“International marketing of mc




I am thankful to my project guide Mrs. D. Surekha Thakur for helping me formulate this project and guiding me in its analysis and implementation. I convey a sincere gratitude to my parents and friends for their encouragement and support. I offer a word of thanks to the almighty who gave me strength, courage and blessing to carry out a successful study.

Sirisha achanta Roll No: AGV30601908001

I, the undersigned, hereby declare that the project report entitled international marketing of Mc Donald’s has been written and submitted under the guidance of Mrs. D. Surekha Thakur. I further declare that it is original work done as a part of our academic course and has not been submitted elsewhere. The conclusions and recommendations written in this project are based on the data collected by me while preparing this report.

Sirisha Achanta Roll No: AGV30601908001


• INTERNATIONAL MARKETING • Environment of international marketing • Global drivers of International Marketing • Role of market research and opportunity analysis • International research • International marketing segmentations • Entry Strategies
• • • •





Product Issues in International Marketing The International Product Life Cycle (PLC) International Promotion Pricing Issues in International Marketing

• History of Mc Donald’s • Facts and figures • Types of restaurants • Redesign • Controversies • Arguments in defense of McDonald's • Environmental record • Legal cases • Products

• Advertising
• •

Global operations Phenomenal Growth in the 1960s and 1970s

• Surviving the 1980s "Burger Wars" • A Failed Turnaround: Late 1990s and Early 2000s • Business Model • McDonald’s in India • McDonalds Marketing Mix (5 P’s) • The McDonald’s Experience • Importance of PLC in McDonalds • Competitors Analysis • McDonald's Marketing Strategy • McDonalds Business Analysis

• Case study on Mc Donald’s


QUESTIONNAIRE Analysis and data interpretation


• Conclusion • Bibliography

Chapter 1:
International Marketing:
International marketing, a series of activities create an exchange that satisfy an individual customer. The term international explains the activities or the transactions involved by more than one nation. International

marketing can be defined as”the design of business activities to plan, price, promote and direct the flow of a company’s goods and services to consumer or a layman in one or more nation for a profit”. This international marketing brings the concept of exchange of goods and services against of value, usually in the terms of money. International marketing includes market research, advertising, promoting, selling as well as activity after sales. Based on this concept, international marketing obeys or follows 3 basic principles. • Customer value and the value equation • Competitive or differential advantage


Customer value and the value equation: The task of marketing is to generate customer value greater than the value formed by competitors. If the benefits are strong enough by customers, a company does not need to be the low price competitive to win customers. Competitive or differential advantage:

One of the most powerful strategies for penetrating a new national market is to offer a superior product at lower price. The price advantage will get immediate customer impression. Focus: Focus is required to succeed in the task of creating customer value at a competitive advantage, a clear focus on customer needs and wants and on the competitive offer is required to mobilize the effort needed to maintain a differential advantage. This can be accomplished only by focusing resources and efforts on customer needs and wants. attention and for those customers who purchase the product, the superior quality will make an

Environment of international marketing:
One of the fundamental steps that need to be taken prior to beginning international marketing is the environmental analysis. Of course, there are many tools on Marketing Teacher that would prove useful at this stage such as lessons on the marketing environment, PEST Analysis, SWOT Analysis, POWER SWOT and Five Forces Analysis.

However, the very specific and unique nature of each individual nation needs to be looked into. Below we consider the nature of an international PEST analysis, and the influence of tariff and non-tariff barriers. PEST analysis stands for Political Economical Social Technological factor analysis, which describes a framework of macro-environmental factors that are used in the environmental scanning for strategic management. PEST analysis is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning.

Political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided and those that the








governments have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands.[2] Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an ageing population may imply a smaller and less-willing workforce thus increasing the cost of labor. Companies may change various management strategies to adapt to these social trends such as recruiting older workers.

Technological environmental

factors aspects,

include such as

ecological R&D



automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Technological shifts can affect costs, quality, and lead to innovation.

Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Growing awareness to climate change is affecting how companies operate and the products they offer-it is both creating new markets and diminishing or destroying existing ones.

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

Advantages of PEST: • Simple and only costs time to do. • Provides an understanding of the wider business environment. • Encourages the development of strategic thinking.

• May raise awareness of threats to a project.








difficulties and take action to avoid or minimize their effect.

Can help an organization to spot opportunities and exploit them.

Disadvantages of PEST: • Usually a simple list and not critically presented.

The rapid pace of change in society makes it increasingly difficult to anticipate developments that may affect an organization in the future.

• Collecting large amounts of information may make it difficult to see the wood for the trees and lead to "paralysis by analysis." • The analysis may be based on assumptions that prove to be unfounded.

PEST analysis only covers the external environment and the results need to be considered in conjunction with other factors, such as the organization itself, competitors and the industry in which it is operating. Evaluation by pest analysis elucidates if the product

can be introduced in market or not by knowing the position of a particular country. By this analysis we can

analyze the people mindset and our product can be promoted accordingly.

Social and cultural environment:
Culture is often referred as “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by an individual as a member of society.” From this definition, we can scrutinize that, Culture as a “complex whole,” is a system of interdependent components. Culture, a “society’s programming of the mind”, which has both a pervasive and changing influence on each national market environment. International market must recognize the influence of culture on all aspects of life including work habits and consumption of products. Human behavior is a function of both person’s own unique personality and that person’s interaction with the collective forces of the particular society and culture in which he or she has lived. International marketing has played an important role in leading, influencing the rate of cultural change around the world. International markets have learned to rely on people who know and understand local customs and attitudes for marketing expertise. Many people doing business in new culture avail themselves of training








complications. Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals. Knowledge and beliefs are important parts. In the U.S., we know and believe that a person who is skilled and works hard will get ahead. In other countries, it may be believed that differences in outcome result more from luck. “Chunking,” the name for China in Chinese, literally means “The Middle Kingdom.” The belief among ancient Chinese is that they were in the center of the universe that greatly influenced their thinking. Art, for example, may be reflected in the rather arbitrary practice of wearing ties in some countries and wearing turbans in others. Morality may be exhibited in the view in the United States that one should not be naked in public. In Japan, on the other hand, groups of men and women may take steam bath together without noticeable as indecent. On the other extreme, women in some Arab countries are not even allowed to reveal their faces. Notice, by the way, that what at least some countries view as moral

may in fact be highly immoral by the standards of another country. Culture has several important characteristics which can be scrutinized as: (1) Culture is comprehensive. This means that all parts must fit together in some logical fashion. For example, bowing and a strong desire to avoid the loss of face are unified in their manifestation of the importance of respect. (2) Culture is learned rather than being something we are born with. We will consider the mechanics of learning later in the course. (3) Culture is manifested within boundaries of acceptable behavior. For example, in American society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts and a T-shirt would usually be acceptable. Failure to behave within the prescribed norms may lead to sanctions, ranging from being hauled off by the police for indecent exposure to being laughed at by others for wearing a suit at the beach. (4) Conscious awareness of cultural standards is limited. One American spy was intercepted by the Germans

during World War II simply because of the way he held his knife and fork while eating. (5) Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change. For example, American culture has changed a great deal since the 1950s, while the culture of Saudi Arabia has changed much less. Dealings with culture: Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand. One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance). Language issues: Language is an important element of culture. It should be realized that regional differences may be subtle. For example, one word may mean one thing in one Latin American country, but something offcolor in another. It should also be kept in mind that much information is carried in non-verbal communication. In some cultures, we nod to signify “yes” and shake our

heads to signify “no;” in other cultures, the practice is reversed. Within the context of language: There often exist large variations in regional dialects of a given language. As, the language differences between U.S., Australian, and British English are actually modest compared to differences between dialects of Spanish and German. Idioms involve “figures of speech” that may not be used, literally translated, in other languages. For example, baseball is predominantly a North and South American sport, so the notion of “in the ball park” makes sense here, but the term does not carry the same meaning in cultures where the sport is less popular. Neologism involve terms that have come into language relatively recently as technology or society involved. With proliferation in computer technology. For example, the idea of an “add-on” becomes widely known. It may take longer for such terms to “diffuse” into other regions of the world. In parts of the World where English is heavily studied in schools, the emphasis is often on grammar and traditional language rather than on current terminology, so neologisms have a wide potential not to be understood.

Slang exists within most languages. Regional variations are common and not all people in a region where slang is used will necessarily understand this. There are often significant generation gaps in the use of slang.






international marketing:
The legal and political environment of international market is the set of government institutions, political parties and organizations that are the expression of the people crucial. in It the is nations important of to the world the a political particular environment varies from country and risk assessment is understand government’s action with respect to taxes dilution of equity control and expropriation. The legal environment consists of laws, courts, attorneys and legal customers and practices. The countries of the world can be broadly categorized in terms of common law system that is civil lay system. When legal conflicts arise companies can pursue the matter in court or use artitration.some of the most important legal issues pertain to establishment, jurisdiction, patents and trademarks, licensing, antitrust and bribery.

The regulatory environment consists of agencies both governmental and non-governmental that enforce laws or set guidelines for conducting business.internatinal marketing activities can be affected by a number of international or regional economic organizations. The WTO will have impact on international marketing activities in the year to come. Although these two environments are complex, astute marketers plan ahead to avoid situations that might result in conflict, misunderstanding or outright violation of national laws.

Global drivers of International Marketing:
International marketing is growing in importance for reasons. The world is getting smaller, not only because of jet travel but also because of advance technology. The internet now connects customers to business around the world. The strongest driver of international marketing is opening of new markets around the world. As trade barriers have been dropping, personal income has been increasingly worldwide.

Role of market research and opportunity analysis:
Market research can be defined as the systematic gathering, recording analysis and interpretation of data on problems relating to the marketing of goods and services. The role of market research is primary to act as an aid to the decision maker. It a tool that can help to reduce the risk of decision making caused by the environmental uncertainties and lack of knowledge in international marketing. In international marketing because of the increased uncertainties and complexities in the world markets, capacity to ensure systematic planned process in the research and the use of secondary information .the research process of six stages .these steps are logical process of any research. Defining the problem: It is important to decide what information is needed and set the objectives of the research, ensuring it is both commercially and worthwhile and that the objective is feasible and achievable. Developing the approach to be taken: the planning phase will concern itself with timescales, resources to carry out the work, the expertise required to meet the objective

and the decision as to whether a qualitive or quantitive approach is to be taken. Designing the research: In the designing the research strategy considerations will be given to the different action steps that need to be taken. Ensuring full use of secondary data sources will be important, as well the use of a pilot study to ensure the development of an effective and meaningful questionnaire. Carrying the out of field work: Decisions as to how the questionnaire will be administrated will be made as well as decisions as to who do the work and what resources are required. Analyzing the data: The data analyzed stage will need to take full account of the objectives of the research and the clients and needs. Preparing the report and the presentation: These are the outputs of research work and vital in establishing the credibility of the research methods used and the validity of the findings of the research.

International marketing information system and research:
Information is one of the most basic ingredients for successful marketing strategy. The international marketer must scan the world for information about

opportunities and threats and make information available via a management information system. Formal research is often required before decisions can be made regarding specific problems or opportunities, after developing a research plan, data are collected using either primary or secondary sources, a number of techniques are available for analyzing data, including demand pattern analysis and cluster analysis. Research findings must be presented clearly to facilitate decisions makings. International markets research presents a number of challenges. The simple fact research expenditures can bemade.secondary data from some countries may be distorted also comparability may be an issue. Final issue is how much control headquarters will have over research and the overall management of the organization’s information system. Information is a critical element in the success or failure of an organization. Every organization needs a marketing information system for the collection, processing, storage, and distribution of data. A marketing information system provides information on every aspect of marketing and helps an organization come up with effective strategies. Utmost care should be taken while developing a marketing informationsystem.

The marketing information system of an organization collects the required information in two stages. In the first stage, a list of subjects for which information is required is framed. In the second stage, data is searched for the specified requirements which are known as ‘scanning.’ Scanning is done in two ways: Surveillance and search modes. Marketing information research provides data related to markets, customers, products, price, distribution, and promotion.The research related to markets is known as market research. Market research deals with market potential, market entry or exit decisions, market segmentation, market performance, market shares, sales analysis, and forecasting. Information requirements of firms vary. Firms that are entering into international markets for the first time need different kinds of information from the ones that are already in the of market. Therefore, the A information marketing requirements Organizations differ.

information system needs to collect data for different purposes and needs to provide information at different levels. Therefore, it should understand the type of decisions made at a particular level and the kind of analysis made at that level to provide the information in

the required form. After determining the information a number of appropriate units of analysis should be determined. Units refer to the characteristics of an individual or object that has to be measured. The units of market research may be divided into three categories such as, region or country grouping – grouping of the countries based on certain common factors; Country – studying the various socioeconomic, cultural, political aspects of the country; Sub-groups within the countries – the various sub-groups within the country should be studied in order to understand the diversions in the markets within the countries. After studying the unit of analysis, a researcher should identify the information sources. The information sources can be broadly divided into primary and secondary sources. The primary source may be explained as field research. This is very costly and time consuming. Here, data is collected for the first time. Primary data is collected through interviews and questionnaires. To obtain primary data, the researcher has to decide upon the sample – a part of population or a subset from a set of units, and decide upon the tool – questionnaires, interviews and surveys etc.

Questionnaires and surveys are the most popular tools available. Secondary data is the data that is already collected and published. These are relatively cheap and easily available. Secondary data is obtained from various sources like government reports, international organizations, and private market research firms. One more way of classifying data is internal or external. Internal data is the data within the organization and external data is the data obtained from external parties. An international researcher should decide on the source first. A company has to legal, collect economic, and industrial, political, financial, marketing,

specific product data before entering into a country. The problems of international market research are multifold. The data obtained from each country will be different. Obtaining reliable secondary data is extremely difficult, especially in less developed economies. Similarly, obtaining primary data is also difficult as the researcher may face problems related to infrastructure, time, and non-response.

