Marketing Management MM522 1 Introduction of McFlurry

Introduction of McFlurry product to McDonalds restaurants on a new market Marketing Plan Keller Graduate School of Management Online MM522 Mihnea Grecu

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Executive Summary McDonalds story started with the two brothers Mac and Dick McDonald in their restaurant located in San Bernardino, California. They were pioneering the idea that by limiting the menu items, lowering prices and introducing procedures for preparing the food, they would be able to serve more customer in a shorter period of time. The company as we know it today was founded by Ray Kroc. In 1954 Ray Kroc met the McDonald brothers and was impressed with their success in serving lots of customers in a short time and efficient manner. His conclusion was: The customers need quality. This means a good service, but most important, fast. People look for an alternative to the traditional eating habits. Negotiating a deal with the McDonald brothers Ray Kroc was able to open his first restaurant in Des Plaines, Illinois that allowed him to use their system and the name of the company.

The core principles of McDonalds philosophy that apply to each individual restaurant all over the world are: QSC&V (Quality, Service, Cleanliness and Value). In other words McDonalds mission statement is: High quality products, served with a smile, in a clean environment at the lowest possible price. Advertising billboards were used as a first advertising tool for the company starting with 1959. McDonalds target market is: kids, young customers, adults and elderly. McDonalds as a worldwide chain has multiple competitors and they differ from one market to another. Due to inflation and economical situation, McDonalds prices are adjusted to the purchasing power for each individual country and based on local competition.

Marketing Management MM522 3 Introduction of McFlurry

McDonalds is set up as a direct to consumer operation and there is no need for channels of distribution. The promotion budget of $2,500,000 was used for marketing McDonalds product McFlurry through: sampling, fidelity cards, promotional prices, TV and radio advertisement. All the marketing tools used for McFlurry campaign lead to the estimated sales of $24,000 per year for each restaurant with a NET profit of $15,500.

Product description, situation analysis McFlurry was first introduced on the American and Canadian markets. Due to the huge success, other international markets introduced McFlurry in order to increase market share and profits. McDonalds officials consider that McFlurry product became a popular item on McDonalds menu and helped increasing dessert sales for the company. The other McDonalds desserts were sold mostly in the morning and lunch time but there were no sales for an afternoon or evening treat. McFlurry is the product that helped increase the afternoon and evening sales for the dessert category. Mcflurry dessert was introduced on the Romanian market in May 2002 with three delicious flavors: Nesquick, Mini Smarties and Lion. McFlurry is a crunchy delicious dessert consisting of the famous McDonalds soft serve ice cream. McDonalds ice cream is mixed with a topping chosen by the customer. In catch the eye McDonalds decided to introduce Mcflurry special designed cups that are cheerful colored. McFlurry lid comes with a special design that helps mixing the toppings with the ice cream using the McFlurry special design spoon. This spoon is being attached to the blender becoming an integrated part of the blender and helping mixing the flavors. The same spoon is given to the customer to savor the product. After market

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research it was noted that the customers are very intrigued and pleased with the shape of the spoon. They consider it to be very unique. Not only the McFlurry cups and the spoons were special designed but also the McFlurry blender, the topping dispenser and the special McFlurry cupboard for storage of cups, lids and spoons. McFlurry product is another proof of McDonalds high efficiency and innovation when it comes to product assembly. Up to six McFlurries can be rapidly prepared without affecting the product quality. It takes approximately up to 30 second to have a McFlurry ready, as follow: 10 seconds for picking the cup and filling it with ice cream 10 seconds to add the topping and attached the special spoon to the blender 10 seconds to mix the product

McDonalds SWOT Analysis

Strengths up. 48 restaurants on the market, all in high traffic areas 54% market share Company reputation 69th place Customer satisfaction 54% Customer retention 2.75 It is recognized as one of the worlds most recognized logos. It is recognized as a socially responsible and community oriented firm. It adapts to the cultural differences regarding the region where the restaurant is set

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parks.

It has located itself in major airports, cities, highways, tourist locations, theme

Weaknesses

High employee turn-over. It has yet to accomplish going on the trend of organic food. Price competition with the competitors resulting in low revenue. Uses advertising that mostly targets children

Opportunities

It can adapt to the needs of the societies and undergo an innovative product line. It can research ways to use green energy and packaging which will work as a

part of their promotional effort as well as fulfill their social responsibility. customers. organization. It can slow down the level of expansion in order to increase the profitability of the It can upscale some of its restaurant settings at luxurious locations to attract more

Threats

market share.

