McDonald’s International Marketing Strategy: An Analysis



GEORGIA STATE University McDonald’s International Marketing Strategy: An Analysis Caitlin Cameron, John Chapman, Taylor Fraser, Francesca Massari Figari, Iman Paul, Tiandra Williams and Tameka Winchester7/29/2015McDonald’s International Marketing StrategyTABLE OF CONTENTSPAGEI. EXECUTIVE SUMMARY2II. OVERVIEW3III. MODE OF ENTRY 4IV. GLOBAL MARKETING STRATEGY9V. EVALUATION & PERFORMANCE19VI. RECOMMENDATIONS20VII. ENDNOTES22VIII. APPENDIX25I. EXECUTIVE SUMMARYThis project was designed to examine the strengths, weaknesses, and needs for change of the international marketing strategy of McDonald’s as a global brand. At a time when this giant is at its peak changes in the global market are forcing McDonald’s to adapt to different cultures and evolving preferences. The food service industry is very challenging on even a local scale, McDonald’s has taken this challenge around the world and identified four major components that make up its mission/vision: Health Consciousness, Sustainability, People, and being a Good Neighbor. It looks at various aspects of each of these as its keys to continued success. To enter foreign markets McDonald’s has to use various methods of entry. The primary focus for the company is to franchise its well-known brand. It utilizes its small subset of wholly owned stores as test kitchens and market leaders, while utilizing joint venture partnerships in the more restrictive markets.McDonald’s has identified four key segments that best fit its marketing strategy, which are defined by country status/location: U.S. domestic, International Lead Markets, High Growth Markets, and Foundational Markets with the home market making up roughly 40 percent of the company’s revenue. These markets are further segmented by demographics and psychographics to better serve the local customers. Each of these segments and sub-segments drives the expanded four P’s of the marketing mix.The primary aspects of the marketing mix contain Product, Promotion, Price and Place. The expansion of these also include Physical, People and Process. These facets of the marketing strategy define all the ways that McDonald’s services its customers and adapts to the various markets.Recent market trends and changes in customer preference have had adverse effects on McDonald’s in recent years, specifically in 2014 where the company saw an operational income decline of 8 percent. This has also been seen in much of the company’s competition with Wendy’s and Burger King showing steeper declines. Despite this McDonald’s is still the largest quick service chain worldwide in terms of revenue. To combat the market trends and assist the company to make up lost ground the following recommendations are proposed: increase the perceived or real value to the customer by adapting the product and adding additional offerings, use technology to better adapt to changing customer tastes and preferences, and to continue expanding the global reach by venturing to new markets.II. OVERVIEWHISTORY In 1948 two brothers, Dick and Mac McDonald, opened a small hamburger stand in San Bernardino, California.1 The business model behind the family-owned store was simple; the stand would offer only hamburgers, fries and milkshakes, all of which would be sold at reasonable prices. 1 Not only were consumers interested in the simple offerings McDonald’s provided, but also businessmen such as Roy Kroc saw great expansion opportunities in the burger shop. 1 Evolving from his role as the company’s milkshake supplier, Kroc became the first McDonald’s franchise owner by opening a McDonald’s in Chicago in 1955. 1 At that time, the cost to open a franchise with the company was about $30,000 a number that has since grown tremendously.1 To become part of the largest, most successful fast food chain in the world today, one can expect to invest upwards of $1,000,000. 1 There is little doubt Kroc’s vision has since become a reality, as McDonald’s has grown from a single hamburger shop in Southern California into a global fast-food chain with locations in over 100 countries, more than 35,000 restaurants and servers roughly 70 million customers daily.2MISSION & VISIONMcDonald’s has created and implemented specific missions and a vision that has merged into what the company has today named ambitions. As stated on its website, McDonald’s ambition goes beyond their offerings; the company chooses to focus on being a positive force for its customers, employees, the communities it operates in and the world as a whole.3With respect to its mission and vision of providing good food, McDonald’s has tackled a variety of trends that affect the industry as well as the world in its entirety, including:Health Consciousness: Continually searching for new ways to improve the nutritional value of its offerings, while maintaining their signature taste that is loved worldwide.4 Sustainability: Leverage the company’s size to improve a variety of sourcing factors including assurance that direct suppliers align with the company’s “Three Es” – ethics, environmental responsibility and economic variability. 5People: Offer employees opportunities for professional and personal development.6Good Neighbor: Implement targets such as increasing energy efficiency by 20 percent in company-owned restaurants and increasing the amount of in-restaurant recycling to 50 percent7,8Situation Analysis – General McDonald’s Market AnalysisStrengthsWeaknessOpportunitiesThreatsBrand RecognitionEconomies of ScaleBusiness Structure Diversified Income Public ImageLittle DifferentiationChanging MenuDeveloping MarketsCompetitionHealth Concerns(See more detailed information in appendix 1)Market AnalysisAccording to the 2014 Annual Report, McDonald’s has experienced and continues to experience difficulties with lagging sales and declining guest counts.9 While some of these challenges were anticipated, others such as unexpected supply issues in Asia, were not. 9 These factors, among others, have triggered a 2 percent decline in consolidated revenues and a 9 percent decrease in consolidated operating income. 9 On a positive note, the 2015 forecast highlights $1.2 trillion in growth opportunities within the informal eating out segment. 9III. MODE OF ENTRY McDonald’s has chosen to use three different types of mode of entry (MoE) into various marketplaces: wholly owned stores, traditional franchises, and foreign affiliate/developmental licenses. Each of these MoE’s has its own advantages and disadvantages in terms of risk, reward, time to market, cost, and control. McDonald’s is represented across 119 countries with approximately 35,000 outlets the majority of which, are franchises. The company provided a breakdown of their ownership types as follows:Over 57 percent are conventional franchiseesApproximately 24 percent are licensed to foreign affiliates or developmental licensees, and Over 18 percent are company-operated. 