Marketing Analysis: McDonald’s Company

Introduction

McDonald’s has operations in the franchising business as well as company restaurants. Revenue is gained from renting services and royalties where companies are charged fees depending on the local business conditions, amount of company investment, and type of service. According to the company’s 2008 annual report, the firm would continue making fast food outlets (not just bigger but better) by trying to understand customer needs and wants through enhancing sharing and ensuring they apply initiatives to have the best bottom-line impact & adoption of best practices and idea worldwide in the year 2009. The company aims at maintaining the balance between price and value, in addition to working on other areas.

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Background

Macdonald offers restaurant services for fast-moving foods, throughout the whole world. Having hit a record revenue income of $23 billion, the outlet operates in over 100 countries where it has opened up more than 30,000 restaurants. It increased its services to 1 billion more customers in 2007 compared to 2006. Over the years, the fast-food outlet has relied on the relationship between the suppliers, the franchise, and the company, to gain business success and to deliver relevant restaurant experiences to customers by playing an integral role (McDonald’s, 2008; 25).

Objective

This paper discusses the different strategies applied by McDonald’s Company as well as the environment of the business. Discussed in this paper are the marketing strategies the company has adopted and the general marketing theory applicable in business.

Literature Review

McDonald has strategically aligned its business to its Plan to Win strategic plan, by focusing on the five factors of exceptional experience namely; promotion, price, place, product and people. This strategic plan aims at making the company the best but not so much on being the biggest fast-food restaurant. The company has applied multiple initiatives to the five factors of customer experience aforementioned above.

Marketing strategies can largely be grouped into only two aspects; those aimed at gaining new customers and secondly those geared towards retaining customers. Customer retention marketing strategies are applied in order to have the customer continue using the product through introduction of reward programs. Customer retention will have an impact on the firm’s revenue as well as their costs. As a result of increased sales, the company will gain more revenues, whereas as a result of lesser generation and marketing costs of such revenues, the company will realize reduction on costs (Anonymous, 2006; cited in Mornay, 2009; 72).

The company has varieties of menu such as French Fries, Quarter Pounder with Cheese, and the Big Mac, and it was forecasted in her 2009 plans that the firm would continue to leverage the equity and the unique taste of these menu.

Companies in the global economy have been forced to re-evaluate their financial forecasts and operating assumptions. The current marketing environment is characterized by decreased customer loyalty and lengthening of sales cycle, in addition to slowing customer acquisition rate. The business focus has been shifted from acquisition of customers to customer retention. Frequent purchasing and loyal customers are needed in the fast food industry, because the types of commodities in these outlets are perishable. There have been claims that few businesses take the necessary initiatives to retain customers even though many spend a great deal of time, effort and money to recruit new ones (Brink & Berndt, 2004: 32). Mornay has indicated that earning a new customer is ten times more expensive than retaining a customer (2009: 70). The author points out to the idea that companies can use Customer Relationship Management (CRM) to build long-term relationship with the existing customers. The fact that even local firms are being faced with global competition necessitates the need to launch for programs that will enhance retention of customers. Fast food markets are characterized with globalization forces to heightening competition levels. This and other factors are forcing the companies in the market to launch or seek effective marketing as well as production strategies to reach the customer. It is possible for companies to establish long-term relationships with customers in a shift from the common trend of acquiring new ones on a short-lived basis such as ‘only one purchase’. While trying to focus on retention of customers, companies may have to consider Customer Retention Management (CRM) as a strategy. The idea of Customer Relationship Management (CRM) has gained grounds because businesses are looking at customers as important assets to be developed and looked after, rather than being exploited only (Iriana & Buttle, 2006: 24-26; cited in Mornay, 2009: 72). In this respect, it is important to study the behavior of customers so as to be able to develop strategies and programs aimed at establishing long-term relationship with them. The value of the customer for the entire period he/she relates with a particular business can be measured by CLV (Customer Lifetime Value) (Grönroos, 2000; cited in Mornay, 2009: 72).

