This chapter begins by giving general background of the company. It continues by outlining the aims and purpose of study along with approach and methodology used to understand global business and the strategies used in concerned organization.
McDonald’s is one of the leading restaurant chains in the world. The business began in 1940, when two brothers Dick and Mac McDonald in San Bernardino, California open a restaurant. They had introduced “speedee Service System” in 1948 which was their one of the principles of their modern fast food restaurant. Before that, it was a Bar-B-Que restaurant which brothers had open in California. McDonald has had always been famous because of its HAM BURGERS. As per
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the information of the McDonald’s history, real money has generated from sale of hamburgers, which had sold at nominal price of 15 cents. The restaurant gradually become famous and the brothers begin franchising their restaurant in the year 1953. Later in 1961 the Hamburger University was opened, which gave away McDonald’s restaurant Bachelor of Hamburgology degrees to students. In 1963, the mascot Ronald McDonald was born as a part of a marketing strategy in US. Considering the huge success and brand McDonald’s has become, the food chain is spread across the world in almost all the major cities of the globe. Being economic and user friendly, the success rate of the company cannot be doubted.
1.2 Facts and Figures
These facts are obtained from McDonald’s new term “Travel Trough Time With Us!” Source: www.aboutmcdonalds.com/mcd/our_commpany/mcd_history.html
These facts have written below date wise from 1940 to 2009.
Note: Only the important facts of the company are entered.
In 1940, Dick and Mac McDonald open McDonald’s Bar-B-Que restaurant on Fourteenth and E Streets in San Bernardino, California. It is a typical drive-in featuring a large menu and carhop service.
In 1948, Brothers shut down their restaurant for alterations. Three months later, it reopens as a self-service drive-in restaurant. The menu is reduced to nine items: hamburger, cheeseburger, soft drinks, milk, coffee, potato chips and a slice of pie. The staple of the menu is the 15-cent hamburger.
In 1954, Multimixer salesperson Ray Kroc visits McDonald’s in San Bernardino intending to sell the brothers more Multimixers. The 52-year-old Kroc was fascinated by the operation.
In 1959, McDonald’s has completed its opening of 100 Restaurant.
In 1965, McDonald’s celebrates its 10th anniversary with the first public stock offering at $22.50 per share.
In 1967, The first international McDonald’s restaurants open in Canada and Puerto Rico. Today McDonald’s restaurants are in 119 countries around the world.
In 1980, In 1980, McDonald has celebrated its 25th anniversary in the period of 1967 to 1980 in-between McDonald’s had introduced some new menus and indoor sitting restaurants in the world.
In 1996, McDonald’s had launched its first website McDonalds.com it was a corporate internet site.
In 2005, In 2005 50th anniversary of McDonald’s was celebrate in the world
In 2009, Today McDonald’s has become world largest fast food chain it has made so many changes and has introduced new menus and service styles.
1.3 Target Market
McDonald’s main purpose is to focus all types of customer. Its target market is for everyone in community all over the world. From vegetarian to non-vegetarian
McDonald’s define its target market using term segment of demography. The segments of the demography are; family life cycles, age, Nationality, Income, Generation etc. Although McDonald’s provide good quality food at low prices, they have introduced a new slogan for McDonald’s “there is McDonald’s for everyone”
1.4 Aims and Purpose of Study
The purpose of this study is to analyse the strategies, which are being used in McDonald’s. Furthermore, I shall look at environmental factors influencing McDonald’s business throughout the world. All the analyses will make on the bases of information provided in assignment material. This study will create a deeper understanding of making analytical decisions, planning effectively, and about strategies, which businesses use when they expand their business globally.
1.5 Approach/ Methodology/ Theoretical Framework
1.5.1 Research Approach
With this study, I shall seek to understand how the environmental factors affect McDonald’s business and what strategies McDonald’s use to deal with it. McDonald’s is a multinational US company with 1700 restaurants in about 120 countries in the world. What distinguishes a case study is its focus on environ-mental factors and strategies. With this case study, one can also consider things in detail by being given greater opportunities to go deeper and discover things that might not have been visible at a more superficial study. Further, I have chosen to make a qualitative research but also a limited quantitative research. The main part of this case study based on the questions asked in given material. These questions will answer on qualitative research basis.