17Direct Investment – Wholly Owned???????Wholly owned stores that McDonald’s corporate manages makes up only a small portion of its stores with less than 20 percent, the majority of which are located in the United States and the United Kingdom. Interestingly, while the company has a small amount of wholly owned stores, within their U.K. market, 70 percent are owned and operated by McDonald’s Corporate. In a recent statement from the current CEO18 the company is aiming to reduce the number of company-operated restaurants even further to about 10 percent, a trend the industry is seeing as whole in order to mitigate risks19 While the company is looking to downsize wholly owned stores, there are some benefits in having them in their company’s portfolio. These stores allow the company to test new methods and models of doing business, which in turn permits McDonald’s to maintain control and understand the various markets without relying on feedback from the franchisees. Additionally, these stores provide a healthy portion of revenue for the company, which comes not without risks, one being the cost the company incurs through operating these stores.FranchisingWhile wholly owned restaurants represent 20 percent of the company’s food operations, franchises make up almost triple that amount with approximately 57 percent of McDonald’s restaurants operated through franchising. In fact, the company is so well known for its franchises that the term is often synonymous with McDonald’s. Franchises are operated by third parties, but McDonald’s corporate performs the majority of promotional advertising as well as decision making in terms of menu selection and brand direction. Similar to most franchising operations, corporate asses marketing and franchising fees to be paid by the owner, however, as a corporation, McDonald’s has the ability to collect rent on the property on which the building sits, an additional fee the company receives. Another unique aspect of the McDonald’s franchise operations is that corporate does not sell food products directly to franchises, but rather organizes the supply of the food through a third party logistics provider. Franchising is a low risk MoE option when entering foreign areas, and comes with its own set of advantages and disadvantages listed below:Advantages:Low Risk: Franchises allows for quick expansion into new markets with a much lower risk to McDonald’s financially being that franchise owners assume the majority of the financial burden in hopes of seeing a higher return.First-Hand Host Country Knowledge: Franchises allow the company to have people on the ground who are knowledgeable about host country factors including economic factors, geographic and political factors. Corporate Financial Gain: With the franchisee acquiring a large amount of the financial burden, McDonald’s corporate is able to take in fees from franchises without worrying about the costs associated with rent, property taxes and other factors that increase overall cost. To that end, the return McDonald’s corporate receives is high in relation to the small amount of risks it takes to allow franchising to occur.Disadvantages:Loss of Control: While McDonald’s may see gains in terms of a low involvement revenue stream, the company has little control over the day to say activities of franchises. Although there are standard practices and guides franchises must follow, the actual implementation rests upon franchisees. Increased Cost and Involvement in Specialized Markets: In markets that require special adaptations when it comes to menu offerings, ensuring that the franchisee and McDonald’s corporate are on the same page can be a daunting task for the company. For example, McDonald’s is primarily known for hamburgers in the U.S., but in countries such as India where the majority of the population does not eat beef and will not even visit a restaurant that serves it, normal methods must be altered to meet demands. Exclusions like these have caused the retail fast food chain to increase different franchising models that can be implemented. While these models have been beneficial, and increase in cost and involvement still remains. Franchise Impact on How Overall Company is Perceived: Franchise operations can impact how the McDonald’s brand as a whole is seen. A mishap or an incident garnering bad press as a result of one franchise will most likely resonate across McDonald’s stores around the world and cause backlash by the consumer as a result. Situations such as these can further limit corporate ownership’s control and often times requires corporate to step in and do the necessary damage control to lessen the overall blow. As a whole, franchising poses a variety of advantages and disadvantages to McDonald’s as a whole. Due to the large amount of franchises the company has, the advantages are currently outweighing the disadvantages. Global Impacts of Franchising in the Host Country:Political / Legal: McDonald’s as a global franchising leader is a success that often places them in a position to be one of the first to encounter various political and legal issues of the world. While this can potentially be difficult to deal with on a corporate scale, have franchises can decrease the burdens of dealing with said political and legal issues. Through utilizing local ownerships, the company can deal with legal and political issues more strategically than the home company can. For example the Chinese government passed regulations in 2004 that clearly defined foreign operations in China. These regulations assisted in ease of entry, while simultaneously making franchising a more beneficial opportunity in the country. Despite regulations similar to China’s there is a constant risk of negative political and legal factors that can hinder entry modes, such as franchising from performing well.Environmental: Due to the lack of control that McDonald’s has with franchises and third party providers, the company is susceptible to a variety of environmental regulations that may not be met as a result of franchising. One example is in China when the company was presented with a HK$4.9 million water pollution fine that was the result of third party potato provider’s failure to comply with local environmental regulations. Issues such as this must be taken into account when partnerships and franchises are taking place. Technological: Overall, technology has made global franchising more manageable since it is easier than ever to communicate and disperse information quickly between franchises and corporate headquarters. The technological level of a country plays a major role in the success of a company’s franchises. Infrastructure: A country’s infrastructure is an integral part in the success of franchises. By comparison, the U.S. has a large, advanced transportation network that is relatively easy to use and one that McDonald’s is adjusted to. When seeking to enter a new market, McDonald’s must take into account the ways in which franchises will acquire their products. Due to the fact that McDonald’s manages the supply of its products, the corporate entity is heavily involved in designing and implementing this supply-chain process; a process that can be challenging when expanding to emerging markets.Cultural: Around the world McDonald’s is known as an American company that has American values and ideals. This can be problematic when the company expands to areas in which the culture is drastically different than that of the home country. Franchises offer a window into understanding cultural norms and are a way in which McDonald’s corporate can ensure they are sensitive to the needs, wants, and desires of the host country’s culture.AffiliateThe remaining McDonald’s operations are made up of joint ventures (JV). While this mode of entry is uncommon for the company, the most well-known JVs in recent memory are those in India and China, which were a result of regulations that made them more beneficial for companies such as McDonald’s. Unlike franchising, joint ventures require much more input as it relates to cost, time, and complexities. While JV’s are less risky than wholly owned chains, they provide less potential rewards due to their shared nature with other companies. Although the return may be less, JVs provide more brand security than franchises since McDonald’s still maintains a large portion of control. Though JVs have advantages and disadvantages, this venture requires a great deal of trust between the home company and the host country/affiliate in order to be successful. When McDonald’s first expanded into China the JV team was tasked with creating a supply network, finding local growers to contribute to the network of suppliers, hiring local contractors to build restaurants, and locating local staff to run the outlets.IV. GLOBAL