mcdonalds 08 jibed vol 3 no. 4 with pavlou p

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The external environment and its effect on strategicmarketing planning: a case study for McDonald’s

Demetris Vrontis*

School of Business, University of Nicosia, 46 Makedonitissas Ave.,P.O. Box 24005, 1700 Nicosia, CyprusFax: 00357 22 353 722 E-mail: [email protected]* Corresponding author

Pavlos PavlouDepartment of Management and MIS, School of Business,University of Nicosia, 46 Makedonitissas Ave., P.O. Box 24005,1700 Nicosia, CyprusFax: 00357 22 353 722 E-mail: [email protected]

Abstract: This case study has been compiled in order to illustrate the effect of the external environment on the international marketing strategy of McDonald’s, the fast food chain. An external environmental analysis isnecessary, as effective marketing strategies cannot be developed without firstlyanalysing the environment in which the company operates. The paper analysesa number of the theoretical approaches to strategic planning to be considered ininternational marketing.

Keywords: adaptation; international; marketing; McDonald’s; standardisation;strategy.

Reference to this paper should be made as follows: Vrontis, D. and Pavlou, P.(2008) ‘The external environment and its effect on strategic marketing planning:a case study for McDonald’s’, Journal for International Business and

Entrepreneurship Development , Vol. 3, Nos 3/4, pp.289–307.

Biographical notes: Demetris Vrontis is the Founder and Editor of the EuroMed Journal of Business and the Editor for the World Journal of Business Management . He is a Professor in Marketing and the Dean of the School of Business at the University of Nicosia, Cyprus. His prime research interests areinternational marketing, marketing planning, branding and marketingcommunications. He has published over 45 refereed journal articles, contributed

chapters and cases in books/edited books and presented papers to conferenceson a global basis. He is also the author of eight books, mainly in the areas of international marketing and marketing planning

Pavlos Pavlou graduated from the University of Leeds in England with a BScin Engineering and from Salford University with a PhD in Management.He spent 13 years in the UK’s NHS and in consultancy organisations(PricewaterhouseCoopers and KPMG) in the UK and Cyprus. In 2005 he joinedthe University of Nicosia as an Assistant Professor in the School of Business.He teaches international business, leadership development and quality

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J. International Business and Entrepreneurship Development, Vol. 3, Nos. 3/4, 2008 289

Copyright © 2008 Inderscience Enterprises Ltd.



management at the undergraduate level and strategic management at the MBAlevel. He is a member of the Editorial Review Board of the EuroMed Journal of

Business . His research interests include strategic performance management,international business and corporate governance systems.

1 Introduction

1.1 McDonald’ s operations in international markets

McDonald’s is the leading global foodservice retailer with more than 30,000 localrestaurants serving 52 million people in more than 100 countries each day. It is one of theworld’s most well-known and valuable brands and holds a leading share in the globally

branded quick service restaurant segment of the informal eating-out market in virtuallyevery country in which it operates. 1

1.2 Situation analysis and marketing planning. A theoretical outlook

The importance of the internal and external environment and their effect on thedevelopment and implementation of marketing planning is crucial and should be highlyconsidered by any organisation wishing to be profitable in the increasingly competitiveinternational marketing arena. Multinational companies that desire to prosper, shoulddevelop a coherent international marketing plan (see Figure 1) having, as a starting point,the analysis of the environment. Based on that, the company objectives, strategies andtactics are drawn, aiming for organisational success and profitability.

Multinational companies should have in mind that effective marketing strategies couldnot be developed without firstly analysing the external and internal environment in whichthe company operates.

The external environment for a company covers many aspects. It is suggested that theenvironment covers two main areas:

the macro-environment

the micro-environment.

The macro-environment consists of forces such social, cultural, legal, economic, politicaland technological. Within this are included factors such as demographics, green issues andlarger societal and environmental forces. The micro-environment includes other environmental constraints, such as the structure of the market, the suppliers, customers,trends of the market, the public and competition.

Equally important is the internal environment incorporating the examination of thecompany’s marketing mix (product, price, place, promotion) and service mix (people,

process management, physical evidence). An analysis of the internal environment alsocovers other factors such as sales, profitability, market share and customer loyalty.

The internal audit examines the company’s own resources and supplies suggestions asto the company’s strengths and weaknesses. Internal considerations are mainlycontrollable by the company and, therefore, companies should mostly avoid any problemsfrom this area. It is evidently proven that product development and strategic formation is

based upon the internal organisational capabilities.

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290 D. Vrontis and P. Pavlou



Source : adapted from Vignali et al. (2003)

Every company, after considering both its internal strengths and weaknesses and theexternal environmental influences that affect it (opportunities and threats) is in a positionto develop an effective marketing plan. Failure to understand the external and internalcapabilities may lead to sub-optimisation of the organisation’s strategy and resourcesinvested.

