McDonald’s

Submitted to:

ABC

Submitted by:

Xyz

Institute of Business management sciences

University of Agriculture, Faisalabad
 Acknowledgement
I express my sincere gratitude to my faculty guide Mr. ABC for his able guidance, continuous
support and cooperation throughout my REPORT without which the present work would not
have been possible.

Also, I am thankful to my institute, for giving me an opportunity to broaden my knowledge

on the global companies and their success strategies by providing me a topic “McDonald’s
Different strategies all over the world”.
 Abstract
The McDonald’s Corporation is one of the most successful global restaurant chains around
the world. They have used effective management and global expansion strategies to enter
new markets and gain a share of the foreign fast food market. This report presents how
McDonald’s has achieved this enormous success, its best practices in the global food
industry, international growth trends and challenges, and effect on its operating income and
number of increasing restaurants across the globe from their expansion in foreign countries.
Overall, the case provides a discussion of how McDonald’s enters into a foreign market and
what strategies it uses in order to be a dominant leader in the fast food industry at low cost.
This case focuses on McDonald’s international success, and strategies and benefits that it got
from the franchise business.
Contents

1 Introduction...................................................................................................................................6
2 Literature Review..........................................................................................................................6
3 McDonald's Corporation................................................................................................................8
4 Business strategies adopted by McDonald ‘s.................................................................................9
4.1 Marketing strategy of McDonald’s........................................................................................9
4.2 The 4Ps..................................................................................................................................9
4.2.1 Product..........................................................................................................................9
4.2.2 Price.............................................................................................................................10
4.2.3 Promotions..................................................................................................................10
4.2.4 Place.............................................................................................................................11
5 Sales promotion strategies employed by McDonald's.................................................................12
6 The external environment and its effect on strategic marketing planning of McDonald’s..........12
6.1 Political/legal factors...........................................................................................................12
6.2 Economic factors.................................................................................................................13
6.3 Product lines and pricing.....................................................................................................14
6.4 Customer’s preference........................................................................................................14
6.5 Competitors.........................................................................................................................15
6.6 Social factors........................................................................................................................15
6.7 Technological factors...........................................................................................................15
6.8 McMommy Blogging Society...............................................................................................16
6.9 Hamburger University..........................................................................................................16
7 McDonald’s strategy in US...........................................................................................................17
8 Advertisements of McDonalds.....................................................................................................17
9 CONCLUSION...............................................................................................................................18
1 Introduction

Although there has been considerable examination of the perceived global success of
McDonald, I have included in my report, apart from the global strategies McDonald has used
in entering new markets and shutting down the rival’s business, how it gained advantage by
selling franchise. Knowing the external environment is crucial for the success/downfall of
any business corps, how McDonald is impacted due to the several environmental factors
across globe.
The report throws light on the growth pace of the company right from its birth. It will benefit
any reader in understanding McDonald’s success. Through this report, the operating profit of
McDonald is highlighted in terms of its franchise business and own restaurants. It also shows
the number of increasing restaurants across the continents.
The next section incorporates a review of the literature and presents the research problem.
Then, the methodology used to conduct the study and the findings are explained. Lastly, the
theoretical and practical ramifications of this study are discussed followed by conclusion.

2 Literature Review

Internationalization theory, which is the prominent theory in international business

regarding how firms expand overseas, is a behavioral theory that suggests that firms
minimize the uncertainty associated with going abroad by doing so only gradually, starting
with modes of entry that involve little commitment, such as exporting, and only increasing
their involvement in those markets where they have found success (Johansen & Vahlne,
1977 and 1990). This view of international expansion is not inconsistent with the options
value approach, where firms also commit resources only gradually and thus have occasion to
update their evaluation of different opportunities. Internationalization theory, however, with
its focus on risk aversion, also suggests that firms expand abroad only once they have
exhausted opportunities within their home market, and that they then expand first in markets
that are “familiar” to them, namely markets similar culturally or in close geographic
proximity to those they are already in, and that they exhaust opportunities in each market
before moving into new ones. Economic theory suggests instead that the firm will
continuously pursue best opportunities across all markets.

