McDonald Section D

IMT Nagpur PGDM 2009-2011

4Ps of Marketing:

McDonald’s India Pvt. Ltd.

Marketing Management 2

Date of Submission: 27th August 2009

Submitted By:

Section - D

Rani Treasa Joseph (2009209)

Rijo Jacob Abraham (2009)

Siddharth Seran (2009237)

Smritti Bansal (2009243)

1 Group McD- 4Ps/MM2/2009-11

CONTENTS

1. INTRODUCTION……………………………………………………………………………………………………………………………………3

2. STATEMENT OF STUDY…………………………………………………………………………………………………………………….…3

3. OBJECTIVES…………………………………………………………………………………………………………………………………………3

4. RESEARCH METHODOLOGY………………………………………………………………………………………………………………..3

5. COMPANY ANALYSIS……………………………………………………………………………………………………………………...……5

6. SWOT ANALYSIS………………………………………………………………………………………………………………………………..20

7. PROPOSALS………………………………………………………………………………………………………………………………………..21

ANNEXURE 1

ANNEXURE 2

ANNEXURE 3

ANNEXURE 4

REFERENCE


1. INTRODUCTION

Ray Croc opened his first McDonald’s restaurant in Des Plaines, Illinois, on April 15, 1955. Since then the journey has been swift and smooth. Now there are over 30,000 restaurants across the world spread over 119 countries. The first McDonald’s in India was opened in Bandra, in 1997. Now there are over a 100 restaurants spread across the country. Before coming to India a team from McDonald’s corp. US, was sent to India six years prior to the opening of its first outlet. Extensive research, which led to the setting up of infrastructure and logistics, paved the way for McDonald’s to open its first ever outlet in India. With McDonald’s setting benchmarks in the fast food industry, it is pertinent that they make a sustained effort in delivering their core values, namely, Quality, Service, Cleanliness and Value.

2. STATEMENT OF STUDY

To study and analyze the 4Ps of marketing for the company ‘McDonald’s India Pvt Ltd’.

3. OBJECTIVES

1. Study the Product, Price, Product and Place strategies of McDonald’s India Pvt. Ltd.

2. Propose Changes and suggestions on the 4P strategies.

4. RESEARCH METHODOLOGY

1. Data collection

Primary data collection – 1. Expert advice- interaction with a Company expert/ Manager.2. Market trend analysis – analysis of growing trends in the food industry3. Customer Survey4. Focus Group Survey

Secondary data collection1. Historical market surveys 2. Journals, internet, magazines etc.3. Monitoring industry news and developments4. Company Portals

2. Data Analysis Customer survey analyzed using statistical tools

3. Sample Selection and detailsSample selection technique employed for the selection of samples of study for the Primary data collection and details are as follows:

1. Expert advice


Sample Size: 1Details: Store manager, Location: McDonald’s, Kemfort, Bangalore

2. Market trend analysis Market trend extracted from: India Shopping Trends 2008 – a report by The Knowledge Company, the Market Intelligence and Publications Division of Mindscape, Marketing Management: Rajan Saxena.

3. Customer SurveySample Size: 242

Sample selection technique:

- Age group : 20-35- Geographic location wise sample size:

Bangalore – 60New Delhi – 60Hyderabad – 60Mumbai – 62

4. Focus Group Survey:- Family 1, Location: Chennai, No. of family members: 4, Family Head: 35

yrs, Average family age: 24 (Young family), SEC: B1- Family 2: Location: Cochin, No. of family members: 3, Family Head: 33

yrs, Average Family age: 23.6 (Young family), SEC: B1- Family 3: Location: Calcutta, No. of family members: 3, Family Head: 40

yrs , Average family age: 28 (Young family), SEC: B1


5. COMPANY ANALYSIS

Strategic Options: The 4Ps: Product, Place, Price and Promotions

1. Product Strategies1.1. Product Characteristics and Differentiation:

McDonalds’ menu has both vegetarian and non-vegetarian food in the offing. The menu offers a wide range in both the sections, without diverting from its baseline, Burgers.

Non-Vegetarian: When McDonald’s first came to India, they had initially offered Big Mac with mutton patties, but soon scrapped it off the menu and had the Mcgrill patties in the same burger naming it Maharaja Mac. It was a big hit when it was introduced and it still moves very well in the premium outlets. Other non vegetarian products include Chicken Mcgrill, McChicken, Fillet-o-Fish, Chicken Salsa wrap and Chicken McCurry pan. McCurry pan is a product that was introduced keeping in mind the Indian taste buds. This is a product that is sold only in India. Chicken Mcgrill, currently priced at Rs. 28, is a small burger with a grilled chicken patty. McChicken is a larger and more filling burger, where the frozen chicken patties are deep fried and sandwiched in a large bun. Fillet-o-fish is a fish burger, which again is a slightly larger burger served with mayonnaise. The non vegetarian version of McCurry pan has a chicken stuffing in a puff pastry and it is baked in the oven and served. Chicken salsa wrap is a Mexican wrap with chicken stuffing and salsa sauce rolled in a flat bread, grilled and served.

Vegetarian: Owing to its large Hindu population, probably India is the only country where there is an extensive array of vegetarian products to choose from. Almost all non-vegetarian products have vegetarian products to choose from. Mcaloo tikki is the vegetarian equivalent of chicken Mcgrill, but is priced 6 rupees lesser than its non vegetarian counterpart. Mcveggie is the larger burger that has a deep fried patty in it. The vegetarian section probably lacks the non vegetarian equivalent of Maharaja Mac, but is aptly compensated by the availability of other products like pizza puff, which is priced at Rs. 20. Other vegetarian products include McCurry pan and paneer salsa wrap the latter very similar to Chicken salsa wrap with paneer taking chicken’s place as the main filling.

