McDonald’s is one of the oldest and biggest global brands in the restaurant industry. Being a franchise business, McDonald’s Corporation currently has more than 30,000 restaurants in 120 countries, and around 80% of these establishments are owned by independent businesspersons (McDonald’s Official Website [McDonald’s], 2018). At the same time, the company suffers from a negative public image and great competition. Its main competitors outpace McDonald’s by being more innovative in terms of customer relations (such as Wendy’s and KFC), having better ambiance and exclusive goods (Starbucks), promoting healthy eating (Subway), or offering more affordable meals (Burger King). The company’s recent efforts to switch to healthier menu items did not attract sufficient attention. The new menu, McHealthy, is a way to articulate a company’s intentions in a clearer and more effective way. The menu comprised of a wholegrain bun, crispy vegetables, and cheesecake for a dessert accompanied with juice/water is a perfect option for the health-conscious audience that is now avoiding McDonald’s. The menu, in combination with active public relations, digital marketing, and traditional advertisement, is expected to change the overall image and leverage competitors’ advantages.
MacDonald’s Business Model
McDonald’s value proposition appeals to diverse customer segments. The company has augmented it over the recent years following the change of its mission to “being customers’ favorite place and way to eat” (McDonald’s, 2018). Currently, McDonald’s differentiates itself from the competitors not only with a wide variety of affordable uniform menus of consistent quality but also with some geographic variation served fast and efficiently (Marketing Study Guide, 2015). The chain also ensures that customers enjoy indoor facilities of the conveniently located restaurants (Marketing Study Guide, 2015). Thus, McDonald’s attracts its customers with high-quality food that is served in a fast and convenient way.
Some experts claim that McDonald’s success roots in its relations with strategic partners, such as franchisers and suppliers. According to McDonald’s (2018) website, the fact that the local entrepreneurs run the majority of chain’s restaurants allows the company to stay relevant to the communities, introduce local menus, and support local economy (Statista, 2018). Global partnerships with, for instance, Coca-Cola or Disney, support the company’s brand and provide exclusive financial opportunities (Strategic Partnering, 2014). Thus, McDonald’s strategic partnerships permit it to remain relevant for diverse communities of customers, support local economies by working with local suppliers, strengthen its brand, and gain financially.
The key activities of McDonald’s include selling its menus, serving customers, and running marketing activities. Diverse corporate responsibility programs are in their essence also marketing activities since they aim to strengthen the brand. The company claims its key resources are the employees. To erase the negative image of working experience with McDonald’s, the management has recently introduced mentoring and career advisory services for its employees (McDonald’s, 2018).
The company distributes the products in restaurants and using delivery system. Most of the relations with the customer happen online or within the restaurant. However, the company has adopted a new strategy to manage customer relations. It aims to retain existing customers, regain lost consumers, and attract new customers through transforming the restaurant experience and embedding digital technology (McDonald’s, 2018). In its 2017 Annual report, the company has presented its financial tables that illustrate two revenue sources, including sales from company-operated and franchised restaurants (McDonald’s, 2018). The company has marketing, administrative and general expenses that cover payments for employees, materials, facilities construction costs and marketing expenses (McDonald’s, 2018). Therefore, taking all the above mentioned into consideration, it can be seen that the McDonalds business model is built around its mission and ensures high-quality and affordable menus, recognizable brand, and efficient service.
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Looking at the business model, it is easier to identify internal and external factors that are hampering or fostering the development of McDonald’s as discussed in the strengths, weaknesses, opportunities, and threats (SWOT) analysis below.
- Strong and recognizable brand. According to the Forbes (2018) list of world’s most valuable brands, McDonald’s is ranked 11th being the first representative of the food industry in the list.
- Great market share and market diversification. It is one of the leading restaurant chains in terms of the number of locations (second after Subway) and countries it operates in (second after KFS). Moreover, it does not depend on specific market or target segment.