1.5.2 A Qualitative Research
A qualitative methodology means that the authors looks upon people, settings and groups in a way that does not reduce them into figures or variables (Taylor & Bogdan, 1984). Qualitative research is concerned with collecting and analyzing information in as many forms, mainly non-numeric, as possible. These are descriptions that’s fits in this approach used when conducting the research within this paper since my study consists of qualitative data collected from one hand literature and research that has already been made within this field. I have experienced both benefits and drawbacks with using a qualitative method in this research. The positive side is that I have been able to understand my subject deeply. I have also experienced that I have been able to control that we understand things right. The drawbacks that I have experience during this case study that my total reliance on the given material was not enough to complete this study. The qualitative method also meant that I could not generalize my results to the same extent as one could have done with a quantitative research.
1.5.3 Literature Review
The literature I have used in this study mainly acquired from internet. I have used many sources in various forms such as books, E-books and some of the articles. Furthermore, data provided by the module leader has helped me to get deeper kn-owldge about subject. One of the advantage-using internets is that they have up to date data than regular books. A large part of the material reviewed has not directly used in the study. However, it has provided more general knowledge within the subject. I have used both primary and secondary sources. Nevertheless, in the majority primary sources has used. As I have mentioned above my selection process was conducted in a very through way since it is important to critically review and assess secondary data. I consequently had the ambition throughout the work with this study that I searched for a broad literature base as possible in order to give several authors perspective upon the given matters.
Question No. 1
Discuss the environmental factors affecting upon McDonald’s placing emphases on the key drivers?
However, McDonalds is a multinational organization that does business throughout the world. It faces environmental factors during the process of internationalizing the business. These factors include internal and external factors, SWOT analyses as well as PEST analyses. Globalization has made global considerably smaller. States lines have turned into practically a divider separating certain regions of a massive unitary community. Businesses are the one that are highly affected by this occurrence. The following annotations and propositions employed in the following discussions are to be supported by claims on journals ands academic pieces that address international expansion strategies and international marketing theories.
2. Internal and External Factors
Three factors were chosen to outline the success of McDonald’s corporation. The first factor is globalization, which is define as closer contact between different parts of the world, with increasing possibilities of personal exchange, mutual understanding and friendship between world citizen. Diversity, the difference between people and culture is the second factor. The final factor is ethics, which can be defined as a set of principles of right conduct.
Today, corporations and enterprises are expanding their business in the global market. Globalization is necessary for success and survival in the worldwide market. However, it is not easy to do competition global market and make business successful there. As a leading fast food service retailer, McDonald’s joins best multinational companies with restaurants in 120 countries. Important strategic decisions are a key factor to their success with consideration for both internal and external factors. When considering the foreign market, companies need to consider there are risks. There must be local marketing to appeal to the local consumers and to build relationships and trust.
Therefore, the strategic planning for marketing has to be effective. McDonald’s caters its menu in other countries to the culture of the regions. For example in India beef is not include in non-vegetarian menu, because beef considered as sacred. Global marketing decisions are not different from those made domestica-lly but the decisions are to unique to each country. Furthermore, operating on a global scale allows a company’s employees to experience working in different cultural environment. This is a global marketing strategy for recruiting employ-ees. McDonald’s has a global core curriculum for its restaurant management.
McDonald’s commitment to diversity is established on the foundational belief that diversity is not just a moral and ethical issue, but also a business issue. Due to global expanse of McDonald’s business, diversity has become an integral part of the internal company culture. McDonald’s has almost over 30000 restaurants in the world that means franchise, operators, employees, and customers represent just about every culture, religion or ethnicity on earth. In addition, McDonald’s promotes the use of local suppliers and based on their policies of diversity, expects and retains suppliers that have a similar diversity culture. Knowing and understanding the local customs and traditions of the communities where McDon-ald’s has establish businesses, integrating people from these communities into the company, and adapting locally to the tastes and cuisines of the community, has made McDonald’s the leader in their industry.
McDonald’s realizes that diversity as an asset greatly enhances the profitability of the company. Diversity is a direct reflection of company’s interpersonal relation-ships. These relationships, if positive, result in a rewarding venture. Conversely, if the relationships are negative, the company’s morale declines and if not addressed, leads to the deterioration of the company. This deterioration directly affects the company’s income and the community’s acceptance of the business.