More restaurants that are increasing their food offering and declining the price. Health issues regarding the fast food chain. Heavy investments on promotional campaigns which decrease the gaining of

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Some parents criticize the firms cradle to grave marketing strategy that focuses

on kids, who later on take it as a trend to their adulthood. Sued various times for unhealthy food, usually with addictive additives. Emergence of major fast food competitors: Burger King, Starbucks, Wendys,

Taco Bell, KFC. countries The expansion has made the firm vulnerable to the slow economies of the other

The ice cream market is seasonal and the high volume sales are made April through September.

Target Market McDonalds customers can be differentiated in actual consumers and possible consumers. Due to the fact that McDonalds restaurants are conveniently located there is an easy access for everybody. McDonalds customers are defined as:

People with above average income People that benefit of company meals reimbursement The young customers dont perceive McDonalds just as a fast food but also an

entertainment place McDonalds attracts a lot of kids through the Happy Meal program

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The adults use McDonalds for convenience and to save time The elderly can be found in McDonalds restaurants bringing the grandkids

McDonalds customers are open to new and trying new products. Many of McDonalds customers prefer to eat out and like fast food, some of them are invited to birthday events or others that are attracted by marketing campaigns and new product advertisement. From McDonalds customers 66% have kids up to 10 years old, 59% are women and 62% are loyal customers. Customers behavior is influenced mostly by the price policy. According to market research McDonalds is number one brand in fast food industry with a 54% of Romania market share, being way ahead of the next competitor, Spring Time with a 6% of Romania market share. Total sales for McFlurry among McDonalds Romania restaurants is estimated to be 24,000.00 USD per year with a net profit of 15,500.00 per year for each restaurant.

The loyal customers are 54% from the total number of visitors. A percentage of 62 are customers that visit McDonalds on a preference basis and the rest of 38% are customers that migrate from restaurant to restaurant.

The most important aspect for the loyal customers is not the price but the food quality. The loyal customers are represented by women with kids.

Competitors

Since 1990 Romanian fast food market developed fast attracting more and more customers. The most successful restaurant came from big international chains and also from

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smaller companies. McDonalds treats competitors not only by name and reputation but also based on their location, a small restaurant located in McDonalds vicinity is consider important competition.

The main competitors on the Romanian market are: Spring Time, Pizza Hut, KFC. A local market research company has developed a study regarding McDonalds main competitors. The following table shows the results.

Brand McDonalds

Number of locations in Bucharest 15

Advantages Prompt service, clean, friendly staff, food quality Low prices, extended menu, oriental influences, food quality, free toppings Food quality, nice restaurant atmosphere Friendly staff, clean, extended menu

Disadvantages Basic menu

Spring Time

Long lines for check out

Pizza Hut KFC

3 2

Long waiting time, high prices High prices

According to this study McDonalds is definitely number one brand in the Romanian fast food market.

SWOT Analysis for Spring Time

Strength

6 locations Low preices Extende menu Big portions

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Good locations

Weaknesses

Unfriendly staff Long check out imes No advertising except tray liners Dirty No kids programs

Opportunities

Known brand Real estate developed

Threats

Bad imagine due to dirty restaurants Competitive market

SWOT analysis for KFC

Strength

Kids programs Good locations Birthday parties Food quality

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Weakness

2 restaurants Short hours High prices

Opportunities

Real estate development

Threats

New chicken product at competitors Troubles financing advertising and promotion

Pricing Prices used by McDonalds in Romania are above the average. This issue cannot be solved for the moment because McDonalds products are high quality products bought at the lowest price without compromising quality. For the McFlurry product McDonalds Romania tried to achieve an attractive price of 1.50 USD, this price being also recommended by McDonalds Europe. The following table presents costs and margin for each of the McFlurry flavors.
Flavors Variables Costs (food, packing, electricity, etc) 0.35 usd Fixed Costs (lease, insurance, taxes, salaries, etc) 0.30 usd Margin

Smarties

0.85 usd

Marketing Management MM522 11 Introduction of McFlurry Lion Nesquick 0.30 usd 0.30 usd 0.30 usd 0.30 usd 0.90 usd 0.90 usd

McDonalds is projecting annual sales of 24,000 USD for each restaurant with a net profit of 15,500 USD.