International marketing segmentations:

The process of dividing the world market into distinct of customers that behave in the same way or have similar needs, each subset may conceivably be chosen as market target to be researched with a distinctive marketing strategy, the process begins with a basis of segmentation a product specific factor that reflects differences in customers’ requirements or responsiveness to marketing variables. There are different segments they are: • Geographic segmentations • Demographic segmentation • Psychographic segmentation • Behavior segmentation • Benefit segmentation

• Vertical versus horizontal segmentation




segmentation is dividing the world into geographic subsets. The advantage of geography is proximity. Markets in geographic are closer to each other and easier to visit on the same trip to cal on during the same time window. Geographic segmentation also major limitations are the mere fact that markets are in the same world geographic region does not mean that they are similar. The differences in the market in these two countries overwhelm their similarities.

Demographic segmentation:
Demographic segmentation is based on measurable characteristics of population such as age, gender, income, education and occupation. A number of demographic trends aging, population, fewer children more women working outside the home and higher income and living standards for most consumer and industrial products, national income is single most important segmentation variable and indicator of market potential. Annual per capita income varies widely in world markets from low of $81 in the cargo to a high of $38,587 in Luxembourg. The World Bank segments countries into

high income, upper middle income, lower middle income and low income. These categories are used in global income and population.

Psychographic segmentation:
Psychographic segmentation involves grouping people in terms of their attitude, values and life style. Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statement.Approriate criteria are usually of an inferred nature and concerns consumers interest. Psychographic segmentation is done on the basis of attitudes, beliefs, values, lifestyles, opinions, personalities etc. The general behavioral aspects of the customers become the bases in behavioral segmentation. After segmenting the markets, one or more segments are chosen for trade to be carried out. The process of choosing the most potential market segments is known as targeting. The current size and growth rate of the market, potential competition, and compatibility and feasibility are the three basic criteria for targeting the markets. After targeting the market, companies should select a global market strategy.

Behavior segmentation:
It focuses on whether people buy and use a product as well as how often and how much they use it. Consumers can be categorized in terms of usage rates like heavy, medium, light and nonuser. Consumer can also be segmented according to user status like potential users, nonusers, ex-users, first users and users of competitors products.Finaancial institutions have to consider many different pieces of information regarding consumer behavior toward saving and spending money.

Benefit segmentation:
It focuses on the number of value equation that is V=B/P Where this approach can be achieve excellent results by virtue of markets superior understanding of the problem a product solves or benefit it offers, regardless of geographic.

Vertical versus horizontal segmentation:
Vertical segmentation is based on product category or modality and price points. For example in medical

imaging there is X-ray, computed axial tomography scan, magnetic resonance imaging and so on. Each modality has its own price points. These price points were the traditional way of segmenting the medical imaging market. Horizontal approach worked as well in markets outside the home country launch market as it did in the home country.

Targeting is the cat of evaluating and comparing the identified groups and then selecting one or more of them as the prospects with the highest potential. A marketing mix is then advised that will provide the organization with the best return on sales while simultaneously creating the maximum amount of consumers. The advantages of target marketing are: Marketing opportunities and unfilled ‘gaps’ in a market may be more accurately appraised and identified. Such gaps can be real (e.g. sweet, strong, harsh or mild) or they can be illusionary in terms of the way people want to view the product (e.g. happy, aloof, silly or moody). In the case of the former, product attributes can fulfil these criteria whereas for the latter these attributes might well have to be implanted in the minds of customers through an

appropriate advertising message. Market and product appeals through manipulation of the marketing mix can be more delicately tuned to the needs of the potential customer. Marketing effort can be concentrated on the market segment(s) which offer the greatest potential for the company to achieve its goals - be they goals to maximise profit potential or to secure the best long-term position for the product or any other appropriate goal. Custom individual marketing which attempts to with satisfy a each customer’s requirements separate

marketing mix. Socially Responsible Targeting are Smart targeting helps both companies and consumers. Target marketing sometimes generates controversy and concern. Vulnerable and disadvantaged can be targeted. Cereal, cigarette, beer, and fast-food marketers have received criticism. Internet has raised fresh concerns about potential targeting abuses.Target market stragies:





coverage strategy that ignores market segment differences and targets the whole market with one offer

Differentiated (segmented) marketing: Market coverage strategy that targets several market segments and designs separate offers for each

Concentrated(niche) marketing: Market coverage strategy in which a company pursues a large share of one or a few submarkets

Micromarketing: The practice of tailoring products and marketing programs to the needs/wants of specific individuals and local customer groups.

Choosing a Targeting Strategy factors to consider: • Company resources • Product variability • Product’s life-cycle stage • Market variability

Competitors’ marketing strategies.

Positioning is the location of your product in the mind of your customer thus; one of the most powerful tools of

marketing is not something that a marketer can do to the product or to any element of the marketing mix: positioning is what happens in the mind of the customer. The position that a product occupies in that mind of a customer depends on a host of variables many of which are controlled by the marketer. It has been segmented and one or more segments have been targted,it is essential to plan a way to reach the targets. To achieve this task marketer use positiong.Many companies find it increasingly important to have a unified international positing strategy. • High tech positioning • High touch positioning High tech positioning: High-tech products may be further divided into three categories such as technical products, special interest products, and demonstration products. High touch positioning: High-touch products are also divided into three categories -- products that solve common problem, global village products, and products that use a universal theme.

Entry Strategies:

Methods of entry: With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available: • Exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country. • Licensing and franchising are also low exposure methods of entry—you allow someone else to use your trademarks and accumulated expertise. Your partner puts up the money and assumes the risk.

Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisers often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country. • Contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. This saves investment, but again you may be training a competitor. • Direct entry strategies, where the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint

venture, where a local firm puts up some of the money and knowledge about the local market.

Product Issues in International Marketing:
Products and Services: Some marketing scholars and professionals tend to draw a strong distinction between conventional products and services, emphasizing service characteristics such as heterogeneity (variation in standards among providers, frequently even among different locations of the same firm), inseperability from consumption, intangibility, and, in some cases, perishability—the idea that a service cannot generally be created during times of slack and be “stored” for use later. However, almost all products have at least some service component—e.g., a warranty, documentation, and distribution—and this service component is an integral part of the product and its positioning. Thus, it may be more useful to look at the product-service continuum as one between very low and very high levels of tangibility of the service. Income tax preparation, for example, is almost entirely intangible—the client may receive a few printouts, but most of the value is in the service. On the other hand, a customer who picks up rocks for construction from a landowner gets a tangible product

with very little value added for service. Firms that offer highly tangible products often seek to add an intangible component to improve perception. Conversely, adding a tangible element to a service—e.g., a binder with information—may money. On the topic of services, cultural issues may be even more prominent than they are for tangible goods. There are large variations in willingness to pay for quality, and often very large differences in expectations. In some Labor to countries, it may be more difficult to entice employees to embrace a firm’s customer service philosophy. regulations in some countries make it difficult address many consumers’ psychological need to get something to show for their

terminate employees whose treatment of customers is substandard. Speed of service is typically important in the U.S. and western countries but personal interaction may seem more important in other countries. Product Need Satisfaction: We often take for granted the “obvious” need that products seem to fill in our own culture; however, functions served may be very different in others—for example, while cars have a large transportation role in the U.S., they are impractical to

drive in Japan, and thus cars there serve more of a role of being a status symbol or providing for individual indulgence. In the U.S., fast food and instant drinks such as Tang are intended for convenience; elsewhere, they may represent more of a treat. Thus, it is important to examine through marketing research consumers’ true motives, desires, and expectations in buying a product. Approaches to Product Introduction: Firms face a choice of alternatives in marketing their products across markets. An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from “scratch” in creating a product for each market. On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification—e.g., Intel microprocessors are the same regardless of the country in which they are sold. Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets—e.g., in the United States, where fuel is relatively less expensive, many cars

have larger engines than their comparable models in Europe and Asia; however, much of the design is similar or identical, so some economies are achieved. Similarly, while Kentucky Fried Chicken serves much the same chicken with the eleven herbs and spices in Japan, a lesser amount of sugar is used in the potato salad, and fries are substituted for mashed potatoes. There are certain benefits to standardization. Firms that produce a global product can obtain economies of scale in manufacturing, and higher quantities produced also lead to a faster advancement along the experience curve. Further, it is more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product. On the down side, there may be significant differences in desires between cultures and physical environments—e.g., software sold in the U.S. and Europe will often utter a “beep” to alert the user when a mistake has been made; however, in Asia, where office workers are often seated closely together, this could cause embarrassment. Adaptations come in several forms. Mandatory adaptations involve changes that have to be made before the product can be used—e.g., appliances made for the

U.S. and Europe must run on different voltages, and a major problem was experienced in the European Union when hoses for restaurant frying machines could not simultaneously meet the legal requirements of different countries. “Discretionary” changes are changes that do not have to be made before a product can be introduced (e.g., there is nothing to prevent an American firm from introducing an overly sweet soft drink into the Japanese market), although products may face poor sales if such changes are not made. Discretionary changes may also involve cultural adaptations—e.g., in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.







communication adaptations. In order for gasoline to be effective in high altitude regions, its octane must be higher, but it can be promoted much the same way. On the other hand, while the same bicycle might be sold in China and the U.S., it might be positioned as a serious means of transportation in the former and as a recreational tool in the latter. In some cases, products may not need to be adapted in either way (e.g., industrial equipment), while in other cases, it might have to be adapted in both (e.g., greeting cards, where the both occasions, language, and motivations for sending differ). Finally, a market may exist abroad for a product which has no analogue at home—e.g., hand-powered washing machines. Branding: While Americans seem to be comfortable with category specific brands, this is not the case for Asian consumers. American firms observed that their products would be closely examined by Japanese consumers who could not find a major brand name on the packages, which was required as a sign of quality. Note that Japanese keiretsus span and use their brand name across multiple industries—e.g., Mitsubishi, among other things,







construction equipment.

The International Product Life Cycle (PLC): Consumers in different countries differ in the speed with which they adopt new products, in part for economic reasons (fewer Malaysian than American consumers can afford to buy VCRs) and in part because of attitudes toward new products (pharmaceuticals upset the power afforded to traditional faith healers, for example). Thus, it may be possible, when one market has been saturated, to continue growth in another market—e.g., while somewhere between one third and one half of American homes now contain a computer, the corresponding figures for even Europe and Japan are much lower and

thus, many computer manufacturers see greater growth potential there. Note that expensive capital equipment may also cycle between countries—e.g., airlines in economically developed countries will often buy the newest and most desired aircraft and sell off older ones to their counterparts in developing countries. While in developed countries, “three part” canning machines that solder on the bottom with lead are unacceptable for health reasons, they have found a market in developing countries. Diffusion of innovation: Good new innovations often do not spread as quickly as one might expect—e.g., although the technology for microwave ovens has existed since the 1950s, they really did not take off in the United States until the late seventies or early eighties, and their penetration is much lower in most other countries. The typewriter, telephone answering machines, and cellular phones also existed for a long time before they were widely adopted. Certain characteristics of products make them more or less likely to spread. One factor is relative advantage. While a computer offers a huge advantage over a typewriter, for example, the added gain from having an

electric typewriter over a manual one was much smaller. Another issue is compatibility, both in the social and physical sense. A major problem with the personal computer was that it could not read the manual files that firms had maintained, and birth control programs are resisted in many countries due to conflicts with religious values. Complexity refers to how difficult a new product is to use—e.g., some people have resisted getting computers because learning to use them takes time. Trial ability refers to the extent to which one can examine the merits of a new product without having to commit a huge financial or personal investment—e.g., it is relatively easy to try a restaurant with a new ethnic cuisine, but investing in a global positioning navigation system is riskier since this has to be bought and installed in one’s car before the consumer can determine whether it is worthwhile in practice. Finally, observability refers to the extent to which consumers can readily see others using the product—e.g., people who do not have ATM cards or cellular phones can easily see the convenience that other people experience using them; on the other hand, VCRs are mostly used in people’s homes, and thus only an owner’s close friends would be likely to see it.

At the societal level, several factors influence the spread of an innovation. Not surprisingly, cosmopolitanism, the extent to which a country is connected to other cultures, is useful. Innovations are more likely to spread where there is a higher percentage of women in the work force; these women both have more economic power and are able to see other people use the products and/or discuss them. Modernity refers to the extent to which a culture values “progress.” In the U.S., “new and improved” is considered highly attractive; in more traditional countries, their potential for disruption cause new products to be seen with more skepticism. Although U.S. consumers appear to adopt new products more quickly than those of other countries, we actually score lower on homophile, the extent to which consumers are relatively similar to each other, and physical distance, where consumers who are more spread out are less likely to interact with other users of the product. Japan, which ranks second only to the U.S., on the other hand, scores very well on these latter two factors.

International Promotion:
Promotional tools.

Numerous tools can be used to

influence consumer purchases: Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.

Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.

• •

Sponsorships Point-of-purchase—the manufacturer pays for extra display space in the store or puts a coupon right by the product

Other method of getting the consumer’s attention— all the Gap stores in France may benefit from the prominence of the new store located on the ChampsElysees





involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which








objectives that firms may hold: Awareness, any French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are

often afforded very little attention by consumers, potential buyers may have to be exposed to the promotional “registers.”






Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.

Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to

believe positive things about the product—e.g., that it has a superior taste and is better than generics or store







advertising. Temporary sales increases. For mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales (which are likely to go away the incentives are removed). In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again (in developing countries, in contrast, trial may be a more appropriate objective in this category). Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.

