Business Strategy of McDonalds - Case Study Example

Business Strategy of McDonald’s Contents Contents 2 Introduction 3 The strategies used by the McDonald’s Corporation to build and sustain competitiveadvantage and the strategic issues and options currently facing the organization 3 Conclusion 9 References 10 Introduction McDonald’s was founded in the year 1937 by Richard and Maurice McDonald. The success of McDonald’s on the international market space was its strategy of franchising. They implement this strategy by offering their products and tools to the local people who are well aware of the demand of the local market and hence result in the sales growth of the company. McDonald’s now operates over 100 countries with almost 20,000 restaurants, and amongst them 80% are franchisees. McDonald’s has remain the UK market for more than 30 years now, and it has tried to remain progressive and contemporary with the changing business environment and has always tried to meet the consumer demand (Hitt, Duane and Hoskisson, 2012, pp.76-77). The company carries extensive research on the needs and tastes of the customers and at the same time constantly changes their advertising campaigns. The main aim of the company is to develop their products in the best possible way and give their customers a great place to socialize, eat and have a great experience. McDonald’s has achieved its competitive advantage through charging low price for its products and increasing the volume. The strategies used by the McDonald’s Corporation to build and sustain competitive advantage and the strategic issues and options currently facing the organization McDonald’s attracts the consumers on a regular basis and at the most affordable prices. It aims at regular visits of the customers and hence does not display very high priced products on their menu. The product prices of McDonald’s are not standard for all the countries. It differs according to the location or rather the pricing strategy of McDonald’s depends on the local competition and promotions. McDonald’s has even changed the eating habits of the customers and attracts people at the peak hours by offering very low rates. McDonald’s follows an aggressive pricing strategy. McDonald’s products taste the same whichever country they operate, but they try and indulge some local taste so as to make it more appealing to the local consumers (Jeannet and Hennessey, 2005, pp.213-214). The company expands its operations internationally through franchising. They even aim at being the quick service restaurant and give their customers a good experience in terms of product quality, taste and cleanliness. The business strategy of McDonald’s comprises of the franchisee model, product consistency and act like retailer think like a brand strategy. The franchisee model that is adopted by the company helps it to maximize on the returns and minimize the investment. According to this model only 15% of the total number of restaurants of McDonald’s is actually owned by the company. The remaining is operated through franchisees. The company follows a well defined framework to constantly monitor and train the franchisee so that they achieve value for money, good quality services, cleanliness offered to the customers by the company (Hoskisson, Hitt, Duane and Harrison, 2007, pp.156-157). The company has been able to achieve consistency in its product taste and quality across the countries they operate through its strategy of developing sophisticated distribution system and supplier networked operation. McDonald’s plans its strategy by keeping the future in mind; it does not only focus on delivering sales in order to meet the present demand but also strives to maintain the brand reputation for long term. Following the marketing mix strategy McDonald’s has purposely kept the product width and product depth limited. It analysis the market in which it enters and then implements local taste into their products so as to achieve a competitive position in the local market. The product should be offered to the customer at the right place, and hence McDonald’s sets its infrastructure by keeping the taste of the target audience that is the younger generation in mind (Yuece, 2012, pp.14-15). The place offers high quality in terms of hygiene, internet facilities, music system etc. The pricing strategy that is followed by the company is value added pricing so as to attract the middle class people. The promotion mix used by McDonald’s is sales promotion, advertising, public relations, direct marketing, and personal selling. Through these effective communication channels the company has been able to transfer its messages to the customers and even deliver the desired products to the customers. Another strategy that the company adopts is of co-branding strategy (Aaker, 2001, pp.52-53). The co-branding strategy involves tie ups with another firm so as to offer both the products to the customers and even increase the sales growth of both the enterprises. Co-branding strategies requires certain agreement and contracts and on the basis of such agreement the individual firms bifurcates their earnings. McDonald’s had entered this strategy with Coca-cola so as to provide their customers with the best beverage options; another example of such co-branding is Walt Disney and McDonald’s, Barbie and McDonald’s, Cadbury and McDonald’s, Hot Wheels and McDonald’s (Mills, 2002, pp.104-105). The company even to attract more attention of the consumers have set up holdings in petrol pumps and even entered into collaboration with Hindustan and Bharat petrol pumps so as to set up their restaurants. The tie up of McDonald’s with that of the petrol pumps was more of a revenue sharing model. The main objective behind such a strategy was to target those customers who spend most of their time on the highways. The advertising strategy of McDonald’s was to reflect the warmth of life and it never included any comparison with its competitors but only focused on their products and their value added