- A high level of standardization ensures consistency of quality and is achieved through staff training and development.
- Unhealthy menus creating the negative publicity. The McDonald’s food has an image of the brand that deteriorates the health and promotes an unhealthy lifestyle.
- Low employee retention rate. The term McJob means low-paid and uninteresting job with no purpose, no significant financial benefits and opportunities (Robertson, 2015). The bad images of work experience with McDonald’s not only entail worth customer service but also are expensive (Tristano, 2015).
- Familiarity of the restaurant and its menu.
- More diverse menus (healthy and vegan among others). By not following the global healthy eating trend, the company loses a constantly growing number of potential clients aware of their health.
- More affordable menus proved to be a good response to the recent decline in the number of customers (Nicolaou, 2017).
- Market expansion. As a recognizable brand, McDonald’s can use globalization trends and expand to less developed countries and win greater shares on its high-growth market.
- Health-conscious consumers
- Legal limitation on the international markets
The analysis demonstrates how McDonald’s rivals are using global trends. In particular, Wendy’s, KFC and Starbucks focus on millennials; thus, they use a digital approach to marketing and try to connect their brand with innovations and modernity. At the same time, KFC goes “old-school” using retro-posters, promoting the history of the company, and therefore, makes it more trustworthy. Wendy’s and Subway use the trend of health consciousness to gain competitive advantage. By contrast, Burger King wins customers with more affordable prices and less familiar menu. To a great extent, McDonald’s has become a mainstream fast-food brand as it has mostly combined all the above strategies.
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Current Target Segments
The company has several target segments. It is important to mention that McDonald’s works with diverse markets, such as those in the US, international lead markets (the UK, Australia, and Canada among others), high growth markets (for instance, China and Russia), foundational and corporate markets (Reuters, 2018). While target segments can be peculiar for some markets (e.g. for corporate ones), in general, the company targets the group of young and single individuals and families with small children. Besides, McDonald’s customers are representatives of low, working and middle classes, living both in rural and urban areas. It is also noteworthy that the company does not depend greatly on any specific market or social group as it is mentioned in its 2017 Annual report (McDonald’s, 2018). Thus, the company focuses on youth and families with children on the majority of its markets.
Current Marketing Strategy
- Products: Hamburgers and sandwiches, chicken and fish, salads, snacks and sides, beverages, desserts and shakes, breakfast/ all-day breakfast, McCafé. It also introduces localized menu items.
- Place/Distribution: Restaurants (generate most of the revenues), kiosks (sell a limited range of products or temporary kiosks for diverse events), McDonald’s mobile applications and websites (allow getting more information about McDonald’s, special deals and offers, locations of restaurants, or order food).
- Promotion: common advertisement (TV, radio, cinemas, posters in newspapers and magazines as well as online), sales promotion (merchandising, direct mail, loyalty schemes, door drops), in-store promotion, and public relations (sponsoring and participating in events or charity campaigns) (Meyer, 2018).
- Prices: bundle pricing (diverse menus, $1, $2, and $3 menus), standard psychological pricing (not rounding to $1 but leaving $0.99), as well as special offers and deals (Nicolaou, 2017).
New Product Development
Both SWOT and competitive analysis show that meals at McDonald’s do not correspond to growing health awareness of people in developed countries. It creates the negative public image for the restaurant chain, causing it to lose customers and preventing it from attracting new consumers. Indeed, Forbes mentions “health and wellness” together with “sustainability” as major factors shaping the food industry in 2018 (Olayanju, 2018). 2017 Food and Health Survey support this idea, showing that 96% of respondents seek “health benefits from what they eat and drink” (Kubitz, 2017). At the same time, there is a number of reasons to assure McDonald’s food is detrimental for health. For instance, probably the most famous documentary Super Size Me or several lawsuits (Spurlock, 2004). At the same time, Restaurants Brand International’s survey of 1,000 people in the USA showed that consumers believe McDonald’s food has the lowest quality of all 12 options, including competitors like Wendy’s and Burger King (Rittenhouse, 2017). Thus, it is clear that McDonald’s food negative and unhealthy image prevents the company from realizing its growth strategy. The company has already made several important steps towards selling more sustainable products. Nevertheless, the customers do not often notice other efforts, such as yogurts, all-day breakfasts and apple pies (The Daily Meal, 2018). Hence, the company needs to communicate its transformation in a more noticeable way, for instance, with a McHealthy menu.