In 1983, Theodore Levitt published a provocative Harvard Business Review article

entitled “The Globalization of Markets”, in which he stated that a new global market, based
on uniform products and services, had emerged. He asserted that large scale companies have
stopped emphasizing on the customization of their offers to providing globally standardized
products that are advanced, functional, reliable and low priced. He argued that informed
customers were heading toward a “convergence of tastes”; thus corporations should exploit
the “economics of simplicity” and he maintained that the future belonged to global
corporations that did not cater to local differences in taste but, instead, adopted strategies that
„operated as if the entire world (or major regions of it) were a single entity; such an
organization sells the same things in the same way everywhere”. If a company forces costs
and prices down and pushes quality and reliability up – while maintaining reasonable concern
for suitability –customers will prefer its world-standardized products (Levitt, 1983).
“Everywhere everything gets more and more like everything else as the world’s
preference structure is relentlessly homogenized”. In his article, Levitt used a lot of
examples that represent the definition of globalization like Coca Cola, Pepsi, McDonald’s;
and that made the article even more credible.

The business strategy approach to internationalization stressed pragmatism and stated that the
foreign expansion decision is contingent on trade-offs between variables like the nature of the
market opportunity, firm’s resources and managerial philosophy (Reid, 1983; Welford and
Prescott, 1994). Subsequent studies (Dunning and Bansal, 1997; Dunning, 1988) argued
that explanations of a company’s internationalization process should be rooted in economic
theory and that the decisions to internationalize and choice of entry mode were motivated by
culturally-based ownership, location and internalization advantages. Economic theory was
also used to model national attribute configurations that account for efficiency, competitive
advantage in certain industries and clusters, enabling firms to export efficiency and enhancing
their potential for successful internationalization (Porter, 1990, 1998).

Thomadsen demonstrated that prices at fast food outlets located near other outlets belonging
to the same chain often charge high prices to avoid cannibalizing sales between the two
outlets. These price differences can be large, with prices at many restaurants 20 percent or
higher than they would be if the restaurant owners did not worry about cannibalization. Now
he finds that a firm may also charge higher prices when faced with a new competitor or
product. He said that product-line expansion would affect profits .He said that when a firm
adds products to its line, the profits of the incumbent firms in the market must go down. He
used a standard economic model in this study. Consumers have different utility preferences.
He explains that some people like one type of food while other people like a different type.
There are also variations in location. So model consumers based on preferences, location and
other factors likely to affect their behavior.´ He explains that his findings can be generalized
to a variety of markets. According to him it is does not necessarily mean that competitors will
lose profits and market share. There are conditions in which a new Tide might increase
everyone’s profits. Kellogg’s can profit when a new type of Wheaties hits the shelves. And
the opening of an Albertson’s in the right location could mean higher profits for a nearby
Ralph’s. In fact, retail competition is one of the places where one firm’s expansion is most-
likely to increase a competitor’s profits.

3 McDonald's Corporation

The McDonald's Corporation is the world's largest chain of hamburger fast food restaurants,
serving around 68 million customers daily in 118 countries. Headquartered in the United
States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice
McDonald; in 1948 they reorganized their business as a hamburger stand using production
line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955. He
subsequently purchased the chain from the McDonald brothers and oversaw its worldwide
growth.

A McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself.

McDonald's Corporation revenues come from the rent, royalties, and fees paid by the
franchisees, as well as sales in company-operated restaurants. In 2012, McDonald's
Corporation had annual revenues of $27.5 billion, and profits of $5.5 billion.

McDonald's primarily sells hamburgers, cheeseburgers, chicken, french fries, breakfast items,
soft drinks, milkshakes, and desserts. In response to changing consumer tastes, the company
has expanded its menu to include salads, fish, wraps, smoothies, and fruit.

McDonald's restaurants are found in 118 countries and territories around the world and serve
68 million customers each day. McDonald's operates over 32,000 restaurants worldwide,
employing more than 1.7 million people. The company also operates other restaurant brands,
such as Piles Café.