Channel of Distribution

McDonalds company is set up as a direct to consumer operation, so therefore there are no distributors or retailers involved. Situation that makes McDonalds ever more profitable due to the fact that the profit is not shared with other distributors.

Promotion (Advertising, Sales Promotion, PR, Personal Selling, Direct Marketing) The introduction of McFlurry product on Romanian market was greatly advertised. McFlurry was introduced between May 7th and June 17th 2002. During this period McDonalds opted for push strategy throughout the marketing campaign. The McDonalds employees were given T-shirts and tags with McFlurry design. The main marketing tools for McFlurry promotion were: sampling handing out fidelity card to all customers in order to captivate future interest promotional prices

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stimulate sales

organizing internal contests between employees for the best McFlurry in order to

The launch of McFlurry product started on May 7th with a big show organized by the PR department and with the participation of all the management personnel. The show was presented live by the first three TV channels from Romania. Also the radio stations helped at maintaining the holiday atmosphere. The second stage of the marketing campaign was the flyers distribution in high traffic areas. The main focus of the campaign was creating an advertising banner with two local celebrities. This confirm that the target of the product were the young McDonalds customers. Promotions for the McFlurry included: a 10 seconds TV spot, run for four weeks as follws: o May 7th May 20th o May 28th June 10th radio advertising, including: o 10 seconds teaser run between May 4th May 6th o a 30 seconds radio spot run between May 7th May 20th and May 28th June 10th advertising materials like: o flyers o posters o indoors and outdoors posters o tray lines

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Promotions on the main media channels: 1. Three TV commercials a day during morning hours, lunch time and afternoon on

PROTV during May 28th June 10th @ $2,500 for each commercial. Total Cost $105,000 2. Two TV commercials a day during morning news hour and evening prime time

on PROTV during May 7th May 20th @ $7,200 for each commercial. Total Cost $201,600 3. Two TV commercial a day during lunch time and evening hours on ANTENA1

(local TV station) during May 28th June 10th @ $3,500 for each commercial. Total Cost $98,000 4. Three TV commercial a day during morning hours, afternoon and evening on

ANTENA1 (local TV station) during May 7th May 20th @ 4,500 for each commercial. Total Cost $189,000 5. Five radio commercials a day between May 7th May 20th and three commercials

a day between May 28th June 10th on Radio21 @ $600/commercial. Total Cost $67,200 6. Five radio commercials a day between May 7th May 20th and three commercials

a day between May 28th June 10th on PRO-FM Radio @ $600/commercial. Total Cost $67,200 7. Four radio commercials a day between May 7th May 20th and three commercials

a day between May 28th June 10th on Radio Contact @ $450/commercial. Total Cost $44,100 Also McDonalds strategy included promotions inside the restaurants like: serving McFlurry samples to customers waiting in line, this is not just a nice way

to welcome your customer but also push them to buy the product there were certain hours during the day when the price for McFlurry was reduced

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in order to attract the families to McDonalds restaurant a free McFlurry was

offered with the purchase of any meal during evening hours, including Happy Meal, this way families with kids were attracted in the restaurants offering free McFlurry to employees in order to get familiar with the product and

be able to tell friends about it and also to recommend it to customers creating fidelity card was the simples method to attract customers, when you were

buying five McFlurry the sixth one was free

Promotion Budget
Promotion Budget Advertising Company Fee TV and radio commercials Printing Materials (posters, banners, etc) Celebrities Fee Free gifts given during the marketing campaign Other expenses $800,000 $800,000 $500,000 $200,000 $150,000 $50,000 $2,500,000

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References Philip Kotler, Kevin Lane Keller Marketing Management 14th Edition 2012 S. Skinner, Marketing, Houghton Mifflin Company, Boston, 1990. J.H.Myers, Marketing, McGraw-Hill Inc.,New York, 1986. A.J.Magrath, Strengthen brands with 8 essential elements, Marketing Annual Edition, 1991/1992, Dushkin Publishing Group, Inc,1991. J.Evans, B.Berman, Marketing, 4th Edition, MacMillan Publishing Company, New York, 1990. A.R.Morden, Elements of marketing, 3rd Edition, DP Publication, London, 1993. Booz, Allen & Hamilton, New Products Management for 1980s, Marketing, Management and Strategy, edited by Ph. Kotler, K.Cox, Third Edition, Prentice Hall Inc, New Jersey, 1984. Internal Documentation McDonalds Romnia Romanian Census Bureau. http://www.insse.ro/cms/rw/pages/index.en.do