Pricing Issues in International Marketing:
This implies that there are several ways that the price can be changed: • "Sticker" price changes—the most obvious way to change the price is the price tag— you get the same thing, but for a different (usually larger) amount of money.






unfavorably to an increased sticker price, and changes in quantity are sometimes noticed less— e.g., in the 1970s, the wholesale cost of chocolate increased dramatically, and candy manufacturers

responded by making smaller candy bars. Note that, for cash flow reasons, consumers in less affluent countries may need to buy smaller packages at any one time (e.g., forking out the money for a large tube of toothpaste is no big deal for most American families, but it introduces a greater strain on the budget of a family closer to the subsistence level). • Change quality. Another way candy manufacturers have effectively increased prices is through a reduction in quality. In a candy bar, the "gooey" stuff is much cheaper than chocolate. It is frequently tempting for foreign licensees of a major brand name to use inferior ingredients. • Change terms. In the old days, most software manufacturers programs—it provided used to free be support to for call their the possible

WordPerfect Corporation on an 800 number to get free help. Nowadays, you either have to call a 900 number or have a credit card handy to get help from many software makers. Another way to change terms is to do away with favorable financing terms. Reference Prices, Consumers often develop internal reference prices, or expectations about what something

should cost, based mostly on their experience. Most drivers with long commutes develop a good feeling of what gasoline should cost, and can tell a bargain or a ripoff. Reference prices are more likely to be more precise for frequently purchased and highly visible products. Therefore, retailers very often promote soft drinks, since consumers tend to have a good idea of prices and these products are quite visible. The trick, then, is to be more expensive on products where price expectations are muddier. Marketers often try to influence people's price perceptions through the use of external reference prices —indicators given to the consumer as to how much something should cost. Examples include: • Manufacturer's Suggested Retail Price (MSRP). This is often pure fiction. The suggested retail prices in certain categories are deliberately set so high that even full service retailers can sell at a "discount." Thus, although the consumer may contrast the offering price against the MSRP, this latter figure is quite misleading.

• "SALE! Now $2.99; Regular Price $5.00." For this strategy to be used legally in most countries, the claim must be true (consistency of enforcement in some countries is, of course, another matter). However, certain products are put on sale so frequently that the "regular" price is meaningless. In the early 1990s, Sears was reported to sell some 55% of its merchandise on sale. • "WAS $10.00, now $6.99." • "Sold elsewhere for $150.00; our price: $99.99." Reference prices have significant international implications. While marketers may choose to introduce a product at a low price in order to induce trial, which is useful in a new market where the penetration of a product is low, this may have serious repercussions as consumers may develop a low reference price and may thus resist paying higher prices in the future.Selected International Pricing Issues. In some cultures, particularly where retail stores are smaller and the buyer has the opportunity to interact with the owner, bargaining may be more common, and it may thus be more difficult for the manufacturer to influence retail level pricing.Two phenomena may occur when products are sold in

disparate markets. When a product is exported, price escalation, whereby the product dramatically increases in price in the export market, is likely to take place. This usually occurs because a longer distribution chain is necessary and because smaller quantities sold through this route will usually not allow for economies of scale. "Gray" markets occur when products are diverted from one market in which they are cheaper to another one where prices are higher—e.g., Luis Vuitton bags were significantly more expensive in Japan than in France, since the profit maximizing price in Japan was higher and thus bags would be bought in France and shipped to Japan for resale. The manufacturer therefore imposed quantity limits on buyers. Since these quantity limits were circumvented by enterprising exchange students who were recruited to buy their quota on a daily basis, prices eventually had to be lowered in Japan to make the practice of diversion unattractive. Where the local government imposes price controls, a firm may find the market profitable to enter nevertheless since revenues from the new market only have to cover marginal costs. However, products may then be attractive to divert to countries without such controls.

Transfer pricing involves what one subsidiary will charge another for products or components supplied for use in another country. Firms will often try to charge high prices to subsidiaries in countries with high taxes so that the income earned there will be minimized.

Antitrust laws are relevant in pricing decisions, and antidumping regulations are especially noteworthy. In general, it is illegal to sell a product below your cost of production, which may make a penetration pricing entry strategy infeasible. Japan has actively lobbied the World Trade Organization (WTO) to relax its regulations, which generally require firms to price no lower than their average fully absorbed cost (which incorporates both variable and fixed costs). Alternatives to "hard" currency deals. Buyers in some countries do not have ready access to convertible

currency, and governments will often try limit firms’ ability to spend money abroad. Thus, some firms have been forced into non-cash deals. In barter, the seller takes payment in some product produced in the buying country—e.g., Lockheed (back when it was an independent firm) took Spanish wine in return for aircraft, and sellers to Eastern Europe have taken their payment in ham. An offset contract is somewhat more flexible in that the buyer can get paid but instead has to buy, or cause others to buy, products for a certain value within a specified period of time.

Psychological issues: Most pricing research has been done on North Americans, and this raises serious problems of generalizability. Americans are used to sales, for example, while consumers in countries where goods

are more scarce may attribute a sale to low quality rather than a desire to gain market share. There is some evidence that perceived price quality relationships are quite high in Britain and Japan (thus, discount stores have had difficulty there), while in developing countries, there is less trust in the market. Cultural differences may influence the extent of effort put into evaluating deals (potentially impacting the effectiveness of odd-even pricing and promotion signaling). The fact that consumers in some economies are usually paid weekly, as opposed to biweekly or monthly, may influence the effectiveness of framing attempts—"a dollar a day" is a much bigger chunk from a weekly than a monthly paycheck.

International Distribution:
Promotional tools, numerous tools can be used to influence consumer purchases:

Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet. Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.


Point-of-purchase—the manufacturer pays for extra display space in the store or puts a coupon right by the product

Other method of getting the consumer’s attention— all the Gap stores in France may benefit from the prominence of the new store located on the ChampsElysees.





involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which








objectives that firms may hold: Awareness. Many French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are often afforded very little attention by consumers, potential buyers may have to be exposed to the

promotional “registers.”






Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.

Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to believe positive things about the product—e.g., that it has a superior taste and is better than generics or








advertising. Temporary sales increases for mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales. In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again .

Chapter 2:
Mc Donald’s:

The McDonald's concept was introduced in Southern California by Dick and Mac McDonald of Manchester, New Hampshire. It was modified and expanded by their business partner, Ray Kroc, of Oak Park, Illinois, who later bought out the business interests of the McDonald's brothers in the concept and went on to found McDonald's Corporation. established The the business principles began of the in 1940, Their introduction of the "Speedee Service System" in 1948 modern fast-food restaurant. The original mascot of McDonald's was a man with a chef's hat on top of a hamburger shaped head whose name was "Speedee." Speedee was eventually replaced with Ronald McDonald in 1963. Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald's restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothers. Kroc's first McDonald's restaurant opened in Des Plaines, Illinois, near Chicago, on April 15, 1955--the same year that Kroc

incorporated his company as McDonald's Corporation. As with any new venture, Kroc encountered a number of hurdles. The first was adapting the McDonald's building design to a northern climate. A basement had to be installed to house a furnace, and adequate ventilation was difficult, as exhaust fans sucked out warm air in the winter and cool air in the summer. Most frustrating of all, however, was Kroc's initial failure to reproduce the McDonalds' delicious french fries. When Kroc and his crew duplicated the brothers' method-leaving just a little peel for flavor, cutting the potatoes into shoestrings, and rinsing the strips in cold water--the fries turned into mush. After repeated telephone conversations with the McDonald brothers and several consultations with the Potato and Onion Association, Kroc pinpointed the cause of the soggy spuds. The McDonald brothers stored their potatoes outside in wire bins, and the warm California breeze dried them out and cured them, slowly turning the sugars into starch. In order to reproduce the superior taste of these potatoes, Kroc devised a system using an electric fan to dry the potatoes in a similar way. He also experimented with a blanching process. Within three months he had a french fry that

was, in his opinion, slightly superior in taste to the McDonald brothers' fries. Once the Des Plaines restaurant was operational, Kroc sought franchisees for his McDonald's chain. The first snag came quickly. In 1956 he discovered that the McDonald brothers had licensed the franchise rights for Cook County, Illinois (home of Chicago and many of its suburbs) to the Frejlack Ice Cream Company. Kroc was incensed that the McDonalds had not informed him of this arrangement. He purchased the rights back for $25,000--five times what the Frejlacks had originally paid--and pressed forward. Kroc decided early on that it was best to first establish the restaurants and then to franchise them out, so that he could control the uniformity of the stores. Early McDonald's restaurants were situated in the suburbs. Corner lots were usually in greater demand because gas stations and shops competed for them, but Kroc preferred lots in the middle of blocks to accommodate his U-shaped parking lots. Since these lots were cheaper, Kroc could give franchisees a price break. McDonald's grew slowly for its first three years; by 1958 there were 34 restaurants. In 1959, however, Kroc

opened 67 new restaurants, bringing the total to more than 100. Kroc had decided at the outset that McDonald's would not be a supplier to its franchisees--his background in sales warned him that such an arrangement could lead to lower quality for the sake of higher profits. He also had determined that the company should at no time own more than 30 percent of all McDonald's restaurants. He knew, however, that his success depended upon his franchisees' success, and he was determined to help them in any way that he could. In 1960 the McDonald's advertising campaign "Look for the Golden Arches" gave sales a big boost. Kroc believed that advertising was an investment that would in the end come back many times over, and advertising has always played a key role in the development of the McDonald's Corporation--indeed, McDonald's ads have been some of the most identifiable over the years. In 1962 McDonald's replaced its "Speedee" the hamburger man symbol with its now world-famous Golden Arches logo. A year later, the company sold its billionth hamburger and introduced Ronald McDonald, a red-haired clown with particular appeal to children.

The present corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955 , the ninth McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the company and led its worldwide expansion and the company became listed on the public stock markets in 1965. Kroc was also noted for aggressive business practices, compelling the McDonald's brothers to leave the fast food industry. The McDonald's brothers and Kroc feuded over control of the business, as documented in both Kroc's autobiography and in the McDonald brothers' autobiography. The site of the McDonald brothers' original restaurant is now a monument. The menu was simple: hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. The carhops were eliminated to make McDonald's a self-serve operation, and there were no tables to sit at, no jukebox, and no telephone. As a result, McDonald's attracted families rather than teenagers. Perhaps the most impressive aspect of the restaurant was the efficiency with which the McDonald's kitchen. workers did their steps jobs. had Mac been and Dick McDonald had taken great care in setting up their Each worker's carefully








maximum efficiency. The savings in preparation time, and the resulting increase in volume, allowed the McDonalds to lower the price of a hamburger from 30 cents to 15 cents. Believing that the McDonald formula was a ticket to success, Kroc suggested that they franchise their restaurants throughout the country. When they hesitated to take on this additional burden, Kroc volunteered to do it for them. He returned to his home outside of Chicago with rights to set up McDonald's restaurants throughout the country, except in a handful of territories in California and Arizona already licensed by the McDonald brothersWith the expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Its prominence has also made it a frequent topic of public debates about obesity, corporate ethics and consumer responsibility.

Facts and figures:
McDonald's restaurants are found in 119 countries and territories around the world and serve nearly 47 million customers each day. McDonald's operates over 31,000

restaurants worldwide, employing more than 1.5 million people. The company owned a majority stake in Chipotle Mexican Grill until completing its divestment in October 2006. Until December 2003, it also owned Donatos Pizza. On August 27, 2007, McDonald's sold Boston Market to Sun Capital Partners.

Types of restaurants:
McDonald's restaurants offer both counter service and drive-through service, with indoor and sometimes outdoor seating. Drive-Thru, Auto-Mac, Pay and Drive, or McDrive as it is known in many countries, often has separate stations for placing, paying for, and picking up orders, though the latter two steps are frequently combined; it was first introduced in Arizona in 1975, following the lead of other fast-food chains. In some countries "McDrive" locations near highways offer no counter service or seating. In contrast, locations in high-density city neighborhoods often omit drive-through service. There are also a few locations, located mostly in downtown districts, that offer Walk-Thru service in place of DriveThru. Specially themed restaurants also exist, such as the "Solid Gold McDonald's," a 1950s rock-and-roll themed

restaurant. In Victoria, British Columbia, there is also a McDonald's with a 24 carat (100%) gold chandelier and similar light fixtures.To accommodate the current trend for high quality coffee and the popularity of coffee shops in general, McDonald's introduced McCafés. The McCafé concept is a café-style accompaniment to McDonald's restaurants in the style of Starbucks. McCafé is a concept of McDonald's Australia, starting with Melbourne in 1993. Today, most McDonald's in Australia have McCafés located within the existing McDonald's restaurant. In Tasmania there are McCafés in every store, with the rest of the states quickly following suit. After upgrading to the new McCafe look and feel, some Australian stores have noticed up to a 60% increase in sales. As of the end of 2003 there were over 600 McCafés worldwide. Some locations are connected while others to gas called stations/convenience stores,

McDonald's Express have limited seating and/or menu or may be located in a shopping mall. Other McDonald's are located in Wal-Mart stores. McStop is a location targeted at truckers and travelers which may have services found at truck stops.


Some McDonald's in suburban areas and certain cities feature large indoor or outdoor playgrounds, called "McDonald's PlayPlace" (if indoors) or "Playland" (outdoors)[citation needed]. The first PlayPlace with the familiar crawl-tube design with ball pits and slides was introduced in 1987 in the USA, with many more being constructed soon after. Some PlayPlace playgrounds have been renovated into "R Gym" areas. "R Gyms" are in-restaurant play area that features interactive game zones designed for children aged 4 to 11. Equipped with stationary bicycles attached to video games, dance pads, basketball hoops, monkey bars, an obstacle course, and other games which emphasize physical activity. The "R Gym" features the Toddler Zone, an active play environment with age appropriate games that develop physical coordination and social skills; the Active Zone, designed for children aged four-to-eight that promotes physical fitness through fun play; the Sports Zone which features a series of sport oriented activities to promote aerobic exercise for children aged 9-to-11; the Parent Zone which features seating and provides a monitoring

area for their children; and the Dining Area which allows families to eat.

In 2006, McDonald's introduced its "Forever Young" brand by redesigning all of their restaurants, the first major redesign since the 1970s. The new design will include the traditional McDonald's yellow and red colors, but the red will be muted to terra cotta, the yellow will turn golden for a more "sunny" look, and olive and sage green will be added. To warm up their look, the restaurants will have less plastic and more brick and wood, with modern hanging lights to produce a softer glow. Contemporary art or framed photographs will hang on the walls.The exterior will have golden awnings and a "swish brow" instead of the traditional double-slanted roof. The new restaurants will feature areas:

The "linger" zone will offer armchairs, sofas, and WiFi connections. The "grab and go" zone will feature tall counters with bar stools for customers who eat alone; Plasma TVs will offer them news and weather reports.