1.2. Product and brand relationship:

Mc Donald’s is known throughout the world only for its burgers. When it first came to India it had to undergo a complete brand transformation, as it was known as a fast food outlet across the world. McDonald’s family restaurant was a concept that was first introduced in India. And for the first time in its history McDonald’s did not serve any beef or pork products in a country they operated. The oil that McDonald’s, uses across the world was flavored with beef or pork fat. Owing to religious sentiments McDonald’s, imports 100% pure vegetable oil from Malaysia


for all its deep fried products. BIG CURRY MAC. McDonald's dispensed with its most prominent ingredient in order to respect, and to please, its Indian customers. Many Indians eat no beef or pork, or any meat at all. According to Vikram Bakshi, managing director of McDonald's India North, it was necessary to adapt the company's offerings while keeping the core brand values consistent across cultures.

"The menu has evolved over the years as a result of constant innovation and our customers' needs," says Bakshi. "Local creations like McAloo Tikki Burger, Curry Pans, Wraps Pizza McPuff, and McVeggie are established departures from what we had in our introductory restaurant offerings."Today 70 percent of our menu is ‘Indianized', and the McAloo Tikki burger is our highest selling product. While the menu may be different in some ways, the McDonald's experience around the world is consistent, offering quality, great service, cleanliness, and value."

Since drive-through service is not common in India, scooters and bicycle delivery services extend the concept of a quick, hot meal on the go in a way that is quintessentially Indian yet consistent with the global brand. It's still McDonalds, and Indians love it. Think global. Be local.

1.3. Packaging and Labeling:

Packaging and labeling has always been an integral part of McDonald’s promotional strategy. The paper linings that come on top of the tray have all the nutritional facts about all of the products that are served in the outlet. The new packaging, labeled with Percentage Daily Intake, will advise consumers about required daily amounts of protein, fats, saturated fats, carbohydrates, sugar and sodium. Concerns that fast food producers perpetuate the obesity epidemic have led to a focus on healthy alternatives. By labeling packaging with Percentage Daily Intake McDonalds claims it hopes to help consumers understand more about nutrition. This move is in relation to rising obesity levels across the world.

1.4. Service Strategies:

The Unique Selling Proposition at McDonald’s has always been its one minute service. At any McDonald’s outlet the one thing that is common across the world is its service time. It has always managed to maintain its USP across continents. At McDonald’s the kitchen and the service counter compliment themselves and help maintain its USP. Initially burgers were made and stored in a hot transfer bin for a maximum of 15 minutes after which they are dumped. More than one counter is always open at any outlet which helps move the queue faster during rush hours. A production caller who stands behind the transfer bin calls the number of burgers to be made at any point in time. The Production caller is located in such a way that he has a good view of the crowd coming in and also has a good view of the kitchen. It’s the job of the PC to assess the crowd that comes in and it is also his duty to asses the crowd that can come in


order to maintain enough products in the bin accordingly. Another innovative idea that McDonald’s incorporated in its Indian outlets, is to take orders from customer when they are in the queue, waiting. The advantage here is that the customer does not have to wait at the counter and think what to order, and it also moves the queue faster, to save waiting time. Special orders which can consume time are sent to the kitchen well in advance so the order is ready when the customer is at the counter. After the introduction of “made for you”, the use for transfer bin was eliminated. Burgers are made only after the order is punched. McDonald’s still manages to deliver the order within a minute, owing to cutting down of cooking time.

McDonald’s also offers home delivery to its customers from select outlets. There is a Rs. 20 charge for this service regardless of the quantity that is being ordered. An instance where home delivery proved vital was when the sales of a particular outlet were affected due to the road being closed where a flyover was being constructed. More than 50% of sales came through home delivery, in that particular outlet.

1.5. Managing Service Quality:

McDonald’s has always been known for its quality and value for money everywhere. It becomes extremely important to maintain this brand image of this kind to be able to consistently pull crowd. McDonald’s staffs undergo excellent training that meets with McDonald’s rigorous quality standards. McDonald’s takes all effort not to trade off its USP with one of its core values, ‘quality’. This is consistently achieved by well trained staff and world class infrastructure, both at the service and the kitchen counters. Continuous innovation has helped McDonald’s set standards in the fast food industry across the world. Recently included innovation in the kitchen is the inclusion of “made for you’ which has replaced the existing kitchen equipment ‘grill direct’. “Made for you”, eliminates the need for storing burgers in the transfer bin. The new equipment that is in use right now reduces the bun toasting time to 17 seconds from 35 seconds. The patties that are deep fried initially had a storage time of 10mins in the hot bin, now have 20mins. It implies that the deep fried patties can be stored for a longer time and hence less time wasted. This means the burger is made only after the order is punched. With a toasting time of around 17 seconds and a wrapping time of around 35 seconds, the burger still gets to the customer, fresher than before within one minute of his placing the order. This system was brought into practice keeping quality in mind.

1.6. Product Strategy Analysis:

This analysis would cover how McDonald’s product strategies help the organisation maintain its core values, QSC & V (quality, service, cleanliness and value for money).

Quality:


McDonald’s stringent quality measures make sure that any scope for issues regarding quality does not crop up. For instance, all its raw materials which include frozen patties, and fries are kept in state of the art deep freezers which maintain a constant – 10 degree Fahrenheit 24*7, 365 days a year.

The employees in McDonald’s are made to wear gloves while they are on their respective stations, and the vegetarian and non vegetarian section is distinguished by their respective workers wearing green and red coloured aprons. Also a one hour hand wash policy ensures that cleanliness. This way a strong signal is sent to the vegetarian section of the population, giving the impression that quality is considered second to no other parameter.

Service

McDonald’s easy to prepare products has helped them maintain their USP very efficiently. The patties, before being frozen, are par cooked in order to reduce the time that takes for it to cook in the restaurant. The fries are generally imported from New Zealand or Canada, which also comes half cooked. Innovations like these on their product line have helped McDonald’s to a large extent to serve their customers on time.

Cleanliness

McDonald’s makes sure that the first thing the customer sees after entering the restaurant is its clean surroundings. By maintaining sparkling floors and clean washrooms, the cleanliness culture is inculcated among all the staff. Every McDonald’s outlet is scrubbed inside out after the restaurant closes. The machines and grills are sanitised, the floors scrubbed and the deep freezers cleaned before the restaurant opens for service.