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Another turn to marketing strategy which could be applied in the fast food market is the defection management where the company is concerned by the number of customers that are leaving the business. One way to ensure that they win in this aspect is to build the internal structures where the employees are trained over tactics to relate to the customers and thus to reduce the rate of customer defection. Employees can be trained to be knowledgeable and friendly to the customers (Herington et al., 2006; cited in Mornay, 2009: 72). In this aspect, the company must be willing to invest both time and money in order to study factors of customer attrition and identify those factors that can be managed better. Although a business may loose customers because of stiff competition, it is likely that most of the factors leading to customer loss are those related to internal structures such as marketing, because normally the company should be willing to explore options to beat the competitors both in retaining customers and acquiring new ones. Moreover, improvement of internal structures to retain customers is not only enough, but that the companies must be willing to focus on what cost-effective options are available. Companies must launch customer retention efforts that are less costly than the profit to be lost by having the customer move away. However, some of these issues are not as easy to analyze.

Another marketing strategy applied by the company is the geographic strategy where for example, in the core areas of the U.S., it focuses on breakfast, chicken, beverages, and convenience. McDonald has also adopted tiered menu method in Europe where the menu consists of everyday affordable offerings, classic menu, and premium selections. In addition to the Plan to Win strategy and the geographical market strategy, McDonald has also applied organizational strategies aimed at delivering a variety of menu, putting the needs of the customer first, having better operations at the restaurant, having choices of beverages, restaurant reinvestment, and convenience & daypart expansion. The company had plans to continue focusing on its strengths to advance business in the year 2008. These strengths included daypart expansion and menu availability and convenience in addition to testing and implementing initiatives. The company could increase sales and guest counts further by focusing on menu variety and beverage choice. The company planned to continue operations for late night food customers and also increase efficiency in its drive-thru pick up window. The company has, according to McDonald’s (27), made efforts to make the local restaurants or franchises have a local relevance in addition to making them have global relevance. These have played an important role in ensuring that the company remains competitive in the local market. The company sought to pursue or boost its goal to double sales at existing U.S. restaurants over the next decade, by opening up the McCafe’s according to Peter & Donnelly (2007; 253). The company has not left out leadership and management, training and recruiting of employees as well as the general development of the latter in its organizational strategies.

Other strategic marketing plans that have been explored by the organization includes; making efforts to have a better brand transparency, serving the mobile populations in China and Russia through introduction of drive-thru and increasing the efficiency of drive-thru in U.S. and Canada through the use of double drive-thru lanes to serve more customers quickly (McDonald’s, 2008, 13). The company sought to establish an additional 100 McCafes for the German market. High food quality would be aided by the newly constructed kitchen operating systems.

One of the important aspects that are necessary for marketing effectiveness is customer satisfaction. Without customer satisfaction, retention of custom clients may be tricky because they will be discouraged from continued use of products. Customer satisfaction implies the meeting of the expectations of the consumer, by what the marketer is offering, i.e. the degree to which the expectation is met by the goods or services. The customer is satisfied when his or her expectations are equaled or exceeded by the marketer. The value, i.e. the difference between the cost of acquiring the product and the worth the customer derives from using the product (Leverin & Liljander, 2006), is what the customer want from products and marketers must be willing to offer products of value in order to succeed in business. The research by Mornay established that in order for some food outlets in South Africa to ensure they survived in highly competitive environment, it had become increasingly important for them to establish long-term relationship with their customers. These included; Steers in the provinces of Kwazulu-Natal, Wes-tern Cape and Gauteng; Nando’s and something Fishy fast food outlets. Factors that contributed to customer satisfaction according to this research included price affordability, product quality as the main determining factor, and customer service which influenced customer retention. By taking care of everyday affordability and convenience, being concerned of customer needs for menu variety and beverages in the year 2009, according to their 2008 annual report, MacDonald’s could boost its customer satisfaction. The company would also see its clients get more value for their money in the year 2008 (according to their annual report aforementioned), by continuing with its initiatives i.e. classic menu favorites and mid-tier offerings.

The company was involved in the 2008 Olympics and this helped them to enhance their brand image in a positive way. Macdonald recorded sales of 5.4% in U.S. during the month of January. The company recorded a 7.1% in Europe in the same month, and the increase was enabled by the classic favorites, everyday affordability and premium menu offerings. Russia, Germany and the U.K. led the comparable sales. As a result of strong sales growth in China, Australia and many other countries, comparable sales for the Asia/Pacific, Middle East and Africa recorded growth of 10.2%. The performance was locally fueled by successful Chinese New Year promotions, convenient operating hours, beef choices and relevant chicken choices (McDonald, 2009).

