The basic idea of this project came from the recent opening of the first McDonald’s Family Restaurant in the Gwalior City. The arrival was received with much enthusiasm from the whole city. As a result, McDonald’s has rapidly attracted a large following in Gwalior. It shows many implications on the changing consumer preferences due to the entry of a major fast food giant into the fast food market of the city. Several questions arise:
- How much does this affect the revenues of local fast food joints in the city?
- How much does it affect the customer retention ability of local fast food joints?
Studying customer migration would help us understand the extent and reason of the success of McDonald’s. Also it would help give answers to the following major questions:
- Should the local fast food joints taking any steps to attract customers they lost?
- What steps will be more helpful in the fulfillment of their objective?
According to Malhotra’s Marketing Research (2007, fifth edition), marketing is becoming increasingly important for competing for consumers in the fast food market. McDonald’s concluded their 3 year revitalization effort, i. e. a $500 million “I’m lovin’ it” campaign in 2006.
Research has shown that this campaign has achieved remarkable levels of consumer awareness. Advertising Age magazine recognized McDonald’s as the 2004 Marketer of the Year. According to Gumbel (2008), as McDonald’s has been discovering, running a successful global company requires some pretty significant changes in corporate behavior. Going “glo-cal,” as management consultants like to call it, requires striking a balance between managing a brand on a consistent worldwide basis and appealing to differing consumer tastes in dozens of markets. McDonald’s restaurants around the world cater to local tastes.
Again, according to Malhotra’s Marketing Research (2007, fifth edition), McDonald’s dominates the kids’ meal market with its ‘Happy Meal’. Special focus on publicity and effective use of media helps chains create a brand image in the minds of the consumers. The mascot, the jingle and the slogan ‘I’m lovin’ it’ is known to consumers’ even if they are not acquainted with the place. Even before an outlet opens in the city, awareness in the form of hype is created among the consumers in that city through local channels and other ways like advertisements on billboards, television, newspaper etc.
According to York (2008), there’s nothing new about midday cravings or late-night binging, but the degree to which fast feeders and casual-dining chains are trying to lure consumers 24/7 has reached belly-busting proportions.
- THE PITCH: Stop by for a quick snack or augment your meal
- THE PRODUCTS: Ranch and chipotle snack wraps with grilled or fried chicken
At McDonald’s, there are no fixed timings for the serving and availability of food. The outlet is open throughout the day, mealtimes or not and even late into the nights.
It has enhanced the concept of “eating between meals” for the common public making it more lucrative. According to Restaurants and Institutions (July, 2008), price of the items on the menu has to be flexible according to the changing clientele’s preferences (eating habits, taste and moods). The menu should have a wider price range to cater to the demands and needs of the various sections of the consumers. For the lower sections of the consumers, as well as for the higher sections of the consumers, there should be suitably priced assortment of items in the menu.
Again, according to Restaurants and Institutions (Sep, 2006), Age, ethnic and income groups often cast contrasting votes on chain performance. Consumers are divided into 4 types:
- Gen Y (26 and younger),
- Gen X (27 to 41),
- Boomers (42 to 60)
- matures (60 and above).
People belonging to different age groups, have different choices and preferences, different tastes and habits, on the whole a different perception of things altogether. So, catering to the demands of these separate categories of consumers is a big challenge for the restaurants today.
Chain or not, each restaurant tries to appeal to each category of consumers, but also recognizes the most active clientele to derive the maximum profit out of them. Again these consumer sections may differ on the basis of spending capacity (i. e. will and ability to spend according to income). According to Hume (2006), quick-service and casual-dining chains are responding by adjusting menus and service styles without negating their traditional brand personas.
Also, according to Malhotra’s Marketing Research (2007, fifth edition), McDonald’s Strategy is to ‘attract customers with price and keep them with service’ and become ‘recognized as the service leader in the nation [U. S. ]’, as said by the Corporation’s U. S. president. The atmosphere and the ambience at McDonald’s are portrayed as trendy, in vogue and casual. It results in time reducing self service on one hand, whereas on the other hand it is a suitable cost cutting measure adopted to keep overheads to the minimum by the chain outlets.
Demographics of McDonald’s customers in a survey? Literature Review Kalnins (Arturs Kalnins, 2003) notes that in the late 1990s, fast-food chains alternated between promotions emphasizing low prices and those emphasizing the quality and uniqueness of their products. The price promotions have been widely acknowledged as ineffective in raising market share at the expense of the other hamburger chains, although they continue to play a prominent, if reduced, role in the strategy of all the major fast-food chains.
Kalnins paper is a discussion using Spatial Econometrics over whether hamburger prices really affect the consumer preferences for the chains. The level of substitutability of a product may be affected by price of spatially close competitors. Similarly, should the prices of such competitors be highly correlated over time, it stands as a proof of the fact that prices had to be competitive among these players to attract customers. Kalnins argues that quality and service are more determinant factors to attract new customers, but prices play a dominant role in increasing the frequency of visit of the existing loyal consumer base.