Value for Money:

McDonald’s has adopted a pricing strategy that is extremely competitive in the fast food segment. By offering burgers for Rs. 22, they attract a majority of the college kids, who fall under the segment which is non-earning, but has expendable money.

With an extensive ad campaign focusing on their cheaper and more economic products, McDonald’s has positioned itself for the more economic segment.

2. Place Strategies


2.1. The Joint-Venture and Franchisee model

McDonald's in India is a Joint-Venture (JV) partnership run by Indians. McDonald's International through its wholly owned subsidiary McDonald's India entered into two JVs, one with Connaught Plaza Restaurants Pvt. Ltd. managed by Mr. Vikram Bakshi in the Northern & Eastern region and another with Hard Castle Restaurants Pvt. Ltd. managed by Mr. Amit Jatia in the Western & Southern Region.

The operations in the North and Eastern regions are directly run by Connaught Plaza Restaurants Pvt. Ltd. In 2003, Hardcastle Restaurants Pvt Ltd decided to expand its outlets through a franchisee model. It was first introduced in Bangalore and later extended to other parts of south India.

In terms of investment in the case of the franchisees, the joint venture company makes majority of the investments. Investments on the part of the owner would be those that involve getting the civil work of the premises complete and the site approved as a restaurant and other first-time licenses required managing the business operations.

The JV partnership and the franchisee model ensure that the financial and operational responsibility is shared and gives McDonalds India the opportunity to go for aggressive expansion.

The watchful eye of McDonald’s ensuring that its philosophy of Quality, Service, Cleanliness and Value (QSC&V) is adhered to, and its consumers get value for money.

2.2. The supply chain and distribution

The following suppliers make up the integral part of the McDonalds cold chain. McDonalds working in tandem with them ensures that they provide the best quality to food to its customers.

Trikaya Agriculture

Trikaya Agriculture is a major supplier of iceberg lettuce to McDonald’s India. It is also an intrinsic part of the cold chain. Exposure to better agricultural management practices and sharing of advanced agricultural technology by McDonald’s had made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality.

Initially lettuce could only be grown during the winter months but with McDonald’s expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, are now able to grow this crop all the year round.


McDonald’s had provided assistance in the selection of high quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a refrigerated transportation system allowing a small agri-business in Maharashtra to provide fresh, high-quality lettuce to McDonald’s urban restaurant locations thousands of kilometers away.

Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of the crop is maintained between 1º C and 4º C and 95% respectively. Vegetables are moved into the pre-cooling room within half an hour of harvesting. The pre-cooling room ensures rapid vacuum cooling to 2º C within 90 minutes. The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay between harvesting, pre-cooling, packaging and cold storage.

McDonald’s expertise in packaging, handling and long-distance transportation had helped Trikaya to do trial shipments to the Gulf successfully. In addition to export, McDonald’s assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated hotels, clubs, flight kitchens and offshore catering companies all over India.

Vista Processed Foods Pvt. Ltd.

Vista Processed Foods Pvt. Ltd., McDonald’s suppliers for the chicken and vegetable range of products, is another important player in this cold chain. Technical and financial support extended by OSI Industries Inc., USA and McDonald’s India Private Limited had enabled Vista to set up world-class infrastructure and support services.

This included hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as – 35° C. This was vital to ensure that the frozen food retained its freshness for a long time and the ‘cold chain’ is maintained. The frozen product was immediately moved to cold storage rooms.

With continued assistance from its international partners, Vista had installed hi-tech equipments for both the chicken and vegetable processing lines, which reflected the latest food processing technology (de-boning, blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable mixers and blenders were in operation.

Vista is able to provide a very wide range of frozen and nutritious chicken and vegetable product. Ongoing R&D, both locally and in the parent companies, work toward innovation in taste, nutritional value and convenience.

Dynamix Dairy


McDonald’s suppliers of cheese, Dynamix Dairy, too, recognizing the need for quality milk to make quality cheese, had set up a dedicated quality program for milk procurement. They made significant investments in setting up bulk coolers at all milk collection centres in the Baramati area, where they are based.

Efforts had been made to see that the bulk cooling centres were located in a way that farmers do not have to travel more than an hour from their farms to reach the collection centre. This has drastically reduced the time from milking to refrigeration, which is critical, especially since the lack of proper refrigeration can greatly impact the quality of milk. On receipt, the milk is immediately stored in the bulk coolers at the collection centres, to prevent growth of bacteria in the milk and preserve its freshness – thus, maintaining the ‘cold chain’.

Cremica Industries

Cremica Industries was started in 1980 as small ice-cream unit in Ludhiana. However after its initial success Cremica added buns and biscuits to its product line and in 1996 McDonald's selected Cremica to be its supplier for buns, liquid condiments, batter and breading in collaboration with its international partners. Cremica Industries worked with another McDonald's supplier from Europe to develop technology and expertise that allowed the company to expand it business from baking to providing breading and batters to McDonald's India and other companies as well.

Amrit Foods

Amrit Foods, a division of Amrit Banaspati, has been associated with McDonald's India as a supplier of Dairy Mixes, Soft Serve Mix and Milk Shake Mix for over a decade now.

McDonald's finding the factor of cold room being vital ensured that even before vegetables from farms entered the refrigerated zones, they were locked in a pre-cooling room to remove field heat. Vegetables were placed in the pre-cooling room within half an hour of harvesting where rapid cooling decreased the field temperature of vegetables to 2ºC within 90 minutes. Then a large cold room (a refrigerated van) was used for transportation to the distribution centres. In the van, the temperature and relative humidity of crop was maintained at 1-4ºC and 95 per cent, respectively and the flavours and freshness are locked at -35°C. McDonald’s achieved amazing consistency by devoting more attention than anyone else to field service and training at store level. Production was concentrated in huge plants devoted exclusively to McDonald’s.

The objectives of this supply strategy are to operationalize its globally practiced QSCV (quality, service, cleanliness, and value) principle, to enjoy flexibility in pricing and to launch a new product when necessary.