Multinational companies must highly consider environmental auditing and thedevelopment of the SWOT (strengths, weaknesses, opportunities and threats) analysis. Thisis vital if they want to capitalise on organisational strengths, minimise any weaknesses,exploit market opportunities as they arise and avoid, as far as possible, any threats.

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The external environment and its effect on strategic marketing planning 291

Figure 1 The STRATICS PROCESS – marketing planning



It should be noted that the external environment is very important as it dictates the behaviour of any marketing orientated organisation. Consequently, for the purpose of thiscase, considerations for the analysis of the external environment are highlighted for McDonald’s.

2 McDonald’s and its external environment

2.1 Political/legal factors

Political factors include laws, agencies and groups that influence and limit organisationsand individuals in a given society. The dimensions being evaluated include thegovernment attitude to foreign markets, the stability and financial policies of a country and

government bureaucracy.Political and legal forces are highly important as they cover many aspects of company

policy. Government policy affects industry as a whole through regulatory bodies such asthe Department of the Environment and the Department of Trade and Industry. These

bodies develop policies on the trading, restrictions and standards within their particular field. The policies created can affect businesses in various ways; in how their products are

produced, promoted and sold.Multinational companies should understand that the political background is different

across the regions of the world. Many former centrally planned economies, for example,are still heavily protected by the government. In such a climate, it is more likely that

proposals for a joint venture will be accepted.It is argued that the legal ramifications of marketing a product internationally are very

complicated. Each country has their own legal system and when a companyinternationalises then it must keep within these legal systems.A legal issue occurred in Russia for McDonald’s when, in 1993, a law was passed

in Moscow requiring all stores to have Russian names, or at least names translated intothe Cyrillic alphabet. This meant the company had to translate its brand name to

. This enabled McDonald’s to at least retain the sound of its name. Thisalso occurred in Japan where the pronunciation of its name was changed to MaKudonaldo(Daniels et al., 1998).

Moreover, the law in Russia states that at least a three-quarters majority vote is neededto approve important decisions. Therefore, the representatives of McDonald’s and the CityCouncil must agree on all major decisions, which could hamper opportunities identified

by the company (Daniels et al., 1998).When it comes to developing marketing mix elements in foreign markets, the

company’s approach may have to be adapted. The legal environment must be assessed todetermine whether it would affect the launch of a product into a new country. In manycountries, government and regulations have a direct influence on product design. Lawoften imposes minimum or special product standards, which may necessitate the shape,kind, components or even the brand name of a product used.

Government regulations and restrictions regulate the content of promotion. The lawrestricts the advertiser’s freedom, particularly with regard to the advertising message andvisual presentation. Promotional activities also may have to be changed, depending on thecountry involved and the legal systems that take place. For example, in France and China,

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door-to-door selling cannot be used as it is prohibited (Vrontis and Vronti, 2004).Moreover, Germany forbids superlatives or comparative claims. The words ‘better’ and‘best’ are words to be avoided. In the case of product comparisons, the manufacturer withwhose products the advertised products are compared may be able to sue for damages.

Price regulations may be another factor that a company needs to look at whenlaunching into internationalisation. In some countries governments may control the pricethat is set for products. For example, Ghana controls the manufacturers’ profit margins,which indirectly controls the price paid by customers (Muhlbacher et al., 1999).

2.2 Economic factors

Economic factors include factors that affect consumer purchasing power and spending patterns.

Economic trends are again, to a large extent, bound up in government policy and area crucial issue to businesses and marketers because of the way they affect consumer spending power. In periods of relative prosperity, a consumer’s disposable income will berelatively high and, therefore, there is a willingness to spend more money. Price becomesa less sensitive issue and this affects marketing strategy itself. During a recession,however, spending power decreases making price more relevant.

The differences that exist between countries in different stages of economic andindustrial development have a profound influence on price setting. Differences in incomelevels may suggest the desirability of systematic price variations. It is, therefore, importantfor McDonald’s to understand that, in countries with a lower stage of economicdevelopment, it is necessary to set a lower price.

The limited purchasing power in developing countries, often combined with low levels

of literacy, poses special problems for marketers on promotion. Although theoretically acompany has a wide choice of promotional tools, in practice the choice of effective toolsis somewhat limited. For example, in foreign markets with low economic development,McDonald’s should try to use cost effective methods of promotion, otherwise the final

price would be beyond the reach of most customers.

2.3 Technological factors

Technological developments have made international travel and communication moreaccessible to consumers and led to a situation in which social habits and fashions changemuch quicker. Moreover, lifestyles and attitude changes cause changes in product demandand how products can be sold to customers.