MARKETING STRATEGYSegmentation, Targeting, Positioning, and the Value PropositionFor McDonald’s, a variety of segments are utilized from geographic segmentation, to demographic segmentation, and finally, psychographic segmentation, all of which are listed on the company’s corporate website. Primarily, the company segments geographically by separating markets into four different categories, the U.S. domestic market, International Lead Markets, High Growth Markets, and Foundational Markets. The U.S. domestic market makes up more than 40 percent of the company’s global revenue which is similar to the international lead markets that include areas such as Australia, Canada, Germany and the UK and rake in a total of 40 percent of the global revenue as well. The next segment are the high growth markets which include China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands this high growth market that is characterized by the steady increase of retail stores being opened equates to 10 percent of the company’s global revenue. The final geographic segment used are the foundational markets. These markets include the areas in which the company has outlets but are not domestic, international lead or high growth markets. Over time, these markets may grow and expand, but currently they are in the foundational stages and account for the reaming 10 percent of revenue.The next segmentation base the company uses is demographic segmentation, through which they segment by age, income, and ethnicity. When segmenting by age, the company strives to target younger consumers by offering “Happy Meals” that come with a toy and are characterized by a clown looking “mascot” of sorts. In doing this, the company hopes it will be so enticing that kids will desire it and in turn pressure their parents to purchase the meal. After getting the parents to the store through children, the company offers a variety of options including the McCafe for those who enjoy specialty coffee beverages or gourmet hamburgers for those who want a hearty hamburger. Additionally, the company targets the young adult and mothers segment by offering a drive-thru that is meant to be efficient and quick for those people who are on the go. This option assures the mothers and young-adults target who are on the go, that getting their McDonald’s is not going to be too time consuming, a characteristic often associated with eating out. A final demographic segmentation used by McDonald’s is segmenting based on ethnicity. More specifically, the company uses this segment to target African-American, Latino, and Asian families differently. In a video curated by McDonald’s US Marketing Director, the company discusses how they target each of these ethnicities differently through promotional strategies such as creating three different television advertisements that focus on each ethnicity’s direct needs and wants.An additional segment the company utilizes is psychographic segmentation. By separating its large customer base into smaller groups based on psychographic characteristics, McDonald’s is able to provide its customers with offerings that suit each small psychographic base’s desires. For instance, McDonald’s has taken note of those individuals who seek to lead healthy lifestyles and as such now has a line of offerings that are lower in fat, sugar, salt and calories. Specifically, McDonald’s now provides egg-white McMuffin’s which are low in fat and healthier and their premium wraps are offered in a grilled chicken option rather than fried for those who enjoy McDonald’s but want to eat healthier. As described above, McDonald’s uses a differentiated marketing strategy to simultaneously pursue several key market segments and manage multiple unique offerings to each of their different segments.Overall, the company ties their segmenting and targeting strategies together through their global marketing strategy, which influences their value proposition. On the company’s website their value proposition is clearly stated as “quality, service, cleanliness, and values.” For the company, this value is delivered through their relationships with owners and operators, service providers, and employees in order to offer quality, service, cleanliness, and strong ethical values to their customer all of whom lead into the company’s overall positioning statement.While the positioning statement was not explicitly stated by McDonald’s one that encompasses their STP strategy and is derived from their value proposition is:McDonald’s is the leading customer-focused global food retailer, because they stress the importance of creating value for the consumer by successfully incorporating a geocentric business and marketing model.International Marketing Strategy: 4Ps and TechnologyProductWhen it comes to product, the McDonalds’ menu is at the core of their global successes. Their product strategy embodies the ideals of global localization. For the company, global localization is implemented by offering their key domestic menu options across every market, while adapting specific menu offerings for different markets. While some large companies are just beginning to understand and roll out strategies that express global localization, McDonald’s has been implementing it for years. Mahmood Khan discusses the McDonald’s “think global, act local” product strategy in his 2002 journal entry, Internationalization of Services: The Global Impact of U.S. Franchise Restaurants22. In his writing, he explains the McDonald’s standardization strategy as offering major menu items with similar tastes across different global markets. For the customer, this standardization has an impact upon their life, eating habits and food preferences (Khan, 273). This “Think Global” portion of their product strategy allows the company's overall key offerings to stay consistent across a variety of heterogeneous markets, while developing unique a taste and a world-renowned brand. These ideals have held consistent over the years and in the company’s 2014 Annual Report, the newly appointed CEO briefly touches on their overall menu uniformity as a key driver in the company’s success over the years. For McDonald’s this standardization and taste have been integral in making the company a multi-million dollar one.While standardization is one of the key drivers in McDonald’s international marketing strategy, the “Act Local” portion may arguably be the most crucial aspect of their strategy. This adaptation is not only necessary for McDonald’s to maintain and grow their position within the fast-food industry, but it is also a requirement to operate in a multitude of markets across the world. McDonald’s must consider the overall differences that impact their offering mix such as differing consumer tastes, religion, laws and certain customs of the area.23 Cladiuo Vignali explains different menu offerings that the company has implemented to adapt to cultural changes of their markets in his article in the British Food Journal: McDonald’s: “think global, act local” - marketing mix. For example, the journal speaks to a situation in Israel where the Big Mac was adapted, after protesting by consumers, to be served without cheese according to kosher requirements that states that meat and dairy products must be separated. In India, they serve vegetable McNuggets and a mutton-based Maharaja Mac (Big Mac), innovations that are necessary to implement in a country where a large majority of the population does not eat meat (Vignali, 99). These adaptations or offering modifications are unique menu items in addition to the more standardized menu the company offers such as their famous french fries or refreshments.Whereas specific macro-factors play an important role in McDonald’s customizing their menu items, differing customer needs and wants are another reasons why the company adapts their menu offerings. For example, Vignali