The relationship that McDonalds fosters with the suppliers ensures the world class quality of the products that it brings to its consumers. By empowering their suppliers with the best food processing and agricultural technology in the world, McDonalds ensures a steady supply of quality raw materials to its kitchens around India. The way McDonald’s handles its suppliers ensures that there are no hick ups in their logistics and supply chain management system. As a result of these supply efficiencies McDonald’s can stretch their expansion plans.

Their strategic relationship with the suppliers also helps McDonalds bring the products to its consumers at a very effective price. While all other fast food chains in the country are aggressively going about to increase the prices because of the increases in prices on the supply side, McDonalds have a strategy to increase the prices over a period of 3 years. The first round of price increases already hit the restaurants 7-8 months back, but the appreciable fact is that this price increase was just around 5-10%. It’s their strategic relationship with their suppliers that makes sure that the suppliers are also willing to take partial burden of the price increases over these next 3 years.

The empowerment of its supply partners also ensures that McDonald’s can launch a new product without many hassles. McDonald’s started with small suppliers, which were given the opportunity to grow with McDonald’s India and they in turn display 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 direct results of supplier innovation.

2.3. Distribution

McDonald’s India opened up their first distribution centers in Noida and Kalamboli (Mumbai) in 1996, followed by Bangalore in 2004 and Kolkata in 2007. They had prevented themselves from going for operations in the Eastern region because of the lack of distribution centers in the Eastern region.

McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service businesses. Better facilities and infrastructures were created along with new systems by them to satisfy McDonald's high demands, which finally culminated into an agreement with McDonald's India, for Radha Krishna Foodland to serve as distribution centers for their restaurants in Delhi and Mumbai. As distribution centers, the company was responsible for procurement, the quality inspection program, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value-added services like shredding of lettuce, re-packing of promotional items continued since then at the centers playing a vital role in maintaining the


integrity of the products throughout the entire 'cold chain'. The operations and accounting is totally transparent and is subject to regular audits.

The iceberg lettuce from Ooty, mutton patties from Hyderabad and sesame seed buns from Punjab were all delivered to Radhakrishna Foodland Private Limited (RFPL) distribution centre (cold storage) in its refrigerated vans. RFPL stored the products in controlled conditions in Mumbai and New Delhi and supplied them to McDonald's outlets on a daily basis.

By transporting the semi-finished products at a particular temperature, the cold chain ensures freshness and adequate moisture content of the food. The specially designed trucks maintain the temperature in the storage chamber throughout the journey. Drivers are instructed not to switch off the chilling system to save electricity, even in the event of traffic jam.

Below mentioned is the data about Refrigerated vans for McDonald's distribution according to the figures available from the year 2001

Type Route Quantity

National inbound Suppliers to Distribution Centre. 20 vehicles

Outbound North Distribution Centre to restaurant. 13 vehicles

Outbound West Distribution Centre to restaurant 11 vehicles

Outbound South Distribution Centre to restaurant 1 Vehicle

Innovations and use of state-of-the-art technology in the distribution process is one of the strategies that McDonald’s use to ensure that its products are delivered to its customers with freshness and high regard for quality and taste.

2.4. RetailingThe fixed costs for setting up a McDonald’s restaurant run into millions of dollars, and therefore, for the operations to be profitable, placement must be in an area that maximizes customer exposure and traffic, thereby generating large volume of business. McDonalds gives lot of care regarding the setting up of their restaurants. McDonalds look for the following generators to support their business: home, shopping, work, entertainment, education and transit points such as stations or bus depots. They look to have support from all generators or a combination of at least 4 of these generators to open a restaurant. Since they take into consideration various aspects such as the population, the demographics, the accessibility and


the traffic in their research for prospective sites for their restaurants they are successful in being always “round the corner”.

This ensures that a McDonalds visit can either be planned or it can happen by mere chance because of the traffic in such an area. Their customer focus and the extensive research is what helps the McDonalds corporation put their place strategy in place regarding the setup of the restaurants.

In terms of space a minimum of 2,500 – 3,000 square feet carpet area on the ground floor with a clear height of 11 feet and a frontage of at least 35 to 40 feet is required for all the McDonald’s restaurants. This ensures that McDonald’s feel and ambience is retained in all the outlets. The sales figures of the various McDonald’s restaurants are dependent on the location of the restaurants. Case in consideration is 2 different outlets of McDonald’s in Bangalore. The sales figures as well as the product which sells most in these restaurants depend on the demographics. The Kempfort outlet which is located in an affluent neighborhood with families and offices, sells McVeggie and McChicken burger the most. While the other restaurant located at Forum Mall which is frequented by young school and college students sells McAloo Tikki and Chiken McGrill more.

The approximate sales figures in a typical McDonald’s restaurant are as given belowProduct Units sold per day

Chicken McGrill 200

McAlloo Tikki 200

McVeggie 200 – 300

McChicken 250 – 300

McMaharaja Burger 60 – 80

- The inventory management system MCDonald’s use gives the exact inventory in hand after the days sales are over. This way any pilferage and shortages can be cross checked by manually verifying it. Inventory happens every day for food items and once in a week for paper (includes cups, straws etc). There is a month in inventory for food and paper.

- A typical McDonald’s has its food products and papers delivered once a week. This again is dependent on the sales volume. A mandatory delivery is made before the weekends in outlets with high sales volumes.


- McDonald’s efficient inventory and delivery system ensures that the restaurants are supplied and stocked at all points of time.