Focusing on its core brand, McDonald's began divesting itself of other chains it had acquired
during the 1990s. The company owned a majority stake in Chipotle Mexican Grill until
October 2006, when McDonald's fully divested from Chipotle through a stock exchange.
Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald's sold
Boston Market to Sun Capital Partners.

Notably, McDonald's has increased shareholder dividends for 25 consecutive years, making it
one of the S&P 500 Dividend Aristocrats. In October 2012, its monthly sales fell for the first
time in nine years.

4 Business strategies adopted by McDonald ‘s

4.1 Marketing strategy of McDonald’s

McDonalds has different marketing strategies for different locations around the world, but its
overall strategy is to offer consumers a great value. This was the main thinking behind the
hugely successful Dollar Menu. McDonald's does not just think of great value in terms of
low-cost food; it also takes the speed at which food is prepared and its atmosphere into
consideration value to help meet its three goals. This involves serving quality food quickly
and in a fun environment its marketing strategy of, being a socially responsible company and
providing a good return for all of the people who invest in the company. McDonald’s uses
providing a great

1 Another marketing strategy that McDonald's franchises have to follow certain rules in
terms of quality, cleanliness and service, they also have the ability to opt out of certain
promotions. This means that some minor marketing strategies differ from location to
location uses is giving back to the community. The people who run McDonald's are
strong believers that consumers are much more likely to eat at a restaurant that gives
back to a community than a restaurant that does not. This is why McDonald's runs many
fundraisers and gives to local charities.However, only about 15 percent of all
McDonald's restaurants are owned by the actual company. The remaining 85 percent are
operated under franchises.

4.2 The 4Ps

At this point the marketing mix is put together:

4.2.1 Product
The important thing to remember when offering menu items to customers is that they have a
choice. They have a huge number of ways of spending their money and places to spend it.
Therefore, McDonald's places considerable emphasis on developing a menu which customers
want. Market research establishes exactly what this is. However, customers' requirements
change over time. What is fashionable and attractive today may be discarded tomorrow.
Marketing continuously monitors customers' preferences.

In order to meet these changes, McDonald's has introduced new products and phased out old
ones, and will continue to do so. Care is taken not to adversely affect the sales of one choice
by introducing a new choice, which will cannibalise sales from the existing one (trade off).
The type of marketing undertaken and the amount invested will be different, depending on
the stage a product has reached. For example, the launch of a new product will typically
involve television and other advertising support. At any time a company will have a portfolio
of products each in a different stage of its lifecycle. Some of McDonald's options are growing
in popularity while arguably the Big Mac is at the 'maturity' stage.

4.2.2 Price

The customer's perception of value is an important determinant of the price charged.

Customers draw their own mental picture of what a product is worth. A product is more than
a physical item, it also has psychological connotations for the customer. The danger of using
low price as a marketing tool is that the customer may feel that quality is being compromised.
It is important when deciding on price to be fully aware of the brand and its integrity. A
further consequence of price reduction is that competitors match prices resulting in no extra
demand. This means the profit margin has been reduced without increasing sales.

4.2.3 Promotions

The promotions aspect of the marketing mix covers all types of marketing communications.
The methods include advertising, sometimes known as 'above the line' activity. Advertising is
conducted on TV, radio, cinema, online, poster sites and in the press (newspapers,
magazines). What distinguishes advertising from other marketing communications is that
media owners are paid before the advertiser can take space in the medium. Other promotional
methods include sales promotions, point of sale display, merchandising, direct mail,
telemarketing, exhibitions, seminars, loyalty schemes, door drops, demonstrations, etc.
The skill in marketing communications is to develop a campaign which uses several of these
methods in a way that provides the most effective results. For example, TV advertising makes
people aware of a food item and press advertising provides more detail. This may be
supported by in store promotions to get people to try the product and a collectable
promotional device to encourage them to keep buying the item. It is imperative that the
messages communicated support each other and do not confuse customers. A thorough
understanding of what the brand represents is the key to a consistent message.