• The "flexible" zone will be targeted toward families and will have booths featuring fabric cushions with

colorful patterns and flexible seating. • Different music targeted to each zone.

Business model:
McDonald's Corporation earns revenue as an investor in properties, a franchiser of restaurants, and an operator of restaurants. Approximately 15% of McDonald's restaurants are owned and operated by McDonald's Corporation directly. The remainder are operated by others through a variety of franchise agreements and joint ventures. The McDonald's Corporation's business model is slightly different from that of most other fastfood chains. In addition to ordinary franchise fees and marketing fees, which are calculated as a percentage of sales, McDonald's may also collect rent, which may also be calculated on the basis of sales. As a condition of many franchise agreements, which vary by contract, age, country, and location, the Corporation may own or lease the properties on which McDonald's franchises are located. In most, if not all cases, the franchisee does not own the location of its restaurants. The UK business model is different, in that fewer than 30% of restaurants are franchised, with the majority under the ownership of the company. McDonald's trains its franchisees and

others at Hamburger University in Oak Brook, Illinois. In other countries, McDonald's restaurants are operated by joint ventures of McDonald's Corporation and other, local entities or governments. As a matter of policy, McDonald's does not make direct sales of food or materials to franchisees, instead organizing the supply of food and materials to restaurants through approved third party logistics operators. According to Fast Food Nation by Eric Schlosser (2001), nearly one in eight workers in the U.S. have at some time been employed by McDonald's. (According to news piece on Fox News this figure is one in ten). The book also states that McDonald's is the largest private operator of playgrounds in the U.S., as well as the single largest purchaser of beef, pork, potatoes, and apples. The selection of meats McDonald's uses varies with the culture of the host country.

As a prominent example of the rapid globalization of American fast food industry, McDonald's is often the target of criticism for its menu, its expansion, and its business practices.The McLibel Trial, also known as McDonald's Restaurants v Morris & Steel, is an example of this criticism. In 1990, activists from a small group known

as London Greenpeace (no connection to the international pressure group Greenpeace) distributed leaflets entitled What's wrong with McDonald's?, criticizing its environmental, health, and labor record. The corporation wrote to the group demanding they desist and apologize, and, when two of the activists refused to back down, sued them for libel in one of the longest cases in British civil law. A documentary film of the McLibel Trial has been shown in several countries. In 1999, French anti-globalization activist José Bové vandalized a half-built McDonald's to protest against the introduction of fast food in the region. In 2001, Eric Schlosser's book Fast Food Nation included criticism of the business practices of McDonald's. Among the critiques were allegations that McDonald's (along with other companies within the fast food industry) uses its political influence to increase its profits at the expense of people's health and the social conditions of its workers. The book also brought into question McDonald's advertisement techniques in which it targets children. While the book did mention other fast-food chains, it focused primarily on McDonald's.

In 2002, vegetarian groups, largely Hindu, successfully sued McDonald's for misrepresenting their French fries as vegetarian. Morgan Spurlock's 2004 documentary film Super Size Me said that McDonald's food was contributing to the epidemic of obesity in society, and that the company was failing to provide nutritional information about its food for its customers. Six weeks after the film premiered, McDonald's announced that it was eliminating the super size option, and was creating the adult meal. Anthony on his show, No Reservations, has criticized McDonald's among other fast-food restaurants for its culinary blandness. The soya that is fed to McDonald’s chickens is supplied by agricultural giant Cargill and comes directly from Brazil. Greenpeace alleges that not only is soya destroying the Amazon rain forest in Brazil, but soya farmers are guilty of further crimes including slavery and the invasion of indigenous peoples’ lands. The allegation is that McDonald's, as a client of Cargill's, is complicit in these activities.

Arguments in defense of McDonald's:
In response to public pressure, McDonald's has sought to include more healthy choices in its menu and has

introduced a new slogan to its recruitment posters: "Not bad for a McJob".[19] (The word McJob, first attested in the mid-1980s[20] and later popularized by Canadian novelist Douglas Coupland in his book Generation X, has become a buzz word for low-paid, unskilled work with few prospects or benefits and little security.) McDonald's disputes the idea that its restaurant jobs have no prospects, noting that its CEO, Jim Skinner, started working as at the crew company members. as In a regular the restaurant company employee, and that 20 of its top 50 managers began work regular 2007, launched an advertising campaign with the slogan "Would you like a career with that?" on Irish television, outlining that their jobs have many prospects. In a bid to tap into growing consumer interest in the provenance of food, the fast-food chain recently switched its supplier of both coffee beans and milk. UK chief executive Steve Easterbrook said: "British consumers are increasingly interested in the quality, sourcing and ethics of the food and drink they buy". McDonald's coffee is now brewed from beans taken from stocks that have been certified by the Rainforest Alliance, a conservation group. Similarly, milk supplies used for its hot drinks and

milkshakes have been switched to organic sources which could account for 5% of the UK's organic milk output. McDonald's announced on May 22, 2008 that, in the U.S. and Canada, it will be introducing cooking oil for its french fries that contains no trans fats. The company will use canola-based oil with corn and soy oils by year's end for its baked items, pies and cookies.

Environmental record:

Discarded McDonalds packaging contributes to the urban litter problem in cities worldwide. In April 2008, McDonald's announced that 11 of its Sheffield restaurants have been using a biomass trial that had cut its waste and carbon footprint by half in the area. In this trial, waste from the restaurants were collected by Veolia Environmental Services and used to produce energy at a power plant. McDonald's plans to expand this project, although the lack of biomass power plants in the U.S. will

prevent this plan from becoming a national standard anytime soon.[25] In addition, in Europe, McDonald's has been recycling vegetable grease by converting it to fuel for their diesel trucks. Furthermore, McDonald's has been using a corn-based bioplastic to produce containers for some of their products. Although industries who use this product claim a carbon savings of 30% to 80%, a Guardian study shows otherwise. The results show that this type of plastic does not break down in landfills as efficiently as other conventional plastics. The extra energy it takes to recycle this plastic results in a higher output of greenhouse gases. Also, the plastics can contaminate waste streams, causing other recycled plastics to become unsaleable. The U.S. Environmental Protection Agency has recognized McDonald's continuous effort to reduce solid waste by designing more efficient packaging and by promoting the use of recycled-content materials. McDonald's reports that they are committed towards environmental leadership by effectively managing electric energy, by conserving natural resources through recycling and reusing materials, and by addressing water management issues within the restaurant.







environmental policies in the 1970s, it began to make substantial progress towards source reductions efforts. For instance, an “average meal” in the 1970s—a Big Mac, fries, and a drink—required 46 grams of packaging; today, it requires only 25 grams, allowing a 46 percent reduction. In addition, McDonald’s eliminated the need for intermediate containers for cola by having a delivery system that pumps syrup directly from the delivery truck into storage containers, saving two million pounds of packaging annually. Overall, weight reductions in packaging and products, as well as the increased usage of bulk packaging ultimately decreased packaging by 24 million pounds annually.

Legal cases:
McDonald's legal cases: McDonald's has been involved in a number of lawsuits and other legal cases, most of which involved trademark disputes. The company has threatened many food businesses with legal action unless they drop the Mc or Mac from their trading name. In one noteworthy case, McDonald's sued a Scottish café owner called McDonald, even though the business in question dated back over a







November 21, 1952). It has also filed numerous defamation suits. For example, in the McLibel case, McDonald's sued two activists for distributing pamphlets attacking its environmental, labor and health records. After the longest trial in UK legal history, McDonald's won a technical victory for showing that some allegations were untrue. But it was a massive public relations disaster, since the judge also found that more than half of what was on the pamphlet was truthful, or were simply the opinions of the activists and therefore non-prosecutable. McDonald's has defended itself in several cases involving workers' rights. In 2001 the company was fined £12,400 by British magistrates for illegally employing and over-working child labor in one of its London restaurants. This is thought to be one of the largest fines imposed on a company for breaking laws relating to child working conditions (R v [2002] EWCA Crim 1094). In April 2007 in Perth, Western Australia, McDonald's pleaded guilty to five charges relating to the employment of children under 15 in one of its outlets and was fined AU$8,000. Possibly

the most infamous legal case involving McDonald's was the 1994 decision in The McDonald's Coffee Case. In a McDonald's American Idol figurine promotion, the figurine that represents "New Wave Nigel" wears something that closely resembles Devo’s Energy Dome, which was featured on the band's album cover, Freedom of Choice. In addition to the figurine's image, it also plays a tune that appears to be an altered version of Devo's song "Doctor Detroit." Devo copyrighted and trademarked the Energy Dome and is taking legal action against McDonald's.


A McDonald's Big Mac combo meal served with French fries and Coca-Cola. McDonald's predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonald's offers salads and vegetarian items, wraps and other localized fare. Portugal is the only country with McDonald's restaurants serving

soup. This local deviation from the standard menu is a characteristic for which the chain is particularly known, and one which is employed either to abide by regional food taboos (such as the religious prohibition of beef consumption in India) or to make available foods with which the regional market is more familiar (such as the sale of McRice in Indonesia).

McDonald's advertising: McDonald's has for decades maintained an extensive advertising campaign. In addition to the usual media (television, radio, and newspaper), the company makes significant use of billboards and signage, sponsors sporting events ranging from Little League to the Olympic Games, and makes coolers of orange drink with their logo available for local events of all kinds. Nonetheless, television has always played a central role in the company's advertising strategy. To date, McDonald's has used 23 different slogans in United States advertising, as well as a few other slogans for select countries and regions. At times, it has run into trouble with its campaigns.

Global operations:

McDonald's has become emblematic of globalization, sometimes referred as the "McDonaldization" of society. The Economist magazine uses the "Big Mac Index", the comparison currencies currencies' most of a can be Big Mac's cost to power in various judge world these used informally parity.

purchasing Big

Scandinavian has the most

countries lead the Big Mac Index with four of the five expensive Mac's. Norway expensive Big Mac in the world as of July 2008, whilst the cheapest country is Malaysia. McDonald's has also acquired derogatory nicknames, such as "McVomit's" (in parts of America).Thomas Friedman once said that no country with a McDonald's had gone to war with another. However, the "Golden Arches Theory of Conflict Prevention" is not strictly true. Careful historians point to the 1989 United States invasion of Panama, NATO's bombing of Serbia in 1999, the 2006 Lebanon War, and the 2008 South Ossetia War as exceptions. Some observers have suggested that the company should be given credit for increasing the standard of service in markets that it enters. A group of anthropologists in a study entitled Golden Arches East (Stanford University Press, 1998, edited by James L.

Watson) looked at the impact McDonald's had on East Asia and Hong Kong in particular. When it opened in Hong Kong in 1975, McDonald's was the first restaurant to consistently offer clean restrooms, driving customers to demand the same of other restaurants and institutions. In East Asia in particular, McDonald's have become a symbol for the desire to embrace Western cultural norms. McDonald's have recently taken to partnering up with Sinopec, China's second largest oil company, in the People's Republic of China, as it begins to take advantage of China's growing use of personal vehicles by opening numerous drive-thru restaurants.[37] The only countries in Europe not to have McDonald's stores are Albania, Armenia, Bosnia and Herzegovina and the Vatican City.

Phenomenal Growth in the 1960s and 1970s :
In the early 1960s, McDonald's really began to take off. The growth in U.S. automobile use that came with suburbanization contributed heavily to McDonald's success. In 1961 Kroc bought out the McDonald brothers for $2.7 million, aiming at making McDonald's the number one fast-food chain in the country. In 1965 McDonald's Corporation went public. Common shares were offered at $22.50 per share; by the end of

the first day's trading the price had shot up to $30. A block of 100 shares purchased for $2,250 in 1965 was worth, after 12 stock splits (increasing the number of shares to 74,360), about $1.8 million by the end of 2003. In 1985 McDonald's Corporation became one of the 30 companies that make up the Dow Jones Industrial Average. McDonald's success in the 1960s was in large part due to the company's skillful marketing and flexible response to customer demand. In 1965 the Filet-o-Fish sandwich, billed as "the fish that catches people," was introduced in McDonald's restaurants. The new item had originally met with disapproval from Kroc, but after its successful test marketing, he eventually agreed to add it. Another item that Kroc had backed a year previously, a burger with a slice of pineapple and a slice of cheese, known as a "hulaburger," had flopped. The market was not quite ready for Kroc's taste; the hulaburger's tenure on the McDonald's menu board was short. In 1968 the now legendary Big as it launched Mac the made "You its debut, Deserve a and in Break 1969 Today" McDonald's sold its five billionth hamburger. A year later,






reached all 50 states. In 1968 McDonald's opened its 1,000th restaurant, and Fred Turner became the company's president and chief administrative officer. Kroc became chairman and remained CEO until 1973. Turner had originally intended to open a McDonald's franchise, but when he had problems with his backers over a location, he went to work as a grillman for Kroc in 1956. As operations vicepresident, Turner helped new franchisees get their stores up and running. He was constantly looking for new ways to perfect the McDonald's system, experimenting, for example, to determine the maximum number of hamburger patties one could stack in a box without squashing them and pointing out that seconds could be saved if McDonald's used buns that were presliced all the way through and were not stuck together in the package. Such attention to detail was one reason for the company's extraordinary success. McDonald's spectacular growth continued in the 1970s. Americans were more on-the-go than ever, and fast service was a priority. In 1972 the company passed $1 billion in annual sales; by 1976, McDonald's had served

20 billion hamburgers, and systemwide sales exceeded $3 billion. McDonald's introduced breakfast fast food by introducing egg McMuffin in 1973 when market research indicated that a quick breakfast would be welcomed by consumers. Five years later the company added a full breakfast line to the menu, and by 1987 one-fourth of all breakfasts eaten out in the United States came from McDonald's restaurants. Kroc was a firm believer in giving "something back into the community where you do business." In 1974 McDonald's acted upon that philosophy in an original way by opening the first Ronald McDonald House, in Philadelphia, to provide a "home away from home" for the families of children in nearby hospitals. Twelve years after this first house opened, 100 similar Ronald McDonald Houses were in operation across the United States. In 1975 McDonald's opened its first drive-thru window in Oklahoma City. This service gave Americans a fast, convenient way to procure a quick meal. The company's goal was to provide service in 50 seconds or less. Drivethru sales eventually accounted for more than half of McDonald's system wide sales. Meantime, the Happy

Meal, a combo meal for children featuring a toy, was added to the menu in 1979.