Promotions are a very good way for a company to market itself to the community. Promotions cover a wide range of products and the company must be careful to implement strategies that are to yield the maximum benefits. Marketing hypothesis identifies push and pull as the two forms of strategies. Through the push strategy, the company creates consumer demand for a product using the sales force and trade promotions. The customers are directly reached by the producer through the retailers who are reached through the wholesalers. This strategy is advantageous because the producer attempts to by-pass other people on the distribution channels. Consumer demand for certain products is built through advertising and consumer promotion in the pull type of strategy. The customers begin the process to ‘ask’ the product if the initiative was successful (Tutor2u, n.d.).

MacDonald has also utilized promotions across the globe to market her products. During the year 2007, 115 countries participated in the ‘Shrek the Third’ promotion which also involved collaboration with DreamWorks. This promotion involved helping children to play outside through the Treketh to Adventure ‘global kids’ website. The company also aimed in 2007 to have the MacDonald’s Champion Kids that would help the kids to participate in the Olympic Games and to act as young reporters in the sports.

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Four building blocks that would enhance a company’s reaping off from promotion are; concept, creative, communication and competition (Otilia, 2009). The aforementioned author has indicated the importance of companies carrying out market promotions while basing them on scientific approach rather than conventional marketing wisdom and wishful thinking, to maximize their benefits. Promotion requires creativity. According To Otilia, companies are to avoid the deterioration of brands in this year (2009) through providing addition of value for the brands, and continue to spend on promotion.

While considering carrying out promotions, there are a number of things that a company should look at. The audience is the target people or group which the company seeks to communicate about its products. In order to make sure that the benefits are maximized through maximal exposure for example, the company should ensure that the audience to be reached is large enough. The hotel or fast food industry can target audience in open airs markets; drive-thrus such as those by MacDonald’s e.t.c. Fast food industries can explore different types of marketing promotions including in-pack promotion. In the latter, a good is offered for free for example when selling a pack of the products. Hotel industries dealing with a wide range of commodities can do this type of promotion, especially for small products that are sold in packs. Self-liquidating promotion is where a promotion is made on certain products and the customer purchases one or more of the product, and then sends the token on them or some to receive the premium being offered on the product (s).

The fast food industry has explored fast food promotion where customers or their kids are rewarded for eating out at their outlets. The outlet offers premiums like toys for the children when their parents purchase certain meals. Companies can unite in promotion through cross promotion where two brands are promoted together and that one brand carries an offer for the other. Thus, a brand may reach the market where it was not to reach. Companies may again pull efforts together to carry out promotions so as to minimize costs (i.e. of carrying out promotions).

Loyalty programs are an important aspect for the hotel and fast food industry. Companies in these industries must be geared towards retaining the customers that they already have, in addition to gaining more customers. But it is essential to have effective loyalty programs that will achieve the maximum benefits possible. Loyalty programs are meant to have the customer continue to use the product again and again for a long period of time, and are very necessary in the face of much competition. Some of the loyalty programs focus on earning points as you continue to do business with the company, and be rewarded with company products on reaching certain targets through redemption of these points. Customers can also be rewarded with holiday travels and merchandise among other things. Other programs involve turning over incentives to clients when they return to purchase at your business (McBride, 2007). One of the factors that can be considered when deciding on the loyalty program is the average sale of the product or service of the business. This can help decide whether to introduce point system loyalty program or not, for example. If the business is earning many dollars a day and involves a business with a catalogue sales company, one can contemplate on having a point system loyalty program.

Findings and Analysis

The company according to her annual report (2008) had established an aim of building relevance and loyalty by maintaining the connection between her and the customers. Loyalty programs also achieve the benefits of customer retention, which may have also various benefits. These includes among others, price premiums as the current customers do not wait for price reductions and promotions before they make their purchases, growth in customer revenue over time, and a guarantee on base profits because current customers are likely to have a minimum spend per period (Brink & Berndt, 2004:34; Mornay, 2009; 72).

