ADAMSON UNIVERSITY

College of Business Administration

Management and Marketing Department

Pricing Strategy
Company name: McDonalds

Submitted by:

Jimena, Kim Andrey P.

Sucgang, Angeline Sison

Recuenco, Junell Jake

Submitted to:
Maam Cypress Macapagal

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McDonalds Background

The first McDonald’s restaurant was started in 1948 by brothers Maurice (“Mac”)

and Richard McDonald in San Bernardino, California. They bought appliances for their
small hamburger restaurant from salesman Ray Kroc, who was intrigued by their need for
eight malt and shake mixers. When Kroc visited the brothers in 1954 to see how a small
shop could sell so many milk shakes, he discovered a simple, efficient format that
permitted the brothers to produce huge quantities of food at low prices. A basic
hamburger cost 15 cents, about half the price charged by competing restaurants. The self-
service counter eliminated the need for waiters and waitresses; customers received their
food quickly because hamburgers were cooked ahead of time, wrapped, and warmed
under heat lamps.

The public face of McDonald’s was created in 1963 with the introduction of a clown
named Ronald McDonald, while the double-arch “m” symbol became McDonald’s most
enduring logo in 1962, lasting far longer than the tall yellow arches that had once
dominated the earlier restaurant rooftops. Other products and symbols would define the
McDonald’s brand, including the Big Mac (1968), the Egg McMuffin (1973), Happy
Meals (1979), and Chicken McNuggets (1983).

The chain continued to expand domestically and internationally, extending to Canada in

1967, reaching a total of 10,000 restaurants by 1988, and operating more than 35,000
outlets in more than 100 countries in the early 21st century. Growth was so swift in the
1990s that it was said a new McDonald’s opened somewhere in the world every five
hours. It effectively became the most popular family restaurant, emphasizing affordable
food, fun, and flavours that appealed to children and adults alike.

The success of McDonald’s brought increased criticism, much of which concerned its

perceived association with a global increase in obesity. McDonald’s responded by adding
healthy items to its menu, and in2017 it released McVegan, a plant-based hamburger,
which was only available in certain markets. Two years later it began testing another
vegan hamburger, the P.L.T. During this time McDonald’s also eliminated supersized
portions, and its U.S. and Canadian restaurants stopped using trans-fat oil in a number of
items. Such measures, however, did little to stem health concerns. In addition, as one of
the world’s largest private employers, McDonald’s faced numerous calls to increase
wages. The term McJob was added to the Merriam-Webster dictionary to mean “low-
paying job.”

In the late 20th century, McDonald’s moved beyond the hamburger business by
acquiring Chipotle Mexican Grill (1998), Donatos Pizza (1999), and Boston Market

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(2000) in the United States, and in the United Kingdom McDonald’s purchased
Aroma Cafe (1999) and an interest in Pret A Manger (2001), a sandwich restaurant chain.
However, by late 2008 McDonald’s no longer owned or had a stake in any of those
companies, instead concentrating on its own brand.

McDonald’s was active in charitable work. In 1974 it joined Philadelphia Eagles football

player Fred Hill, whose daughter had been diagnosed with leukemia, in founding the
Ronald McDonald House in Philadelphia. The residence allowed families to live near the
hospital where their children were receiving treatment. By the early 21st century more
than 360 such houses existed around the world. The Ronald McDonald House Charities
(established 1987) also supports various other efforts.

McDonalds Structure
McDonald’s Corporation’s organizational structure was reformed in 2015 to improve the
company’s handling of its global operations. A firm’s organizational or corporate
structure defines the organizational design and system through which organizational
components coordinate to achieve business objectives. McDonald’s corporate structure
facilitates the management of food service markets based on performance levels. As the
largest fast food restaurant chain in the world, the company keeps evolving to address
current and emerging market issues. Through this structure, the company rolls out new
products to maintain its performance in satisfying customers, especially in the presence
of other food service firms, such as Dunkin’ Donuts, Burger King, Starbucks, and
Wendy’s. Various strategic endeavors are supported through McDonald’s organizational
structure, which is designed to adapt to the changing business environment. The
company’s structural components are maintained, although adjustments are implemented
to respond to market dynamics and pressures. Operational effectiveness and fiscal
stability are reached through support from McDonald’s corporate structure and its
features.

McDonald’s organizational structure establishes the arrangement or pattern of

interactions among various business areas. Thus, structural characteristics are linked
to the company’s strategies. McDonald’s marketing mix (4P) integrates how the
corporate structure provides support for strategies and tactics. In this regard, strategic
alignment is essential between the company’s organizational structure, business needs,
and related efforts for competitive advantages. Through its corporate structure,
McDonald’s succeeds in managing efficiency and performance in its operations in the
global fast food restaurant industry.