Surviving the 1980s "Burger Wars":
In the late 1970s competition from other hamburger chains such as Burger King and Wendy's began to intensify. Experts believed that the fast-food industry had gotten as big as it ever would, so the companies began to battle fiercely for market share. A period of aggressive advertising campaigns and price slashing in the early 1980s became known as the "burger wars." Burger King suggested that customers "have it their way"; Wendy's offered itself as the "fresh alternative" and asked of other restaurants, "where's the beef?" But McDonald's sales and market share continued to grow. Consumers seemed to like the taste and consistency of McDonald's best. During the 1980s McDonald's further diversified its menu to suit changing consumer tastes. Chicken McNuggets were introduced in 1983, and by the end of the year McDonald's was the second largest retailer of chicken in the world. In 1987 ready-to-eat salads were introduced to lure more health-conscious consumers. The 1980s were the fastest-paced decade yet. Efficiency, combined with an expanded menu, continued to draw







suburbs, began to focus on urban centers and introduced new architectural styles. Although McDonald's restaurants no longer looked identical, the company made sure food quality and service remained constant. Despite experts' claims that the fast-food industry was saturated, McDonald's continued to expand. The first generation raised on restaurant food had grown up. Eating out had become a habit rather than a break in the routine, and McDonald's relentless marketing continued to improve sales. Innovative promotions, such as the "when the U.S. wins, you win" giveaways during the Olympic Games in 1988, were a huge success. In 1982 Michael R. Quinlan became president of McDonald's Corporation and Fred Turner became chairman. Quinlan, who took over as CEO in 1987, had started at McDonald's in the mailroom in 1963, and gradually worked his way up. The first McDonald's CEO to hold an M.B.A. degree, Quinlan was regarded by his colleagues as a shrewd competitor. In his first year as CEO the company opened 600 new restaurants. McDonald's growth in the United States was mirrored by its stunning growth abroad. By 1991, 37 percent of

system wide sales came from restaurants outside the United States. McDonald's opened its first foreign restaurant in British Columbia, Canada, in 1967. By the early 1990s the company had established itself in 58 foreign owned countries and operated more than 3,600 restaurants outside the United States, through wholly subsidiaries, joint ventures, and franchise agreements. Its strongest foreign markets were Japan, Canada, Germany, Great Britain, Australia, and France. In the mid-1980s, McDonald's, like other traditional employers of teenagers, was faced with a shortage of labor in the United States. The company met this challenge by being the first to entice retirees back into the workforce. McDonald's placed great emphasis on effective training. It opened its Hamburger University in 1961 to train franchisees and corporate decision-makers. By 1990, more than 40,000 people had received "Bachelor of Hamburgerology" degrees from the 80-acre Oak Brook, Illinois, facility. The corporation opened a Hamburger University in Tokyo in 1971, in Munich in 1975, and in London in 1982. Braille menus were first introduced in 1979, and picture menus in 1988. In March 1992 Braille and picture menus were reintroduced to

acknowledge the 37 million Americans with vision, speech, or hearing impairments. Quinlan continued to experiment with new technology and to research new markets to keep McDonald's in front of its competition. Clamshell fryers, which cooked both sides of a hamburger simultaneously, were tested. New locations such as hospitals and military bases were tapped as sites for new restaurants. In response to the increase in microwave oven usage, McDonald's, whose name is the single most advertised brand name in the world, stepped up advertising and promotional expenditures stressing that its taste was superior to quick-packaged foods. Mc Recycle USA began in 1990 and included a commitment to purchase at least $100 million worth of recycled products annually for use in construction, remodeling, and equipping restaurants. Chairs, table bases, table tops, eating counters, table columns, waste receptacles, corrugated cartons, packaging, and washroom tissue were all made from recycled products. McDonald's worked with the U.S. Environmental Defense Fund to develop a comprehensive solid waste reduction program. Wrapping burgers in paper rather than plastic

led to a 90 percent reduction in the wrapping material waste stream.

1990s Growing Pains :
It took McDonald's 33 years to open its first 10,000 restaurants--the 10,000th unit opened in April 1988. Incredibly, the company reached the 20,000-restaurant mark in only eight more years, in mid-1996. By the end of 1997 the total had surpassed 23,000--by that time McDonald's was opening 2,000 new restaurants each year--an average of one every five hours. Much of the growth of the 1990s came outside the United States, with international units increasing from about 3,600 in 1991 to more than 11,000 by 1998. The number of countries with McDonald's outlets nearly doubled from 59 in 1991 to 114 in late 1998. In 1993 a new region was added to the empire when the first McDonald's in the Middle East opened in Tel Aviv, Israel. As the company entered new markets, it showed increasing flexibility with respect to local food preferences and customs. In Israel, for example, the first kosher McDonald's opened in a Jerusalem with suburb laws in 1995. food In Arab countries In the 1996 restaurant chain used "Halal" menus, which complied Islamic for preparation.

McDonald's entered India for the first time, where it offered a Big Mac made with lamb called the Maharaja Mac. That same year the first Mc Ski-Thru opened in Lindvallen, Sweden. Overall, the company derived increasing percentages of its revenue and income from outside the United States. In 1992 about two-thirds of system wide sales came out of U.S. McDonald's, but by 1997 that figure was down to about 51 percent. Similarly, the operating income numbers showed a reduction from about 60 percent derived from the United States in 1992 to 42.5 percent in 1997. In the United States, where the number of units grew from 9,000 in 1991 to 12,500 in 1997--an increase of about 40 percent--the growth was perhaps excessive. Although the additional units increased market share in some markets, a number of franchisees complained that new units were cannibalizing sales from existing ones. Same-store sales for outlets open for more than one year were flat in the mid-1990s, a reflection of both the greater number of units and the mature nature of the U.S. market.

It did not help that the company made several notable blunders in the United States in the 1990s. The McLean Deluxe sandwich, which featured a 91 percent fat-free beef patty, was introduced in 1991, never really caught on, and was dropped from the menu in 1996. Several other 1990s-debuted menu items--including fried chicken, pasta, fajitas, and pizza--failed as well. The "grown-up" (and pricey) Arch Deluxe sandwich and the Deluxe Line were launched in 1996 in a $200 million campaign to gain the business of more adults, but were bombs. The following spring brought a 55-cent Big Mac promotion, which many customers either rejected outright or were confused by because the burgers had to be purchased with full-priced fries and a drink. The promotion embittered still more franchisees, whose complaints led to its withdrawal. In July 1997 McDonald's fired its main ad agency--Leo Burnett, a 15-year McDonald's partner-after the nostalgic "My McDonald's" campaign proved a failure. A seemingly weakened McDonald's was the object of a Burger King offensive when the rival fast-food maker launched the Big King sandwich, a Big Mac clone. Meanwhile, internal taste tests revealed that customers preferred the fare at Wendy's and Burger King.

In response to these difficulties, McDonald's drastically cut back on its U.S. expansion--in contrast to the 1,130 units opened in 1995, only about 400 new McDonald's were built in 1997. Plans to open hundreds of smaller restaurants in Wal-Marts and gasoline stations were abandoned because test sites did not meet targeted goals. Reacting to complaints from franchisees about poor communication with the corporation and excess bureaucracy, 1996) the head the of unit McDonald's into five U.S.A. (Jack Greenberg, who had assumed the position in October reorganized autonomous geographic divisions. The aim was to bring management and decision-making closer to franchisees and customers. On the marketing side, McDonald's scored big in 1997 with a Teenie Beanie Baby promotion in which about 80 million of the toys/collectibles were gobbled up virtually overnight. The chain received some bad publicity, however, when it was discovered that a number of customers purchased Happy Meals just to get the toys and threw the food away. For a similar spring 1998 Teenie Beanie giveaway, the company altered the promotion to allow patrons to buy menu items other than kids' meals. McDonald's also began to benefit from a ten-year global

marketing alliance signed with Disney in 1996. Initial Disney movies promoted by McDonald's included 101 Dalmatians, Flubber, Mulan, Armageddon, and A Bug's Life. Perhaps the most important marketing move came in the later months of 1997 when McDonald's named BDD Needham as its new lead ad agency. Needham had been the company's agency in the 1970s and was responsible for the hugely successful "You Deserve a Break Today" campaign. Late in 1997 McDonald's launched the Needham-designed "Did Somebody Say McDonald's?" campaign, which appeared to be an improvement over its predecessors.

A Failed Turnaround: Late 1990s and Early 2000s :
Following the difficulties of the early and mid-1990s, several moves in 1998 seemed to indicate a reinvigorated McDonald's. In February the company for the first time took a stake in another fast-food chain when it purchased a minority interest in the 16-unit, Colorado-based Chipotle Mexican Grill chain. The following month came the announcement that McDonald's would improve the taste of several sandwiches and introduce several new menu items; McFlurry desserts--developed by a Canadian

franchisee--proved popular when launched in the United States in the summer of 1998. McDonald's that same month said that it would overhaul its food preparation system in every U.S. restaurant. The new just-in-time system, dubbed "Made for You," was in development for a number of years and aimed to deliver to customers "fresher, hotter food"; enable patrons to receive specialorder sandwiches (a perk long offered by rivals Burger King and Wendy's); and allow new menu items to be more easily introduced thanks to the system's enhanced flexibility. The expensive changeover was expected to cost about $25,000 per restaurant, with McDonald's offering to pay for about half of the cost; the company planned to provide about $190 million in financial assistance to its franchisees before implementation was completed by year-end 1999. In May 1998 Greenberg was named president and CEO of McDonald's Corporation, with Quinlan remaining chairman; at the same time Alan D. Feldman, who had joined the company only four years earlier from Pizza Hut, replaced Greenberg as president of McDonald's U.S.A.--an unusual move for a company whose executives typically were long-timers. The following month brought another

first--McDonald's first job cuts--as the company said it would eliminate 525 employees from its headquarters staff, a cut of about 23 percent. In the second quarter of 1998 McDonald's took a $160 million charge in relation to the cuts. As a result, the company, for the first time since it went public in 1965, recorded a decrease in net income, from $1.64 billion in 1997 to $1.55 billion in 1998. McDonald's followed up its investment in Chipotle with several more moves beyond the burger business. In March 1999 the company bought Aroma Café, a U.K. chain of 23 upscale coffee and sandwich shops. In July of that year McDonald's added Donatos Pizza Inc., a midwestern chain of 143 pizzerias based in Columbus, Ohio. Donatos had 1997 revenues of $120 million. Also in 1999, McDonald's 25,000th unit opened, Greenberg took on the additional post of chairman, and Jim Cantalupo was named company president. Cantalupo, who had joined the company as controller in 1974 and later became head of McDonald's International, had been vicechairman, a position he retained. In May 2000 McDonald's completed its largest acquisition yet, buying the bankrupt Boston Market chain for $173.5 million in cash and debt. At the time, there were more than 850 Boston Market

outlets, which specialized in home-style meals, with rotisserie chicken the lead menu item. Revenue at Boston Market during 1999 totaled $670 million. McDonald's rounded out its acquisition spree in early 2001 by buying a 33 percent stake in Pret A Manger, an upscale urbanbased chain specializing in ready-to-eat sandwiches made on the premises. There were more than 110 Pret shops in the United Kingdom and several more in New York City. Also during 2001, McDonald's sold off Aroma Café and took its McDonald's Japan affiliate public, selling a minority stake through an initial public offering. As it was exploring new avenues of growth, however, McDonald's core hamburger chain had become plagued by problems. Most prominently, the Made for You system backfired. Although many franchisees believed that it succeeded in improving the quality of the food, it also increased service times and proved labor-intensive. Some franchisees also complained that the actual cost of implementing the system ran much higher than the corporation had estimated, a charge that McDonald's contested. In any case, there was no question that Made for You failed to reverse the chain's sluggish sales. Growth in sales at stores open more than a year (known as same-store

sales) fell in both 2000 and 2001. Late in 2001 the company launched a restructuring involving the elimination of about 850 positions, 700 of which were in the United States, and some store closings. There were further black eyes as well. McDonald's was sued in 2001 after it was revealed that for flavoring purposes a small amount of beef extract was being added to the vegetable oil used to cook the french fries. The company had cooked its fries in beef tallow until 1990, when it began claiming in ads that it used 100 percent vegetable oil. McDonald's soon apologized for any "confusion" that had been caused by its use of the beef flavoring, and in mid-2002 it reached a settlement in the litigation, agreeing to donate $10 million to Hindu, vegetarian, and other affected groups. Also in 2001, further embarrassment came when 51 people were charged with conspiring to rig McDonald's game promotions over the course of several years. It was revealed that $24 million of winning McDonald's game tickets had been stolen as part of the scam. McDonald's was not implicated in the scheme, which centered on a worker at an outside company that had administered the promotions.

McDonald's also had to increasingly battle its public image eating as at a purveyor of had fatty, made unhealthful them food. Consumers began filing lawsuits contending that years of McDonald's overweight. McDonald's responded by introducing low-calorie menu items and switching to a more healthful cooking oil for its french fries. McDonald's franchises overseas became a favorite target of people and groups expressing antiAmerican and/or antiglobalization sentiments. In August 1999 a group of protesters led by farmer José Bové destroyed a half-built McDonald's restaurant in Millau, France. In 2002 Bové, who gained fame from the incident, served a three-month jail sentence for the act, which he said was in protest against U.S. trade protectionism. McDonald's was also one of three multinational corporations (along with Starbucks Corporation and Nike, Inc.) whose outlets in Seattle were attacked in late 1999 by some of the more aggressive protesters against a World Trade Organization (WTO) meeting taking place there. In the early 2000s McDonald's pulled out of several countries, including Bolivia and two Middle Eastern nations, at least in part because of the negative regard with which the brand was held in some areas.

