Summary
McDonald’s is a global fast-food restaurant with over 38,000 retail outlets serving over 70 million customers daily in over 120 countries. McDonald’s is a leader in the fast-food industry and upholds business-level and corporate-level strategies to achieve success. Vertical integration, single product lines, and franchising are the corporate-level strategies adopted by McDonald’s for sustainable development. This company has to consider stiff competition in the fast-food industry in strategic planning.
Business-Level Strategies
Business-level strategies are plans made by the business to generate the value of their products and services to position the company against competition and increase profitability. McDonald’s business-level strategy focuses on customer satisfaction by tapping into their needs and taste. McDonald’s uses market segmentation according to age, taste, preferences, and cultural values to define different consumer needs. McDonald’s also leverages competitive pricing and a broad target strategy. Brand differentiation through distinct products and prices enables a business to manage stiff competition and consumer loyalty (Hitt, 2020). The fast-food industry is highly competitive, and McDonald’s uses pricing and product proliferation to outdo the competition and meet different consumer needs and tastes.
Pricing differentiation has enabled McDonald’s to manage significant market recognition and sales. McDonald’s has achieved and maintained low pricing to make its products affordable in all market segments (Rajawat et al., 2020). McDonald’s leverages good and effective supply chains for their raw materials and automated customer service to cut labor costs for a cost-effective business model. Operational efficiency in assembly lines can be utilized by businesses to reduce operating costs (Hitt, 2020). The pricing at McDonald’s is supportive of affordability sustained by cost-effective operations and production.
By considering taste and preferences in product differentiation, McDonald’s has refined their products. Consistent innovation to improve products to match customer preferences and tastes have enabled McDonald’s to develop distinguished products. For instance, McDonald’s resorted to producing foods with low calories since most consumers will make decisions with consideration of their health in mind (Da Costa et al., 2022). Consumer preference instructs the business-level strategy.
McDonald’s’ products vary to fit the taste and preferences of different age groups. Targeting different ages to manufacture products and offer services that enhance all customer experiences is vital for brand loyalty. For instance, McDonald’s provides sweet pleasure for kids through Happy Meals programs and toys in their enterprises targeting and attracting young children (Rajawat et al., 2020). Free internet in all McDonald’s shops and apps allure teenage students to prefer McDonald’s over their competitors. Age segmentation has boosted McDonald’s market reach by considering all ages in their business-level strategies.
Sustaining cultural values and diversity through equity, consideration, and inclusion is a business-level strategy for McDonald’s. Identifying values across different cultures and updating effective menus across various cultural and geographic segments have improved consumer attitudes and sales (Hitt, 2020). For instance, McDonald’s products in Japan are enormously different from those in the U.S since cultural preferences are significantly distinct in the two geographic locations. Indian cultural values are supportive of vegetarian food options. McDonald’s developed Maharaja Mac pertinent to Indian cultural values that offer only vegetarian foods. Additionally, McDonald’s has fostered cultural diversity by including all gender, races, and ethnicities in employees, franchisees, and suppliers. Asians. Latinos, blacks, and women are welcomed and appreciated in McDonald’s business model (Rajawat et al., 2020). Respecting cultural values to include and enjoy different groups and diversity programs enables businesses to attract additional opportunities and relationships in all market segments.
Corporate-Level Strategies
Corporate-level strategy accounts for a management plan to guide the business’s operations to establish general success in the market. Long-term goals of the firm guide Corporate-level design to highlight the business patterns in different business units, product lines, and consumer groups. The business environment and internal capabilities influence the corporate-level strategy. McDonald’s constant growth is due to the corporate-level target outlines determined by the high-level management. To maintain a global image in the fast-food industry and sustain success, McDonald’s has included vertical integration, franchising, and an aim on a single product line.
Vertical integration is a corporate-level strategy that has enabled McDonald’s to take control of most of its supply products rather than subcontracting to reduce costs. The business multiplies its operations pertinent to vertical integration’s manufacturing and assembly path. Vertical integration is aimed at reducing costs and improving profitability. For instance, McDonald’s produces and processes its beef to cut expenses (Rajawat et al., 2020). McDonald’s’ spices and ingredients are also produced and transported through the vertical integration model. Creating their products rather than supplier contracting helps McDonald’s reduce the cost of operation and increase profitability.
Since its inception, McDonald’s has identified itself with the fast-food industry, focusing on maintaining dominance in the industry. Cultivating a single product line enables McDonald’s to establish a solid global brand image and loyalty. To maintain a long-term competitive position, McDonald’s focus on a single activity is necessary. McDonald’s has adopted a global strategy for cooperation and interdependence between its retail outlets to be a multi-domestic company in different countries and cultures. McDonald’s has a market development strategy to venture into emerging economies in the single-line industry. For example, McDonald’s has opened more branches in Asian countries such as Tokyo, India, and the United Arab Emirates to enhance its income potential. McDonald’s has a corporate-level strategy to improve market share and profitability through its transnational plan.