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McDonald’s Organizational Structure Type and Features

McDonald’s Corporation has a divisional organizational structure. Conceptually, in this

structure type, the business organization is divided into components that are given
responsibilities based on operational requirements. Each division handles a specific
operational area or set of strategic objectives. One of the aims of this corporate structure
is to support autonomy and organizational flexibility in satisfying business needs in
different organizational aspects and markets. McDonald’s organizational structure has the
following characteristics, arranged according to significance in affecting food service
business operations:

Global hierarchy

Performance-based divisions

Function-based groups

Global Hierarchy. McDonald’s Corporation has a global hierarchy to cover all its
operations worldwide. This feature of the organizational structure emphasizes corporate
control in the context of managerial control and direction. For example, McDonald’s
CEO directs the activities of all business areas through this structural characteristic.
Mandates and directives are passed from the CEO down to middle managers, and to the
restaurant managers and personnel in company-owned operations and among franchisees.
This feature of McDonald’s corporate structure is typical of most global business
organizations.

Performance-Based Divisions. Performance-based divisions are the most distinct

feature of McDonald’s corporate structure. Prior to its reorganization on July 1, 2015,
McDonald’s had the following geographic divisions in its organizational structure: (a)
U.S., (b) Europe, (c) Asia/Pacific, (d) Middle East and Africa, and (e) Other Countries &
Corporate (OCC) including Canada, Latin America and Corporate. After the
reorganization, the company used performance as basis for the new divisions in its
organizational structure: (a) U.S., (b) International Lead Markets, (c) High Growth
Markets, and (d) Foundational Markets and Corporate. The United States division
provides the biggest regional sales revenues to McDonald’s. The combination of
international lead markets also represent a major chunk of the company’s revenues. The
high-growth markets account for a small minority of McDonald’s revenues, even though
these markets present considerable potential for business growth based on rapid
economic development.

Function-Based Groups. McDonald’s maintains function-based groups in its corporate

structure. For example, in corporate operations, the company has a People group for
human resource management, and a Supply Chain and Sustainability group for supply

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chain management and sustainability endeavors. Each group is under the leadership of a
corporate executive or senior manager. This organizational structure characteristic
enables McDonald’s Corporation to address the basic functions in its business. Groups
may be added or changed as the company grows and its target markets change.

Product and Services Offered by McDonalds

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McDonald's objective is to offer the customers the great convenience and great- tasting
food that they enjoy. McDonald offer great value in its way of service, also in its menu it
provide extensive and Variety of food, first from the breakfast McMuffins to Burgers to
Desserts (Sundae/McFlurry) to Happy Meals and for the families there are also special
meals such as Family meal. In its menu McDonald considerate in five main ingredients:
beef, chicken, bread, potatoes and milk.

Menu Choices offer a variety of safe, high-quality food products that can fit into
balanced, active lifestyles. Restaurants typically serve several types of hamburgers,
grilled and fried chicken products, and fish and, in many cases, salads, fruits, and
additional sandwich options. Local business units are adding new salad, fruit, and
vegetable offerings. Local business units are also expanding Happy Meal choices to
include new sandwich, side, and beverage alternatives. These reflect a System-wide goal
of ensuring that Happy Meals remain a choice moms feel good about and children enjoy.
Also, there is McDonalds Play Place that provide children with a fun, safe environment
for active play.

And of course McDonald realize the importance of the supply chain in maintaining
quality , so McDonalds aims to create long-term with limited number of supplier partners
Suppliers keen to ensure that they can meet McDonalds required standards.

McDonald stress that their own standard are based on quality , value and cleanliness,
They say that they place food safety programs , They also said that they know where all
product ingredients come from , That will enable the company to control every line in the
supply chain . For McDonalds food safety is very important, because the reputation can
be seriously damaged if a thing goes wrong.

McDonalds SWOT Analysis

Strengths

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The second-largest restaurant network serving customers in over 120 countries

As of 2018, McDonald’s operates the second-largest restaurant network in the world. In

total, the company and its franchisees operate 37,241 restaurants in 120 countries.

In terms of sales, McDonald’s outrivals any other QSR chain in the world with
US$22.820 billion in sales in 2017 alone (earning slightly more than Starbucks). The
sheer size of the company’s restaurant network is a strength that provides many
advantages over competitors, including:

 Economies of scale. The company can share its fixed costs over many restaurants
locations, which makes McDonald’s one of the cheapest places to eat at.

 Huge gains from implementing best practices. The company can identify better
ways of performing tasks, managing restaurants or hiring new employees and can
achieve huge gains by implementing these best practices in its vast network of
restaurants.

 Market power over suppliers and competitors. Due to its size, McDonald’s can
exercise its market power over suppliers by requiring lower prices from them. The
company clearly demonstrates this with The Coca Cola Company.