Early in 2002 Cantalupo retired after 28 years of service. Sales remained lackluster that year, and in October the company attempted to revive U.S. sales through the introduction of a low-cost Dollar Menu. In December 2002, after this latest initiative to reignite sales growth failed--and also after profits fell in seven of the previous eight quarters--Greenberg announced that he would resign at the end of the year. Cantalupo came out of retirement to become chairman and CEO at the beginning of 2003.

Launching of Revitalization Plan Under New Leadership in 2003 :
Cantalupo started his tenure by announcing a major restructuring that involved the closure of more than 700 restaurants (mostly in the United States and Japan), the elimination of 600 jobs, and charges of $853 million. The charges resulted in a fourth-quarter 2002 loss of $343.8 million--the first quarterly loss in McDonald's 38 years as a public company. The new CEO also shifted away from the company's traditional reliance on growth through the opening of new units to a focus on gaining more sales from existing units. To that end, several new menu items were successfully launched, including entree salads,

McGriddles breakfast sandwiches (which used pancakes in place of bread), and white-meat Chicken McNuggets. Some outlets began test-marketing fruits and vegetables as Happy Meal options. Backing up the new products was the launch in September 2003 of an MTV-style advertising campaign featuring the new tag line, "I'm lovin' it." This was the first global campaign in McDonald's history, as the new slogan was to be used in advertising in more than 100 countries. It also proved to be the first truly successful ad campaign in years; sales began rebounding, helped also by improvements in service. In December 2003, for instance, same-store sales increased 7.3 percent. Same-store sales rose 2.4 percent for the entire year, after falling 2.1 percent in 2002. In December 2003 McDonald's announced that it would further its focus on its core hamburger business by downsizing its other ventures. The company said that it would sell Donatos back to that chain's founder. In addition, it would discontinue development of non-McDonald's brands outside of the United States. This included Boston Market outlets in Canada and Australia and Donatos units in Germany. McDonald's kept its minority investment in Pret A Manger, but McDonald's Japan was slated to close its

Pret units there. These moves would enable the company to concentrate its international efforts on the McDonald's chain, while reducing the non-hamburger brands in the United States to Chipotle and Boston Market, both of which were operating in the black. McDonald's continued to curtail store openings in 2004 and to concentrate on building business at existing restaurants. Much of the more than $1.5 billion budgeted for capital expenditures in 2004 was slated to be used to remodel existing restaurants. McDonald's also aimed to pay down debt by $400 million to $700 million and to return approximately $1 billion to shareholders through dividends and share repurchases. Cantalupo also set several long-term goals, such as sustaining annual systemwide sales and revenue growth rates of 3 to 5 percent. In a move to both simplify the menu and make its offerings less fattening, McDonald's announced in March 2004 that it would phase out Super Size french fries and soft drinks by the end of the year. Principal Subsidiaries: McDonald's Deutschland, Inc.; McDonald's Market Restaurant Operations Inc.; McG GmbH Development Co.; Chipotle Mexican Grill, Inc.; Boston Corporation; McDonald's Franchise

(Austria); McDonald's


Australia Pte.,

Limited; Ltd.

McDonald's (Singapore);

France, S.A.; MDC Inmobiliaria de Mexico S.A. de C.V.; Restaurants Restaurantes McDonald's S.A. (Spain); McKim Company Ltd. (South Korea); Shin Mac Company Ltd. (South Korea); McDonald's (U.K.). Principal the Box Competitors: Inc.; Sonic Inc.; Burger King Corporation; Drive-In Inc.; Wendy's International, Inc.; CKE Restaurants, Inc.; Jack in Corporation; White Castle Checkers Restaurants, Inc. System, Nederland B.V. (Netherlands); MoscowMcDonald's (Canada); McDonald's Restaurants Limited

Whataburger, Inc.; YUM! Brands, Inc.; Doctor's Associates

Business Model:

Franchise Model – Only 15% of the total number of restaurants are owned by the Company. The remaining 85% is operated by franchisees. The company follows a comprehensive framework of training and monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and Value propositions offered by the company to its customers.


Consistency supplier


developing operation

a and



distribution system, the company has been able to achieve consistent product taste and quality across geographies.

Act like a retailer and think like a brand – McDonald’s focuses not only on delivering sales for the immediate present, but also protecting its long term brand reputation.

McDonald’s in India:
McDonald’s entered India in 1996. McDonald’s India has a joint venture with Connaught Plaza Restaurants and Hard Castle Restaurants. Connaught Plaza Restaurants manages operations in North India whereas Hard Castle Restaurants operates restaurants in Western India. Apart from opening outlets in the major metros, the company is now expanding to Tier 2 cities like Pune and Jaipur.

Challenges in Entering Indian Markets:

Regiocentricism: Re-engineering the menu McDonald’s customer’s has continually value adapted systems, to the tastes, lifestyle,

language and perception. Globally McDonald’s was

known for its hamburgers, beef and pork burgers. Most Indians are barred by religion not to consume beef or pork. To survive, the company had to be responsive to the Indian sensitivities. So McDonald’s came up with chicken, lamb and fish burgers to suite the Indian palate.

The vegetarian customer – India has a huge population of vegetarians. To cater to this customer segment, the company came up with a completely new line of vegetarian items like McVeggie burger and McAlooTikki. The separation of vegetarian and non-vegetarian sections is maintained throughout the various stages.

Segmentation, Targeting and Positioning:
McDonald’s uses demographic segmentation strategy with age as the parameter. The main target segments are children, youth and the young urban family.

% of kids who influence what FMCG brand their family buys

80% 70% 60% 50% 40% 30% 20% 10% 0%

71% 59% 52%


Burgers & Pizzas

Fruit Juices

As shown above, kids reign supreme in FMCG purchase related to food products. So to attract children McDonalds has Happy Meal with which toys ranging from hot wheels to various Walt Disney characters are given (the latest in this range is the toys of the movie Madagascar). For this, they have a tie-up with Walt Disney. At several outlets, it also provides special facilities like ‘Play Place’ where children can play arcade games, air hockey, etc. This strategy is aimed at making McDonald’s a fun place to eat. This also helps McDonald’s to attract the young urban families wanting to spend some quality time while their children have fun at the outlet. To target the teenagers, McDonald’s has priced several products aggressively, keeping in mind the price

sensitivity of this target customer. In addition, facilities like Wi-Fi are also provided to attract students to the outlets like the one at Vile Parle in Mumbai. “Mc When Donald’s McDonald’s mein hai in kuch India baat” it was projects mainly McDonald’s as a place for the whole family to enjoy. entered perceived as targeting the urban upper class people. Today it positions itself as an affordable place to eat without compromising on the quality of food, service and hygiene. The outlet ambience and mild background music highlight the comfort that McDonald’s promises in slogans like “You deserve a Break Today” & “Feed your inner child”. This commitment of quality of food and service in a clean, hygienic and relaxing atmosphere has ensured that McDonald’s maintains a positive relationship with the customers.

Customer Expectation:




Customer perception is a key factor affecting a product’s success. Many potentially revolutionary products have failed simply because of their inability to build a healthy perception about themselves in the customers’ minds.

McDonalds being an internationally renowned brand brings with it certain expectations for the customers.
Target Segment What is McDonald’s for me? A Family with A treat to children, a fun place to be for the children children. Urban customer on Great taste, quick service without affecting the move Teenager the work schedule Hangout with friends, affordable. but keep it

Customers expect it to be an ambient, hygienic and a little sophisticated brand that respects their values. The customer’s expect the brand to enhance their self-image. Customer responses obtained at the Vile Parle, Mumbai outlet confirmed the fact that they connect strongly with the brand. However, fulfilling some of the customer expectations like a broader product variety provide McDonald’s a great scope for improvement.

McDonalds Marketing Mix (5 P’s):
After segmenting the market, finding the target segment and positioning itself, each company needs to come up with an offer. The 5 P’s used by McDonalds are: • Product • Place

• Price • Promotion • People Product: How should the company design, manufacture the product so that it enhances the customer experience?

Product is the physical product or service offered to the consumer. Product includes certain aspects such as packaging, guarantee, looks etc. This includes both the tangible and the non-tangible aspects of the product and service. McDonalds has intentionally kept its product depth and product width limited. McDonalds studied the behaviour of the Indian customer and provided a totally different

menu as compared to its International offering. It dropped ham, beef and mutton burgers from the menu. India is the only country where McDonalds serve vegetarian menu. Even the sauces and cheese used in India are 100% vegetarian. McDonalds continuously innovates its products according to the changing preferences and tastes of its customers. The recent example is the introduction of the Chicken Maharaja Mac. McDonalds bring with it a globally reputed brand, world class food quality and excellent customer specific product features. Place: Where should be the product be available and the role of distribution channels? The place mainly consists of the distribution channels. It is important so that the product is available to the customer at the right place, at the right time and in the right quantity. Nearly 50% of U.S.A is within a 3 minute drive from a McDonald’s outlet. There is a certain degree of fun and happiness that a customer feels each time he dines at McDonalds. There are certain value propositions that McDonalds offer to its customers based on their needs. McDonalds offers hygienic environment, good ambience and great








internet facility at their centres and they have been playing music through radio instead of the normal music. There are certain dedicated areas for childrenwhere they can play while their parents can have some quality time together.

Price: What should be the pricing strategy?

Pricing includes the list price, the discount functions available, the financing options available etc. It should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part which generates revenue. All the other three are expenses incurred. The price must take into consideration the appropriate demand-supply equation.

McDonald’s came up with a very catchy punch line “Aap ke zamane mein ,baap ke zamane ke daam”. This was to attract the middle and lower class consumers and the effect can clearly be seen in the consumer base McDonalds has now. McDonalds has certain value pricing and bundling strategies such as happy meal, combo meal, family meal etc to increase overall sales volumes.

Promotion: What is the suitable strategy and channels for promotion of the product?








McDonald’s to effectively communicate the product information are given above. A clear understanding of the customer value helps decide whether the cost of promotion is worth spending.

There are three main objectives of advertising for McDonald’s are to make people aware of an item, feel positive message about has it to and be remember it. to The the right right communicated

audience through the right media. McDonald’s does its promotion through television, hoardings and bus shelters. They use print ads and the television programmes are also an important marketing medium for promotion. Some of the most famous marketing campaigns of McDonald’s are: • “You Deserve a break today, so get up and get awayTo McDonald’s” • “Aap ke zamane mein ,baap ke zamane ke daam”. • “Food, Folks, and Fun” • “I’m loving it”.

People: How to converge the benefits of internal and external marketing?
McDonald’s understands the value of both its employees and its customers. It understands the fact that a happy employee can serve well and result in a happy customer.

McDonald continuously does Internal Marketing. This is important as it must precede external marketing. This includes hiring, training and motivating able employees. This way they serve customers well and the final result is a happy customer. The level of importance has changed to be in the following order (the more important people are at the top): • Customers • Front line employees • Middle level managers • Front line managers The punch line “I’m loving it” is an attempt to show that the employees are loving their work at McDonalds and will love to serve the customers.

The McDonald’s Experience:
Marketing marketing in a services a industry is becoming an of increasingly complex challenge. The paradigms of service demand passionate understanding customer expectations and perceptions, and linking them to product design & delivery as well as operational planning. This is where McDonald’s has excelled due to its ability to successfully integrate the customer’s









comprehensive manner. The revamped menu in India is an example of McDonald’s strategy of integrating the customer’s operational perspective integration in is its products. from And, the evident McDonald’s

emphasis on its suppliers as its customers as well as its treatment of its consumers as co-producers of services. The ultimate aim of Service Marketing is not just to become a Service Leader but to create a Service Brand. The Service Delivery Process is the key to achieving this aim of Service Marketing.
ServiceProduct Process Supplementary Process Core Delivery

During the Service Delivery Process, each moment of interaction between the firm and the customer, called “Moments of Truth”, helps understand the opportunities that a firm has to win or lose the customer. For example, these “moments of truth” are created for McDonald’s every time the guard at the McDonald’s outlet meets the customer, every time an attendant takes down the order from the customer waiting in the queue, every time the cashier interacts with the customer, every time the attendant helps the customer guided the

customer towards the table, every time the attendant cleans the table, etc.

“Moments Of Truth” – The Service Encounter

Service Provider

Service Delivery Points

Managing these “moments of truth” is a great challenge in Service Marketing as a especially co-producer due of to customer’s (e.g. involvement services

McDonald’s self-service concept wherein the customer not only collects the order but also cleans the table after consuming the food). However, McDonald's has been able to create a great experience for its customers by understanding the nature of the entire Service Delivery Process and the various stages in the process that are exposed to the customers. Transparency in the processes at its outlet has helped McDonald’s bring the back office in its outlet at the front so that the customer is able to know the operations and provide feedback on service design improvements.

Internal Customer Focus is equally important as External Customer Orientation in order to win these “moments of truth”. McDonald’s focus on its People and their service delivery methods therefore plays a very important role in creating a successful Service Brand. The quality and the consistency of the service delivered by McDonald’s have been greatly enhanced by the combination of the factors mentioned above. This has helped McDonald’s become Service Leader and a successful Service Brand. This is evident from the fact that very few of its customers opt for take-home parcels or home deliveries while most of them prefer to eat at the outlet and enjoy the McDonald’s experience.

Mc Donaldizing the Suppliers:
McDonald’s has changed the nature of not only the food service industry but also the food processing industry as well. McDonald’s realized that the battle between fast food chains would increasingly be one of efficiency of supply, lower cost production and greater desire to innovate. It pioneered with innovative and sophisticated food distribution and packaging systems when the traditional food processors were unwilling or unable to supply food items that McDonald’s demanded. They







attention than anyone else to field service and training at store level. Production was concentrated in huge plants devoted exclusively to McDonald’s. McDonald’s also started with tiny suppliers and grew with them displaying great loyalty. Nowhere is the supplier loyalty more evident than in development of new, improved products. Some of McDonald’s classic food items like Filet-o-Fish, French Fries, Chicken Nuggets etc. are results of supplier innovation. Interestingly, it took KFC more than three years before in finally introduced its own version of chicken nuggets. Thus supplier technological expertise had given McDonald’s a product which was not a mere marketing innovation but a technical one. McDonald’s attempted to squeeze labour out of the stores by moving more preparation back into the processing plant, creating the opportunity to develop unique products based on suppliers’ processing skills. For the first time, McDonald’s suppliers became the focal point of new product development. This converted the fastfood industry’s most fragmented distributed system into

more efficient one which helped McDonald’s reduce its inventory and manage costs effectively.

