McDonald’s Corporation Business Strategy Customers are the foundation of successful business-level strategies and Levels should never be taken for granted. When selecting a business-level strategy the firm determines: 1. Who will be served, 2. What needs those target customers have that it will satisfy, and 3. How those needs will be satisfied. McDonald’s answers to these 3 questions were: 1. People of various ages globally, 2. A quick, delicious, and non-expensive meal, 3. They offer a variety of breakfast, lunch, and dinner meals, snacks, and drinks for adults and children in various places around the world.
Since McDonald’s operates in 119 countries on 6 different continents they have different food selections for most, than what we see in the United States. They offer these different products because of different needs in each country, due to religion, diets, and resources of each individual country. This flexibility and knowledge allows McDonald’s to achieve global targets and compete with the other competitors. I would have to say that McDonald’s uses the Integrated Cost Leadership/ Differentiation Business-Level Strategy.
McDonald’s has strategically planned to stay ahead of their competitors by providing customers with more options of healthy meals, cheaper prices, and better service. McDonald’s is competitive in many categories like price, quality, management, and employee training. From looking at the Direct Competitor Comparison for 2006-2008 I saw that McDonald’s was indeed ahead of the others in revenue by as little as 12 billion to as much as 22. 15 billion. Obviously, they are doing something right, but in these times things change at such a fast pace that you have to know how to keep up or your competitors will blow you out of the water.
Most people are also more inclined to follow trends to be accepted and fit in, so if your competitor comes out with a new product you better have something better in your back pocket or you will lose business. To offer high quality products at low costrequires efficient processes throughout the entire McDonald’s organization. McDonald’s incorporates several avenues to provide great value at a low cost to its customers: One strategy that the company has employed for many years is the value meal.
The value meal allows customers to buy a sandwich, french fries, and beverage at a discount when purchased together. McDonald’s restaurants offer up to fourteen value meals, both for their lunch menu and breakfast menu. More recently, McDonald’s began offering a value menu, consisting of many individual items costing only $1. 00 each. The value menu has proved to be very successful and has been since incorporated to the individual stores. Some individual franchise owners choose to offer daily specials of special menu items, such as “$0. 9 hamburger Wednesdays,” or other similar specials. Big Mac Mondays are popular promotions. Corporate Level I think that McDonald’s uses several different corporate level strategies in their Strategies corporation like forward integration, market penetration, market development, product development, and related diversification. Forward integration is gaining ownership or increased control over distributors or retailers. McDonald’s is made up of mostly franchises which is essentially the meaning of forward integration. Franchises are costly and to open a McDonald’s this is what you would pay:
An initial down payment is required when you purchase a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your personal residence. During the term of the franchise, you pay McDonald’s the following fees: -Fee of 4. 0% of monthly sales). -Rent: a monthly base rent or percentage rent that is a percentage of monthly sales. With franchising McDonald’s minimizes the risk of failing restaurants and benefits from profits and fees. Market penetration is seeking increased market share for present products or services in present markets through greater marketing efforts. McDonald’s implements this frequently with their monopoly game and their millions they spend in promotions aimed at convincing customers it offers healthy items. Market development is introducing present products into new geographic areas. Mc Donald’s is a pro at this with the 119 different country locations on 6 different continents.
Product development is seeking increased sales by improving present products or services or by developing new ones. In most areas you can find at least 1 McDonald’s that is open for 24 hours which has increased those McDonald’s revenue by 7%. McDonald’s has a lot of doors they can open for product development, for example they could make turkey, ham, and other lunch meat sandwiches, pizza, Mexican, and Italian foods. Related diversification is adding new but related products or services. McDonald’s recently added the new Angus burger to their menu.
The Angus burger was one thing certain competitors had that McDonald’s didn’t; now that they do I think they will become more of a threat to their competitors. Risk & Opportunities Of course with any business you are at risk. The economy could fall and create hardships for customers and businesses to stay afloat. The old saying “If it isn’t broke don’t fix it” can be applied here, I think it is possible for a company to take on too much, so it isn’t always the best to try and be #1 in every related product your competitors have or better at.
When you are trying to juggle a lot of different products, especially in the fast food industry you can lose focus on whatmade you number one in the first place. If you see that your company isn’t growing financially at the rate it should then research to see why this might be happening and you might want to try a new product. McDonald’s is in the process of researching new products to introduce. These products range from Mexican foods, sub sandwiches, and pizza.
The risk with introducing these products would be that customers are already established with other restaurants that sell only these types of products and might not be comfortable switching brands, not to mention each restaurant chain uses different ingredients and taste different. For example, pizza is my favorite food and I have tried Gino’s, Giovanni’s, Monty’s, Daniello’s, Husson’s, and Bellacino’s, but my favorite has always been Giovanni’s and I will always choose that over the others.
With introducing new products will always have a risk, because every idea will not be popular and some will fail, but with proper research, customer surveys, and test area this will help minimize the risk factors. McDonald’s also has opportunities that can be explored with the options of expanding into other countries, introducing new products for breakfast, lunch, and desserts into the right areas, because not all products will go over well in all areas, making more foods healthier, and introducing a new chain of McDonald’s like Cafes.
Opportunity Cost There are a few opportunity cost in McDonald’s choosing the strategies they did. One opportunity cost would be that since the company decides to franchise its name they don’t get 100% of the profits they only see a fraction of profits. McDonald’s also sold 1,600 of its restaurants in Latin America and the Caribbean to a licensee, Woods Staton, CEO of RestCo Iberoamericana, Limited, which takes away from their profits.
The sale of these 1,600 restaurants generates about $700 million for McDonald’s but the impact of this conversion is estimated to decline McDonald’s consolidated revenues annually by $1. 5 billion. Resources http://findarticles. com/p/articles/mi_m3190/is_n23_v25/ai_10849711/ http://www. aboutmcdonalds. com/mcd/franchising/us_franchising/purchasing_your_franchise. html? DCSext. destination=http://www. aboutmcdonalds. com/mcd/franchising/us_franchising/purchasing_your_franchise. html http://in. finance. yahoo. com/q/co? s=MCD http://www. mcdonalds. ca/en/aboutus/faq. aspx