Because of McDonald’s and The Coca Cola Company’s agreement, no other

restaurant chain can sell Coca Cola drinks for lower prices than McDonald’s,
even if it means losing the business to PepsiCo.

The Coca Cola Company could easily get out of such agreement if McDonald’s
wouldn’t be so huge and would generate less income for The Coca Cola
Company. McDonald’s can also use its size to affect the competition by
underpricing some of its items or driving them out of the best locations.

 Wide audience reach. McDonald’s restaurant network allows the chain to reach

more customers than most of its rivals could reach. According to the Company’s
CEO[6], in five of its largest markets, 75% of population lives within 3 miles of
McDonald’s restaurants.

Wide audience reach does not only help the company to target more customers
and increase brand awareness, but also to introduce new services, such as home
delivery.

2. The most recognizable brand in restaurant industry

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McDonald’s opened its first restaurant in 1940.[7] Since then, the company has become
the world’s largest restaurant chain in terms of revenue with the most recognizable brand
in the market.

According to Forbes[8] and Interbrand[9], McDonald’s brand is 9th and 12th most valuable
brand in the world, worth US$40.3 billion and US$41.533 billion, respectively. No other
restaurant brand, except Starbucks, is included in the list of the top 50 most valuable
brands.

The brand value is closely related to the brand recognition and reputation. Usually, the
more valuable a brand is the better it is recognized worldwide. McDonald’s, which
operates in 120 countries, where billions of people live, enjoys some of the greatest brand
awareness among all global corporations.

Only KFC operates in more countries (131)[4] than McDonald’s and can compare in brand

awareness with it. Brand awareness also helps to introduce new products or sell the
current ones faster as the company needs to spend less money on advertising.

While, McDonald’s reputation has suffered a lot during the years, the company is still
recognized for its innovations in fast-food industry and the American business values it
brings to other countries.

3. McDonald’s – A Real Estate Company

Very few people know that apart from selling burger and fries, McDonald’s has a multi-
billion real estate empire. Imagine having thousands of premium locations around the
globe.

As of end of 2018, it has 37,855 restaurants in 120 countries, out of which 35,085 are
franchises and rest are company-operated restaurants.

McDonald’s franchise works slightly differently. McDonald’s not only provides their
brand name, recipes, ingredients, processes to franchisees but also owns the land and
operates as a landlord and makes revenue through rent payments.

4. Technology Initiatives
McDonald’s is taking revolutionary technology initiatives to make their ‘Experience of
the Future’ dream come true. Initiatives like implementing self-service with kiosks,
mobile order and payment systems are benefiting McDonald’s image as the ‘restaurant of
the future.’

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5.Highest Brand Value in Fast Food Brands

McDonald’s enjoys the privilege of being the most valuable fast food brand in the world
with the brand value of $126.04 billion in 2018. No other brand, in the fast food category,
was even close to McDonald’s worth as Starbucks, which was the second most valued
brand had a worth of just $44.5 billion.

6.  Improved Quality Control and Health Protocols

You can debate about the taste and overall customer experience, but McDonald’s’ quality
standard has always been its strong point. The Company enforces complete food safety
and quality protocols before buying the ingredients from third-party intermediaries.

Recently McDonald’s has begun restricting the use of the high-value human antibiotics.
It was established by the World Health Organization (WHO) as “highest priority
critically important antimicrobials” (HPCIA) to human medicine, in its global chicken
supply since 2018.

7.Leading quick-service restaurant

According to Statista, McDonald’s is the leading quick-service restaurant (QSR) chains
in the United States in 2018, by system-wide sales. The accounting for transactions of
McDonald’s topped the chart with $38.52 billion in 2018.

Weaknesses

The Franchise business model

McDonald’s is the best example of international franchising models. However, having
this complicated web of franchised and company-operated restaurants expose the brand
to certain risks.

The risks of financial deterioration, mismanagement, customer dissatisfaction, and low

revenue generation. The company heavily depends on the franchises which works
independently and hence they have no control over their day to day performance, but it
affects the brand directly.

The McDonald’s weakness is due to the internal strategic factors and the competition in
the market. They can be handled, if the company tries to tackle these in a strategic
manner. McDonald’s Strengths in the SWOT Analysis are as follows:

 There is negative publicity about the products that mcdonalds sell are fast food
and contains a high amount of fat, carbs, salt and sugar. Due to which there is the
trend of obesity in children.

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 The US market for the burger outlet is almost saturated. So McDonalds have to
look for taking its product internationally to other countries, which involves
cultural and economic challenges.
 The dividend growth rate has been slowing down there is potential for that the
investors will opt out from the McDonald’s.

Opportunities of McDonald’s  

There are an ample number of opportunities in the market which McDonalds can
implement to get a sustainable development in the future. McDonald’s opportunities in
the SWOT Analysis are as follows:

 There is an opportunity for the international expansion for Mcdonald’s.