McDonald’s success built on the foundation of personal and professional integrity. From the beginning, McDonald’s has based its reputation on trust and dependability, and their commitment to the community made them a household name. Founder Ray Kroc, believed in giving something back to the community in order to make the world a better place. McDonald’s has always behaved ethically in the world by giving them good customer service.
Throughout the 1970’s McDonald’s become involved with a lot of charity work. In 1974 established a charity called Ronald McDonald house. The purpose of this programme was to provide temporary housing for the families of seriously ill children receiving treatment at nearby hospitals. In addition to their community involvement, McDonald’s has a long-standing commitment to environmental protection. Restu-rant around the world has innovative programs for recycling, resource conservation, and waste reduction. The environmental achievements of this corporation have been recognized by organizations such as the Audubon Society.
3. PEST ANALYSIS
According to Ellis and Williams, (1995) The PEST analysis covers the key aspects of the external business environment that will have an impact on operational performance in a new market entry. The term PEST stands for, political, economical, sociological, and technological factors. In a new market analysis, these features are difficult to ignore since they will effect the organization. The combined factors in the Pest analysis provide a summary of the driving forces in the macro environment. The goal of the following analysis will be to display how they will interfere with the organization or the industry. Only looking into the macro environment of a market will not be sufficient to make a decision on whether to enter a market or not, thus additional information is required. The company also has to look into the condition of the specific industry and the specific requirements of their potential customers and competitors.
3.1 Political Factors
The international operations of McDonald’s are highly influenced by the individual state policies enforced by each government. For instance, there are certain groups in Europe and the United States that clamour for state actions pertaining to the health implications of eating fast food. They have indicated that harmful elements like cholesterol and adverse affects like obesity are attributable to consuming fast food products. McDonald’s always has to face policies of each country during the process of expanding its business in different countries. McDonald’s has to comply with local laws and customs and the policies made by the concerned country.
3.2 Economic Factors
Organizations in the fast food industry are not excused from any disputes and troubles. Specifically, they do have their individual concerns involving economic factors. Branches and franchises of fast food chains like McDonald’s has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates. The customers consequently are faced with statement of going over their individual budgets whether or not they should use up more on these foreign fast food chains. Hence, these chains may have to put up with the issues of the effects of the economic environment. Particularly, their problem depends on the response of the consumers on processes and how it affects their general sales. In regarding the operations of the company, food chains like McDonald’s tend to import much of their raw materials into a specific territory if there is a death of supply. Exchange rare fluctuations will also play a significant role in the operations of the company.
3.3 Social Factors
The multifaceted character of business nowadays has reflected in the harsh significance of the information on the subject of the existing market. This procedure is essentially identified in the field as market research. Information concerning the appeal and potential fields of the market doubles as obstructions to the success of the company if this area of the operations have neglected.
McDonald’s establish a good system in determining the needs of the market. The company uses concepts of consumer’s behaviour product personality and purchasing decisions to its advantage. Articles on the international strategies of McDonald’s seem to function on several fields to guarantee lucrative returns for the organization. Organization improves on establishing a positive mind-set from their core customers. It has also been noticed that the company has given the markets such as United Kingdom, an option concerning their dining needs.
3.4 Technological Factors
McDonald’s generates a demand for their products. The company’s key tool for marketing is by means of television advertisements. There are similarly some claims that McDonald’s are inclined to interest the younger populations more. The existence of play spots as well as toys in meals offered by the company shows this actuality. Other demonstrations of such a marketing strategy is apparent in the commercials of they use. They employ animate depictions of their characters like Grimace and Hmburglar. Other advertising operations employ popular celebrities to promote their products. The like Justin Timberlake has become endorsers for McDonald’s worldwide “I am lovin it”.
4. SWOT ANALYSIS
SWOT is a common strategic tool used to summarize or identify a company’s key internal strengths and weaknesses, along with external threats and opportunities. The S-W-O-T structure produces a good overview of the organization’s position, strategy or planed business activity, and can be used in all forms of decision-making (Chapman, 2004). While some authors express SWOT as an analytical tool, other sees it as practical instrument to summarise results found in previous analyses, such as pest analysis or competitor analysis. When SWOT was developed in 1960, the intention was to explain why companies strategic planning failed. However, the SWOT evolved and it is now commonly used in the analysis of companies, industries and even countries.
McDonald’s has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 30,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11, 4009 million), 5.6% sales growth.