Product Information and Concept Sketch
McHealthy is a new low-fat, healthy, and, most importantly, balanced in nutrition meal produced from local ingredients that will suit customers of any age. McHealthy can be considered as an “improved product” (Lamb, Hair & McDaniel, 2017, p. 190). The menu will comprised of whole grain bun, crispy vegetables, a cheesecake for dessert and orange juice/water as a beverage. McHealthy will preserve the healthy ratio between carbohydrates, fats, and proteins as well as ensure intake of important vitamins (A, B, C, and even K) and microelements (calcium, phosphorus, iron, magnesium). The concept scheme is presented in Appendix 1.
Targeting and Positioning Strategy
Since health consciousness is a trend in developed countries mostly, it is better to place the new product on the US market as well as the International Lead Market.
Demography: millennials (16 – 37 years old), middle income, and higher.
Behavioral and psychological treats: health-conscious individuals, who do sports and care for the environment. Following the diffusion framework, it is important to define innovators, early adopters, early and late majority (Lamb, Hair & McDaniel, 2017, p. 198):
- Innovators – young individuals from 17 to 25 years coming from middle-class households; loyal to the brand and eager to experiment and try new items. The product should be positioned as a new, well-balanced and high-quality meal of the same good taste. In this way, the company can connect the new product with the existing strong brand.
- Early adopters – the same group as innovators. It is also important to add that the new menu is a message of companies committed to a sustainable lifestyle (Lamb et al., 2017). In this regard, the early adopters will be more eager to share their experience with the new product. To win an early majority, it is important to work with influencers (Lamb et al., 2017).
The matrix mix presented further explains in detail what marketing activities would bring late majority and laggers on board with McHealthy.
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Matrix Mix for New Product
Product: the detailed overview of McHealthy was presented above.
Place/Distribution: traditional McDonald’s distribution points.
Promotion: promotion plan is crucial to the success of the product.
- McHealthy campaign – participation and sponsoring major health and environment events.
- McHealthy brunch – series of YouTube videos showing the company’s top-management and celebrities, sportsmen, and food experts sharing McHealthy and discussing the recent food trends and a notion of healthy food.
- An interactive map will show the location and time (photos of customers if they want) of first million of McHealthy purchases.
- Influencers – one thousand McHealthys should be delivered to supportive influencers (e.g. bloggers)
- Gift. The first million of buyers would also get an instant present at the moment of purchase. For this, McDonald’s would partner with some environmental or health organization, for instance, For Ocean, and present its bracelets as gifts to customers.
- Instagram campaign. A traditional Instagram campaign on the number of reposts with a hashtag #HealthyWithMcHealthy would engage young customers.
- Advertisement on TV, YouTube, and other platforms. The possible plots for advertisements: McHealthy preparation process, employees on McHealthy, first customers to try McHealthy, or reactions of trying McHealthy, to list a few.
Price: McHealthy menu will be more expensive than BigMac ($5.99) considering the rich variety of vegetables. The price would also differ for diverse markets since the material expenses would vary. The average price for McHealthy will be $6.99 (using a standard psychological pricing). On the early placement stages, it is reasonable to have special offers, such as one McHealthy for $4.99 dollars.
How the Product Will Improve Company’s SWOT Analysis
- Strong and recognizable brand. Adding McHealthy and carrying out all the promotion activities, especially cooperation with health organizations, food experts, celebrities and influencers, would only enhance the value of McDonald’s brand and expand its reach.