Building on relevance and the quality for products is very important in the fast food industry because the industry has competitors. Competition also may make the companies to continue investing in innovative marketing strategies in order to remain in the market. Burger King poses the main competition in the United Kingdom whereas Wendy’s Taco Bell and Subway are the main competitors in the U.S.A. It has been found that McDonald’s would prefer being at the same place with Burger King in small market areas than the two having only slight distance apart. However, greater differentiation treats McDonald’s better because they earn more profits. McDonald’s has been found to prefer central location (or that they set outlets in the central position in the small markets as compared to Burgher King who appear to prefer setting their outlets at the side of the market). While price competition pushes MacDonald’s to desire for differentiation, the same shifts Burger King’s incentives toward locating closer to McDonald’s. Symmetric firms will, according to author, be pushed to differentiation in case of price competition (Thomadsen, 2007).

Technology has played a very vital role in establishing and maintaining the relationship between customers and companies or businesses especially in the CRM according to Bolton (2004). It is possible through technology to evaluate current and future high-value customers through analyzing cost data and customer revenue via technology. Businessmen and companies are able, through technology, to create new distribution channels and they can be able to capture relevant product and service behavior data. It is possible today to process transactions faster through development of new pricing models by means of technology. According to Nusair and Kandampully, technology has also enhanced the recruitment of new customers and the retention of new ones.

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Advertising is an important aspect in any business for successful marketing. It involves creating awareness of the products on offer through the media. The company spent $703.4 in the year 2008 compared to $718.3 in 2007. The company also incurred production costs for radio and television advertising in company operated restaurants, as well as advertising cooperatives in individual markets by franchises (McDonald’s Corporation, 2008). Advertising has something to do with the reaching out of population, and strategies to have the maximum benefits from advertising need to be used. Radio and television have been applied for fast food advertising. Advertising theory has to do with communication, advertising and influence. Advertising is not only supposed to make known the products but also to communicate with the target audience and influence them to respond by buying the commodity. In order to accomplish the purpose of communication, advertisement should include customer response to the message sent to them. According to the interactive model of communication, customers will have a greater control over what to process and that they will have many more options available to them. Customers may respond by buying the product on offer, and then establishing a long-term relationship with the marketer. The type of advertising channel to use depends on the effectiveness, coverage and availability, cost among other things. Some channels of advertising are more influential than others. Television advertising may be considered better because customers wishing to visit places for leisure and eating out may be visualizing what is being advertised and so may be influenced to purchase commodities.

Conclusion

In conclusion, effective marketing strategies are required in the current competitive market. Local companies face competition from the global market. There are two broad categories of marketing strategies, namely those meant to retain customers and those that are meant to win new customers. MacDonald’s has to introduce a variety of food as well as applied geographical strategy to run their business. They face competition and therefore they may be forced to continue investing in new marketing strategies.

Reference List

Bolton, M., (2004). Customer centric business processing. Int. J. Productivity Performance Manag. 53(1):44-51

Brink, A., and Berndt, A. (2004). Customer Relationship Management and Customer Service. Lansdowne: Juta & Co. Ltd.

Leverin, A. and Liljander, V. (2006). Does relationship marketing improve customer relationship satisfaction and loyalty? Int. J. Bank Mark. 24(4):233-251.

McBride Sandy. (2007). Sales Promotions: The Benefits of Loyalty Programs. Web.

McDonald’s (2008).  Annual Report.

McDonald. (2009). Financial Releases. Web.

Mornay Roberts-Lombard. (2009). Customer retention strategies implemented by fast-food outlets in the gauteng, Western Cape and Kwazulu-natal provinces of South Africa – A focus on something fishy, nando’s and steers. African Journal of Marketing Management. Vol. 1(2) pp. 070-080.

Nusair, K., Kandampully, J. (2008). The antecedents of customer satisfaction with online travel services: a conceptual model. Eur. Bus. Rev. 20(1):4-19.

Otilia Otlacan. (2009). ConsumerTrack Marketing Research Study 2009 highlights the four C’s of promotional marketing which form the building blocks of successful offer.

Peter, J. P., & Donnelly, J. H.Jr. (2007). Marketing Management (8th ed.). New York: McGraw-Hill Irwin.

Thomadsen Raphael. (2007). Product Positioning and Competition: The Role of Location in the Fast Food Industry. Marketing Science. Vol. 26, No. 6, 2007, pp. 792-804. Web.

Tutor2u. (n.d.). Promotion-push and pull strategies.

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