Technological factors include forces that create new technologies, creating new product and market opportunities. It is based on considerations as to whether the localmarket has sufficiently developed technologies to take full advantage of the product. Itshould be noted that high technologies are required to make full use of the variety of

promotional methods using alternative advertising media such as television or websites(Vrontis and Vronti, 2004).

McDonald’s successful internationalisation can be partly attributed to the way thecompany has overcome technological problems. The systematic substitution of equipmentfor people and the carefully planned use and positioning of technology have helped eachfranchise to be of the same high standard. When McDonald’s entered the Russian market,

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the company took into account that technology transfer could provide important long-term benefits to the Soviet citizenry. Also, since the Soviet machinery lagged 15–20 years behind Western technology, new machinery from Holland was used to harvest potatoesused to make French fries.

2.4 Socio-cultural factors

Shifts in spending power are also affected by sociological demographic trends. Analysisof population fluctuation suggests to marketers in which age groups there is going to bethe largest demand for particular goods. A baby boom, for example, will increase the needfor baby products initially then, in following years, a greater demand for toys, educational

products and children’s clothes etc. Another emerging trend is the changing family, withthe traditional family unit of mother, father and two children in decline. The increase inone person households creates different needs in home products as homes require smaller

products and money is spent due to more frequent home movement. Changes indemographics can, therefore, affect things such as the development, designing, packagingand promotion of products. It could also shape the organisational setting of strategies andstrategic planning.

In the case of McDonald’s, several social forces greatly affected its success in US.One factor was the prevailing family structure in the US and the trend towards ayouth-orientated culture. In the 1960s and the 1970s the decision-making role had changedto such an extent that children often made the selection of a place to eat. McDonald’sspecial emphasis on children and teenagers as advertising targets was successful largely

because the strategy capitalised on these existing social trends.Another important factor was that the value that US society placed on time favoured

the consumption of meals with minimum time effort. Saving time, in fact, created thedesire for meals purchased outside the home on an unplanned or impulse basis. The resultwas a burgeoning demand for low-priced food that was available any time and that could

be purchased with minimum shopping effort.Economic factors are important for McDonald’s in determining a consumer’s ability

to purchase a product. Whether a purchase actually occurs, however, depends largely oncultural factors. Therefore, to understand markets abroad, the company must have anappreciation of buyer behaviour.

Culture could be defined as institutions and other forces that affect a society’s basicvalues, perceptions, preferences and behaviours. Culture includes the entire heritage of asociety transmitted by word, literature or any other form. It includes traditions, habits,religion, art, education, language, family and reference groups. While satellite television

and the international media are shrinking the world and homogenising consumer tastes,culture continues to pull in the opposite direction. Traditions and religious beliefs run deepand could often conflict with international media messages.

When McDonald’s entered India, the chain decided not to launch its Big Mac burger as a result of deferring to the Hindu prohibition against beef consumption. The companyinstead served chicken, fish and vegetable burgers. This was the first McDonald’s without

beef. A so-called ‘Maharaja Mac’ was also created, using a patty made from lamb. In somecountries, McDonald’s has been forced to change its food preparation methods as well; inSingapore and Malaysia, for example, the beef that goes into burgers must be slaughteredaccording to Muslim law.

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In terms of language, when McDonald’s expanded in Puerto Rico in the early 1980sthe company employed US TV commercials dubbed in Spanish. When prospectivecustomers objected, the company eventually relented and developed a Spanish languagecampaign just for Puerto Rico. Sales showed a considerable increase.

Moreover, in Southern China, McDonald’s is careful not to advertise prices withmultiple occurrences of the number four. The reason is simple: in Cantonese, the

pronunciation of the word four is similar to that of the word death (Whalen, 1995).In Japan, where family ties are strong, McDonald’s has enjoyed a surge of popularity

as, in its approach, it invites consumers to associate the restaurant with family membersinteracting in various situations. Starting in 1996, McDonald’s campaign in Japan depictedvarious aspects of fatherhood. One spot showed a father and son bicycling home with

burgers and fries; another showed a father driving a van full of boisterous kids to

McDonald’s for milkshakes.

2.5 Environmental factors

The climate and physical terrain of a country are important environmental conditionswhich have a significant effect on the demand and the type of product made available.Prior to entry into a new market, it is very important for McDonald’s to consider the

physical terrain and climate in the appraisal. Altitude, relative temperatures and humidityare some of the climatic conditions that can affect products in foreign markets.

Being environmentally friendly is another important issue to consider. Environmentalgroups forced McDonald’s to reduce its use of plastic and styrofoam packing. WhileMcDonald’s internal market research shows that environmental issues will have neither a

positive nor negative impact on sales, they have agreed to work with the EnvironmentalDefence Fund, an environmental pressure group, to reduce unnecessary and harmfulwaste.

