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Threat Of Substitute Products Or Services Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 1746 words Published: 1st Jan 2015

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The world is global village and there is enormous competition with other rivals. To compete with these rivals organizations need to audit it and to check its performance. These organizations how are giving their products to the customers and how they give value their customers. It is very much important to know where their organization stands in competitive environment and at the end importance of global uniform strategy to go and initiate their business.

Porter theory is explained with the example of McDonald’s. Porter also gave different theories for international markets, this reports discuss and emphasis with five forces model because this model covers all the problems company can face.

Nowadays business world forces managers to be in a hard challenge on different fonts. Technology , business wars , strategic decisions , innovation can be counted inside these factors. It is a hard challenge that shows supply chain management how to turn it to opportunity in an unknown area. Especially ; managers of the organisations have to find reasonable and effective approaches to make right decisions in environmental management systems to increase the financial performance of their organisations.

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Michael Porter five forces model shows the correlation between managers inside an organisation , players , suppliers and customers . Also alternative solutions are given to the problems which was addressed. Generally ; five star model can be defined as a simple theory model which was improved with the works of other researchers. Also life product cycle can be given as an example for other theory models.

McDonald is the biggest fast food organization all over the world. There are a lot of franchises spread in every country. This report will critically evaluate the competitive environment of McDonald is facing. Michael Porter gives five forces model and with the help of this any organization can described its competitive environment. McDonald faces lot competition. The reason is that there are a great deal of rival fast food organizations in the market.

2.1 Threat of New Entrants:

After new entrants , need of new capacity and challenge for buyers and sources problems may occur .It can be seen as a threat for company’s future life. Moreover , it is a clear threat for existing businesses of the organisation. If the demand for McDonald products are rising up , new capacity keeps buyers but at the same time it results lower profits for that organisation.

There are different things that make environment competitive with other food chains. Burger King is the rival of McDonald and there are different up coming new rivals like KFC. KFC is not specific cook burgers but they are food chains competing with McDonald and attracting some customers, in short directly or indirectly KFC is rival of McDonald. In United Kingdom there are some other entrants like chicken cottage and Dallas these don’t have much influence on McDonald but these franchise are creating competitive environment.

There are different demands of buyers who are the buyers for McDonald customers. Customers have different demands taste first thing most important are customers for the food change, volume of the customers increase the sale of organization. According to the Porter theory how buyers (customers) can be increased if a business organization are sensible and sensitive about their price. Because price does matter in competitive environment due to the lot of competition if the price is higher then customers will go some other place.

2.2 Threat of Substitute Products or Services:

“Substitute products are products that appear to be different but can satisfy the same need as another product. Chicken can be a substitute for beef in consumers’ diets. When switching costs are low, substitutes can place a price ceiling on products” (Lee.Bolman1997)

Due to globalization and culture diversity this world becomes so small that in every part of world there are people living with different cultural background. That is why McDonald has to find different substitute to give the entire menu to the customers. An example will demonstrate the whole senior for example in England there are different people living with having different cultures and assume the most of them are regular customer of McDonald. But according to their culture or religion they eat only things that suits them for example Muslims don’t eat pork and vegetarian people don’t eat meat now McDonald can suffer if they don’t have substitute but they have everything for all kind of customers.

2.3 Bargaining Power of Suppliers:

A fast food chain like McDonald needs raw materials, labour, components and other supplies. Supplier can be strong and weak in term of relationships. McDonald have great number of supplier and have very good relations mostly the supplier are permanent.

2.4 Bargaining Power of Buyers:

The buyers force affects the organization by decreasing prices , demand for higher quality or extra service which cost extra for the company and also they affect the market by challenging against competitors. Demand can be powerful if ;

• Most of the supplier’s goods are purchased by a buyer

• There are lots of alternative producers because the product is not different

• The profits are low for buyers and demand changes immediately against cost change

• The quality and the price of the product , which is on the market , is not a problem

The ability of customers forces food companies to go for some changes and it clearly shows the power of buyers. Also some consumer behaviours forced companies to produce organic products and created a new and wide sector which grows extremely fast. Moreover , some procedures worldwide companies such as McDonald to offer changes to their suppliers about production. For instance ; animal welfare. The companies following these steps even though these things brings new costs.


2.5 Rivalry among Existing Firms:

It shows the quantity of competition in an organization.

Industries that challenges heavily can be defined by:

• Suppliers which are similar and have equal capacity

• Low organisational grow rates

• Good production

• Higher costs, and

• Hard and limiting barriers on special equipment invest.

Burger king is not relatively equal in size as McDonald but its biggest rival of it. Growth of Burger king can be worrying for Macdonald. In term of commodities Burger King is competing with Macdonald but the size of the organization is not too much.

3.Cost leadership Strategy

According to Michael Y. Yashino “This generic strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than them of rivals or below the average industry price to gain market share.”(Michael Yashino 1995). McDonald can say this that they acting on this Michael Porter strategy cost leader ship because they are giving best quality with very good cost. McDonald is competing with rivals due to their price plan and quality.

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4.Competitive position:

McDonald is doing well in this era and still is best in competitor. But it is not easy to be best because Burger King its traditional rival is so close to it. If review history of MacDonald then we can understand that Despite these innovations, McDonald’s tremendous growth could only continue for so long. Its average annual return on equity was 25.2% between 1965 and 1991. But the company found its sales per unit slowing between 1990 and 1991. “In addition, McDonald’s share of the quick service market fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s”. (www.home.comcast.net)


McDonald had found itself inside these hard competitions several times. In the past , McDonald lost its margin through the other companies strategies such as promotions and price decreasing. Burger King and Wendy can be given as rivals of the company .

Considering these factors, McDonald has very tight competition with other competitions and its difficult to say that who is best and what is the position of the company. If compare the size and sale of the companies McDonald is far bigger then its rivals. It is clear that the aim of McDonald is to innovate itself with new products and trying keep the customer satisfaction on top at its all branches with the same service quality. By looking at the products of the company , it can be seen that the company is trying to increase its target customers.

But due to size, growth, sale and other services I can say this McDonald is one of the best company in this time and it is very difficult to beat it. This year the chief executive officer Jim Skinner commented, “Strategic initiatives aligned with our Plan to Win are strengthening our competitive position and delivering positive results worldwide. In the U.S., we’re building momentum through ongoing initiatives that enhance our convenience and menu variety. With U.S. comparable sales up 4.9% in July, we have now achieved 28 consecutive months of positive performance”. (www.rmhc.org)


Peter Cheverton “Key Marketing Skills” 120 Pentonville Road, London 2000 P-72.

Lee G. Bolman “Reforming Organization” Jossy Bass Inc. Publishers 350 Sansome Street California. 1997 Page171.

Jhon D.W. Morecroft “Modeling for learning Organization”, Productivity Press New York 2000 Page 212.



Michael Y. Yashino “Strategic Alliance”, President and Fellows of Harvard College.1995. USA. Page 212.




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