3. Price StrategiesMuch of the McDonald’s growth in India can be attributed to its pricing strategy. The average households spend in India on food and beverages being about 50% of income, food prices are a sensitive issue. The Indian middle class, despite the fact that there is much improvement in their income level, remains very price sensitive. For this reason, McDonald’s has pursued what Amit Jatia, the company’s managing director in the Western region, calls “purchasing power pricing” or pricing based on customer’s ability to pay. The adoption of such a pricing strategy is on the basis of purchasing power parity (PPP) calculations across countries.Initially in India, McDonald’s was able to get a larger share of rich and upper-middleclass population. It was not very effective at luring the middle-class and lower middle-class segments into their restaurants. But capturing the middle-class and lower middle-class segments was integral for the success of McDonald’s, and it is increasingly important when McDonald’s has to enter into Tier I and Tier II markets. Because of the prevailing image that McDonald’s was an upscale place, this segment stayed away from McDonald’s. With this in mind the company post 2001 cut down on prices to fit the Indian scenario and thus appeal more to the middle-class and lower middle-class segments and position itself as a value for money family fast food restaurant. The McDonald’s strategy has been to increase sales volume of its products by making its products available at an affordable price. Thus the objective of the pricing of McDonald’s is to maximize their market share, for which they the method they use is value pricing where they offer high quality products for lower costs. Thus, McDonald’s hopes to bring in new customers initially with offerings of entry-level products make them try new products so that they graduate to higher priced products. And thus with numbers on their side they further hope to bring down the prices and look for profitability in the long run.McDonald’s has been offers happy meals and extra value meals. The happy meals are priced at a range from Rs 69 to Rs 99, medium extra value meals ranging from Rs 84 to Rs 169 and large extra value meals ranging from Rs 99 to Rs 184, which the consumer can take in various combinations as small, medium or large soft drink or French fries by paying a small extra amount. This value-ladder pricing strategy employed by McDonald does ensure that their offerings are affordable and attract a wide section of customers. All this pricing strategy has helped the volume business of McDonald’s.Another strategy that seems to have gone well with Indian customers is what the company calls the 80-20 menu board—80% visual and 20% descriptive. The main objective of the company is to make it easier for customers to understand what the value-ladder pricing and what their options are. Coupled with the pricing range, McDonald’s quick service and convenience have attracted many school- and college-going customers, as well as young middle-class families.


Huge increases in volume sales and food processing technology have been helping the company to offset its cost.Another price-adaptation strategy of McDonald’s is promotional pricing strategies, which stimulates early purchase and thus cultivate a loyal customer base. Loss-leader pricing is an something that McDonald’s has perfected over the years to help increase the volume of sales. They integrate value pricing and loss-leader pricing strategies to effectively sell their products. We will use some insider information that we gathered on the cost and pricing of their products to explain their strategy. According to inside sources, all the deep fried products including burgers gives a margin of around 50%, the least contributing products being McNuggets, McAlloo Tikki and Chicken McGrill. The most profit making products in McDonald’s are the soft drinks and the French fries. A 300 ml soft drink serving is priced at Rs 32, but the cost incurred by McDonald’s being Rs 4 on the same. This is almost a 700% markup on the price of the soft drink. A consumer might select any of the loss-leading products (mentioned) but select fries and soft drinks as accompaniment. So the customer gets a good price on the bargain while McDonald’s has also realized a profit in the transaction. The concept is giving something to get something of more value in return.McDonald’s also initiates price changes from time to time. Back in 2001, when the fast food giant realized that it was not getting through to its target customer group they went for aggressive price reduction to capture its target customer group. McDonald’s had given great care not to fall into the low-quality trap by backing up the strategic move with effective communication. It also made sure that the customer base thus captured showed loyalty to the McDonald’s brand because of their value proposition.As discussed earlier McDonald’s has also initiated price increases as is happening now. The major circumstance that provokes the price increase is the cost inflation on the supplier end. McDonald’s made sure that the burden of price increase does not suddenly fall on its consumers thus upsetting the loyal customer following it has. McDonald’s worked along with the suppliers to bring up the price of the affected products over a period of 3 years in a delayed price increase model. (See Annexure 1 for Price List)

- McDonald’s has adopted a pricing strategy that is extremely competitive in the fast food segment. By offering burgers for Rs. 22, they attract a majority of the college kids, who fall under the segment which is non-earning, but has expendable money.

- The McDonald’s pricing strategy also enables them to position itself as a value for money restaurant which do not compromise on the quality and dining experience for young middle-class and lower middle-class families who wants to have a good time.

- McDonald’s pricing strategy is aimed at capturing new customers and retaining them with value pricing and quality of food and service.

- With an extensive ad campaign focusing on their cheaper and more economic products, McDonald’s has positioned itself for the more economic segment.


4. Promotion Strategies

A. Marketing Communication Timeline

Phase I: Launching the Brand (1997-2000)

McDonald's wanted to position itself as 'Indian' and a promoter of 'family values and culture', as well as being 'comfortable and easy' and of one that was committed to maintaining a quality service, cleanliness and offering value for money, instead of a ‘foreign’, ‘not knowing what to expect’ brand.

Its marketing effort focused on outlet design, new store openings and PR about its attempts to tailor a menu to Indian tastes.

Educated our customers

- On the build of the products

- Through extensive kitchen tours for our customers.

- How separate vegetarian and non-vegetarian platforms for cooking

Phase II: Brand Advertising (2000-2008)

- Began with TV advertising

- Realized that the Indian consumer was price sensitive

- The company's one-minute service guarantee attempted to reinforce its reputation for fast, friendly and accurate service and it also ran in-store events for mothers and children.

- Launched the Happy Price Menu with a value message for a younger audience - McDonald's India saw a surge of younger consumers and people from socio-economic class B walk into our stores.

- The Happy Price campaign has also been promoted via viral marketing.- Delivery option- Strategic tie-ups with Indian sports properties such as the IPL cricket tournament, where

it was one of the event's food providers.

B. Current Marketing Communication mix

Phase III: Appealing to both ends of the age spectrum

The communication mix consists of:1. Advertising

Television:


- "Yesteryear's Prices". It features Bollywood stars from past decades together with their sons and a message that prices have not risen in line with the passage of time.

- “Jab Peit mein chhoohe daudein. Mcdonald’s Call karein”- Mcdelivery 66000666, Home delivery Advertisement.

- “Har Chotti Khushi ka celebration”- Advertisement campaigns targeting customers across ages to tie up McDonald’s with the ‘celebration’ and ‘treat’ culture.Through the same campaign, McDonald's is also taking the next step in the 'Happy Price Menu' promotion which creatively illustrates the theme of branded affordability.Print Ads:

- Newspapers and household magazines emphasizing on the ‘Happy price Menu’.Hoardings:

- Hoardings of McDonald’s can be spotted in the cities where a McDonald outlet is present. The Hoarding advertisements of McDonald India is comparatively very less in frequency compared to the corporation at USA

2. Sales promotions- Combo offers: Extra value meals (EVM) are offered at reduced prices in combination

offers. It includes a combination of any burger with medium fries and medium coke.- Promotional cutouts and free gifts with Happy Meal: For the purpose to attract kids.