The purpose of most marketing communications is to move the target audience to some type
of action. This may be to: buy the product, visit a restaurant, recommend the choice to a
friend or increase purchase of the menu item. Key objectives of advertising are to make
people aware of an item, feel positive about it and remember it. The more McDonald's knows
about the people it is serving the more it is able to communicate messages which appeal to
them. Messages should gain customers' attention and keep their interest. The next stage is to
get them to want what is offered. Showing the benefits which they will obtain by taking
action, is usually sufficient. The right messages must be targeted at the right audience, using
the right media. For example, to reach a single professional woman with income above a
certain level, it may be better to take an advertisement in Cosmopolitan than Woman's Own.
To advertise to mothers with children, it may be more effective to take advertising space in
cinemas during Disney films. The right media depends on who the viewers, readers or
listeners are and how closely they resemble the target audience.

4.2.4 Place

Place in the marketing mix, is not just about the physical location or distribution points for
products. It encompasses the management of a range of processes involved in bringing
products to the end consumer.
5 Sales promotion strategies employed by McDonald's

McDonald's uses sales promotion strategies like menu upgrades, gift cards, demographic-
specific marketing campaigns, digital initiatives and a focus on breakfast sales. Menu
upgrades promotions might convert into loyal patrons of the franchise. They have also
targeted breakfast specifically through promotions concerning breakfast sandwiches as well
as free coffee offers. McDonald's also offers gift cards, called Arch Cards, that can be
reloaded by the consumer. The company advertises Arch Cards both as gifts for loved ones
and as a convenient payment option for users who buy the cards for themselves.

In recent years, McDonald's has pursued demographic-specific promotions that target patrons
in specific age ranges, such as teens, baby boomers and families. They have shifted their
focus away from menu-only marketing strategiesinclude limited-run menu items, such as the
McRib sandwich, as well as new types of burgers, such as the Bacon Clubhouse sandwich.
New additions to the menu bring in new customers.

6 The external environment and its effect on strategic marketing

planning of McDonald’s

6.1 Political/legal factors

Political environment consists of the government activities covering the economy and
its subdivisions. Ecological regulation, business margins, tariffs, income tax policy,
labor rule and political constancy are some of the main components of it. The safety,
schooling, and infrastructure of a nation are also the concern of government.While
operating globally, different types of taxes cover up a significant company obligation.
Countries with strong consumer protection laws may associate great costs if there is a
violation in product quality or service through litigations and lawsuits.For instance, in
2006, a lawsuit against McDonald’s that it misinformed about ingredients of french
fries and hash browns. French fries and hash browns are fried in oil consisting of 99%
vegetable oil and 1% natural beef flavor. Casein (a dairy product) and wheat bran
 were partly used to make the beef flavor. But before serving, McDonald's again fries
the potatoes in 100% vegetable oil. Plaintiffs charge that McDonald's deceived by
claiming French fries and hash browns gluten, dairy and wheat free.
However, these lawsuits have cost a huge for paperwork, diagnosing customers, court
and legal fees and also the market image of McDonald's goodwill. So it is very clear
that McDonald's as a food provider is much more affected by these political, legal and
customers safety issues. On the other hand, health experts and consumer advocates
blame McDonald's for contributing to health issues of heart attacks, diabetes, high
cholesterol and obesity.
Countries with flexible consumer safety laws are a source of extra provision for
McDonald’s. Differences in individual country’s government policies extremely
influence McDonald’s international operation. Favorable and stable political situation,
legislation, legal procedure and sustained use of logo are just an indispensable part of
the business success. However, McDonald’s is proved adequate in favorable
legislations and right use of logo.

6.2 Economic factors

Economic expansion, the rates of interest, exchange and inflation comprises the
overall economic environment. They extremely affect a business’s function and core
decisions. Cost of capital is the main determinant of a business escalation and growth.
This cost of capital often fluctuates with the movement of interest rates whereas
exchange rates affect the cost of exporting and price of imports.
McDonald’s practices hardship in countries that is hit by inflation and fluctuations of
exchange rates. As a market leader, McDonald’s most often focuses very high target
market which works as an additional advantage as these markets are rarely unstable.
The major portion of their cost comes from gas prices as their main transportation
system to move 100% of the products runs by gas guzzling trucks.
The purchasing power of consumers is determined by the economic growth of the
particular state. For instance, in Pakistan, McDonald’s food prices are at higher rate
than the local restaurants always. But majority of the Pakistani’s live in the middle
class group who obviously consider McDonald’s as unaffordable at regular basis. For
 this tendency of people and economic downfall of recession, McDonald’s profit might
have declined if people continue to consider it as luxury.