 Can start the premium products at some of its franchise to check whether there is
a change in the customer demand.
 Can start developing the supply chain for the related products in the market so
that they can generate revenue from other segments as well.
 Can start selling the products which are giving health proposition to the
customers.
 There is a lot of potential by designing the customer centric campaign to add
value proposition to the brand.
 Focus on the opportunities to expand in the underdeveloped nations
 Use corporate social responsibility and reducing the impact on the environment
and use it as a competitive advantage to attract the customers.
 Company can expand more in the caffeinated beverages industry and can be a
direct competitor of starbucks in the caffeinated beverages segment.
 Propose a joint venture with the supermarkets to sell the franchise in there
marketplace.

Threats of McDonald’s 

 Government policy on banning ingredients such as MSG(Monosodium

Glutamate).
 The competition in the market is very high, the market is more saturated and
intensity of competition is high
 In the new product segments the company have to compete with the market
leaders such as Starbucks and Subway.
 The customer nowadays are health conscious they are more lean towards the
products which are healthy.

Pricing Strategy of McDonalds

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McDonald’s Prices and Pricing Strategies

This element of the marketing mix specifies the price points and price ranges of the
company’s food and beverage products. The aim is to use prices to maximize profit
margins and sales volume. McDonald’s uses a combination of the following pricing
strategies:

Bundle pricing strategy

Psychological pricing strategy

In the bundle pricing strategy, McDonald’s offers meals and other product bundles for
prices that are discounted, compared to purchasing each item separately. For example,
customers can purchase a Happy Meal or an Extra Value Meal to optimize cost and
product value. On the other hand, in psychological pricing, the company uses prices that
appear significantly more affordable, such as $__.99 instead of rounding it off to the
nearest dollar. This pricing strategy helps encourage consumers to purchase the
company’s products based on perceived affordability. Thus, this element of McDonald’s
marketing mix highlights the importance of bundle pricing and psychological pricing to
encourage customers to buy more products.

Value Propostion of McDonalds

 McDonald’s is famous for its value proposition:  food of a constant quality that is
served quickly and consistently across the globe.
 The main customer segments are families, youngsters, the elderly and business
people.
 McDonald’s main strategic partners are its franchise holders. At year end 2013,
more than 80% of McDonald’s restaurants were franchised. Together with its
suppliers the company's model is based on a three-legged stool: suppliers,
franchisees and McDonald’s. Each leg must thrive for the business to be profitable.  
 The key activities McDonald’s engages in is the marketing and selling food and
beverages.
 Key resources are the company’s employees and its restaurants on a-locations.
 The customer relationship takes place online on the device preferred by the
customer.
 McDonald’s distributes its products through the restaurants.
 The cost structure consists of employee salaries, facility construction costs, raw
materials procurement and marketing costs.
 McDonald’s revenues are generated at the restaurants owned by the company
itself and those owned by its franchise holders.

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Price Fence and Metrics used by McDonalds

1.The Mcdo gift card is a loyalty program that rewards members with points every time
they eat in Mcdo,establishments nationwide. The points can then be used as currency for
any item sold in any of the participating stores.

2.Mcdo gift card that customers can avail of discounted meal combos featuring their
favorite Jollibee treats.

3.Product prices may vary if its kiddie meal or regular meal.

4.There are more discounts and vouchers in online than in actual store

5.They give a discounts if you download their Mcdo app in your mobile phones and you
can also order their food their.

6. They give coupons to people walking around their establishment, the coupons consists
of more discounts of different combos of food or variety of food.

McDonalds Competitors Product

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Effective Pricing Policy of McDonalds

McDonald’s itself (2007) is vague about its pricing strategy; the company understands
that a customer’s perception of value is an important determinant of price charged. Using
low price as a marketing tool may promise customers a product of compromised quality.
Moreover, competitors can respond in a price war resulting profit margins reduced
without increasing sales.

Despite the cost savings which is characteristic of standardisation, implementation of

McDonald’s price strategy is localised rather than globalised (Vignali 2001). McDonald’s
has different pricing for different countries. Each country undergoes a strict process to
determine the price for a particular market. The process (Vignali et al 1999) is:
 selecting the price objective
 determining demand
 estimating costs
 analysing competitors costs, prices and offers
 selecting pricing method
 selecting the final price
The process above is the basic framework that McDonald’s uses to set up localised
pricing.

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McDonald’s pricing objective is to increase market share (Vignali 2001). McDonald’s

mission statement highlights its pricing policy; the most fundamental element of
determining price was:

Being in touch with the price of our competitors allows us to price our products
correctly, balancing quality and value.
For instance, to penetrate the market in New Delhi, India in 1996, McDonald’s set their
price by looking at Nirula, a local food chain.

Ceiling and floor price of McDonalds

Reflection Individual

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