2.6 Stakeholders

It is important that multinational companies highly consider and value their general publicor stakeholders – their staff, suppliers, distributors, shareholders and the consumer itself.How a consumer and, indeed, the other ‘publics’ mentioned, view the company and the

products marketed is important, firstly in order to assess what market you are in but,secondly, to assess whether the corporate image of the company is functioning in a

positive manner. Public perception of your product allows it to be positioned or repositioned to reach the required target market and, therefore, be successful. If you viewyour product as portraying a certain image that is at odds with the public perception of it,obviously your marketing strategy is not functioning properly. Likewise, if your businessitself is viewed in a negative light by actors both internal and external to the company,steps need to be taken including the design, quality, marketing and strategy of what isoffered to correct this and therefore create a feel good factor. Having a good relationshipwith all publics is highly considered by McDonald’s.

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2.7 Customer tastesCustomer tastes is another very important issue to consider. Every company shouldundertake market research and understand consumers’ needs and wants. Based on that, itshould design marketing strategies and tactics to meet the needs and requirements of itstarget audience. This is crucial as, by undertaking necessary adaptations, the company canmaintain its marketing orientation and go in line with the marketing concept.

McDonald’s is not an advocate of global marketing where this involves products andservices being treated as though the world is a single, uniform entity, thus marketingstandardised offerings in the same way everywhere. They follow an internationalisationmarketing strategy which involves customising marketing strategies (this may also include

pricing strategies) for different regions of the world according to cultural, regional andnational differences in line with local needs. Therefore, the concept of ‘think global, act

local’ has been clearly adopted by McDonald’s (Vignali, 2001). Below are some keyexamples of the Internationalisation marketing strategy pursued by McDonald’s.

2.8 Product

One of the aims of McDonald’s is to create, where possible, a standardised set of itemsthat taste the same whether in Singapore, Spain or South Africa. Vignali (2001) notes thatadaptation is required for many reasons, including consumer tastes/preferences andlaws/customs. There are many situations where McDonald’s adapted the product becauseof religious laws and customs in a country. For example, in Israel, after initial protests, BigMacs are served without cheese in several outlets, thereby permitting the separation of meat and dairy products required of kosher restaurants. McDonald’s restaurants in India

serve Vegetable McNuggets and a mutton-based Maharaja Mac (Big Mac). Suchinnovations are necessary in a country where Hindus do not eat beef, Muslims do not eat pork and Jains (among others) do not eat meat of any type. In Malaysia and Singapore,McDonald’s underwent rigorous inspections by Muslim clerics to ensure ritualcleanliness; the chain was rewarded with a halal (‘clean’, ‘acceptable’) certificate,indicating the total absence of pork products. There are also many examples of howMcDonald’s adapted the original menu to meet customer needs/wants in differentcountries.

In tropical markets, guava juice was added to the McDonald’s product line andBananafruit pies became popular in Latin America. In Thailand, McDonald’s introducedthe Samurai Pork Burger with sweet sauce. In Germany the chain sells beer andMcCroissants, while wine is served in France. Chilled yogurt drinks are available inTurkey, espresso and cold pasta in Italy. Teriyaki burgers are sold in Japan and vegetarian

burgers in The Netherlands. Australian outlets used to offer mutton pot pie and, in thePhilippines, where noodle houses are popular, natives go for McSpaghetti.

The varied offerings also include banana fruit pies in Latin America, kiwi burgers(served with beetroot sauce) in New Zealand, noodle soup served in most Asian marketsand chilli sauce to go with fries in Mexico and Singapore. McLaks (grilled salmonsandwich) are sold in Norway and McHuevo (poached egg hamburger) in Uruguay. InThailand, McDonald’s introduced the Samurai Pork Burger with sweet sauce. Moreover,in France, McDonald’s have adapted the ‘McDeluxe’ to have a delicate old mustard and

pepper sauce, a slice of cheddar cheese, fresh onions and a whole lettuce leaf to appeal to

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their tastes and in Greece and Cyprus the introduction of the Greek Mac has been a hugesuccess.

These are examples of how McDonald’s has adopted its product offer in internationalenvironments.

2.9 Structure of the market/competition

The issue of the competitive environment must be seen as probably one of the mostimportant issues. By gathering continuous data about competitors, such as their strategicstrengths and weaknesses, their objectives, strategy, tactics and reaction patterns and thesort of marketing activity/budget, a company can decide its own position in relative termsand be prepared for what challenges are facing them in terms of competitor attacks. Thisinformation also can be used to interpret sudden moves by competitors and how they willrespond to a move you are considering taking.

Porter (1980) and Doyle (1983) are both proponents of positioning strategy. Porter considers the external factors which impact upon a firm’s competitive positioning. Doylerefers to the choice of target market segment which describes the customers. A businesswill seek to serve and the choice of differential advantage which defines how it willcompete with rivals in the segment.