mentions areas such as Germany where beer is sold in restaurants or in Italy where cold pasta dishes are available. These menu offerings are additions to their offering mix and are implemented in order to meet consumer desires that differ from market to market (Vignali, 99) 23. Although implementing this strategy is costly, the investment by the company has allowed them to gain their footing in new markets and become a frontrunner in the fast-food industry.In addition, as previously mentioned, McDonald’s adapts some areas of their product offerings. ?This been said, the company also adapts their communication strategies as each market has different conditions, preferences and a different receptivity towards their advertisement. While promotion is discussed in further detail below it is important to note that when expanding into a new market, McDonald’s uses a dual adaptation strategy, meaning they adapt both, their communications and their product strategies, in order to address individual markets in the most effective manner. Moreover, as competition continues to get stronger, and consumers preferences continue to change while their tastes are becoming more sophisticated, it is imperative that McDonald’s be on a constant quest to innovate its products and fulfill the consumer’s changing needs and wants. Due to this continuous change, McDonald’s has participated in extensive marketing research that allows them to strategically introduce new products and eliminate others from its menu offerings each year. In doing this, it is important to keep a close watch on the sales effect these items have to avoid any potential cannibalization new offerings may have on existing products. The product life cycle (PLC) plays a key role in ensuring cannibalization is avoided and an analysis of this cycle must be fully integrated into the product strategy. This integration is key because it assesses the ability to generate profits that will vary at different points of the PLC. As a global company, the stage of a product varies within their markets of operation, so it is necessary to observe and track each market separately. In the case of Australia for example, the Big Mac is in its maturity stage, because of this, the company has introduced the “Grand Angus” and the “Mighty Angus” burgers into their offering mix to coexist with the Big Mac offering while addressing customer wants and needs. These offerings do not cannibalize the Big Mac because it is steady in profits at maturity and is purchased and eaten mainly though the late adopter category. The new offerings on the other hand, are usually purchased by those willing to try new things including early adopters, to this end profits are steadily increasing without encroaching on the Big Mac offering.Finally, because McDonald’s is a global company with offerings at differing stages of market penetration and development all around the world, it can also be said that each of their markets are in different stages of the PLC. As previously, the company segments their markets into four clusters depending of their level of development and full potential. Graph 1 in the Appendix II illustrates where in the PLC each of these markets are located.PromotionMcDonald’s promotions represent a “brand globally, advertise locally,”23 communications strategy, meaning that more often than not, McDonald’s adapts their communication strategies for different markets. In looking at the aspects of standardization within McDonald’s marketing mix, the infamous golden arches are at the pinnacle of the McDonald’s standardization and have become a primary reason that Business Insider has stated that overall, the company has a high brand equity. While this branding symbol is known worldwide, it is still imperative that as a brand, McDonald’s relays their overall communication message in an appropriate and effective manner.Much like the golden arches, which are known around the globe, the infamous slogan “I’m Lovin’ It,” is another part of the McDonald’s promotional strategy that is completely standardized. ??This slogan is used in almost every campaign and market and is directly translated into languages around the world. The goal of this is to convey the same overall message that McDonald’s equals happiness. While this slogan is directly translated and standardized, the promotional strategy associated with the slogan is adapted for different cultures in order to make the messages as impactful as possible. One example is the vast amount of sporting sponsorships and endorsements the company utilizes. The types of events sponsored and endorsers used change depending on the location, making it the portion of this promotional strategy that is adapted for each market. In addition to the global brand image and standardized promotional slogan, McDonald’s has begun to make use of integrated marketing communication (IMC) strategies that merge the lines of traditional and digital campaign strategies. As consumers have become more technologically savvy, the company has responded by rolling out localized apps or digital campaigns to advertise to different markets. One campaign the company used IMC for is the widely known U.S. Monopoly sweepstakes. While the sweepstakes make use of traditional sales promotion strategies, the company has recently incorporated digital aspects into the promotion to capitalize on tech savvy users. In the same way that sales promotions are transitioning towards digital, the use of online platforms such as social media suites have also become more prevalent and a transition that many companies have made. McDonald’s makes use of digital advertising through social media channels including: Facebook, Instagram, Twitter, YouTube, Tumblr and music applications such as Spotify and Pandora. ?These platforms allow McDonald’s to reach their consumers quickly and provide a means to make a personal connection with consumers. These platforms also give consumers a way to interact with one another and in turn this interaction has since created a cult-like community following of the restaurant. In addition to the speed and interaction these platforms give McDonald’s it also provides the company with a unique and simple way to adapt and localized their online promotions for different markets. Finally, good public relations (PR) can positively affect a brand’s image when done properly. For McDonald’s, community involvement is a key aspect of their corporate values and is something they take very seriously. While the company genuinely uses this to reach out to the communities it operates in, this outreach has also become part of their PR strategy. PriceIn conjunction with the other strategic marketing factors that must be considered when entering the international marketplace, deciding on the proper price for the offering is crucial for the financial stability of the company. Offering a product for too little can potentially devalue the product while pricing the product too high by market skimming may cause the company to lose business. Continuing with a similar international marketing strategy the company has implemented in other portions of their international marketing strategy, McDonald’s utilizes an invention or geocentric pricing strategy. This strategy takes into account unique market factors including local costs, income levels, competition and local marketing strategy objectives. Postelnicu Dabija24 discusses McDonald’s pricing policies in Romania in 2015, which are similar to the company’s pricing strategies in other international markets. The author states that McDonald’s pricing is based on the principles of population affordability, competitors pricing and their continuous pursuit to offer the highest quality product at the lowest possible price (Dabija, 9)24. This idea of pricing holds true when reviewing the Big Mac Index published but The Economist in 1986 