products differentiation. That is because the competitors and substitute products cannot offer the value that the brand offers them in taste and quality. Further, the brand has some programs including loyalty cards such as the Breakfast Club Card that offer loyal customers discounts among other benefits hence increasing the cost of switching. With that, McDonalds has substantial bargaining power over the buyers hence, its can even charge a premium price and generate high margins (McDonald, 2014).
Chapter one Summary
In view of the analysis it is clear that a business operates in an industry where competitiveness is influenced by various factors. With that, forces such as the existing rivals, new entrants, the substitutes and the suppliers as well as the buyers bargaining power determines the much of the market share that the business commands. In that respect, McDonald’s fast food industry has been identified to be marked by those forces with the business facing competition from several existing businesses including Burger King, Taco Bell, Wendy’s, Subway and KFC; substitutes in form of private labels and new entrants such as the supercenters and discount retailers. However, the business has been identified to apply various strategies as means of enhancing its competitiveness. Among those strategies include differentiation which entails offering unique value compared to the other businesses. Further, the business seeks to enhance its bargaining power over the suppliers by developing key relationships with the trusted suppliers. That guarantees its supplies and enables it’s to negotiate for good terms that favors its margins. Finally, the business seeks to enhance its bargaining power over the customers through strategies such as the loyalty card. With the cards, the customers switching costs are increased hence they are better off buying from the business.
McDonald’s market mix
Effective marketing entails a suitable mix of product positioning, pricing, place and promotion strategies. In that respect, a business should seek to offer products that have value for customers, sell them at a suitable and competitive price and deliver them at the most convenient time and places. Last, a business should promote its products and services through the avenues that suit its target segments (Cateora, Gilly, Graham, 2010). With that view, the following is an analysis of McDonald’s marketing mix.
McDonalds have a variety of products include hamburgers, chicken, French fries, cheeseburgers, salads and soft drinks (McDonald, 2016a). Pizzas, hamburgers, French fries and others can be described as the fast food. For the past recent years, industry of fast food has become a very big sector and has experienced a growth rate which is very high. Companies in fast food increased their menus and product variety. In that same period great changes have occurred in people's lifestyles. Definitely, these changes include eating behvior. As result, the fast-food became a portion of many people’s life. However, in the minds of the people fast-food have no good image, although they continue consuming more of it (Soba, 2011). In that respect, the business seeks to serve the fast-paced lifestyle that people have adopted.
Also, the brand groups its products into bundles as a means of offering value to customers. The bundles include the Favorites under 400, the all day breakfast, extra value meals, happy meals, mighty kids meals and McPick 2. With the bundles, the brand offers varying value for various segments depending on their preferences. Further, the business is currently considering the health effects of its products given the increasing customer awareness and health concerns. With that, majority of its menu choices contain the under 400 calories.
Further, to make a step forward competitive environment across the globe, companies in fast food industry have turned into different international marketing methods. Among these methods of international marketing is Think global and act local (Metin & Yildiray, 2015). Among the many cultures of nations there are differences and these may affect preparation or cooking of the beverages and food. In this situation, for the business products’ to be adapted to the local communities, the business considers the cultural, religious and economic values of customers living in all parts of the globe and features them in their restaurants although retaining its brand’s core (Senauer & Seltzer, 2010).
The globalization concept is built on the basis of the assumption, desire of the people are the same in form of lifestyle and products no matter of where they are living, so the co that are multinational such as the McDonalds uses a management strategy that is common in all the nations in where they are in operation. As a result of globalization, the globe has become a common marketplace (Metin & Yildiray, 2015). McDonalds, Burger King, Domino’s, KFC have their stores in many nations around the world, and their strategies are different in their market entry. When these companies in the first food try to offer integration to the market, living habits and tastes of the people from that nation are some of the important factors for them to generate high returns on profit. Because more attention is paid to the customers, more products will be sold resulting in high profits for them (Soba, 2011).
Pricing is a key strategy that businesses apply in seeking to attract and retain customers. With the right pricing, brands offer value hence customer satisfaction that in turn creates loyalty (Stewart & Davis, 2005). Given the diverse nature of the market that the McDonald brand targets as well as the various categories and bundles of products that the business has, it is capable of charging prices depending on items, bundles and their quality (Rohani, 2012). In that respect, it has competitive pricing as well as a value menu where it sells $1 per piece. In that respect, the brand can offer value to its customers in line with their expectations. The pricing also helps it compete with its competitors and retain leadership in the fast food market (Naipaul, 2001).
Promotion strategies are aimed at attracting and informing the current as well as potential customers regarding a brand’s products. In that respect, McDonalds applies various methods including advertisement, discounts, and sample promotions.
Sample promotions: Fast food restaurant products mainly attract customers given their value and taste. In that respect, the business identifies the need to offers samples to customers that help them find out the value and taste of the brand’s foods and services. With that, the business offers free samples in its restaurants and organized promotions where it introduces new products to the current and potential customers (Keegan & Green, 2012).
Advertisements: The advertisements strategies applied by the company aim at providing information about its products. The strategies applied include traditional methods such as TV and Radio, online advertisement through the company websites and the social media (McDonald, 2016b). The use of the traditional media usually targets the middle to the old aged who mainly uses the channels. On the other hand, the use of the social media and the company website for advertisements seeks to reach the technologically savvy segment that can be easily reached through the channels. With that, the brand uses a blend of adverting channels to reach out to the various segments of its market (Soba, 2011).