6.3 Product lines and pricing

McDonald's first and foremost sells hamburgers, french fries, soft drinks, breakfast
items, various types of chicken sandwiches and desserts. In most markets,
McDonald's also offers salads and vegetarian items, squashing and other unique local
products. Soup type products are served only in some selected countries like Portugal
etc. And for this special deviation from its standard menu helps McDonald’s to be
popular among the countries other than its homeland. Sometimes this difference is
employed either for regional food taboos and religious prohibition like the one in
India as no beef is served there. In India, non-vegetarian menu contain s chicken and
fish items only. This strategy is also used to serve food with which the local people
are much familiar such as McRise in Indonesia. McDonald’s offers several flavors of
Mcflurry ice cream from a mix of M&Ms to Oreo cookies.
Much is talked about McDonald’s pricing strategies and its menu price differes in
different countries. Also the higher price in the local restaurants very often becomes
burden for the customers. For instance, when monthly income of key city inhabitants
in China just ranged from 120 yuan ($17.54) to 130 yuan then Big Mac of a 10 yuan
and a 5 yuan double-cheese burger were not reasonable for the majority. So it is a
threat for McDonald’s where other competitors are focusing much on it to grab more
customers. So McDonald's can develop a good, healthy and affordable range of
snacks for people who can’t afford a full meal.

6.4 Customer’s preference

With a brand value of $49.5 billion, McDonald’s has grown 49 percent in worth and
now is the most favored brand in the fast-food group. McDonald’s innovative choice
and giving importance to the people’s ever-changing demand with due progress,
 technology and development is the key to McDonald’s present situation. Now a day
fast food cafes are becoming the dining hall of the majority for superior child-size
menus, playing grounds and impulsive branding crusades.

6.5 Competitors

One of the environmental factors surrounding McDonald’s is the fierce competition

from the competitors. There is an intensive price war, extreme battle of innovations,
breakthrough and serious promotions and advertisements. Different competitors in the
global fast food industry are now just going mad about increasing competition that led
to aggressive pricing strategies amongst the large brands. Competitions also pushed
them to increased menu diversification, product developments for increasing sales and
market share and at least maintaining current market share.

6.6 Social factors

Population growth, career opportunity, cultural distinctiveness, health of the masses

and social security build the ground of societal factors. McDonald’s food products
demand and its operational strategies differ greatly to cope with the movement of
these factors.
At the time McDonald’s started in Pakistan, fast food was not very popular to
Pakistani people. With the passage of time and the changes of the eating habits and
lifestyle, fast food got its acceptance. McDonald’s also keeps providing Halal food to
consider the religious and cultural issues. But at times anti American feeling and
prohibition of American goods affects McDonald’s. McDonald’s customized its menu
in accordance of the Pakistani tastes.
McDonald's does not offer bacon in Pakistan as people do not eat it. Increasing
employment through joining with many ethnic groups and the alliance certification
program with a cup of tea for everyone at 1200 McDonald’s in UK are also some
mentionable social duties by McDonald's. In 1974, McDonald's established a charity
 house named Ronald McDonald House that helped over 10 million people since
incorporation.

6.7 Technological factors

Technological factor’s main elements are R&D, computerization, technology

motivation and technological change rate. Technological movements affect
expenditures, excellence, and innovation and machine made food is more hygienic.
McDonald's employee’s quick service and quality food standards are the result of its
high-tech operating procedure. Customized database management system and
computers and smart cashiers are used in McDonald's to speed up serving and
operating excellence.

