Study on McDonald’s Generic Strategy and Intensive Growth Strategies

Author Details:

Dr. Kasturi Sahay, Assistant Professor, Amity University, Jharkhand

Email: ksahay@mc.amity.edu

Ms. Riya Mishra, MBA Student, Amity University, Jharkhand

Email: riya.rizz.555@gmail.com

Abstract
The case discusses strategies used by Mc Donald’s to gain competitive advantage and become
cost leader ship. So the two main strategy used by Mc Donald’s are generic strategy and
intensive growth strategy. McDonald's is a fast food chain that sells hamburgers and fries but it
goes with a deeper than that it is the world's second largest restaurant chain. Under intensive
growth strategy Mc Donald’s focused on Market penetration, Product development and market
development. And generic strategy is being used by Mc Donald’s to get competitive gain.
Introduction:

A brief background
McDonald's is a fast food chain that sells hamburgers and fries but it goes with a deeper than that
it is the world's second largest restaurant chain. The name McDonalds is a combination of two
word Mac and Donald Mac part means Son while Donald come from a Gaelic name that means
the ruler of the world the two world rulers that we are interested in are Richard and Maurice
McDonald to brother from new Hamshire.In1920 they moved to California where they started a
movie theatre and a hot dog stand but they eventually went bust when the Great Depression came
around. Their first big success comes in 1941 the open a Barbecue join in join in San Bernardino.
Now at the time virtually all the restaurant were mom and pop establishment with their own
unique taste and cooking method drive in with roller skating waitresses were all the range back
then but they weren't particularly efficient you had to wait half an hour to get your order and
half of the time they got it wrong. The McDonald's Barbecue has no different and although it did
turn a profit the brothers knew they could do better they realized that most of their income was
coming from just three products that is hamburgers French fries and Coke. After running the
place for 8 years the brothers decided to make a radical make over they dropped most of their
they dropped most of their dropped most of their menu to focused on their bestsellers and they
redesigned the entire kitchen around that the cooking purpose started to look like an assembly
line which allowed the brothers to fill customer orders in as little s 30 second. They abandoned
the driving concept in favor of walk up counter and they stopped using cutlery and dishes
entirely replacing them with disposable paper packaging. In an instant their restaurant become a
sensation drawing in attention from across the country
The real nucleus of their success stems from real estate. Real estate has played a critical role
within the value of the franchise, securing prime locations round the world.

Once McDonald’s hit a particular momentum, it became less expensive for the corporate to work
as a real-estate enterprise. Essentially, management gets to understand where McDonald’s stores
will likely be franchised out by locals and can buy that land and lease it to them. If the outlet
doesn’t work because it should, they refuse to permit the franchise to stay , or they ship in
another one.
Most restaurants are “owned and operated” by a franchisee. However, within the McDonald’s
system, the corporate acquires the important estate (either by purchasing or leasing), constructs
the restaurant (all except for the furniture, fixtures and equipment) then leases the restaurant to
the franchisee at a profit. The money that goes from the franchisee to McDonald’s is rent and,
and if there is some serious operational issue then McDonalds “gets rid” of that franchisee, it’s
still the companies restaurant and than they transfer or sell it to subsequent “Owner/Operator”.
Therefore, the majority of McDonald’s corporate revenue is really coming from rent.
Additionally, McDonald’s carries of these assets in their own books. These concepts are totally
different where the franchisee acquires the property themselves and pays a royalty fee to the
franchisor. In those instances, the location belongs to the franchisee.

Types of Strategies used by Mc Donald’s-

Intensive Growth Strategy:
Intensive growth is when a firm grows by increasing its line of merchandise or its market reach.
Thus, if a firm introduces a brand new product, enters a brand new market, or more develops its
own competence, than the firm is undergoing intensive growth. Intensive growth ways area unit
possible to assist the firm grow within the market quicker and build the corporate stronger.
Intensive growth is best explained with a respect to the merchandise market enlargement grid.
The merchandise market enlargement grid takes the merchandise and also the market into
thought so suggests four ways for intensive growth that a firm will implement. Types of
strategies under intensive growth-

Market penetration –
Penetration is the most generally used strategy for intensive growth. This strategy is used when
the demand of particular product in the market is increasing rapidly. In this situation the firm
reduces the price for that particular product so that it can attract more of the customer.