25. While the index points more towards currency exchanges it does speak to a larger point that in every country the company is in, the Big Mac is their cash cow product. This is one standardized product offered worldwide, but is however priced differently in every market and takes into account the purchasing-power parity of each market.Over the years, this geocentric pricing strategy has seen few, if any changes. In 1999, Claudio Vignali speaks to a similar strategy hinging on six points (Vignali, 102)23, a strategy that has overall led the company to be competitive globally, rather than looking to maximize products in one market. PlaceFor a company with over 35,000 stores worldwide, developing a supply chain strategy that can be adapted and used worldwide is crucial to the company’s overall success. In the company’s 2014 Annual Report, the company discusses their strategy stating that their food is delivered from quality assured independent suppliers. These suppliers own and operate distribution centers globally, which then, after being approved by the company distribute products and supplies to franchises and company-owned restaurants. The company leverages scale-economies in this way in order to mitigate risks and deliver upon a portion of their value proposition of quality assurance (2014 McDonald’s Annual Report) 9. Through this benefit and organization of the supply chain, the company’s value is maximized and allows them to stay competitive internationally.TechnologyMcDonald’s has previously leveraged digital media within its integrated marketing communications strategy and has expanded through the use of digital media, to the use of technology within their stores and through their international marketing strategy campaigns. One aspect of technology the company utilizes is within physical aspect of retail outlets. When the company first began to use Wi-Fi there was a charge to use it, today in order to compete with their coffee competitors, the outlets offer free Wi-Fi. David Grooms, McDonald’s CIO stated, “[While] McDonald’s is traditionally known as a quick stop, it has become more of a destination with new products and new look and feel at many of its restaurants. ?McDonald’s is about value-value of food, value in our service, and convenience of all kinds- so, [it is] a natural fit. 26” In offering the free Wi-Fi, the company is increasing their benefits within their value equation in hopes of encouraging customers to linger inside and potentially purchase more26.Other technological advances the company has rolled out include a Digital Pay Option and a new “create your own taste” machine. Although McDonald’s was an early adopter of Apple Pay, a digital pay option in the domestic market, the company has decided to forgo offering this option in every market. There are however markets where this option is thriving. For example, McDonald’s is currently testing the digital pay option in China where the company is in fierce competition with Yum! Brands for market share. Interestingly this digital pay option in China is faring relatively well in comparison to U.S. domestic markets, which is likely the result of cultural differences. While the Chinese enjoy this option because their negative views on credit card usage, Americans are the opposite, usually enjoying the ability to use a tangible exchange of funds, in turn this more difficult to encourage domestic use of the digital pay option27.With consumer tastes ever changing, McDonald’s has begun to utilize technology in order to keep up with these taste changes. In doing this, the company has rolled out “Create Your Taste” campaign in Australian markets and is now being tested at approximately 2,000 U.S. locations28. The company feels that this campaign can effectively appeal to millennials, technology savvy buyers, and the do-it yourselfers that enjoy self-serve options, while continuing to offer value to convince-driven consumers. Create Your Own Taste will allow the consumer to construct their own burger online or by using in-store kiosks which in turn will eliminate the typical cashier exchange. In appealing to increasing consumer sophistication and the consumer’s desire for control, the campaign has the potential to improve not only sales, but also consumer engagement. Customers can share their “burger genius,” on social media and encourage friends to try it for themselves.?While this campaign allows McDonald’s to compete with large competitors such as Subway and Chipotle, it also showcases the company’s desire to stay relevant in the minds of consumers by using technology. International Marketing Strategy: Expanded 7PsMcDonald’s has designed a restaurant system that can be set up virtually anywhere in the world through the company’s use of the expanded 7Ps model which includes Physical, Process, and People. The company’s international marketing mix as previously stated is based upon both localization and globalization marketing strategies. PhysicalPhysical place is an element of McDonald’s expanded international marketing mix. The company’s drive-in and drive through options make McDonald’s products conveniently accessible to the consumers. Although a norm in the U.S., it differs from market to market in other countries. For example, in Jakarta, Indonesia, McDonald’s is positioned as an upscale dining location. Unlike the usual tables and chairs seen at domestic and even other international outlets, Indonesia stores boast six-inch-high tables fashioned with floor mats that customers eat on a typical mode of eating in the country29. In adapting this, McDonald’s is able to better serve that market by adapting physical elements to suit the cultural norms of Indonesia. Another way that McDonald’s adapts their physical appearance is by making their stores more attractive in countries where this is extremely important and necessary to entice customers to enter. At the McDonald’s store located in New Zealand30, customers can enjoy a McDonald’s café called “The Corner,” where diners can enjoy unique menu offerings, while soaking in the feeling that they are not in fact at a typical McDonald’s but in fact they are eating in an actual street side café. While adapting stores to match a fine dining norm in some countries, there are some countries such as China where a conservative “Less is more,” approach is an important factor to consider and implement. In China, the company has adapted to this cultural norm by offering softer colors and cushioned seats. PeopleAnother aspect of the expanded 7 Ps includes the people, which often times refer to a company’s employees. For a global company looking into standard hiring practices and employee benefits is crucial to its overall success. Recently, McDonald’s in the U.S. has received less than favorable press surrounding issues with minimum wage and other employee relations’ issues. In this situation, employees argued that minimum wage was not enough to pay bills or provide for their families. Employees felt that even though they are a large part of helping bring in the company’s profit, the company continues to earn billion s in revenue while they are struggling. Employees also voiced additional concerns hinging on the fact that the company did not provide adequate health insurance or paid time off benefits similar to employee benefits offered by other companies. As a result of this uproar, McDonald’s announced that employees at company-owned restaurants would see a wage increase of one dollar over the minimum wage amount in addition to receiving opportunities to earn paid time off. While company-owned store employees were delighted by this news, the public faulted the company stating that the majority of their stores were independently owned and operated and therefore this wage and benefit increase by the company did not have an impact millions on employees nationwide who will still