Porter claims that competition is at the core of success or failure of the firm and that asuccessful competitive strategy can establish a profitable and sustainable industry

position. He claims that there are two fundamental questions underlying the choice of acompetitive strategy: firstly, how attractive is the industry with regard to profitability andsecondly, what are the determinants of a competitive position within an industry.According to Porter there are five competitive forces that will govern the rules of

competition and these rules will prevail in any industry both in domestic and internationalmarkets. The five forces are:

the entry of new competition to the market

the threat of substitutes or replacement products

the bargaining power of buyers

the bargaining power of suppliers

the rivalry between firms of the same sector.

2.9.1 Threat of rivalry/competitors

The concentration of firms within the fast food industry is low due to the established presence of McDonald’s, Burger King and KFC. However, in certain markets,McDonald’s will face competition from established domestic fast-food outlets.

2.9.2 Threat of new/potential entrantsThe barriers to entry are quite high for new entrants, as the size of McDonald’s means theyhave achieved economies of scale and have preferential access to raw materials anddistribution channels. New entrants may find that a high cost of investment is required insecuring plant and machinery.

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2.9.3 Threat of substitutesA substitute product is one that can be used as an alternative to a company’s own. It could

be argued that the threat of substitutes to McDonald’s comes from pizzas and other domestic kebab and fast food houses. However, most of the above do not have the samelevel of convenience that McDonald’s offers, in having a number of outlets in big citiesand also through the use of multiple drive-through outlets.

2.9.4 Bargaining power of buyersThis area is perceived to be fairly low risk for McDonald’s as consumers have little controlover the variations in the product offerings, price and place of distribution. However,international market research should take place and any necessary adaptations made. Thecompany should keep customers satisfied, as switching cost is low and the possibility of

switching to another brand in case of dissatisfaction is relatively low.

2.9.5 Bargaining power of suppliersThis ranges from the threat of forward integration to the threat of cutting off supplies. AsMcDonald’s has a great deal of influence over their suppliers, due to the fact that it aidsthem and trains them, the threats from suppliers are low. Due to the scale of McDonald’soperations, suppliers are keen to retain their contracts with the firm. McDonald’sinternationalisation could also mean greater sales potential for suppliers.

2.10 Competitive positioning

So, what is a good strategy? Can a firm position itself in order to gain competitiveadvantage over its competitors? Is there a specific position a firm should take in order for its strategy to be successful?

Rumelt (1980) states that competitive advantages can normally be found in superior resources, superior skills or a superior position. Resources and skills enable a firm to domore or do it better than the competition. Different resources and skills will be requireddepending on the industry or market segment. Positional advantage is how thearrangement of these resources and skills are used to out manoeuvre the competition.Positional advantage can be gained by forward planning, greater skill and resources or luck! Once a dominant position is gained it is difficult for the competition to dislodge theincumbent firm provided the position merits continuation and that it is extremely costlyfor competitors to take over.

As long as environmental forces remain constant position can remain constant.Positional advantage can take the form of size or scale, differentiation from competitors

and successful trading names. To be successful, a company needs to get both its strategyand tactics working in harmony to provide the optimum return bounded by efficiency(McDonald and Leppard, 1993). Both strategy and tactics should be designed after acareful consideration of the situational environment.

It is apparent from Figure 2 that businesses finding themselves to the left of this matrixare destined to die, strategy being the key factor as to how quickly. ConsideringMcDonald’s international performance we can argue that the company is thriving as it iseffective – doing things right (having the desired effect, producing the intended result) andefficient – doing the right thing (able to work well and without wasting time or resources).

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Source : McDonald and Leppard, (1993, p.7)

The firm has to consider more than the industry structure, it also has to take an appropriate position within the industry. This positioning will determine the competitive advantage afirm can have, namely low cost or differentiation against competitive scope at the broador narrow market (see Figure 3).

The official stance on McDonald’s pricing policy is highlighted in the company’s missionstatement, where it states the most fundamental element of determining price:

“Being in touch with the pricing of our competitors allows us to price our products correctly, balancing quality and value.”

Overall the ultimate goal of McDonald’s pricing and differentiation mix is to increasemarket share. The strategies of cost leadership and differentiation are usedinterchangeably within the internationalisation approach of McDonald’s.

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Figure 2 Strategy tactics grid (for colours see online version)

Figure 3 Porter’s generic strategy grid (for colours see online version)



The McDonald’s positioning in the cost leadership quadrant is achieved not onlythrough economies of scale in research, development and promotion but also throughlearning, knowledge and experience in production and operational processes as well as theway it manages its franchises. Vignali (2001) provides an explanation of the pricingdecisions of McDonald’s. He notes that this is based on a six step approach, namely:

1 selecting price objectives

2 determining demand

3 estimating costs

4 analysing competitors’ costs, prices and offers

5 selecting a pricing effort6 selecting the final price.