Market development –

Market development happen when the existing product is bought into the new market. so in this
case the the company needs to focus more on promotional activity so that the new customer
become familiar to the product.
Product Development-

In this case the market is very much interested in new products. so in this situation the company
can introduce these new product to attract customers.

Diversification strategy –

The last strategy of intensive growth is diversification strategy. most generally observed in
geographical growth, this kind of intensive growth strategy takes place once a innovative product
is introduced in an exceedingly} very new market. therefore the challenges involved in
diversification strategy is huge, but if the strategy might be a hit, than the profit and are available
back on investment is huge likewise.

Porter’s Generic strategy-

Porter’s generic strategy is a way of devising business Strategies for competitive advantage.

What is competitive advantage??

It is just a way of getting higher profit than competitors in the Marketplace we can gain
competitive advantage by looking at key dimension

1.scope of business strategy - which in simple terms means the reach of the business/the
customer base being targeted you can either target a narrow section of the market and focas
entirely on that section or you can look at that the a r d market

2 actual source of competitive advantage- that means how do you actually intend to get
competitive advantage in the Marketplace you can either do that by differentiating your product
or service or you can provide lower cost.
 By absorbing the chat we can see that the top section is broader than narrow section the top of
left quadrant which is overall cost overall cost just means becoming the lowest price for wider
customer base can be achieved by efficient lean production methods closer relationship with
suppliers investments in newer Technologies and in various other ways for example Amazon
sales pretty much the same product as everybody else but the product in Amazon in Amazon are
generally cheaper.

1. Overall differentiation:
Looking at overall differentiation here need to do something unique or something different
something more efficient and better than the overall market to actually gain a competitive
advantage competitive advantage a competitive advantage a competitive advantage competitive
advantage by providing higher quality product better brand value and also wider distribution

2. Cost focus
It means cost leadership in a narrow or focused market. It is in lower quadrants in lower section
of chart.

3. Differentiation focus:
It means differentiation strategy in a narrow or focused market.

It is very important to remember that a lot of company try to maintain a balance between more
than one quadrant in what happens is is if you try to focus on more than one quadrant at the same
time there is always a possibility that you neither focus or get focus or get stuck in the middle
and what happens when you get you get when you get you get get stuck in the middle you don't
have a cost focus you don't have overall cost advantage have overall cost advantage cost
advantage you are trying to reduce cost and you are impacting your overall quality and
differentiation in the meantime and there for you and neither cost effective nor differentiated.

Strategies used by Mc Donald’s

Generic Strategy
McDonald’s generic strategy determines its basic approach for getting competitive advantage. As
it is the biggest restaurant chain within the world, McDonald’s uses its intensive growth ways to
support continued business development and growth. The connected strategic objectives dictate
the company’s operational activities, particularly in responding to economic changes and
therefore the actions of competitive companies. Variations in market conditions impose pressure
on the business to adapt or reform its ways. As such, McDonald’s generic strategy and intensive
growth ways keep on changing over time to make sure long-run business viability.

Mc Donald’s primary generic strategy is cost leadership. That means minimizing cost and
offering the product at low price. So Mc Donald sales the product at lower price as compared to
its competitors like Arby’s.

The second generic strategy used by Mc Donald is broad differentiation this is called as
supporting generic strategy. This strategy involves the development of both business and it's
product.

For example the introduction of Mc Cafe products, mc Donald used here broad differentiation
strategy.
Intensive growth strategy -
Market penetration- The intensive growth strategy is being supported by generic growth strategy.
Mc Donald uses Market penetration as it's primary intensive growth strategy. By using this
strategy Mc Donald is able to reach to more customer in the market it already has operations.
Like Mc Donald is opening it's franchise in North America and Europe. And the main objective
of this strategy is to to expand globally by operating in new location.

Market development- Earlier market development is used as primary strategy for Mc Donald
because they wanted to operate in new market and in new location. But now it became secondary
strategy because Mc Donald has already well established in almost all region like Africa and
Middle Eastern companies.

Product Development- This is used as a supporting strategy by Mac Donald. Basically in product
development new products as introduced in the market. The objective of this strategy is to attract
customers towards new product. Example of new product introduced by Mc Donald is Mc cafe.

Conclusion:
Mc Donald’s generic strategy helps in getting cost leadership and helps in
sustaining in the market and being market leader. And through applying the growth
strategies it establishes more location in developing countries.