be paid minimum wage without benefits.Although the company is dealing with the ongoing employee issue in domestic markets, McDonald’s as a brand claims to place emphasis on its people. According to the company, they pride themselves on enriching employees by offering education, job and leadership training as well as workshops to enrich employees who wish to make their careers at McDonald’s a life-long career. Though this is an immense contrast to the arguments of domestic employees standing against the company’s employment practices, McDonald’s states that as a company, they care about the overall wellbeing of its employees who are direct representations of their brand.As part of the company’s desire to enrich the lives of employees who desire to stay with the company as a life-long career, McDonald’s offers an opportunity for managers and prospective franchisees to nurture and enhance their management skills through a program known as Hamburger University (HU) 31, which has campuses, located worldwide. The goal of HU is to create a vibrant working environment for the store’s staff and managers, which will in turn positively improve customer interactions in store. HU also offers McDonald’s the ability to standardize recruitment and training processes that ate based upon friendly and prompt service worldwide.ProcessMcDonald‘s maintains a high degree of process standardization when it comes to their kitchen set up and food preparation. Each restaurant has an almost identical kitchen blueprint that consists of visible food preparation areas where customers can observe hygienic food preparation standards.In regards to food preparation, from the company’s inception having a standard food preparation strategy was an aspect the McDonald’s brothers saw as a key to the company’s overall success. Today this standardization continues with the food being packaged and stored until an order is placed. Once ordered, the food is heated to the proper safety temperature, toppings are added if necessary and then it is packaged for delivery to the customer. Regardless of the unique menu offerings available worldwide, this procedure is standard everywhere.In addition to kitchen and food standardization, McDonald’s has also standardized the point of sale (POS) at its stores. This standardization of the POS refers to the standard code of conduct for orders placed. For example, the company has established corporate goals that include walk-in order completion within 90 seconds and 3.5 minutes at drive through windows. The goal of stores is to not only be prompt with delivering the food to customers, but also to ensure that product consistency is kept which in turn drives customer satisfaction. (Vignali,108) 23V. EVALUATION & PERFORMANCEAfter a successful run which raised the firm’s share price from $12 in 2003 to more than $100 at the end of 2011, McDonald’s had a tricky 2013 and a much harder 2014. Sales in 2014 declined overall by 1 percent and the company’s operating income declined by 8 percent. (See Table 1 and 2 in Appendix III). Additionally, in the last quarter McDonald’s revenue fell by 11 percent due to across the board sales declines. The most difficult part of these numbers is the fact that they were not seen only within the domestic marketplace, the company’s decline was noticed across most major markets including Asia, the Pacific, Middle Eastern and African regions, where same store sales fell by 8.3 percent over the last year9. In an effort to turnaround the bleak company forecast, McDonald’s is faced with determining and analyzing the key reasons for these declines. According to market experts and company executives alike, the top problems that McDonald is currently facing are: its large menu, deteriorating relations between the franchise owners company management, a value proposition that is no longer being delivered, and the consumer trend shift that is moving towards healthier eating choices. Despite this downturn in sales revenue, McDonald’s is still the largest quick service chain in terms of revenue worldwide, with $27.4 billion in sales in 20149. This number, compared to its nearest competitor Subway is hefty with Subway raking in $19.5 billion as reported by a market research firm (Subway is privately held and does not generally report its US sales but it informed Technomic that is 2014 US sales were 19.5 billion). Other fast food chains such as Wendy’s and Burger King reported steeper loss of sales in 201432. (See Graph 2 in Appendix IV)Most of the U.S. fast food chains have steadily been losing market share over past few quarters. In contrast to this steady decline, there are new restaurants coined ‘fast casual’ restaurants that have seen healthy market share and profit increases. These restaurants have recently become McDonald’s strongest competition as a result of their value offerings, which include healthier menu options, the convenient ability to customize orders, and a more distinctive quick serve system. Chains such as Shake Shack and Chipotle Mexican Grill (See Table 3 and 4 in Appendix V) have seen their sales grow rapidly on a year over year (YOY) basis for the last few years. According to Mintel, the combined sales of American ‘fast-casual’ outlets rose by 10.5 percent in 2014, in comparison to a 6.1 percent growth in fast-food chains.VI. RECOMMENDATIONSEvaluate Overall Value: McDonald’s should continue to periodically evaluate their value offering in terms of greater benefits and lesser prices. By focusing on the potential benefits offered to consumers on a continuous basis, it is possible to increase value, based on the fact that on average, McDonald’s already offers low prices to customers. Potential benefits include continuing to push their McCafe options, revamping their physical locations and continuing to concentrate on consumer psychographic trends. Additionally, ensuring that the customer’s front line experience is second to none is an important part to increasing the benefits offered in order to increase value. Focus on Improving International Brand Perceptions: Overall, Chinese consumers are becoming more concerned about wealth and status. McKinsey & Company reported that Chinese consumers are increasingly driven by their perceived social statues and are searching for ways in which they can improve upon their current standing.33 For McDonald’s this trend provides an area of opportunity within the Chinese market. By upgrading the physical look and feel of stores while improving upon the overall brand’s perception there is an opportunity to capitalize on these status-seeking individuals. While this connects directly to Chinese markets, consistently analyzing brand perceptions in every market and subsequently making the necessary changes will allow McDonald’s to maintain its global dominance. Meet the customer at their turf: McDonald’s should continue to blend technology and their physical locations to capitalize on mass consumption of technology and potential create McDonald’s “communities.” An example of this is creating communities in the domestic market that are based around health conscious trends. This would offer McDonald’s the opportunity to not only tap into the minds of health conscious consumers but it also will allow the company to sponsor health related events such as 5Ks, additionally it would allow the company to create apps that track workouts or send users updates on new healthy McDonald’s menu options. Internationally, McDonald’s should research specific trends that are currently untapped, but are trends the consumer is looking to see. In China for instance, Forbes 2012 suggests that approximately 44 percent of consumers under 30, use technology to make purchasing decisions34. Developing capabilities on top of the already implemented technological applications offered would allow McDonald’s to reach a market at a level their competition