Discounts: Discount on products is a crucial promotion method that the business uses. With that, McDonalds offers discounts mainly for new products where it seeks to attract customers to try them. Also, discounts are offered on quantity as a means of enticing people to buy more. Further, the business offers discounts on festive seasons to attract more customers (Bojanic, 2007).
Regardless of the suitability of a brand’s positioning and pricing, it creates no value in the absence of an effective distribution system. In that respect, businesses among them the McDonalds realizes the need to deliver their products and services to customers in the right place and time. With that, the business applies various methods to ensure that its products reach customers in the most convenient manner. The key distribution method is its restaurants that act as the center of its operations. The restaurants offer not only food and services but also a suitable atmosphere for the customers. For instance, the business operations in Washington DC (Keegan & Green, 2012).
Chapter two Summary
In view of the analysis, it is clear that McDonalds is a global brand that applies global marketing strategies for its brand. With that, a comprehensive marketing mix has been identified including the product positioning, pricing, place and promotion. In view of the product positioning, the business seeks to offer products that serve the fast-paced lifestyles that demand the fast foods. It also seeks to serve the different tastes with its unique tasting products. Further, the brand offers its products in well set out restaurants. Regarding the pricing, the business has been identified to have a competitive pricing that comprise even a menu with a $1 per price. With that, it is able to attract customers and retain them compared to the competing brands. With respect, to the distribution, the main distribution mean of the business are the restaurants that serve its products. Finally, the brand applies various promotions means to reach to the market to inform attract customers.
In the analysis, the Porter’s five forces have demonstrated that the industry’s competitiveness is subject to various forces. The forces identified as the existing rivals, new entrant, substitutes, buyers bargaining power and the suppliers bargaining power determine how competitive a business is. In that respect, the Analysis has identified McDonalds as having competitive strategies that enhance its position in the industry with the key strategy being differentiation. Further, the analysis of McDonald’s marketing mix identifies effective product positioning that seeks to align the brand products and services with the customers’ needs, tastes and preferences. That is considering the variety of products that the business offers and their suitability to the changing lifestyles and health concerns. Further, given the increased competition, the business seeks to offers value to customers through value pricing where food products are priced as items or bundles offering the customers value depending on their ability and preferences. In conclusion, it can be said that McDonald’s leadership in the industry owes to its competitive strategies addressing the competition and the effective marketing mix addressing the customer needs and preferences. With that, the brand has been able to grow in local and international markets. In recommendation, McDonald can enhance its performance and operations by addressing the industry and customers issues more effectively. For instance, although the brand advances in products, it relies most on its significant product the humbuggers hence a need to seek other more innovative products. Further, the brand has note effectively addressed the health effect of the consumers given that the customers are increasingly becoming aware of their health needs and the effects of the products they consume. With the two strategic actions, the brand would be able to satisfy the current and potential customers who consider the brand image and personal health as key factors in their buying decision.
Bojanic, D. (2007). Global Pricing Strategy for a Quick-Service Restaurant Chain. Hospitality Review, 25(1), 32 - 39.
Cateora, P., Gilly, M. and Graham, J. (2010). International Marketing. 15thEd. New York: McGraw-Hill.
Farahmand, A. & Chatterjee, C. (2008). The case for dynamic pricing. Hospitality Upgrade, 154-155.
Grundy, T. (2006). Rethinking and Reinventing Michael Porter’s five forces model. Strategic Change, 15, 213–229.
Keegan, W. and Green, M. (2012). Global Marketing. 7th Ed. New Jersey: Prentice Hall.
McDonald. (2014). 2014 Annual Report. Retrieved 31 January 2016 from, http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDonald's%202014%20Annual%20Report.PDF
McDonald. (2016a). McDonald Services. Retrieved 31 January 2016 from, http://www.mcdonalds.com/us/en/services.html
McDonald. (2016b). Marketing at McDonalds. Retrieved 31 January 2016 from, https://www.mcdonalds.co.uk/content/dam/McDonaldsUK/People/Schools-and-students/mcd_marketing.pdf
Metin, I. and Yildiray, K. (2015). Multinational Fast Food Chains: Global Think, Local Act Strategy and Consumer Preferences in Turkey. International Journal of Marketing Studies, 7(1), 106-116.
Naipaul, S. and Parsa, H. (2001). Menu Price Endings that Communicate Value and Quality. Cornell Hotel and Restaurant Administration Quarterly, 42(1), 26-37.
Rohani, A. (2012). Impact of Dynamic Pricing Strategies on Consumer Behavior. Journal of Management Research, 4(4), ISSN 1941-899X.
Senauer, B. and Seltzer, J. (2010). The Changing Face of Food Retailing. The Magazine of Food, Farm and Resource Issues, 4th Quarter 2010 25(4).
Soba. M. (2011). Ethical Approach to Fast Food Product Contents and Their Advertisement Strategies. International Journal of Business and Social Science, 2(24), 159 -167.
Stewart, H. and Davis, D. (2005). Price Dispersion and Accessibility: A Case Study of Fast Food. Southern Economic Journal, 71(4), 784-799.