Pledger (1997) and McDowell and Ross (1997) have written on cross chain competitions. In the 1990s, the nationally active chains such as Burger King and McDonald’s attempted to compete on many dimensions, including new-product introductions and tie-in promotions with films and television programs. Pricing promotions, however, remained central as their default strategies. The stated rationale for the promotions has typically been – to gain market share at the expense of other chains – and to attract new customers unfamiliar with the chain’s products.
Additionally, Ordonez (2000) notes that, interestingly, while the fast-food chains have acknowledged that a large portion of their revenues come from steady customers known as “heavy users,” selling larger quantities to these regular customers has not become the focus of the firms’ marketing efforts. The fundamental question underlying these stated opinions on the effectiveness of price promotions for gaining or defending market share from competitors relates to the degree of substitutability of the products in the eyes of most consumers.
On the one hand, if the chains each have a loyal group of customers, then lower prices are unlikely to increase market share at the expense of a competitor. Rather, lowering prices amounts to the chain selling the products cheaper to infra-marginal customers within its loyal group. In this case, the price reduction would only make sense if the additional quantities sold to existing customers were large enough to make up for the reduced revenue on infra-marginal sales.
On the other hand, if the customers view the products of the different chains as substitutes, then lowering prices would be an effective way of capturing market share from competitors. The preceding arguments suggest that price plays an important role in increasing the firms’ revenue, or, consumer base even when the competition is among similar chains. In our context, between chains and local fast food joints, we note that taking price as one of the variables should envisage interesting results. But even among these discussions on prices, economists have pointed out that service and quality also play an important role.
So does brand loyalty of customers – which is a direct function of the brand image of that firm. Chains look to balance quality perceptions with cost realities. Determining the price/value threshold, says Thompson (director, Research and Development, Golden, Colo. ) “is a little bit art, a little bit science. ” It requires knowing what the market will bear by keeping abreast of pricing in all industry segments because customers have higher- and lower-price choices for almost all menu choices, not just breakfast sandwiches.
Finding the right balance takes the understanding of a concept’s primary consumers, needs and expectations. – From, Humes (2006). The pricing equation has to be balanced with atmosphere. Tony Roma, a ribs specialty chain, noted that a decent breakfast at their restaurant costs $19. Compare that to $5 at McDonalds and other Hamburger chains and the differences between them are clearly outlined. Tony Roma’s ongoing interior remodeling helps balance what price increases are necessary. Flat-screen televisions, booths and softer lighting improve guests’ dining experiences.
Humes (2007) says that, concepts built over decades around the promise of speedy service and budget friendly pricing now find that many consumers are willing to pay more for something a bit different: more comfortable decor, perhaps, and freshly prepared, customized meals for certain. Quick-service and casual-dining chains are responding by adjusting menus and service styles without negating their traditional brand personas. One of the challenges that chain restaurants often feel (one that is neglected by local fast food joints) is to keep the menu flexible.
They either present entirely different menus at day times and night times or offer a wide variety of options (combos and extras) to provide the customer with choices even when ordering the same food. Keeping low order, low priced, items in menu, allow the customers to see the advantages (or additional) that the high priced items provide. Local food outlets ignore such advantages, though fast food chains often cash-in on such incentives. Service, quality of food, variety in menu and flexibility while ordering, form the basis of the atmosphere at a restaurant.
Testing the equivalence of atmosphere in competing restaurants shall outline the competitive advantages on either side. Euro-monitor Market Direction – a unique source of market information in 77 consumer product sectors in 8 countries – observes that fast food accounts for over $100 billion in worldwide market sales. Fast food chains are entering world markets to take advantage of opportunities as domestic markets become more saturated. According to Passikoff (2008), McDonald’s logo actually means something to consumers (adults and children alike) and adds some flavor to the perception of the product.
A number of years ago, their firm undertook a study of the power of brand logos and found that the McDonald’s golden arches made nearly a 20% contribution to engagement, loyalty and sales. Advertising and Franchising play key roles in building up a brand’s recognition. The key difference between any major established brands of chain fast food stores and local hangouts is perhaps the extent to which they are advertised. From taglines to logos to mascots – fast food chains experiment extensively to gain brand goodwill and sometimes, explore new markets.
According to MacArthur (2006), some 50 million customers a day are thundering through McDonald’s-2 million more per day than when its “I’m lovin’ it” campaign launched two years ago(in 2004). Determining just how much of that foot traffic is generated by the advertising-or myriad other promotional pushes and menu improvements-is nearly impossible. But McDonald’s is lovin’ the campaign enough to ask its agencies to take it up a notch. McDonald’s has done its branding consistently and effectively. The result: Nine out of 10 children know Ronald McDonald.