is not currently reaching.African Market Expansion: Over the past decade many U.S. companies have focused on expanding their Latin and Asian market reach, a risk that has since paid off. The next area global companies should focus on expanding in is Africa. With wealthy countries such as China investing in Africa, it will not be long until Africa becomes the next gold mine. Currently, McDonald’s has approximately 200 locations in 9 Providence in South Africa, which affords them the opportunity of having current stores on the ground. While expansion is key to tapping into new market share opportunities, there are significant risks that must be considered including the hundreds of different languages, a lack of communication and power infrastructure, various political instabilities, as well as health and safety issues. Although there are significant risks, with continued research and utilization of the now 10,000 trained employees in South African locations, McDonald’s could successfully tap into African markets, a feat not many have successfully done in the pastVII. ENDNOTES1. Quintanilla, C. (2007). “Big Mac: Inside the McDonald’s Empire.” CNBC. Retrieved July 11, 2015 from . McDonald’s Corporation. (2015). “Our Story.” . McDonald’s Corporation. (2015). “Our Ambition.” 4. McDonald’s Corporation. (2015). “Good Food.” . McDonald’s Corporation. (2015). “Sustainability.” . McDonald’s Corporation. (2015). “Good People.” . McDonald’s Corporation. (2015). “Good Neighbor.” . McDonald’s Corporation. (2015). “Climate and Energy.” . McDonald’s Corporation. (2015). “Annual Report.” 's%202014%20Annual%20Report.PDF 10. Forbes. (2015). “The World’s Most Powerful Brands.” 11. Forbes. (2015). “McDonald’s Faces Declining Sales in Asia After China Food Scandal.” Retrieved from . Greenhouse, S. (2014, March 13). “McDonald’s Workers in Three States File Suits Claiming Underpayment.” Retrieved from . Kaufman, A. (2015, April 1). “McDonald’s is Raising Wages for Some Workers.” Retrieved from . Jacobsen, M. (2011, April 15). “McDonald’s: Taxing Americans for 56 Years.” Retrieved from anniversary_b_849299.html15. Food and Drug Administration. (2015). “Overview of FDA Labeling Requirements for Restaurants, Similar Retail Food Establishments and Vending Machines.: Retrieved from . Richards, W. (2013, July 29). “The Secret Behind McDonald’s Coffee.” Retrieved from 17. McDonald’s Corporation. (2015). “Company Profile.” July 2015 18. McDonald’s Press release, July 201519. CEO Easterbrook Webcast Address, Global Turnaround message July 201520. McDonald’s Corporation. (2015). “Education” 21. ‘McDonald’s Chinese joint venture given ‘record fine’ for water pollution’ July 201522. Khan, Mahmood A. "Internationalization Of Services: The Global Impact Of Us Franchise Restaurants."?Journal Of Services Research?(2005): 187.?Advanced Placement Source. Web. 28 July 2015. 23. Claudio Vignali (2001), McDonald’s: “Think Global, Act Local” - The Marketing Mix, British Food Journal, Vol 103 Is. 2 p 97-111 24. DABIJA, Dan-Cristian, and C?t?lin POSTELNICU. "MCDONALD's - ?NTRE INTERNA?IONALIZAREA ?I REGIONALIZAREA VALORII RESTAURANTELOR SALE. (Romanian)." Review Of Management & Economic Engineering 14.1 (2015): 205-219. Business Source Complete. Web. 28 July 2015.25. The Economist: The Big Mac Index. . n/a. “McDonald’s to offer free wifi.”CBS Money Watch. 15 Dec. 2009. Web 10 July 2015. <new/mcdonalds-to-offer-free-wifi/>27. Burkitt, Laurie . “McDonald’s, KFC Look to Get Faster In China by Adding Digital Pay Option.” Wall Street Journal. 5 July. 2015. Web. 10 July 2015. 28. Peterson, Haley. “ McDonald’s Austrailias reveals how the US is doing it all wrong.” Business Insider Austrailia. 7 May.2015. Web. 10 July 2015. 39. Keegan, Warren J. Author interviews and Mark Moxon. Global Marketing Management, 8th ed. New York: Pearson, 2014. Print.30. Angus Whitley. “The McDonald's of the Future Is ... in Australia?” Bloomberg. Bloomberg, n.d. Web. 5 May 2015 31. McDonald’s Corporation. (2015).“Education” . Patton, Leslie. “Have We Reached Peak Burger?” Bloomberg, September 04, 2014. Astmon, Yuvai, and Magni, Max. "Meet the Chinese Consumer of 2020." Meet the Chinese Consumer of 2020. McKinsey & Company, 1 Mar. 2012. Web. 28 July 2015. . Wang, H Helen . “Five Trends of Chinese Consumer.” Forbes, 17 Dec. 2012. Web. 28 July 2015. . Hagerty, R. James, and Connors, Will. “U.S. Companies Race to Catch Up in Africa.” Wall Street Journal. 6 Jun. 2011. Web. 28 July 2015. . N.A. “Africa a Top Global Business Expansion Destination.” CNBC Africa, 12 Feb. 2015. . APPENDIXAppendix I: SWOT AnalysisStrengthsBrand RecognitionWith over 35,000 restaurants in more than 100 countries, McDonald’s has an undeniable global presence.1 To support its expansion, McDonald’s has chosen to implement a global business and marketing strategy that highlights uniformity amongst the restaurants. Through this McDonald’s has created tremendous brand recognition, which in turn has greatly strengthened its brand equity. The golden arches, a unique marketing feature, has made McDonald’s instantly recognizable. This sort of visibility has enabled the McDonald’s brand to be valued at roughly $37.4 billion.10 With such high brand recognition, McDonald’s is more easily able to attract and serve a variety of consumer segments. McDonald’s, through its brand recognition, is able to connect to consumers on a number of different levels, including convenience, low cost, reliability, and cleanliness.Economies of ScaleMcDonald’s is able to leverage its massive size to reap the benefits of its economies of scale. In being so large, McDonald’s is able to use it size to buy in bulk. The benefits of buying in bulk are twofold; the price of an item is often reduced when it is purchased in larger quantities and larger purchases increases the buying power of McDonald’s as compared to its suppliers. For instances, McDonald’s may be able to use its size and buying power to negotiated better terms for things such availability, exclusivity, price, and delivery. This increased buying power resulting from economies of scale also works hand in hand with brand recognition. Supplier will be more willing to make concession for a globally recognized brand because of the value the supplier will gain by working with such a company.Business StructureThe McDonald’s business structure is one of franchise. With this structure McDonald’s is able to leverage the individual experiences and cultural knowledge of the individual franchisees, all while expanding its presence. It takes an incredible amount of resources to grow a company. Countless analyses need to be performed in order to decide if there is a market for the offering. However, the quality of certain analyses, specifically cultural influences, is not always guaranteed. As a result of this risk, having an individual who has grown up in or become very familiar with a certain culture is a valuable asset when expanding into new and different markets. The franchise model allows McDonald’s to expand into culturally diverse markets through locals. The locals will have a much better understanding of the cultural influence in his or her particular market than most individuals sitting in a corporate office.In addition to the cultural benefits, the franchise structure also offsets some of the investment costs. As mentioned previously, today’s cost to open a franchise is roughly $1,000,000, which means that is $1,000,000 McDonald’s does not have to spend to open a new restaurant.1 That savings is magnified given the percentage of McDonald’s restaurants that are owned and operated through joint ventures and independent franchises. Again, this structure works hand in hand with the brand recognition of McDonald’s. To take advantage of the brand recognition McDonald’s enjoys, a franchisee will want to make sure his or her restaurant is in uniform with all other