Example: ‘Madagascar’ toy series consisting of 8 characters in the cartoon movie is an example. ‘Ziippy-Zaappy Cars’ toy series of 6.

- Ronald McDonald, the clown’s statue is an attraction amongst the kids during their visit to McDonald’s.

- Promotional offers by individual outlets on big orders, where the table is offered with one free gift.

- ‘Sure shot jackpot offer’ that offers Free meal and exiting electronics- Website that offers the details of the latest offers.

3. Events and experiences- Provides package consisting of space and a time of 3 hrs in the restaurant during non-

peak hours for birthdays (consisting of burgers, fries, coke and the birthday cake).- Sponsoring school events and learning programs.

4. Direct marketing:- Email newsletters and updates for the customers who have online account membership.

5. Interactive marketing: - Online customer feedback, Online Order placing, online customer account.


6. Public relations and publicity:McDonald’s have immense PR initiatives and publicity moves. Recent examples of the same are:- ‘Cyrus’ laugh riot at McDonald’s’- May 27th 2009Publications: Afternoon (Mumbai edition), Hindustan Times- Café (Mumbai edition)- ‘Introducing Chicken Mcnuggets’-May 31st/ June 1st 2009Publications: Mid-Day (Bangalore edition), Daily news and Analysis (Bangalore edition), The Hindu (Hyderabad edition), Finance Today (Mumbai edition), Central chronicle (Bhopal edition), Hindustan Times- Live (Indore edition), The free press journal (Mumbai edition), The Hindu Metro Plus (Bangalore edition)- Mc Donald’s plans Rs. 400 Cr expansion – May 27th/29th 2009Trinity Mirror (Mumbai edition), Mint (All editions), Business standards (All editions), Daily news and analysis – Money (Ahmadabad, Mumbai edition), Financial Chronicle (all Editions), Hindustan times (Mumbai edition), Business India (national)- Local newspapers and websites


5. COMPANY SWOT ANALYSISStrengths Powerful strategy Strong financial condition Strong brand name image/reputation Widely recognized market leader Proprietary technology Cost advantages Strong advertising Product innovation skills Good customer service Better product quality Alliances or JVs

Weaknesses No clear strategic direction Obsolete facilities Weak balance sheet; excess debt Higher overall costs than rivals Missing some key skills/competencies Subpar profits Internal operating problems Falling behind in R&D Too narrow product line Weak marketing skills

Opportunities Serving additional customer groups Expanding to new geographic areas Expanding product line Transferring skills to new products Vertical integration Take market share from rivals Acquisition of rivals Alliances or JVs to expand coverage Openings to exploit new technologies Openings to extend brand name/image

Threats Entry of potent new competitors Loss of sales to substitutes Slowing market growth Adverse shifts in exchange rates &

trade policies Costly new regulations Vulnerability to business cycle Growing leverage of customers or

suppliers Reduced buyer needs for product

Demographic changes


6. PROPOSALS6.1. Product Proposals

With growing concerns all around the world about obesity, it will only be a matter of time before it catches up in a full-fledged manner with the developing nations. McDonald’s could take initiatives to be the first mover in the health food segment in the fast food industry.

- The new product should fit into the corporate image, current markets and distribution systems. It should fall within the company’s technical and production capabilities. At the end, it should bring about desired sales and profits.

- With these constraints in mind the product that we’ve decided to propose could be called a salad burger.

- This burger will not have a deep fried patty but vegetable and lettuce filling, and the dressing being a non-mayonnaise based one. The vegetable filling would consist of olives, tomatoes, red and green pepper, with roundels of carrots.

- In the drinks segment fresh fruit juices can be added.- ‘ZERO-FAT’ fudges can be included in the dessert menu.- Calorific Values can be printed on the wrappers that cover the burgers.- The objective is to provide a complete health diet with all the vitamins, calcium, and

other mineral supplements in the meal with the necessary amount of carbohydrates. This is lacking even in the health diet meal of Subway Sandwiches.

6.2 Price ProposalsDifferential pricing as McDonald’s tries to penetrate the Tier II and Tier III cities in India. The comparatively lower income level and lesser outgoing lifestyle among the families necessitate that more aggressive pricing be there to bring in the numbers for McDonald’s. The fact that the fixed costs that would be incurred by the corporation in setting up their restaurants in these cities will be significantly less than the metros and the tier I cities makes it possible for McDonald’s to pursue differential pricing to lure in more customers.

6.3 Promotion Proposals- The focus interviews (Refer Annexure :4) have suggested that middle income families

who could be potential customers of McDonald’s haven’t been penetrated with the current promotion strategy. These were people who found McDonald’s an expensive affair during their studies in the not so “happening” educational institutions and occupies government positions currently thus bringing them in the middle-class segment. The promotion strategies should be more aggressive to remove the perceptions of value and quality entertained by these potential customers. McDonald’s


outlets can use flyers and leaflets to reassure this particular target group about the quality and value of their value priced offerings.

- The buying decisions of families in case of burgers and pizzas influenced 59% of the times by the children in the family (Ref: ‘Child’s pester Power: Marketing Management, Rajan Saxena). Therefore fostering a strong relationship with the child becomes an integral part of the marketing and promotional tactics of McDonald’s. More promotions based on children should be the advertising strategy. One of the great associations that a child can make with McDonald’s is through Ronald McDonald, the clown. Having a real life Ronald McDonald at the restaurant at all times and especially during the Birth day celebrations of children, to entertain the child will be an ideal way to influence the child and there by the buying decision of the families.

6.4 Place Proposals

- One of the significant findings of the research (Ref: Annexure 3)was that more people would plan a McDonald’s outing or plan to visit the outlet more, if McDonald’s were to provide a more exclusive dining experience for the family. With this in consideration setting up exclusive McDonald’s outlets with space to entertain the whole family and especially the children shall increase the footfall in such outlets. It also will help in developing a more loyal McDonald’s customer base.