The use of a differentiation strategy is where the firm attempts to diversify from itscompetitors by adding something to its product that will provide a unique value to itscustomers. There are also various ways a firm can differentiate depending on the industryin which it operates, however the costs of this differentiation policy must be lower thanthe additional pricing the firm can obtain. Differentiation for McDonald’s is achievedthrough a perceived superior quality product which surpasses their nearest rivals and high

brand image and recognition. The company also has used their promotion and packagingas a means of further differentiation, for example, the golden arches, which have becomean internationally recognised symbol for high quality at low cost. They can, therefore,

adopt a premium pricing policy in many markets where economic conditions allow.There are several approaches a firm can take to become a low cost producer, which can be used in isolation or as a combination to differentiation. The most basic way to a lowcost is to remove all the ‘extras’ from the product and produce a no frills offering. Thedanger in this strategy is that the way is paved for a feature war. The design or make upof the product can create advantages, for example the use of alternative materials. Thestandardised production and operational processes a firm employs can also reduce costs.Another example would be the efficient use of distribution networks, manufacturingsystems or the use of low cost labour and product innovation.

The McDonald’s company has perhaps, contrary to Porter’s warning, managed toadopt both a differentiation and a cost leadership strategy.

McDonald and Leppard (1993) have developed a strategic focus matrix (see Figure 4)which emphasises the impact of time on business activities. The elements relating to themarketing mix have been emboldened to show where they are positioned in relation totime. It is our view that McDonald’s adopts the following recommendations, not only inthe short term but also in the medium and long term.

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Source : McDonald and Leppard (1993)

2.11 Strategic marketing planning

Strategic marketing planning makes use of a number of analytical models that help todevelop a strategic view of the business and, thus, can be used as decision-making aids.The Boston Consulting Group (BCG) matrix (see Figure 5) is one of these models.

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Figure 4 Strategic focus matrix (for colours see online version)

Figure 5 The Boston Consulting Group matrix (for colours see online version)



Products or services and their respective strategies fall into one of four quadrants of the BCG matrix. The typical starting point for a new business is as a question mark. If the product is new it has no market share but the predicted growth rate is good. Whattypically happens in an organisation is that management is faced with a number of thesetypes of products but with too few resources to develop them all. Thus, the strategicdecision-maker must determine which of the products to attempt to develop intocommercially viable products and which ones to drop from consideration. Question marksare cash users in the organisation. Early in their life, they contribute no revenues andrequire expenditures for market research, test marketing and advertising to build consumer awareness.

If the correct decision is made and the product selected achieves a high market share,it becomes a BCG matrix star. Stars have high market share in high-growth markets. Starsgenerate large cash flows for the business but also require large infusions of money tosustain their growth. Stars are often the targets of large expenditures for advertising andresearch and development to improve the product and to enable it to establish a dominant

position in the industry.Cash cows are business units that have high market share in a low-growth market.

These are often products in the maturity stage of the product life cycle. They are usuallywell-established products with wide consumer acceptance, so sales revenues are usuallyhigh. The strategy for such products is to invest little money into maintaining the productand divert the large profits generated into products with more long-term earnings

potential, i.e. question marks and stars.Dogs are businesses with low market share in low-growth markets. These are often

cash cows that have lost their market share or question marks the company has elected notto develop. The recommended strategy for these businesses is to dispose of them for

whatever revenue they will generate and reinvest the money in more attractive businesses(question marks or stars).

Having used the Boston Consulting Group matrix above, it should also be noted thatthe BCG matrix suffers from limited variables on which to base resource allocationdecisions among the businesses making up the corporate portfolio. Notice that the onlytwo variables composing the matrix are relative market share and rate of market growth.

Now consider how many other factors contribute to business success or failure.Management talent, employee commitment, industry forces such as buyer and supplier

power, environmental sensitive practices, corporate governance, corporate socialresponsibility and the introduction of strategically-equivalent substitute products or services, changes in consumer preferences and a host of others determine ultimate

business viability.

The BCG matrix is best used, then, as a beginning point but certainly not as the finaldetermination for resource allocation decisions as it was perhaps originally intended. Inother words, just analysing the coordinates of a product into the dogs category would notnecessarily mean that it should be singled out for termination. The technological,

production and market synergies (with reference to a perceived ‘total offering’) tocustomers should also be parts of any elimination of ‘dogs’.

Further, if we consider McDonald’s position as market leader within the ‘restaurant based fast food’ market (this is as opposed to frozen home made fast food items) and therelative profits derived from this market, then it becomes clear that they are positioned inthe ‘protect position’ quadrant of the Mckinsey matrix (Figure 6). This means that the

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company should concentrate efforts on maintaining its existing strength by investing togrow at maximum digestible rate.