Good innovation and product development. It continually innovates to retain cus-tomers in the business.
The McDonald’s brand offers consumers choice, reasonable value and great service.
Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises.
Loyal staff and strong management team.
Core product line, keeping in mind the trend of healthier lifestyles for adults and children. Product line mainly focused towards hot food and burgers.
Quality issues across the franchise network
Joint ventures with retailers (e.g. supermarkets).
Consolidation of retailers likely, so better locations for franchisees.
Respond to social changes by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning.
Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modelling and profiles of shoppers) and prevent brand switching.
Strengthen its value proposition and offering, to encourage who visit coffee shops into McDonald’s.
The new “formats”, McCafe, having Wi-Fi internet links should help in attracting segments. Also installing children’s play parks and its focus on educating consumers about health, fitness.
Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages.
International expansion into emerging markets of China and India.
Social changes, Government, consumer groups encouragement balanced meals, 5 day fruit and vegetables.
Focus by consumer on nutrition and healthier lifestyles.
Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products, (e.g. subway, supermarket, and M&S etc).
Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors.
Pressure groups – environmental.
Based on the given internal and external data about McDonald’s critically evaluate the current strategies in use?
Strategy is primarily a broad and complex concept. In an attempt to provide a definition, Porter (1996) states: “Strategy is the creation of a unique and valuable position, involving a different set of activities”. The essence of strategic position-ing is to choose activities that yield superior profitability because they are differe-nt from rivals’ and thus create a sustainable competitive advantage.
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McDonald’s overall strategic plan called Plan to Win. Their focus is not so much on being the biggest fast-food restaurant chain; rather it is more focused on being the best fast-food restaurant chain. McDonald’s strategic alignment behind this plan has created better McDonald’s experience through the execution of multiple initiatives surrounding the five factors of exceptional customer experiences- people, product, place, price, and promotion.
McDonald’s incorporates several organizational strategies. Some of the orgnizat-ional strategies consist of better restaurant operations, placing the customer first, menu variety and beverage choice, convenience and day-part expansion, and on-going restaurant reinvestment. McDonald’s plan to continues drive success in 2008 and beyond by leveraging key consumer insights and our global experience, while relying on our strengths in developing, testing and implementing initiatives surrounding our global business drivers of convenience, branded affordability.
5. Marketing Mix
Types of marketing mix that McDonald’s use to achieve their marketing goals are longer operating hours, everyday value meals, and optimizing efficiency in the drive-thru. McDonald’s also use market campaigns. Another marketing tool whi-ch McDonald’s use s customer perception and expectation. Customer perception is a key factor affecting a product’s success. Many potentially revolutionary products have failed simply because of their inability to build a healthy perception about themselves in the customers’s mind. McDonald is being an internationally renowned brand brings with it certain expectations for the customers. Customer expects it to be an ambient, hygienic and a little sophisticated brand that respects their values.
McDonald’s Marketing Mix (5 P’s)
The five P’s used by McDonald’s are:
Product is the physical product or service offered to the consumer. Product includes certain aspects such as packaging, guarantee, looks etc. This includes both the tangible and the non-tangible aspects of the product and service.
McDonald’s has intentionally kept its product depth and product width limited. McDonald’s studied the behaviour of the Indian customer and provided a totally different menu as compared to its International offering. It dropped ham, beef and mutton burgers from the menu. India is the only country where McDonald’s serve vegetarian menu. Even the sauces and cheese used in India are 100% vegetarian.
The place mainly consists of the distribution channels. It is important so that the product is available to the customer at the right place, at the right time and in the right quantity. In United Kingdom nearly in every town, there is a McDonald’s outlet. There is a certain degree of fun and happiness that a customer feels each time he dines at McDonald’s. There are certain values propositions that McDonald’s offer to its customers based on their needs. McDonald’s offers hyg-ienic environment, good ambience and great service. Now McDonald’s has also started giving internet facility at their restaurants and they have been playing music through radio instead of the normal music. There are certain dedicated as for children where they can play while their parents can have some quality time together.
Pricing includes the list price, the discount functions available, the financing options available etc. it should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part, which generates revenue. All the other three are expenses incurred. This price must take into consideration the appropriate demand-supply equation.
McDonald’s price strategy is always been different from others McDonald’s has offered various price range of meals in every country to capture the entire customer. From high class to middle class to lower class McDonald’s has good prices for everyone.