services. The constantly changing menu of McDonald’s and brand packaging has always met the needs of the consumers and helped to maintain its brand reputation. An essential business strategy of McDonald’s is the worldwide growth strategy. The company has implemented the growth strategy through adding restaurants, improving international profitability, and maximizing profit and sales at the existing restaurants. Maximization of profits and sales is achieved through product development, innovation, better operations, refinement, lower operating costs, and effective marketing (Proctor, 2014, pp.123-125). Improved international profitability can be achieved when the company benefits from the global infrastructure and when they achieve economies of scale at the local markets. The Ansoff matrix is an effective strategy design tool that helps organizations to grow the business via new markets or new products. There are four different strategies depending on the combination of products and services; they are market development, market penetration, product development, and diversification. (Pringle, 2008, p.165) The market penetration strategy is undertaken by company when it aims at penetrating a market with the current products. The market penetration strategy was well adopted by McDonald’s while entering into the Hong Kong and China market. Through this strategy though being an American brand it could penetrate into these markets which have a total different perception about the products offered by them (Neil, 2010, pp.72-73). The market development strategy is adopted so as to the target the segment of non-buying customers. The company has well adopted this strategy to different pricing policies and products depending on the taste and preference of the customers such as happy price menus, milk shakes, cold coffees etc to have a competitive advantage. The product development strategy is related to new product designs, market research and idea generation. McDonald’s has always launched new burgers over the time to attract new customer share, it always enhances its product line as well as develops new products so as to sustain in the highly competitive market. Diversification is a kind of growth strategy, and the company adopts this strategy when it wants to increase its profitability through increased sales volume through new products and new markets. McDonald’s has followed the diversification strategy by entering into the hospitality industry and opening up two four star hotels in Zurich and Lully in Switzerland (Cheverton, 2005, pp.142-145). According to Michael Porter and is generic model as stated in the diagram there is two potential base of achieving competitive advantage that is either by providing the lowest cost or by differentiating the products or services being offered. (Porter, 2013, p.151) McDonald’s has always aimed at producing different kinds of products through product development and co-branding. The company even achieves competitive advantage by offering the lowest prices for its products. The company attains competitive advantage mainly through differentiation of its products and by offering the best prices to the customers (Porter, 2008, pp.131-132). There are some strategic issues that are faced by the company such as a strong competition and more of health conscious people. The major competitors of McDonald’s are Wendy’s, burger king, Hardees etc who provide a variety of products to the customers. These brands provide a wide range of healthy products thus imposing a stiff competition for McDonald’s. The fast food companies strive in order to offer a healthy diet to the customers and in order to adapt to the changing tastes and preferences of the customers (Gillies, 1996, pp.161-162). People are more health conscious and it has been a major aspect for the company to launch a healthy diet in the form of sandwiches and salads so as to meet the changing needs of the customers and also to retain the customers. But this does not include any compromise in the original menu of McDonald’s. McDonald’s has the option of following the market leader strategy, it has already established itself as the market leader in the fast food market, it can develop on innovation, technology, infrastructure to stay one step ahead of its competitors and acquire new customer segment (Magretta,2013, pp.129-130). Effective training programs to the employees would help to enhance their skills to provide best customer service. The fortify and defend strategy would help the company to overtake its competitors and prevent the new entrants to capture market share. McDonald’s has the power of opening up more restaurants and capture more market share and even continuous investment on the R&D to develop new technologies in order to incorporate them into the business operations. This strategy would help the company to achieve efficiency, cost effectiveness and have a competitive advantage in terms of technology (Mcfarlin and Sweeney, 2008, pp.125-126). McDonald’s has already succeeded well in its global expansion plan and still has the option to expand worldwide by focusing more on the emerging markets rather than the domestic markets. Conclusion McDonald’s has always adopted the classic strategy of remaining focused on a specific market segment, in a specific type of place, minimizing their costs, having a limited product range, and possessing a competitive advantage in terms of products and quicker service. The strategy that the company implements are more focused on maximizing returns and minimizing the cost. It has been able to obtain the market leader position through the strategic approach of its business operations. It is well known for developing products on the basis of consumer preference and offer the lowest price compared to its competitors without compromising on the quality. These strategies have helped the company to maintain competitive advantage and sustainability in the highly competitive market. 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