Kids worldwide only know Santa Claus better; perhaps because he gives away toys (one of which might actually be a McDonald’s Barbie. ) Robert Passikoff notes in Brandweek (2008) that the direct effect of branding on sales is obvious, on the contrary, Mary Boltz Chapman notes otherwise in her ‘CONTRARY Public Opinion, Consumer Pulse’. Both stark out a contrast on consumer preferences as they vary across the change offered by a chain restaurant, compared to the neighborhood feeling of a local one. Studying the effects of brand image of McDonald’s in Gwalior should eventually direct us to observe patterns similar to the aforementioned works.
For, debate among notable researchers in stark environments warrants a localized evaluation to effect a classification. Successful branding imbues a product with special values, and remains the goal of any product or service that aspires to be a brand. Otherwise you’re a category placeholder, or worse, a commodity. Diners surveyed for R&l’s Consumers’ Choice in Chains (R&I 2006) study do more than rate the performances of chain restaurants: They also reveal how they make decisions and what aspects of the dining experience are most important to them.
The more than 3,100 respondents interviewed represent a cross-section of America, and dining preferences often significantly differ along age, ethnic and income lines. Consumer considerations on the variables of Price are expected to differ based on their income. The utility of good quality food available at cheaper rates is high, to a lower income group. However such might not be entirely true for high income groups as well. Their expectation for the value of their money may direct them to local restaurants (which may be more expensive) which already know them and would give them special considerations for the same.
Similarly, preferences for brand might be higher for the young generation which has been exposed to heavy advertising, issuing a build-up of brand loyalty. The popularity of Roland McDonalds among kids may bring families to McDonalds for birthday parties or dining. On the other hand, Boomers, may prefer casual dining at local joints for their consistency. Such variations are an important characteristic that helps in efficient segmentation of the market. The research objectives of this research assume market segmentation as stated in R&I, September (2006) and then analyses the trends perceived among the segments.
Hypotheses (H0: Null Hypothesis, Ha: Alternate Hypothesis)
- H0: Price of the menu items has a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: Price of the menu items does not have a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints.
- H0: Brand Image has a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: Brand Image does not have a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints.
- H0: Atmosphere and Convenience of the location of the outlet has a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: Atmosphere and Convenience of the location of the outlet does not have a significant effect on the customers’ preferences towards the McDonald’s chain rather than other local city fast food joints.
- H0: The Age group that the customer belongs to does not have a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: The Age group that the customer belongs to has a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints.
- H0: The Income group that the customer belongs to does not have a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: The Income group that the customer belongs to has a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints.
- H0: Relationship status of the customer does not have a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints. Ha: Relationship status of the customer has a significant effect on the customer’s preferences towards the McDonald’s chain rather than other local city fast food joints.
People from different places, belonging to different age groups, income groups etc. were asked to fill in their responses to these questions. The data collection process was carried on over a period of 20 days, collecting around 90 responses. The process of data collection was carried out online using Google spreadsheets. The responses for each question were obtained as a value between 1 and 5 (both inclusive), also as a spreadsheet. The questions were formulated on a licker scale of 1 to 5.
Each question presented the respondent with a scale (radio buttons) to press. The scale consisted of 5 radio buttons, where 1 represented – Strongly Disagree – and 5 represented Strongly Agree. Respondents could only submit the form after answering all the questions. Demographic details were compulsory. Name and Profession were also asked, but were not kept compulsory should the respondent want privacy. Snapshot of the Questionnaire: (as appeared on the questionnaire) Appendix B outlines the responses received for each question in the Questionnaire. ? Data Preparation and Analysis
Arturs Kalnins (2003) mentions, that, Ambience and Pricing are not a prime determinant, whereas, Brand Image is for consumer preferences. We have noticed this to similar effect. Brand Image is determinant of consumer preferences. Ambience and Pricing are not. Scott Hume (2006) noticed that Atmosphere is value to the customer when similar chains are compared. But, we notice that comparison to local fast food joints, Atmosphere at McDonalds does not play a key role in attracting consumers. An R&I article in September, 2006 mentions that High Income with customers reduces the importance of value at a food chain for the customers.
We notice a similar trend as the regression co-efficient for income to consumer preference is negative. Mary Boltz Chapman (2008) talks about the neutrality of relationship status to consumer preference. “Come One, Come All” is the trend that had been outlined. We notice a similar neutrality of Relationship Status to Consumer Preference in our research. Derek Gale (2007) outlines that Ambience at a restaurant does not invite customers as much as food quality does. Much interest may arise by the fact that Atmosphere was rejected as a significant contributor to Consumer Preference for McDonalds.
George Fiske, Lawrence Nein and Stanley J. Shapiro (1964) say that pricing is not determined by consumer perception, rather by market structure. Pricing was also rejected as a significant contributor to Consumer Preference for McDonalds in our research. Chain Restaurants such as McDonalds should emphasize on catering to various Income Segments. They should also add value to their Brand Name and work on maintaining it through time.