There are three main objectives of advertising for McDonald’s are to make people aware of an item, feel positive about it and remember it. The right message has to be communicated to the right audience through the right media. McDonald’s does its promotion through television, hoardings and bus shelters. They use print ads and the television programmes are an important marketing media for promotion.
McDonald’s understands the value of both its employees and its customers. It understands the fact that a happy employee can serve well and result in a happy customer. McDonald’s continuously does Internal Marketing. This is important, as it must precede external marketing. This includes hiring, training, and motivating able employees. This way they serve customers well and the final result in a happy customer. The level of importance has changed in the following order customers, front line employees, middle level managers, front line managers.
McDonald’s in China
In 1990, McDonald has opened their first store in Shenzhen (Hong Kong). Nevertheless, before they actually started their business, McDonald’s had already carried out 5 years business research and all sorts of information gatheri- ng such as the income level of the Chinese people, the kind of foods they enjoy etc. Moreover, their re-design of the counter, chairs and desks reflected their considerations of the height and body shape of Chinese people. They made many efforts to promote their American burgers, and wanted to repeat the same success in China market as they have done elsewhere. There are many reasons to explain it; one important issue, which has once been ignored by McDonald has, is that Chinese people are more prefer chicken dishes than beef burgers, which are their main products. After identified this problem, McDonald’s has tried to adapt more Chinese tastes by adding more chicken meals into their menu for attracting more customers.(Chinese website)
How the strategy influence by external environment?
The external environment can be divided into several sectors. In this section, I will only discuss two important parts: competitors, social concept (healthy problem) and uncertainty situation, which can greatly influence McDonald’s strategies. Then at the last part of this section, I will discuss one particular strategy they used which served for their future developme-nt purpose.
It is unlikely that McDonald’s can always be No.1. In an annual consumer satisfaction survey, McDonald’s has scored dead last among fast-food restaurants since 1992. In the fourth quarter of 2002, McDonald’s has disclosed its first-ever quarterly loss; one reason why McDonald’s is struggling is that the consumers began to switch to its competitors, such as Burger King, Wendy’s, and Subway. These companies emphasized on offering fresher, hotter, high-quality foods at lower price with faster service.
On the other hand, McDonald has decided to close 719 poorly performing restaurants around world. All of these simply proved that McDonald’s might no longer be competitive in the fast-food market. Moreover, if McDonald’s cannot adapt external environment change, they might be gradually diminished and even replaced by other competitors. In order to keep their market share, increasing sales and profits. McDonald’s has to respond to the threat of competitors. In 2003, McDonald has offered the McGriddles sandwiches in the US and the Canada feature breakfast. Meanwhile, McChicken Premiere and a zesty chicken have introduced in the UK, France, Italy and Belgium. McDonald’s was trying to satisfy customer’s desire for premium products at affordable prices.
Social problem -healthy issue
With the economic development, people’s living standards have increased dramatically these years. People are becoming more concerned about their health issues. It cannot deny that McDonald’s has attempted to make itself more convenience for the people. However, people also believe that such kinds of fast food are not good for their health. The world health organization’s report presented that those food not only can cause the obesity of children, but also is part of the reason of causing cancer. Healthy issues became the biggest obstacle to the development of McDonald’s. Customers were switching to healthier offering, such as Subway’s sandwiches, or KFC’s mashed potato instead of fried potato. McDonald’s has responded to this healthy trend. In order to compete, McDonald’s has added salads and other lighter options into their menu. If a mother comes in, she is not only buy the happy meal for her children, she will also be likely to buy herself a meal too .the lighter options also encourage existing customers to come back more often, because there are a greater variety of choices.
Internationalizing a business requires tact, finesse and innovativeness. This work set out to investigate a real life start-up a company and compare their international process with the academic taught theories. McDonald’s is a multinational enterpr-ise. As environmental factors affect businesses in the world same thing happened with McDonald’s. it has to plan strategies according to culture and nature of people.
McDonald’s is expanding its business and growing day by day. The strategies, which McDonald’s is currently using during the process of internationalization, are quiet affecting, but some of the strategies need modification. Such as taste of people and nature of people.
McDonald’s is as successful in China as in rest of the World but, still KFC and some other local fast food chains are more famous than McDonald’s. This case study made me able to understand the internationalization process and about the strategies which are being used in real life.
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