McDonald’s locations. A franchisee’s desire to operate a restaurant that is identical to all other McDonald’s restaurant reduces the risks associated with loss of control through franchising.Diversified Income McDonald’s also enjoys the benefits of diversified income. This strength stems, in part, to its business structure and business strategy. With its global presence, McDonald’s operates in and receives profits in a large number of currencies. Dealings with large number of currencies helps offset risk because the diversification often offsets risk. For instance, when one currency is weak in comparison to another it is likely that McDonald’s deals in both of those currencies. The weakness of one currencies is offset by the strength of the other. From a shareholder’s perspective, offsetting risks related to currency exchange is a strength because it insulates the company from external factors, thereby possibly increasing the value of the company’s stock. WeaknessPublic ImageUnfortunately for McDonald’s, it has been the subject of negative press. McDonald’s has received negative press from everything ranging from poor quality offering to employment issues.11, 12,13 As a result of negative press McDonald’s has repeatedly scored poorly on consumer perception indexes.10 Recent public relations issues include reports that claim the quality of the products offered in certain Asian markets were below grade. 11 Public perception in China and Japan were greatly influenced in late 2014 when news broke that McDonald’s was selling tainted meat in those markets. 11Little DifferentiationThe number of offerings a fast food restaurant can provide are somewhat limited. Given customer expectation and operational requirements, only certain foods can be provided in a “fast” manner. Though there may be some variation with regards to its offerings, the McDonald’s menu is similar to that of its competitors, including Burger King and the Yum! line of restaurants. When there is little differentiation between offerings McDonald’s must rely on other aspects to maintain or increase it market share. In some instances, company often resort to price wars in order to compete. The market that McDonald’s competes in is already price sensitive, so a price war only decrease its margins. As an alternative to a price reduction strategy, McDonald’s can place more emphasis on marketing. Through marketing, McDonald’s will be able to convey its benefits and value proposition to its customers. OpportunitiesChanging MenuMcDonald’s is constantly looking for ways to better serve its customers. In doing so, McDonald’s has created a taste institute where it employees highly trained, world renowned chefs to come up with unique and appealing menu items.1 There are a number of opportunities that result from a menu focused approach; McDonald’s can be on the leading edge of new offerings and it has the ability to create growth out of what many see as a weakness or threat.???????The palate of consumers is constantly evolving. Though it is important that McDonald’s continually serve its foundational items, hamburgers, french-fries, and milkshakes, it is important that McDonald’s look towards the future so it can continue to grow. McDonald’s ability to implement menu changes has previously resulted in success. For instance, the addition of McCafe items to the McDonald’s menu brought an entirely new market segment into McDonald’s.16 The quality product with lower cost, as compared to other coffee restaurants such as Starbucks, caused an increase in revenue of $2.1 billion in 2011.16???????A changing menu is also an opportunity to offset some of the areas that might be perceived as threatened or weak. Specifically, introducing health conscious items has the ability to counteract areas that were previously thought of as negative. For instance, the negative press received for the unhealthy options available at McDonald’s has led to the creation of such things like the McWrap. These items not only address areas of weakness, but also have the ability to draw in the more health conscious consumer markets.Developing marketsMcDonald’s has tremendous areas of opportunities because of expanding markets. Due to the increased buy power of some of the world’s most populous countries, including China and India, there is great potential for continued expansion in those areas. In order to capitalize on the increased purchasing power of these countries, McDonald’s must again leverage its strengths to increase the likelihood of success. Specifically, McDonald’s should focus on the benefits offered through its franchise business structure to really tap into and maximize the market opportunities in foreign countries. It is important McDonald’s listens to the input provided by franchisees in areas where the consumer tastes and cultural identities are so different.ThreatsCompetitionAs with most industries, threat to a specific company comes in the form of competition from others who have similar offerings. McDonald’s faces competition on a local, regional, national, and international level. In almost every area of the world food is being offered to consumers. McDonald’s faces direct competition from companies like Yum!, who has a large presence in Asia. Yum! Is the company behind fast food chains like KFC and Pizza Hut and although they do not directly compete with McDonalds because they do not offer hamburgers, they have a significant hold on Asia because Yum was the first American style fast food chain to enter that marketHealth ConcernsThe future success of McDonald’s is threatened by recent health concerns related to its product offerings. Health concerns stem not only from the health-conscious consumer who wants to make better eating choices for him or herself and his or her family, but also from increased government regulations.14,15 Health issues, specifically obesity, has been on the rise and is most noticeable in western cultures. 14 As a result, a great deal of attention has been placed on the health choices people make. ?Grassroots efforts as well as government regulations has attempted to help facilitate individuals to make better choices. For instance, an independent film called “Supersize Me” showcased the health complications that can result after consuming fast food for a month. Though eating only fast food for long periods of time is not the typical consumption pattern for most individuals, it did heighten the public’s awareness of the risks associated with a poor diet.???????Other entities, such as the United States government, are also working toward helping consumers make more informed decision.15 As mentioned above, regulations have recently been passed that require the caloric information be posted on menus and menus boards in chain restaurants.15 McDonald’s has previously posted health information on the back of its tray liners, but that may no longer be enough to meet the requirements of this new regulation.1 An important aspect of the newly enacted rule is that the information must be posted clearly and conspicuously so that all consumers are put on notice.15 Appendix IIGraph 1: McDonald's Product Life Cycle by International Markets-2286006477000-22860063881000Appendix IIITable 1: McDonald’s Yearly Net Income SummarySource: 2014 Annual report, McDonald’s Corporation.-1968529591000Table 2: McDonald’s Consolidated Operating Results Source: 2014 Annual report, McDonald’s CorporationAppendix IV:-11430034163000Graph 2: Year-Over-Year Change in Numbers of U.S. RestaurantsSource: -4826053213000Appendix V:Table 3: Shake Shack Inc. Condensed Consolidated Statements of Income (In thousands)Source: Form 10, Quarterly report, Edgar online-11620553086000Table 4: Chipotle Mexican Grill Growth Revenue 2014. (In millions)Source: 2014 Annual report, Chipotle Mexican Grill ................
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