Source : Day (1986)

It is also recommended that they can capitalise on ‘first mover’ advantage and therefore‘drive’ market innovation. This reflects the concepts of the ‘inside-out’ or competencies

based approach or the capabilities based approach – i.e. due to their relative size in themarket, McDonald’s can, to some extent, drive the market.

2.12 Strategic options

Markides (1999) further states that behind every successful company there is superior strategy. The company may have developed this strategy through formal analysis, trial and

error, intuition or even pure luck. No matter how it was developed, it is the strategy thatunderpins the success of the company.Strategists have a tremendous amount of both latitude and responsibility in developing

and balancing the strategic options of an organisation. The countless decisions required of these managers can be overwhelming considering the potential consequences of incorrectdecisions. One way to deal with this complexity is through categorisation; onecategorisation scheme is to classify corporate-level strategy decisions into three differenttypes or grand strategies (Porter, 1985). These grand strategies involve efforts to expand

business operations (growth strategies), decrease the scope of business operations(retrenchment strategies) or maintain the status quo (stability strategies).

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Figure 6 The McDonald’s company’s position in the Mckinsey matrix (for colours see onlineversion)



More specifically, growth strategies are designed to expand an organisation’s performance, usually as measured by sales, profits, product mix, market coverage, marketshare or other accounting and market-based variables. Typical growth strategies involveone or more of the following:

with a concentration strategy the firm attempts to achieve greater market penetration by becoming highly efficient at servicing its market with a limited product line(e.g. McDonalds in fast foods)

by using a vertical integration strategy, the firm attempts to expand the scope of itscurrent operations by undertaking business activities formerly performed by one of its suppliers (backward integration) or by undertaking business activities performed

by a business in its channel of distribution (forward integration)

a diversification strategy entails moving into different markets or adding different products to its mix. If the products or markets are related to existing product or service offerings, the strategy is called concentric diversification. If expansion is into

products or services unrelated to the firm’s existing business, the diversification iscalled conglomerate diversification.

When firms are satisfied with their current rate of growth and profits, they may decide touse a stability strategy. This strategy is essentially a continuation of existing strategies.Such strategies are typically found in industries having relatively stable environments. Thefirm is often making a comfortable income operating a business that they know and see noneed to make the psychological and financial investment that would be required toundertake a growth strategy.

Finally, retrenchment strategies involve a reduction in the scope of a corporation’s

activities, which also generally necessitates a reduction in number of employees, sale of assets associated with discontinued product or service lines and, in the most extreme cases,liquidation of the firm.

Nonetheless, even considering which strategy to pursue – and McDonald’s is indeed pursuing a growth strategy through its continuous franchising international and domesticexpansions – is not enough in defining strategy correctly. Mintzberg (1994, p.28)discusses the concepts of strategy as a position and strategy as a perspective. He notes that“as position, strategy looks down . . . to the “x” that marks the spot where the productmeets the customer . . . and it looks out . . . to the external marketplace. As perspective, incontrast, strategy looks in . . . inside the organisation, indeed, inside the head of thecollective strategist . . . but it also looks up – to the grand vision of the enterprise”.

Mintzberg provides an illustration to demonstrate the concept. This has been adaptedand shown in Figure 7.

2.13 Utilisation of value chain

Viswanathan and Dickson (2006) provide a conceptual three-factor model describing theright conditions for the standardisation of products and services for a global organisation.Although it has been argued that McDonald’s uses a customised approach for setting upits local strategies in the various countries in which it operates, the Viswanathan andDickson model (Figure 8) encompasses elements that, if considered by internationalcompanies, could perhaps be used to enable them to capitalise on their experienceselsewhere for successfully launching and managing their expansion.

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Source : Mintzberg (1994, p.28)

Source : Viswanathan and Dickson (2006, p.51)

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Figure 7 Position and perspective concept (for colours see online version)

Figure 8 Standardising global marketing strategy



The use of this model serves as an aid to managers for analysing the conditions of the perspective host country with regard to being favourable for the transferability of tried andtested practices. If all three conditions are not favourable then management would at least

be in a position to know where to focus attention or where new strategies and tactics wouldneed to be customised to suit the new environment.

3 Conclusions

It is argued that effective marketing strategies and tactics cannot be developed withoutfirstly analysing the environment in which the company operates. A number of uncontrollable elements affect McDonald’s international marketing strategy and tacticalimplementation. These groups of elements include the PESTLE (political, economic,social, technological, legal and environmental), structure of the market and competition

being faced (Porter’s (1980) five forces analysis) as well as analysis of its stakeholders,customers and product adaptation within its internationalisation strategy. All of theseaspects are crucial to a company’s strategic decision making. The level of understandingthat exists in these relationships will determine the success of a company.