McDonald’s has used a franchising strategy to adapt and replicate its business model in a larger market. According to Hitt (2020), franchising is an agreement between a franchiser (McDonald’s) and allows the franchisee some authority, rights, and operating license. Over 80% of McDonald’s retail outlets are acquired through franchises. McDonald’s has a long-term goal of achieving a 95% rate of franchised restaurants. Franchising has the advantage of low startup capital, low operating income, simple management and supervision, accelerated growth speed, and simplicity of penetrating secondary markets. The franchising business model at McDonald’s has supported the company achieve global growth and ease in management.
Competitive Environment
A competitive environment is created when different businesses in a single industry or competitive line contest market share by utilizing unique marketing, advertising, and pricing methods. Despite McDonald’s being the most recognized restaurant in the fast-food industry, it still faces stiff competition due to evolving customer preferences and market dynamics. Brands offering similar products with effective marketing policies globally create stiff competition for McDonald’s (Da Costa et al., 2022). Burger King, among other competitors, poses the most fierce competition to McDonald’s. McDonald’s is a first-mover business that takes initial action to manage competition risk. Innovation, consistency, and brand resilience are the critical success factors that McDonald’s embraces for sustainable competition.
Burger King is the most prominent competitor of McDonald’s. Burger King, like McDonald’s, is a global brand with over 18000 outlet restaurants in 100 countries. Burger King also utilizes the franchisee model in 100% of its restaurants. The two rival companies struggle to emerge as the best and the highest-selling burger restaurants. The menu for Burger King is fierce to address consumer tastes and preferences with a corporate-level strategy that is ambitious to attain a larger market share and outdo the competition. For instance, Burger King, like McDonald’s, also has an entry strategy into the growing Asian market. It also offers vegetarian burgers to include cultural values in the Indian market. McDonald’s responds to the competition by tapping on its strengths and opportunities and improving weaknesses to eliminate competition threats.
The rivalry has influenced McDonald’s business-level and corporate-level strategies significantly. McDonald’s has leveraged pricing, convenience, service, and product quality to respond to the stiff competition. McDonald’s has adopted intense price-driven competition to produce cheaper burgers than the competitors. However, the hiking prices cost goods, making it difficult for corporations to adopt competitive prices (Hitt, 2020). To prevent the effect of the marginal cost of production on the pricing, McDonald’s developed strategies to absorb the high supply costs. For instance, vertical integration by producing and transporting beef, spices, and other ingredients to cut costs. In 2009, Burger King outcompeted McDonald’s sales in the U.S. McDonald’s retaliated to regain market dominance by developing “McPick” for advertisements and chicken McNuggets with fewer ingredients (Da Costa et al., 2022). McDonald’s also has a global advisory council to guide nutrition and meals offered on the menu. In the advertisements, McDonald’s raised awareness about healthy nutrition. The stiff competition posed by Burger King to McDonald’s has enabled McDonald’s to improve its business-level strategy through innovation.
Market Cycles
Fluctuating patterns and trends emerge in market cycles in the different market and corporate domains. If the demand and sales increase, the related business’s overall value responds positively. Fast, slow, and standard cycles are the three types of market cycles (Hitt, 2020). Market cycles are determined by competitive speed and ability influenced by emulation capacity in different market types. Burger King is capable of emulating the competitive advantages undertaken by McDonald’s. Competition assumed by McDonald’s from Burger King would differ in fast-market cycles compared to slow-market cycles.
In fast-cycle markets, the competitor has the ability and liberty to imitate the abilities and advantages of the focal business. The competitive advantage is, therefore, unsustainable in fast-cycle markets. Constant strategic business-level and corporate-level plans enable firms to thrive in fast-cycle markets (Hitt, 2020). Burger King can adopt similar models and products in fast-cycle markets as McDonald’s. McDonald’s could form capabilities and competencies that help them maintain a competitive advantage. For example, McDonald’s can introduce new menus rapidly and consistently into the market. The two rival restaurants can also form alliances to develop new technologies and mutually beneficial strategies for growth. McDonald’s in a fast-cycle market has to be proactive to create a competitive advantage through strategic planning and innovation.
In slow-cycle markets, the competitor cannot copy the focal competitive advantage. The competitor’s inability to imitate is difficult-to-understand and costly to replicate the model. McDonald’s would act and respond to competition in a manner that would extend the market advantage. For instance, McDonald’s could patent their burgers and meals to block Burger King from imitating. Propriety patenting is a method of enhancing competitive advantage in a slow-market cycle (Hitt, 2020). Burger King can counterattack the patent through legal jurisdiction and exploiting patent expiry.
Sources
Da Costa, R. L., Pereira, L., Dias, Á., & Gonçalves, R. 2022. Consumer Choice and Sustainable Competitive Advantage in the Food Industry. International Journal of Intelligent Enterprise, 1(1). p. 1.
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning. Web.
Rajawat, A., Kee, D. M. H., Malik, M. Z. B. A., Yassin, M. A. Q. B. M., Shaffie, M. S. I. B. A., Fuaat, M. H. B.,… & Santoso, M. E. J. 2020. Factors: Responsible for McDonald’s Performance. Journal of the Community Development in Asia (JCDA), 3(2). p. 11-17.