- Great market share and market diversification. The introduction of the product that symbolisms a new course on a more sustainable and healthy product will increase the company’s market reach, especially in the US and international lead markets.
- High level of standardization that ensures consistency of quality and is achieved through staff training and development. Preparing McHealthy will require additional teaching and the development of new standards.
- Unhealthy menus creating negative publicity. The aim of introducing McHealthy is to fight the negative image; thus, it can be expected, the new menu will tackle this weakness.
- Low employee retention rate. The new product will not directly influence this indicator. However, taking into account that Generations Y and X strive to work in a purposeful organization, changing the overall negative image and showing the company aims to improve health and wellness might make working at McDonald’s more attractive.
- The familiarity of the brand and the menu. The McHealthy is an innovative and unexpected product for McDonald’s. It will intrigue people and raise discussions.
- More diverse menus (healthy or vegan). The new menu utilizes this opportunity.
- More affordable. The new menu is only slightly more expensive than current meals. However, the menu can be broken down into parts of lower cost.
- Market expansion. The new menu will allow McDonald’s to start expanding to the fresh food segment of the restaurant industry.
- Competition. The new menu is a competitive advantage that would leverage its weaknesses compared to competitors.
- Health-conscious consumers. The new menu would bring health-conscious consumers on board.
- Legal limitation on the international markets. The new menu in no way impacts this threat.
How the Product Will Improve Company’s Competitive Analysis
Looking at McDonald’s competitors, it is clear that Wendy’s and KFC are more attractive for youth and millennials. In addition, Subway appeals more to health-aware audience, and Burger King is simply less mainstream and cheaper. The new menu will attract more millennials into McDonald’s outlets (Olayanju, 2018). It will also be one step ahead from KFC that will hardly ever introduce vegetable menu. Proposed marketing activities in combination with unexpected McHealthy will make the chain less mainstream. At the same time, Subway’s slogan “Eat Fresh” will no longer be a competitive advantage for the company. However, the new item will not make the restaurant chain more affordable for the customers. Thus, the new menu will become a real differentiator from KFC. It will also reinvent the image of the company, putting it in a stronger position in its competition with Wendy’s, Subway and other restaurant chains oriented on millennials and healthy eaters.
The new menu will not directly impact the competition with Starbucks since it does not concern the product segment that both chains have in common. However, a better general image as well as a menu with a significantly higher quality and health benefits will make McDonald’s more trustworthy in general. Therefore, the strategy gives the restaurant chain a better position compared to competitors and leverages competitors’ advantages.
How the Product Will Improve Company’s Overall Marketing Strategy
The product will not greatly influence the marketing mix of the company. It will add the diversity to the menus. The changes in prices will not be as significant. Nonetheless, the new product will require revising the promotion strategy. So far, the promotion strategy and messages are consistent with an idea of McHealthy. The commitment to present healthier Happy Meals and introduction of yogurts and other healthy products serves as a good background for McHealthy (The Daily Meal, 2018). The messages are also consistent with the idea of the new menu. According to the company’s growth strategy, the McDonald’s customers expect “hot, delicious food served quickly” (McDonald’s, 2018). However, if the whole marketing strategy will not illustrate the general company’s orientation on a healthier product and a more sustainable lifestyle, the McHealthy will be considered as hypocrisy and will only worsen the image of the company.
At the same time, the new menu is consistent with the company’s general growth strategy. The McHealthy will be an improvement of the quality of food as an important element of the strategy to regain the lost customers (McDonald’s, 2018). The proposed promotion will help to develop and promote digital experiences with McDonald’s (e.g. interactive map, Instagram campaign, or McHealthy brunch) and delivery (delivering McHealthys to influencers). It is also an innovation that moves McDonald’s closer to its objective of providing “experience of the future” (McDonald’s, 2018). Thus, McHealthy is a logical step in the general marketing strategy of one of the oldest and most favored fast-food chains in the health conscious and digital world.