McDonald’s is not making a one-time standardised global choice but it is striking tofind a balance. This is not a straightforward task, as identifying the balance betweenstandardisation and adaptation is a challenge and very difficult to achieve. The goals of reducing costs and complexity lead McDonald’s to consider standardisation, whilecustomer orientation sways it towards adaptation. It is evident through the analysis thatMcDonald’s is adapting its marketing mix elements in order to go in line with the externalenvironment. At the same time, it should be noted that the company is also standardising

when and where possible in its desire to achieve economies of scale and global uniformityand image.

With respect to McDonald’s internationalisation strategy, the company’s effectivenessand profitability is obviously well supported by their strong competitive position andmarket share in their primary product market. Its’ international success is achieved by thecompany’s strategy and tactics, which complement each other and work in harmony,

providing the optimum return bounded by efficiency. The company is thriving as it is botheffective (doing things right) and efficient (doing the right thing).

McDonald’s portfolio of products is well managed and ensures the best fit between thecompany’s strengths and weaknesses and for offsetting the threats found in its competitiveenvironment. In considering the strong competitive position of the firm in a highlyattractive market, it is suggested that McDonald’s should protect its position (Mckinsey

matrix). This can be achieved by concentrating efforts on maintaining its existing strength by investing to grow at maximum digestible rate.It is recommended that McDonald’s continue this approach, that is: simultaneously

focus its attention on aspects of the business that require global standardisation and aspectsthat demand local responsiveness. When appropriate, processes should be standardised,however, operation in local markets necessitates the maintenance of the appropriate localflexibility.

McDonald’s is adopting differentiation and cost leadership strategies (genericstrategies). In terms of differentiation, the firm attempts to be diverse from its competitors

by adding something to its product that will provide a unique value to its customers. This

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is achieved through well-designed and managed marketing activities resulting in a perceived superior quality product and high brand image and recognition. Further, costleadership is achieved, not only through economies of scale but also through learning,knowledge and experience in production and operational processes and througheffective/efficient distribution networks and manufacturing systems.

It is recommended that further international expansion may benefit from the use of avalue chain analysis with regards to identifying the degree of homogeneity of a newcountry with the ones in which McDonald’s already has a presence. Such an analysis willhelp to avoid expensive mistakes and false starts, as well as achieve further economies of scale through the transferability of the experiences and lessons learned in other countries.

References

Daniels, J. and Radebaugh, L. (1998) International Business: Environments and Operations ,8th edn, Reading, MA: Addison-Wesley.

Day, G.S. (1986) Analysis for Strategic Marketing Decisions , St Paul, MN: West PublishingCompany.

Doyle, P. (1983) ‘Marketing management’, unpublished paper, Bradford UniversityManagement – Centre, in R. Brooksbank (1994) ‘The anatomy of marketing positioningstrategy’, Marketing Intelligence and Planning .

Markides, C. (1999) ‘Six principles of breakthrough strategy’, Business Strategy Review , Vol. 10, No. 2.

McDonald, M. and Leppard, J.W. (1993) Marketing By Matrix , USA: NTC Business Books.Mintzberg, H. (1994) The Rise and Fall of Strategic Planning , New York, NY: Free Press.

Muhlbacher, H., Dahringer, L. and Leihs, H. (1999) International Marketing: A Global Perspective,2nd edn, London: International Thomson Business Press.Porter, M.E. (1980) Competitive Strategy, Techniques for Analysing Industries and Competitors ,

New York: Free Press.Porter, M.E. (1985) Competitive Advantage , New York: The Free PressRumelt, R. (1980) ‘The evaluation of business strategy’, in W.F. Glueck (Ed.) Business Policy and

Strategic Management, New York: McGraw-Hill.Vignali, C. (2001) ‘McDonald’s: “think global, act local” – the marketing mix’, British Food

Journal, Vol. 103, No. 2, pp.97–111.Vignali, C., Vrontis, D. and Vranecevic, T. (2003) Marketing Planning. Analysis, Strategy and

Tactics , London: Foxwell and Davies.Viswanathan, N.K. and Dickson, P.R. (2006) ‘The fundamentals of standardizing global marketing

strategy’, International Marketing Review , Vol. 24, No. 1, pp.46–63.

Vrontis, D. and Vronti, P. (2004) “Levi Strauss. An international marketing investigation’, Journal of Fashion Marketing and Management , Vol. 8, No. 4, pp.389–398.

Whalen, J. (1995) ‘McDonald’s cooks worldwide growth’, Advertising Age International ,July/August, p.5.

Notes

1 http://www.mcdonalds.com/corp/about.html

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mcdonalds 08 jibed vol 3 no. 4 with pavlou p

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