- McDonald’s has already started home delivery services which is generating revenue for them and is convenient to the customers. McDonald’s can tie up with corporate offices to sell their products for breakfast or lunch at the offices. They can utilize the delivery services also in this regard.


ANNEXURE 1

McDonald’s Price Menu

PRODUCT Rs Mc Aloo Tikki 22Mc Veggie 45Salad Sandwich 26Chicken Mc Grill 28Mc Chicken 56Maharaja Mac 66Filet O Fish 66Paneer Salsa Wrap 66Chicken Mexican Wrap 66Chicken Mc Nuggets 6Pc 69Chicken Mc Nuggets 9Pc 99 Pizza Mc Puff 20Potato Wedges 20French Fries Regular 30French Fries Medium 40French Fries Large 55 Coke / Fanta / Sprite / Diet Coke Regular 25Medium 32Large 40Ice Tea Regular 25Ice Tea Medium 36Cold Coffee 36Chocolate / Strawberry Shake Regular 39Medium 49Large 59 Cappuccino 25Straight Tea 20Coke / Fanta Float 20


Hot Chocolate 25 Medium EVM Mc Aloo Tikki 84Mc Veggie 85Chicken Mc Grill 90Mc Chicken 96Maharaja Mac 121Filet O Fish 121Paneer Salsa Wrap 121Chicken Mexican Wrap 121Chicken Mc Nuggets 6Pc 149Chicken Mc Nuggets 9Pc 169 All Large Meals = Medium Meals + Rs 15 Happy Meals Pizza Mc Puff 69Mc Aloo Tikki 75Mc Veggie 85Chicken Mc Grill 79Mc Chicken 99Chicken Mc Nuggets 4 Pc 99 Soft Serve hot fudge / strawberry Regular 20Medium 45 Soft serve cone 10Mc Swirl 18Butterscotch 20Flavour Twist Raspberry 25Flavour Twist Green Apple 25Flavour Twist Tropical Orange 25All the desserts available in waffle cones for Rs 5 extra Flavour Twist are available only in Kiosk Stores

ANNEXURE 2


Survey on McDonald's

Dear Bon vivant,

Thank you for choosing to fill the survey!

This survey would help us to know your views on McDonald's, for the purpose of our Marketing End Term project.

With Warm Regards,

Group McD

Section DD

1. How do you find the range of the product line at McDonald's?o Very Good - provides a lot of varietyo Good - provides a decent varietyo Satisfactory- provides just enough varietyo Bad -provides a less than satisfactory varietyo Don't know- never visited a McDonald's

2. Do you find McDonald's value for money?o Yeso Noo Can’t say

3. Would you like McDonald's to include Health food?o Yeso Noo Can’t say

4. Do you 'Plan' a McDonald's outing?o Sometimes, Yeso Always, Yeso Noo Never visited a McDonald's

5. If McDonald's offers an exclusive family dining experience would you Plan the visit more often?

o Yes, maybe


o Yes, definitelyo Noo Can't Say

6. How often do you remember seeing a McDonald's Advertisement on TV/ Print Media?o More than once a dayo Once a dayo 2-3 times a weeko Less than once a week

7. Has the corporate image of McDonald's ever hampered your decision to dine at it?o Yeso Noo Can’t say

8. Which of the following suggestions, according to you, could improve the dining experience at McDonald's?

o Shorter Queueso Better Musico More Spaceo Home Deliveryo Can't Sayo Other


ANNEXURE 3

Customer Survey Results

a. PRODUCT RANGE

Question: How do you find the range of the product line at McDonald's?

Significance: To evaluate the customer’s satisfaction with the product range.

Results:

OpinionPercentage

Don't know- never visited a McDonald's 4%Bad -provides a less than satisfactory variety 1%Good - provides a decent variety 55%Satisfactory- provides just enough variety 31%Very Good - provides a lot of variety 9%Grand Count 100%

Don't know Bad Good Satisfactory Very Good

Percentage 0.0375 0.0125 0.55 0.3125 0.0875000000000001

5%

15%

25%

35%

45%

55%

Product Variety

Axis Title

b. VALUE FOR MONEY

Question: Do you find McDonald's value for money?


Significance: To evaluate the customer’s opinion on whether they consider McDonald’s as value for money. Since the company uses ‘Value Pricing’ as a strategy, value for money from the customers is a critical evaluating factor.

Results:

Opinion PercentageCan't say 6%No 8%Yes 86%Grand Count 100%

Can't say No Yes

Percentage 0.0625 0.075 0.8625

5%

15%

25%

35%

45%

55%

65%

75%

85%

95%

Value for Money

Axis Title

c. HEALTH FOOD

Question: Would you like McDonald's to include HEALTH food?

Significance: McDonald’s has continually adapted to the customer’s tastes, value systems, lifestyle, language and perception. The india-nization of their menu is an example of how they exemplify this concept. Since there is a growing trend amongst the Urban population, where 67% of the respondents suggested that ‘Eating a well balanced, nutritious diet’ is the part of their health regime. (Ref: India Healthcare Trends 2008 – a report by The Knowledge Company, the Market Intelligence & Publications Division of Mindscape)Since Mc Donald’s aims at capturing more meals of the customer (with ref to: the ‘Morning’s made easy campaign’), it should take into consideration this Macro trend.


Results:

OpinionPercentage

Can't say 15%No 25%Yes 60%

Can't say No Yes

Percentage 0.15 0.25 0.600000000000001

5%

15%

25%

35%

45%

55%

65%

Inclusion of Health food

Axis Title

d. AS A DINING DESTINATION

Question: Do you 'Plan' a McDonald's outing?

Significance: The main target demographic segment of McDonald’s’ segments are children and the young urban family. If a restaurant is a target dining out place for a family, the Brand perception attached with it would transform it from being a Fast food outlet to a family dining experience provider. The question analysis whether McDonald’s is a place where the consumer ‘gets in while passing by’ or ‘look forward for an experience’.