Importance of PLC in McDonalds:
The requirements of customers change over time and thus the product offering has to be changed accordingly. What is the fashion today may be out of market within few weeks. Thus continuous innovation is required.

To counter these changes McDonalds has continuously introduced new products and has phased out the old ones which were at the decline stage of their PLC. The introduction is timed such that the new product does not cannibalize the product already in the maturity or growth stage. Thus the secret lies in getting profits with different products in the different stages of the PLC.

A perfect example of revitalising a product in decline phase

The French Fries have been an important part of the McDonalds menu worldwide. But now it was in the stage of decline and was actually not generating proper return. In an attempt to revitalize it, a new variant was introduced namely Shake Shake Fries. This is being served with chatpata spice mix which has resulted in increase in the sales of French Fries and has elevated it from to the decline stage. This is used to delay the decline of a well established product which has the potential of generating further revenue.

Competitors Analysis:
McDonald’s has been a leading fast-foods outlet in Vile Parle. But the outlet understudy has other competitors eating away into its market share. In addition to its

traditional rivals—KFC, Dominos, Pizza Hut—the firm encounters new challenges. Jumbo King competes using a back-to-basics approach of quickly serving up burgers for time-pressed consumers. On the higher end, the KFC has become potent competitor in the quick service field, taking away customers from McDonald’s. Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm. At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for consumers. This brings us to service and experience based competition which McDonald’s can use for competitive advantage against Jumbo King. Keeping in mind the demographics of the area, McDonald’s has Wi-Fi enabled the outlet to cater to the student community. It is for this overall “Food, Fun & Folks” experience that customers pay a premium over the other competitors. Competition also reduces product lifecycle; inducing firms to revise their products portfolios and to revisit their product market to understand changing needs, expectations and perception of different market segments. The new McBreakfast would be introduced between 6 to 11 am as a pilot project. This

would open up a whole new revenue stream for McDonald’s by tapping into the student and working population by providing a healthy and wholesome breakfast. This shows how demographic shift can affect the demand for products and services. McDonald’s has anticipated these changes to maintain its competitive edge.

Two Dimensional Perceptual Mapping:

SWOT Analysis

McDonald's Marketing Strategy:
McDonald’s is the world’s largest fast-food restaurant chain. It has more than 30,000 restaurants in over 100 countries. Over one billion more customers were served in 2007 than in 2006. Although net income was down by $1.1 billion in 2007, McDonald’s sales were up 6.8%, and revenue was a record high of $23 billion. “The unique business relationship among the company, its franchisees and suppliers (collectively referred to as the System) has been key to McDonald’s success over the years. The

business model enables McDonald’s to play an integral role in the communities we serve and consistently deliver relevant restaurant experiences to customers.” (McDonald's, 2008, 25). McDonald’s overall strategic plan is called Plan to Win. Their focus is not so much on being the biggest fast-food restaurant chain, rather it is more focused on being the best fast-food restaurant chain. McDonald’s “strategic alignment behind this plan has created better McDonald’s experiences through the execution of multiple initiatives surrounding the five factors of exceptional customer experiences – people, products, place, price and promotion” (McDonald's, 2008, 25). McDonald’s also incorporates geographical strategic plans. In the U.S., McDonald’s strategic plan continues to focus on breakfast, chicken, beverages and convenience. These are the core areas in the United States. McDonald’s has launched the Southern Style Chicken Biscuit for breakfast and the Southern Style Chicken Sandwich for lunch and dinner. In the beverage business, McDonald’s starting introducing new hot specialty coffee offerings on a market-by-market basis. In Europe, McDonald’s uses a tiered menu approach. This menu features premium

selections, offerings.

classic They



everyday these

affordable with new



products and limited-time food promotions” (McDonald's, 26). In the Asia-Pacific, Middle East, and Africa markets, McDonald’s strategic plan is focused around convenience, breakfast, core menu extensions and value. With McDonald’s overall strategic plan and its geographical strategic plan, the company should start to see more positive financial results. McDonald’s incorporates several organizational strategies. Some of the organizational strategies consist of better restaurant operations, placing the customer first, menu variety and beverage choice, convenience and daypart expansion, and ongoing restaurant reinvestment. McDonald’s plans to “continue to drive success in 2008 and beyond by leveraging key consumer insights and our global experience, while relying on our strengths in developing, branded testing and implementing expansion initiatives and menu surrounding our global business drivers of convenience, affordability, daypart variety” (McDonald's, 2008, 25). One of the ways McDonald’s can obtain a positive net income is to maximize efficiency in its restaurant operations while at

the same time placing the customer first. With strategic focus on menu variety and beverage choice, McDonald’s is hoping for increased sales and guest counts. With their convenience and daypart expansion initiative, McDonald’s is hoping to increase efficiency in its drivethru pick up window, and the company is staying open later for those late-nighters who want a quick bite to eat. McDonald’s also has locally owned and operated restaurants which “are at the core of their competitive advantage and makes them not just a global brand but a locally relevant one” (McDonald's, 27). They are in the process of remodeling and upgrading its franchises. The company is also opening up McCafe’s “with the expectation that the gourmet coffee shop would move it closer to its goal of doubling sales at existing U.S. restaurants over the next decade” (Peter & Donnelly, Jr., 2007, 253). A couple other organizational strategies are branded affordability, and the development of their employees starting with recruitment and training and leading all the up to leadership and management. McDonald’s strategic plan is influencing their marketing efforts by building better brand transparency. They want their image to be recognized globally. They are enhancing

the customer’s experience. “Across their markets, they are making is easier for customers to enjoy a great McDonald’s experience. They are introducing drive-thrus to the increasingly mobile populations in China and Russia, while in the U.S. and Canada, greater drive-thru efficiency and double drive-thru lanes enable them to serve even more customers quickly” (McDonald's, 2008, 13). In Germany, McDonald’s has a reimaging program that includes adding about 100 McCafes. They are also installing new kitchen operating systems so that they can continue to deliver high food quality. McDonald’s has already renovated about 10,000 restaurants world wide. They want their restaurants to be an expression of their brand. The company is also delivering greater value to the customer with new menu selections. “By serving a locally relevant balance of new products, premium salads and sandwiches, classic menu favorites and everyday affordable offerings around the world, they create value for customers and satisfy their demand for choice and variety” (McDonald's, 15). Types of marketing mix that McDonald’s use to achieve their marketing goals are longer operating hours, everyday value meals, and optimizing efficiency in the drive-thru. McDonald’s also

uses marketing campaigns. In 2007, McDonald’s used the Shrek movie to give children a choice between milk, fruit, or vegetables as part of their Happy Meal. In addition to their commitment with children, McDonald’s is building their brand image “with innovated marketing transporting ideas across borders and using i’m lovin’ it to deepen their connection with customers who love their food and the unique McDonald’s experience” (McDonald's, 2008, 17). In the 2008 Olympics held in Beijing, McDonalds offered the Beijing Burger, Carmel and Banana Sundae, and Rice Sticks. They featured nine Olympic and Paralympic athletes on their packaging. In Australia, McDonald’s held a marketing campaign where the people could decide what name to give its new hamburger. The name that won was Backyard Burger. With marketing campaigns like these, McDonald’s is trying to create a better brand image. Other organizational and marketing strategies are “creating stronger bonds of trust by being accessible and maintaining an open dialogue with customers and key stakeholders” (McDonald's, 2008, 27). The company is reinvesting approximately $1.9 billion into their restaurants primarily to reimage existing restaurants and build new ones. McDonald’s is also

moving towards a more heavily franchised, less capitalintensive business model. Although in some countries, such as China, this is not permissible due to governmental laws. With McDonald’s growing global brand image and its emphasis on the five factors of exceptional customer service, this should help them increase sales and net income. With the initiative of remodeling and upgrading existing franchises, this will give the customer a more pleasant and friendly place to dine out at. With McDonald’s marketing campaign for the 2008 Olympics, they were an integral part of the games and this only enhanced McDonald’s brand image in a positive way. With the recruitment and training initiatives for current employees or future prospects, this will allow McDonald’s to achieve less of an already high turnover ratio.

McDonalds Business Analysis:
'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible - indeed, they'll have to rethink the concept of the corporation it self.' Organizations do not exist in vacuum. They operate within a competitive industrial environment. Analyzing its competitors not only

enables an organization to identify its own strengths and weaknesses but also help to identify opportunities for and threats to the organization from its industrial environment. SWOT analysis is a systematic analysis of these factors and the strategy that reflects the best match between them. Let us analyze these principals in relation to the core competence of McDonalds, one of the largest food chain companies in the world. Let us first start with the strengths and the positive aspects which define the performance of this company. How can we define the company’s strengths? Strength is a distinctive competence that gives the firm a comparative advantage in the market place. For instance financial resources, image, market leadership and buyer supplier relations etc McDonalds is the no: 1 fast food chain stores with a 40 million customers visiting it per day. It has over 30,000 branches in 120 countries. It derives 80% of its revenues from eight countries like Canada, Brazil, Germany, France, Japan, UK, Australia and US. The greatest strength was creating an image in the minds of the people and introducing them to the fast food culture. Delivery speed, customer care and cleanliness are the core strengths on

which these stores expanded. They created a corporate symbol and their advertisement campaigns were highly successful in establishing the brand image and logo in the minds of the millions. Two main competitors generally identified with McDonalds are the Burger King and the KFC. McDonalds marketing strategy is concerned with the internal resources, external environment and its basic competencies along with its share holders. McDonald’s product value is also its greatest strengths. Customers know what to expect when they walk into a McDonalds store. It gives great emphasis to human resources by satisfying both the customer and the employees. Next is the innovation aspect wherein new products line up to catch up with the new trends and tastes of the people. Its diversity into other new business ventures can also be considered as its strengths. How effective are these strengths to the company in the long run? McDonalds today is not that amendable as it was during its inception. What are the driving factors which results in its present decline in terms of sales and services? To analyze this factor we have to look at the weaknesses part of the companies business and marketing strategy. What can generally be termed as a

weakness of a company? The same factors which were considered as strengths also become a weakness if it impedes the overall performance of the company. Customer trends change and so does their choices. People are generally tired of the same brands that they had been using over the years, so when they do not see the expected innovation they migrate to new brands. Moreover people see McDonalds every where and this over exposure might also be a reason for abstinence. Moreover maintaining the standards of such a huge chain becomes feasible and when there is lack of quality service in one store it effects the whole brand. The secret of any marketing strategy is to reach the target audience. And here again the target audience should be chosen carefully. In the case of McDonalds as projected in its ads, the targeted audiences were the kids. Demographics and customer financial and psychological aspects define a business concerns success. Health conscious women and senior citizen comprise the major population but kids soon grow out to become adults. Recent law suits and documentaries resulted in the companies recent innovation and a major change related to health related product ranges and this switch over as

per the needs of today’s trend and needs has increased the lost popularity of McDonalds a bit. All the above factors point out the external strengths and weaknesses. There are also internal factors which affect the performance and overall benefits the company stands to enjoy. Kids based marketing strategy which was earlier a weakness has changed since 2003. Now more teenagers and adults rule the McDonalds ad world. The research and develop which lacked earlier is also looked into and the brand quality is being defined with various research and development options today. McDonald at one stage started concentrating on expansion and growing big that it missed out on key factors like quality maintenance and R&D.One major threat to any brand is its relationship between the management and the franchise dealers. Organization strength is the back bone of any concern and when that starts shaking the whole system will collapse. But slowing McDonald is recovering from all these weaknesses as its brand managers can easily communicate, compare and improve their services through the latest technological developments wherein they can use the internet to motivate, compare and improve upon other centers performances.

The overall analysis of all the external and internal strengths and weaknesses on this company should be linked in order to draft a sustainable plan for the companies’ further improvement. For any improvement or expansion the internal resources must be readily available. And thus analyzing this aspect can lead to a modified strategy to suit its vision. Keeping in mind the available resources the planner should think globally. Hence making use of all the core competencies the firm can definitely sustain in the competitive market.The change in the top managerial level has creating a new wave in its performance and major changes have been implemented to retain and sustain the brand quality and innovation. As the new CEO rightly quotes, “The world has changed. Our customers have changed. We have to change too." James R. Cantaloupe, Chairman and CEO, McDonald's, 2003Now let us analyze the sustainable competitive advantage of the company. What is sustainable competitive advantage? How can it be related to McDonalds? SCA is the advantage a company has which is difficult or impossible for other companies to possess or break through. It can either be the brand, dynamic customer care, cost structure or its patent.

