Market Segmentation, Customer Habits and Purchase Behavior - Essay Example

Market Objectives This case study is focused on one single objective of how McDonald has been able to capture the changing consumer preferences. Based on the facts provided in the case study, following marketing objectives may emerge: 1. To successfully meet the changing consumer preferences by offering more healthy food. 2. To create awareness of the value of the healthy food and how it fits into the overall life- style of the consumers. 3. To be the preferred food restaurant for all those who require cheap and healthy food. Market Segmentation, Customer habits and purchase behavior Segmentation and Targeting The key demographic segmentation of the target market for UK is the adult as well as children. As of 2001, UK's total population was 59 Million out of which 29 million were male whereas 30 million were female. McDonald's have traditionally targeted busy individuals who may prefer to eat relatively inexpensive and good quality food without going into the process of preparing it therefore its immediate target market comprises of working adults however, it has also developed products such as Happy Meals, which are specifically targeted at children. McDonald's has been able to develop products which cater to both the segments. However, it is also critical to understand that most of the UK's population is now ageing with least preferences for eating food like that of offered by McDonald's due to obvious health reasons therefore Targeted segmentation may be going to change for McDonald's. UK's population is expected to grow by 8% by 2016 however, the total proportion of pensioners i.e. old age population would increase therefore there may be a shift in the overall demographics of the country. (The Times 100) It is also critical to note that the market segmentation of the firm is largely generic in nature as it attempts to capture almost every consumer in the market by offering them food products which fit into their life styles according to different criterion such as income, taste, preferences, excitement etc. Purchase behavior The purchase behavior is largely dominated by the increasing health consciousness of the consumers as they value health over the taste. This change in the psychographics of the consumers suggests that the trends are shifting towards consumers who prefer to have healthy food which not only fulfills their taste buds but also provide them necessary nutrition for maintaining an optimum level of health. Further, since the incidences of obesity are on rise in children too therefore there is also a general shift in the buying behaviors of the parents as due to health consciousness and improved health related education; parents prefer to have healthy food for their children. Competitive Situation There are two basis of competition in this industry i.e. the demographics as well as the personal income of the individuals. The competitive landscape in this segment of the market is therefore driven by the effective marketing and efficient operations. The following graph suggests the output growth level of the food services industry in next few years. The growth rates are more or less constant during next five years indicating that the industry may be heading towards its maturity stage.1 There are two close competitors of McDonald's in terms of size and presence in the market. KFC and Burger King Offer similar products offered by McDonald's with little or no differentiation in terms of quality. However, McDonald's has largest market share followed by KFC. This traditional superiority of McDonald's has been due to its competitive advantage it gained over the period of time. KFC has traditional lead in Chicken market where it offers products based on its unique and somewhat secret chicken recipe based on 11 herbs and spices whereas Burger King has the advantage in producing products which are considered as healthy. As such both the competitors are offering products which serve a particular niche market and focus on delivering value through the quality products i.e. products which are tasty and delight to eat. What distinguishes McDonald's from them is its ability to create a uniform environment in all of its restaurants as well as maintaining a certain level of quality standards. Business Analysis Macro Analysis McDonald has presence in many different countries of the world. This case study has focused mainly on two regions i.e. US and Europe. Since this case study will apply to the McDonald's UK therefore as a part of the Macro Analysis, PEST analysis will be performed based on factors present in United Kingdom PESTLE Analysis Political factors UK has one of the strongest political systems in the world which not only provide relative stability in political environment of the country but also serve as a strong signal for free market economic policies. There are very little or no legal barriers being created by the government through complex legislative process and as such the political environment of the country supports the free market enterprises and allows them to operate with little or no intervention from the government. Economic Analysis UK is currently passing through one of its toughest economic slowdown periods due to the global credit crunch and failure of the financial system. The consumer spending generally is on declining trends because there is a general increase towards saving more money for later spending. The current credit crunch has seriously hampered the economic growth of both US and UK and both the governments have effectively taken fiscal as well as monetary steps to correct it. It's because of this reason that UK's GDP declined to 0.7% in 2008 and is projected to record a negative growth during 2009. Apart from that, UK has made great progress towards achieving high economic growth during last one decade as it has not only recorded higher growth rates but economy all in all remained stable. UK's economy grew by an average growth rate of 2.7% since 2003-2007 whereas inflation remained under 2% during the same period. Social Factors The demographics suggest that there are two distinct age groups of customers for McDonald. The first group is children which are catered through products like Happy Meal etc whereas Adults who are more health conscious are served through health and nutrient products such as Salads, fresh fruits etc. The demographic trends also suggest that the increasing number of adults are becoming more and more health conscious due to increase in the incidences of obesity. Fast Food, being considered as rich in fats, therefore is not preferred. In order to capture the changing preferences of the demographics, McDonald's is therefore re-tailoring its menu and the different ingredients of it so that it better fits to the overall health requirements of the demographic groups served by the Co. Technological Factors There is a general shift towards the use of technological trends as more and more technological innovations are taking place. The changes in the technology therefore allowed Co to prepare better quality food for its customers however, on other hand, it is also important to understand that the improved technology have allowed governmental agencies specially to judge the quality of the food delivered to the consumers