6.8 McMommy Blogging Society

In December’ 2007, McDonald's opened up its kitchens to the group of mother

bloggers to report allegedly unedited findings on McDonald's website and on blogs in
the Internet. McDonald's goal was to make their cooking processes more transparent.
It kicks out stories of fattening, unhealthy food rumors in books like "Fast Food
Nation" and movies i.e. "Super-Size Me. "McDonald's equipped six mothers chosen
from 4000 applicants with laptop computers to record their impressions of its
operations over the next few months. Nothing like this has ever been done on the
internet by a fast food company before.

6.9 Hamburger University

Hamburger University was founded in 1961 at a McDonald's restaurant in Elk Grove

Village, Illinois. Now it stands in a suburb of Chicago at 2815 Jorie Boulevard in Oak
Brook, Illinois. It has 30 resident professors and more than 70000 managers have
graduated from here. Today Hamburger University has 19 full time intercontinental
coaches to educate apprentices of more than 119 countries. It comprises 13 teaching
 rooms, 12 interactive group rooms, a 300 seats lecture theater, and 3 kitchen labs. It
has professional translators who can lecture in 28 different languages. Over 5000
students attend there each year and employees obtain 32 hours of training in the first
month. With a “McDegree”, graduates get jobs in special labs to invent new ways to
enhance menus in an efficient way and keep the same superior healthy taste of its
products worldwide.

7 McDonald’s strategy in US

McDonald's thinks adding customizable options for burgers will help the business.
McDonald's US business is continuing to slide. The fast food chain is struggling with
declining sales, fast-casual competitors, and unrest from workers and franchisees. This week,
the company announced US sales fell 3.3% last quarter. He outlined the brand's strategy for
saving its US business. Make menus more local. McDonald’s is working to tailor menu items
and promotions for different regional markets. Thompson says that in many cases,
franchisees will have the power to decide which items and promotions they offer in
restaurants. Offering a more tailored menu could help bring in new customers who appreciate
that McDonald's is catering to their tastes. It could also help ease tensions from franchisees
who say that the company's constant new menu items are creating financial and operational
challenges. Get rid of some menu items McDonald’s CEO Don Thompson said the brand has
a strong turnaround plan in place. We are confident in our ability to regain momentum in the
US given the actions that we’re taking and McDonald's is planning on getting rid of some
menu items in January. The current menu, which has grown 70% since 2007, has been cited
as the reason for long wait times and declining customer service. Paring down the menu will
"better highlight customers’ favorites and to make the experience faster and easier for our
customers and our crew," Thompson said. Having fewer menu items could also lead to a
better work environment and higher employee retention.

8 Advertisements of McDonalds

Although a multinational giant McDonalds adapts its business and menu to the different
countries they operate in. they respect culture differences and every country has its own
Policy of developing menu items.
In the US, advertising normally targets children. Did you know that American kids see more
than 250 McDonald’s advertisements per year? The advertising campaigns are more varied
when approaching the demographics, sometimes In Japan they focus on children but they also
target adults. Something you would never see in US.

9 CONCLUSION

McDonald’s is one of most successful companies in the world today. With its rapid
embracement of globalization, the firm has been able to expand and retain numerable growth;
as well as continuing to explore with its growth potential in the coming years. From the
beginning of the company’s development in the United States, to its spread in England,
Australia and more recently India and China, the firm has been able to provide a variety of
hamburgers and other foods to its consumers. From the Big Mac, to the Maharaja, the
company’s successive strategies, specifically with heavy research and development have
allowed it to fulfill the tastes of locals in every country it operates. Its leaders in all of its
major departments have established prices worldwide in all types of currencies, making its
foods affordable for customers of all classes. McDonald has adopted differentiation and cost
leadership strategies. In terms of differentiation, the firm attempts to be diverse from its
competitors by adding something to its product that will provide a unique value to its
customers, achieved through well-designed and managed marketing activities resulting in a
perceived superior quality product and high brand image and recognition. Further, cost
leadership is achieved, not only through economies of scale but also through learning,
knowledge and experience in production and operational processes and through
effective/efficient distribution networks and manufacturing systems.
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