Whatever the advantage in order to be considered as sustainable it should either be proprietary or distinctive. Other than this three different aspects that help in SCA are, • The managerial and organizational process should share a good integration and coordination. The much needed ‘value’ is created thereby as everyone strives to work for a common goal. The organization should learn and bring about changes according to the need of the hour and should always be flexible to changes in the environment government such as customer and trends, legal in or the restriction developments

technology. McDonalds is presently concentrating on this advantage by concentrating on organizational behavior and managerial expertise. Previously this advantage was ignored as the organization was more into expansion of its outlets over the globe than strengthening its core advantage. As the result the revenue did not see much of a change while newer outlets were open. The company suffered a massive loss first time since their inceptions which further lead to the change in the managerial heads. • Technological, structural and financial assets of a company are excellent market position which helps in the

SCA. McDonalds no doubt is abundant with such aspects like structure, technology and finance. To identify and implement these assets in the proper direction towards the improvement of the company is all that is needed. After 2003 the company has really started to concentrate on its greatest advantages. • Most of all the greatest advantage is the vision or the dream with which the company was started. Sustaining this dream over the years is any companies’ greatest advantage. A brand usually revolves around this vision sustaining this vision and working in lieu with it is a great SCA. McDonalds was started out to help people who had very little time to cook or was too busy to get into a proper restaurant. The vision was to provide quick service, cheap products and quality satisfaction. Keeping this vision in mind the company which slackened a bit because of incompetent franchise holders is being weeded and new and better people are put in this place as the torch bearers of the company sustaining and living the vision. To sum it all up SCA means implementing the best value based strategy using all the advantages which are unique to the company and that which cannot be copied or

replicated by other competitors. The importance of this SCA can be evident by the reply the great investment guru Warren Buffet gave when asked about how he evaluates his investment portfolio. He simply answered ‘sustainable competitive advantage’. Hence based on the dynamic integrated and intelligent human resources can always be the only dependable and sustainable SCA.Outsourcing boom or doom in today’s business environment Today everything is outsourced from employee appointment to finance and customer care. No organization is best enough to handle all kinds of work. Moreover concentrating on every detail is not possible with a big concern especially like McDonalds. But great care should be taken not to outsource the core competences of the company. General advantages of outsourcing are cheap service, knowledge of markets offshore, flexible resources, speedy operations, expansion in supplier relationship etc. most of all the company can concentrate on its core competencies and outsource rest of its operation. Recently McDonald has tested its drive through order facility. Wherein it makes sure that the order placed with the outlet is accurate. The order taken

by the outsourced company is reverted back to the home restaurant. These call center has a digital camera which clicks the vehicle you drive through and the delivery man back home can integrate the order and the person who placed it using the image of the car. Outsourcing thus helps in the increase of the external suppliers and fills up the difficulties faced because of the lack of the latest technologies and other innovations.What started of as a success story with McDonalds had to face a number of risks, competitions and major set backs. What makes it still strong and ranked among the top business concerns is its core competences and the sustainable competitive advantages both internal and external. Of course keeping up with the changing times the company has also set foot in outsourcing but the point to keep in mind here is not to be driven away by this outsourcing mania. This company has started to revert back to its golden glory recently because of large scale revamping of its organizational and structural changes being implemented.

Chapter 3:
Case study:
McDonald's Case Study

McDonald’s, the long-time leader in the fast-food wars, faced a crossroads in the early 1990s. Domestically, sales and revenues were flattening as competitors encroached on its domain. In addition to its traditional rivals—Burger King, Wendy’s, and Taco Bell—the firm encountered new challenges. Sonic and Rally’s competed using a back-tobasics approach of quickly serving up burgers, just burgers, for time-pressed consumers. On the higher end, Olive Garden and Chili’s had become potent competitors in the quick service field, taking dollars away from McDonald’s, which was firmly entrenched in the fast-food

arena and hadn’t done anything with its dinner menus to accommodate families looking for a more upscale dining experience. While these competitive wars were being fought, McDonald’s was gathering flak from environmentalists who decried all the litter and solid waste its restaurants generated each day. To counter some of the criticism, McDonald’s partnered with the Environmental Defense Fund (EDF) to explore new ways to make its operations more friendly to the environment.

McDonald’s roots go back to the early 1940s when two brothers opened a burger restaurant that relied on standardized preparation to maintain quality—the Speedee Service System. So impressed was Ray Kroc with the brothers’ approach that he became their national franchise agent, relying on the company’s proven operating system to maintain quality and consistency. Over the next few decades, McDonald’s used controlled experimentation to maintain the McDonald’s experience, all the while expanding the menu to appeal to a broader range of consumers. For example, in June 1976, McDonald’s introduced a breakfast menu as a way to

more fully utilize the physical plant. In 1980, the company rolled out Chicken McNuggets. Despite these innovations, McDonald’s tremendous growth could only continue for so long. Its average annual return on equity was 25.2% between 1965 and 1991. But the company found its sales per unit slowing between 1990 and 1991. In addition, McDonald’s share of the quick service market fell from 18.7% in 1985 to 16.6% in 1991. Plus growth in the quick service market was projected to only keep pace with inflation in the 1990s. McDonald’s faced heightening competition on several fronts. First, its traditional rivals—Burger King, Wendy’s, and Taco Bell—were eating into its margins through promotions and value pricing strategies. Taking a leaf from McDonald’s own playbook, Sonic and Rally’s were using a very limited menu approach to attract timestrapped consumers. Finally, Chili’s and Olive Garden were appealing to diners looking for something a little more enticing that the familiar Golden Arches for their families. In the late 1980s, McDonald’s began recognizing the importance of maintaining an ecologically correct posture with the public, which was becoming more concerned

about the environment. For example, in 1989, 53% of respondents in one survey revealed that they had not bought a product because they didn’t know what effect the packaging would have on the environment. Closer to home, a 1990 study showed that each McDonald’s generated 238 pounds of on-premise solid waste per day. It’s no surprise, then, that McDonald’s sought a way to reduce its solid waste while providing a more environmentally acceptable face to the public. Beginning in 1989, it partnered with the Environmental Defense Fund, a leading organization devoted to protecting the environment, to seek ways to ease the company’s environmental burden on the landscape. Together, EDF and McDonald’s considered its impact on a wide range of stakeholders—customers, suppliers, franchisees, and the environment. The company gave its franchisees much autonomy in finding ways to eliminate environmental blight. The company’s hope was that from these divergent approaches, it stood a greater chance of finding solutions with broad applicability than if it had tried to pursue a one-size-fits-all approach from the outset. Some of the environmentally inspired solutions that came out of the collaboration with EDF were the: Introduction of

brown paper bags with a considerable percentage of recycled content. Solicitation of suppliers to produce corrugated boxes with more recycled content, which had the twin effect of reducing solid waste and building a market for recycled products. Abandonment of polystyrene clamshell containers to hold sandwiches in favor of new paper-based wraps that combined tissue, polyethylene, and paper to keep food warm and prevent leakage.

McDonald’s Sustained Prosperity: The secret of McDonald’s success is its willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, Chicken McNuggets, and the McLean Deluxe sandwich were all examples of how the company watchword, tried not to appeal to a how wider fast range it of consumers.The company has also made convenience its only through serves customers, but also in the location of its outlets. Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or

by car in the suburbs. Plus McDonald’s is tucking restaurants into schools, stores, and more.

Key Threats:
The key threats to McDonald’s domestically are the lack of growth opportunities. The market is well saturated, and it would difficult to achieve double-digit growth. Other concerns are a newfound emphasis on healthier eating. Most of McDonald’s most popular fare probably in some small way contributes to the increasing incidence of cancer, heart disease, and diabetes among the population. But I feel the key threat to McDonald’s continued success is its very ubiquity. Because McDonald’s are everywhere, the dining experience is never special. And as Baby Boomers age and become more affluent, it is likely that they will leave behind their fast-food ways, if only to step up to moderately priced restaurants like Olive Garden, Bennigans, and Pizzeria Uno. These chains have the added advantage of serving higher-margin alcoholic drinks. McDonald’s, meanwhile, has to continually battle Burger King and Wendy’s, which leads to an erosion of margins for everyone. Even alliances with toy manufacturers, while popular with consumers, do

little for the bottom line because the cost to run these promotions can be quite expensive. Responding to Burger King’s October 1 Announcement The October 1 announcement from Burger King that it would begin offering table service is not much of a threat at all. You can try to dress up fast food, but it’s still fast food. I couldn’t imagine this being a potent draw for consumers. McDonald’s best course is to ignore this development McDonald’s as does irrelevant. not need As to the market to leader, every respond

competitor’s initiative. Indeed, doing so would have the effect of making McDonald’s look reactive and less like a leader. The advantage of not responding to Burger King’s initiative is that the company can preserve its resources for other marketing thrusts that may provide a bigger payoff. The disadvantage of not responding to Burger King’s initiative is that you allow the firm to establish itself in a unique way in the minds of consumers—that of a fast-food restaurant that provides sit-down service. But again, is this inherent contradiction of fast-food fare and upscale dining experience likely to resonate with consumers? I would say no. If Burger King’s initiative does







expanding sales and market share—McDonald’s would be forced into catch-up mode. But I think that this is a risk that the company should be willing to take. Promoting Strategy: The key thing that McDonald’s operations strategy has to support is experimentation. Now somewhat long in the tooth, McDonald’s needs a breakthrough that will provide new avenues of growth. It has a long history of such experimentation, which has resulted in some new profit centers like Chicken McNuggets and the breakfast menu. Some later turn out to be duds like the McLean Deluxe, but inevitably experimentation in limited outlets offers McDonald’s a way to retain its key strengths—quality and consistency—while continuing to evolve for new palates and pocket books. Flexibility Through Its Operating

McDonald’s and the Environmental Defense Fund
In some ways, partnering with the Environmental Defense Fund was a masterstroke. It brought both respectability and valued expertise to its environmental efforts. It also provided a primetime venue for EDF to make a difference.

Any successes, even if only incremental improvements, would have major ramifications because of the sheer size of McDonald’s operations. McDonald’s should continue its partnership with EDF. With ecology a growing concern among consumers, it makes sense to be a good corporate citizen and get all the public relations accolades that go along with such an alliance. It also pays off in the bottom line by reducing shipping costs for supplies as well as garbage removal fees. McDonald’s would do well to stay in the vanguard of corporations who have become environmentally aware. If it tries to shirk its responsibilities, it can foresee a public relations nightmare in the making. But if it does manage to come up with some breakthroughs through its collaboration with EDF, it can score a tremendous amount of goodwill with the public, which may even provide a halo effect to mitigate any other PR troubles. How far should McDonald’s go on environmental issues? There is definitely a public relations benefit in being seen as an environmental leader, and the collaboration with EDF goes a long way in making that happen. Still McDonald’s has had a lot of success in giving its franchises some latitude in developing new solutions.

The line in the sand in determining how far McDonald’s should go with its environmental efforts is determined by the cost of the initiative relative to the hard-dollar benefits and harder-to-quantify public relations buzz it gets from being in the forefront on environmental issues. The bottom line is that environmental efforts can’t detract the company consistent from its primary to mission of If providing quality consumers.

environmental efforts start to be a drag on the company’s future profits, it’s time to ease up. Ideally environmental initiatives should pay for themselves by reducing other kinds of costs.

Dealing With the Product Range Explosion:
McDonald’s had done well with a fairly limited product range. But falling per unit sales is a danger sign for the firm. With competitors gaining ground on McDonald’s, it may indicate a need to refresh its product line. Perhaps the best way to do that is by rotating in a couple highly promoted new menu items. This would have the effect of enlivening the product menu, without the need to go head to head with competitors on price. This slackening of per unit sales might also indicate that McDonald’s critical success factors have changed.

Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm. At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for dinner consumers. To maintain consistency in new products as it expands the product line, McDonald’s must rely on test marketing new menu items in pilot locations. This approach will let the firm identify which items are likely to prove popular with consumers while ensuring that the company can deliver new products with consistent quality nationwide. McDonald’s already has a history of doing this so it will not require major changes to its operations strategy—at least initially. If the product line-up gets too large, then the task of maintaining quality becomes exponentially harder. The trick is to consider how to eliminate some of the existing menu items when you introduce new ones, while making sure the staff is fully trained in how to execute these products successfully. Because McDonald’s has pretty well saturated the U.S. market, it’s only real opportunities for growth lie abroad, where the competition is not so cutthroat or by introducing new restaurant concepts under brands other than McDonald’s. After all, McDonald’s is known for fast

food. It’s not really a pleasant dining experience, just a cheap and convenient one. I feel that McDonald’s has reached the point of diminishing returns with the McDonald’s brand and now needs to roll out new types of restaurants. Indeed, McDonald’s has the opportunity to apply its core competencies—scrupulous adherence to quality standards and continual promotion of experimentation— in new venues. Imagine, if you will, McDonald’s opening a new casual dining restaurant under the name of Splendor. It could then franchise that concept nationwide and get some of the dollars from consumers who have grown past fast food. But its fastidious approach to operations would ensure that consumers everywhere would experience the same dining experience—a tremendous advantage for consumers who don’t want to be surprised with a bad meal. McDonald’s could try a number of concepts simultaneous in different parts of the country. Those that seemed promising could be rolled out further. The duds could be left to die quickly. While this will be an expensive undertaking, it holds the potential to unleash new areas of growth in a maturing market.

McDonald’s faces some difficult challenges. Key to its future success will be maintaining its core strengths—an unwavering focus on quality and consistency—while carefully experimenting with new options. These innovative initiatives could include launching higher-end restaurants under new brands that wouldn’t be saddled with McDonald’s fast-food image. The company could also look into expanding more aggressively abroad where the prospects for significant growth are greater. The company’s environment efforts, while important, should not overshadow its marketing initiatives, which are what the company is all about.

Chapter 4:


1-Minimum 10-Maximum 5- Average

How How

is is

the the

ambience quality

at at

Mc Mc

Donald’s? Donald’s?

_______________ • • • __________________ Are stores of Mc Donald’s at Hyderabad are sufficient________ How is the accessibility of Mc Donald’s?_______________

• • • • • •

How How

is are

the the

quantity services

given provided

by by

mc mc

Donald’s?_____________ Donald’s?_________ Is price worth to the quantity provided?_______________ Mc Donald’s offers are attractive?____________________ The items provided by Mc Donald’s are fresh? ____________ Is home delivery good?__________________________

Chapter 5:
Analysis of questionnaire and data interpretation:

Ambience Quality No. of stores Accessibilit y Quantity Service Price Offers Items Home delivery

59 76 54 37 54 77 80 67 55 30

44 58 49 33 55 78 59 88 33 20

Data interpretation for questionnaire:

Mc D Ambience 59 Quality 76 No. of stores 54 Accessibility 37 Quantity 54 Service 77 Price 80 Offers 67 Items 55 Home delivery 30

Conclusion: Thus from the analysis we can see the areas in which Mc D is better and the areas in which Mc D has to do better.


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