for example checking, whether frying of food at a certain temperature level will be safe for the human consumption or not. Legal Factors The market is relatively less regulated with few entry or exit barriers imposed by the government itself whereas it is however critical to understand that there are different health related regulations which firms, offering food products, have to follow in order to ensure that foods are prepared according to the health requirements of the consumers. Apart from this, there are very few legal barriers which can effectively restrict the smooth operations of the firms however, it is also critical to understand that UK is a part of EU therefore any move from EU to put new legal restrictions may therefore inadvertently been imposed in UK too. Environmental Factors The consumer market for fast food is largely becoming more health conscious due to the potential threats fast food consumption can entail. The increasing incidences of obesity suggest that the consumption of fast food may not be environmentally good because it can cause health related issues. The shifts towards sustainability as well as the health consciousness has therefore made consumers more aware of the environmental concerns and by being more conscious in their buying decisions, consumers actually tend to punish those firms which potentially threaten the environment. MICRO ANALYSIS The micro analysis shall be performed using SWOT Analysis as well as Porter's Five Forces. SWOT Analysis Strengths 1. Largest Food Chain in the world 2. World's eighth best brand. 3. Presence in almost all the regions of the world 4. A long and successful corporate history of performance. 5. Excellent research and development 6. Efficient work force. 7. Cleanliness of the food as well as the stores. Weaknesses 1. Largely concentrated in urban areas. 2. Slow in responding to changing consumer preferences. 3. Old dated menu Opportunities 1. Extend the same line of healthy food to other markets, especially Asian Markets 2. Tailor products to suit the ageing population of the country. 3. On average, Consumers spent GBP 82 during the year for eating fast food. This fact suggests that consumers are willing to pay higher as the same figure during 2006 was GBP 77. Threats 1. More ageing population of the country is decreasing the overall size of the market. 2. Economic situation may not permit consumers to engage into expensive eating habits. 3. More health conscious consumers may force McDonald's to change its menu and bring in newer and innovative products. 4. Competition is producing products which are more acceptable in the market than McDonald's. Porter's Five Forces Barriers to Entry Though there are no or low barriers to entry into the market because of the low cost of setting up such a business however, since McDonald is one of the oldest and largest food chains in the world therefore over the period of time, it has developed its competitive advantage in different areas of business. As such the firm is not only enjoying low cost but it has also the largest presence in the world therefore there are natural barriers to entry which effectively restrict the competition with McDonald at such a large scale. Threats of substitutes McDonald offer products which are mostly generic in nature therefore can easily be replicated thus the threats of substitutes are high as such products can easily be produced and sold at effectively low price. What is however important to understand is the fact that most of the players in this industry environment, cleanliness, delivery time etc compete on factors other than the product itself. Buyer Power Buyers' power in terms of price is very minimal because on one hand, food stuff offered by McDonald is cheap and almost within the reach of consumers and secondly, McDonald has been able to develop its unique position in the market due to its traditional competitive advantage. However, as buying power in terms of preferences is higher because buyers can easily shy away from McDonald because it failed to offer products which fulfilled the health needs of the consumers. Suppliers' Power Given the size of the McDonald's and its presence in international market, there is a very little power which suppliers can wield in their own favor. Since there are very few competitors of the size of McDonald's supplier power is minimal despite very low switching cost as well as low differentiation of inputs. Advantages & Disadvantages of Loyalty Program Advantages Disadvantages Loyalty programs allow would allow McDonald's to retain a permanent base of customers. Loyalty programs are expensive to run with uncertain returns. McDonald's may invest hugely but the extent of return will remain uncertain. Expenditure incurred on customers tend to increase over time however, old customers tend to cost less to serve them because McDonald can easily assess their present and future eating trends. In order to run loyalty program, McDonald will have to initiate a relationship marketing which may be a separate head of costs to be incurred. Profitability per retained customer is higher than the new customer therefore loyalty program provide an opportunity to retain profitable customers only. The average price charged by McDonald's is less than a dollar therefore it has to manage a large chunk of customers under its loyalty program to achieve the revenue targets. An average reduction of 5% in defection of customers increases profitability up to 25% depending upon the industry. Since loyalty programs are selective and targeted therefore they require huge investment into technology which may become redundant if loyalty programs are discarded. The marketing cost on a retained customer is less than to be incurred on a new customer. Major Problem The above analysis suggests that despite enjoying a leading position in the market, McDonald's have failed to anticipate the potential changes into the consumer preferences and tastes and continued to focus on its traditional competitive advantage. The rising incidences of obesity made consumers more conscious about their health and they stated to prefer food which is healthy as well as tasty however, McDonald's focused on its traditional strategy of offering a better eating experience to consumers by creating a very clean environment. It failed to take into account the fact that creating a clean environment may not be sufficient to attract customers for infinite period of time. Generally, complacency as well as inflexibility to change was the main reasons which did not allow McDonald's to focus on producing food which is health and according to the requirements of the consumers. As a part of its strategy to become more customer oriented, the subsequent actions of McDonald's can be termed as a shift from its traditional strategy where McDonald's re-focused on delivering healthy as well as tasty food. Conclusion McDonald's being one of the largest food chains in the world refocused its strategy on producing the healthy foods because due to the increased incidences of obesity in major markets i.e. US and UK, consumers became more health conscious and made conscious choices while purchasing food products. Works Cited 1. The Times 100. "The Impact of Changing Demographics in the UK Population." 2008. The Times 100. 04 January 2009 . Read More