Results:


OpinionPercentage

Always, Yes 10%Never visited a McDonald's 4%No 28%Sometimes, Yes 59%

Always, Yes Never visited a McDonald's

No Sometimes, Yes

Percentage 0.1 0.0375 0.275 0.5875

5%

15%

25%

35%

45%

55%

65%

PLAN a visit to McD

Axis Title

e. FREQUENCY OF AD VIEWING

Question: How often do you remember seeing a McDonald's Advertisement on TV/ Print Media??

Significance: McDonald’s promotion channel mix consists of print ads, television ads, hoardings and bus shelters. It is important to evaluate the level of ‘selective attention’ and ‘selective retention’ that these marketing channels have on the consumers. We have selected to evaluate their ‘television and print ads’ promotion channel.Results:

OpinionPercentage

2-3 times a week 33%Less than once a week 45%More than once a day 6%Once a day 16%


2-3 times a week

Less than once a week

More than once a day

Once a day Grand

Series1 0.325 0.45 0.0625 0.1625 NaN

3%8%

13%18%23%28%33%38%43%48%

Frequency of Advertisement Viewing

Axis Title

f. CORPORATE IMAGE

Question: Has the corporate image of McDonald's ever hampered your decision to dine at it?

Significance: Drawing a reference from the controversies McDonald’s USA underwent, Morgan Spurlock's 2004 documentary film Super Size Me which said that McDonald's food was contributing to the epidemic of obesity in society tainted the corporate image of McDonald’s. The question is to evaluate the image of the company.

Results:

OpinionPercentage

Can't say 19%Never 69%Yes 13%


Can't say Never Yes

Percentage 0.1875 0.6875 0.125

5%

15%

25%

35%

45%

55%

65%

75%

Corporate Image hampering buying decision

Axis Title

g. DINING EXPERIENCE

Question: Which of the following suggestions, according to you, could improve the dining experience at McDonald's?

Significance:

The following are a few Macro trends observed by Market Researchers: (Source: India Shopping Trends 2008 – a report by The Knowledge Company, the Market Intelligence and Publications Division of Mindscape)

- 35- 40% of housewives in SEC A, B and C households regularly shop for packaged and convenience foods items like noodles, pasta and soup powders, and ‘ready to cook’ offerings from companies like MTR and Ashirvaad, regardless of whether they are shopping from traditional format or modern format grocery stores

- More than 4 in 5 SEC A, B and C consumers have consumed a snack out of home in the last one month. Chips and Ice Creams are the top favorites for out of home consumption, with each of the snacks being consumed at least once a week, on an average

To leverage on the growing trends, the company should capitalize on the right improvement areas suggested by the consumers.


Results:

OpinionPercentage

Can't Say 2%Better Music 12%Home Delivery 23%Shorter Queues 23%More Space 33%

Can't Say Better Mu-sic

Home De-livery

Shorter Queues

More Space

Se-ries1

0.021276595744680

8

0.120567375886525

0.226950354609929

0.226950354609929

0.326241134751773

3%8%

13%18%23%28%33%

Improving experience at McD

Axis Title

h. Question: If McDonald's offers an exclusive family dining experience would you Plan the visit more often?

Significance: Evaluate the impact of setting up an exclusive dining experience

Results:


Can't Say No Yes, definitely Yes, maybe

Percentage 0.1 0.2 0.2125 0.4875

5%15%25%35%45%55%

PLAN a visit to McD if offered an exclusive family dining experience

Axis Title

ANNEXURE 4

Focus Group Interview results:

1. Group constitution:

Family 1, Location: Chennai, No. of family members: 4, Family Head: 35 yrs, Average family age: 24 (Young family), SEC: B1

Family 2: Location: Cochin, No. of family members: 3, Family Head: 33 yrs, Average Family age: 23.6 (Young family), SEC: B1

Family 3: Location: Calcutta, No. of family members: 3, Family Head: 40 yrs , Average family age: 28 (Young family), SEC: B1

2. Sample selection criteria:- SEC: B1- Families that have NOT visited Mc Donald’s even though a McDonald’s outlet is present

in their city- Completed their graduation in Government Arts Colleges- Pursued careers in Government sector.- Not exposed to the metro culture throughout their student life/ career life.

3. Purpose of selection of SEC: B1- Assuming a less penetration in the B1 segment, a focus interview would unveil the

consumer perception towards the McDonald’s brand in the particular segment.- B1 consists of 2.5% of Indian Urban households, whom , if tapped represents the ideal

target consumer group for McDonald’s ‘Value for money’ proposition, i.e., 556786 households.


SEC details: B1 – Graduate/ Postgraduate General and Supervisor level.

4. Verbatim:

Question 1: Do you think McDonald’s is value for money?

- ‘No’

Question 2: Do you consider McDonald’s to be an upscale eatery?

- ‘Yes’

Question 3: Haven’t the advertisements of the McDonald’s communicated of the low priced Mcaloo tikki, Chicken McGril, etc?

- ‘Yes’

Question 4: Yet, why do you perceive it to have less value for money?

‘Not sure of the size of the burger and ended up wondering whether it would actually satisfy our hunger’

‘It was priced at 20 Rs. I am not sure enough whether the burgers were tasty enough. We thought that it could be a marketing gimmick, that is used by the corporate to lure in customers.’

‘The whole aura around McDonald’s is that of an upscale place. We never ventured to McDonald’s even after seeing the products in Ads.’

‘We thought that the products featuring in the advertisements are perhaps the cheapest products on sale, whose quality is compromised.’

5. Interpretations:

Customer Perception of McDonald’s as:

- An upscale place, which provides lesser value for money- Advertisements fail to alter their perceptions- Diffident about the product quality and taste which is perceived to be a trade off for the

price.


References:- India Healthcare Trends 2008 – a report by The Knowledge Company, the Market

Intelligence & Publications Division of Mindscape- Marketing management- A south Asian Perspective – Kotler, Keller, Koshy, Jha- “McDonalds – Behind the Arches” – John S Love- www.Mcdonaldsindia.com- www.wikipedia.com


Documents

McDonald Section D