Product Positioning and Competition Essay
When society thinks about the local McDonald’s, they probably do not think “innovation’ - Product Positioning and Competition Essay introduction. That is because everyone has become accustomed to the many novelties that McDonald’s has introduced over the years. Some people do not even know that McDonald’s was the leader in innovation being the first major international fast food restaurant, with the first drive-through window. What many people do not realize is that McDonald’s continues to drive innovation in fast food.
Some times the innovation is well advertised, but other times they are designed so that customers will never even notice (Ritzer, 2004). This paper examines the effects that optimal product positioning strategies have on innovation and creativity for retail outlet locations in the fast food industry. The global fast food powerhouse McDonald’s has been the biggest marketer of fast food since 2004, with over 31,000 restaurants in 120 countries, brining in 47 million customers per day (Ritzer, 2004).
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The relationship between profits and product differentiation reveals that McDonald’s is better than most fast food chains at competing locally and globally in large market areas. Ritzer defined this as McDonaldization which is a process by which the principles of fast food restaurants is to dominate more and more sectors of American society as well as the rest of the world (Ritzer, 2004). In large markets such as India with limited competition, McDonald’s had the challenge of addressing flavor immigration through global cuisine.
For McDonald’s converting was going to involve various forms of selection and different taste buds, delivery as well as compatibility. A fast food chain such as McDonald’s may market a general menu but in countries like India this chain still needed to select cuisines that could be integrated into its mainstream products without confusing brand equity if it planed to be successful (Murphy, 2008). The common menu for McDonald’s consisted of chicken nuggets, fillet-o-fish, fries, sodas, and shakes (Hanacek, 2007).
However, moving into the India market meant that McDonald’s was going to have to create garlic free sauces to get in “hard core” vegetarian customers, re-formulate its own products using spices favored by Indians, eggless sandwich sauces, soft serves, milk free shakes, as well as the freshest chicken, fish and vegetable products that Indians are accustomed to (Hanacek, 2007). Unfortunately, product adaptation brought with it its challenges for McDonald’s.
When McDonald’s began developing its menu in 1998 it found that based on consumer feedback and research findings a wider product range was going to be needed in India because a majority of the population did not want them to entirely localize their menu (Ritzer, 2004). Based on research findings McDonald’s was also going to need more hot foods, lower entry level prices, and vegetarian pizza (Ritzer, 2004).
Thus McDonald’s management and executive team began right away devising a plan to cultivate their understood of the importance of Indian culture into their own company culture since McDonald’s idea of fast food service was completely different from that of Indian customs and beliefs. McDonald’s first step towards success and uniqueness was its commitment to source all of its products from within the country (Ritzer, 2004). For this purpose, it developed local Indian businesses, which supplied it with the highest quality products required for their Indian operations.
In addition, this allowed India McDonald’s to also service its customers with the foods its customers are accustomed to. McDonald’s developed a menu especially for India with vegetarian selections to suit Indian taste and culture, since 40% of the Indian population is vegetarian (Murphy, 2008). India McDonald’s serves fresh buns daily, as well as McMasala and Mclmli sauces that are native to the country. Customers can also enjoy Punjab, Chicken Patties, Vegetable Patties, Vegetable Pizza McPuff, Taloja, and Maharashtra when they visit McDonald’s in India.
In continuation with its marketing leadership initiatives, McDonald’s India launched the Maharaja Mac which replaced the Big Mac, and the Chicken Patties which replaced the beef patties (Murphy, 2008). McDonald’s opened it doors in many ways to India and that is why it is well known for its high degree of respect to the local culture. In line with its respect for local culture, India is the first country in the world where McDonald’s does not offer any beef or pork items (Murphy, 2008).
Furthermore, McDonald’s attempts to reconnect with its customers through its contemporary global marketing direction “i’m lovin’ it”. “im lovin’ it” reflects an attitude that McDonald’s wants its employees to embrace and reflect in their services all around the world (Murphy, 2008). So with this McDonald’s re-engineered its operations in India to address the special requirements of its vegetarian’s customers. McDonald’s made sure that special care was taken to ensure that the vegetable products were prepared separately, using dedicated equipment and utensils (Murphy, 2008).
This separation of vegetarian and non-vegetarian food products are being maintained throughout the various stages of procurement, cooking, and then serving. When McDonald’s decided to go to India it went in with a strategic plan that included creativity at its forefront which allowed it to succeed (Murphy, 2008). So much so that even mayonnaise and the soft serve in India are completely vegetarian. Nonetheless, for McDonald’s India there were delivery and compatibility issues that needed to be address. As far as delivery was concerned, McDonald’s flavor immigration strategy appeared to be a good one.
However, executives were unsure if it was credible enough to satisfy the consumer, franchiser, and if it feasibly fit into the distribution and preparation infrastructure of the chain (Hanacek, 2007). In fact, McDonald’s had completely stretched outside its normal environment and modified its existing products to meet the demands for global cuisines, but was it enough? Some critics argued that McDonald’s could have just simply offered its consumers and alternative approach and giving them the choice of themed condiments, such as Curry Cajun, spicy Asian, chipotle or Italian Parmesan sauces to add to existing menu items (Hanacek, 2007).
However, McDonald’s understood its market enough to know that this type of approach would not have worked in India since customs and culture permits them from eating beef and pork. Moreover, the second strategic issue addressed was compatibility between product adaptation and local responsiveness. In order for McDonald’s to tap into the Indian market and maximize its impact it had to completely restructure its American idea of fast food service (Hanacek, 2007). McDonald’s global strategy included being customer driven and goal oriented.
McDonald’s was determined to achieve sustainable profitable growth, and its global strategy was designed to increase restaurant visits and grow its brand loyalty among new and existing customers. According to Murphy (2008), it is true that Indians want a slice of America, but only once in a while. Indian consumers, however, knew that McDonald’s was not going to be a substitute for native Indian food, but they figured it would be one more option for people to exercise so they embraced it.
Furthermore, McDonald’s innovation strategy in India included evolving to remain relevant to customers, offering its customers variety of value, premium and wholesome menus, and giving more customers reasons to return. In addition, the drivers that influence innovative fast food products are multifaceted and constantly changing as trends and consumer attitudes shift. For example, McDonald’s also began educating people about healthy, active lifestyles, and eventually added premium salads to its menus (Ritzer, 2004). This was at a time when the world was becoming more health conscious.
According to Murphy (2008), McDonald’s transition into India was not exactly a smooth one. McDonald’s eventually ran into some problems as the demand for its product declined, but McDonald’s attributed these failures to faulty market research inputs (Murphy, 2008). Executives at McDonald’s state that the reason for such failures was low level indigenization verses high cost, lack of understanding of local tastes, over estimation of demand potential, rosy assumptions as well as speedy bureaucratic clearances, infrastructural inadequacies, inappropriate strategies and pricing issues (Murphy, 2008).
McDonald’s executives figured they had taken all the right steps since they had trained extensively, along with their Indian management team in McDonald’s in Indonesia and the US before launching (Murphy, 2008). In contrast, McDonald’s supply chain was critical to the success of their Indian operations. McDonald’s ability to understand the important of utilizing local networks for supply chain and distribution, local suppliers, and distributors to match international quality is what has allowed McDonald’s to continue to service the Indian population today although they have had many set backs (Hanacek, 2007).
McDonald’s executive and management teams was adamant about making sure that its operations and training program matched the international quality and hygiene standards in India before opening the first outlet, and this was the key to their accomplishments. What makes McDonald’s unique is that it designs innovation so that customers will never notice. For example, when a person pulls up to a McDonald’s drive-through and orders a Big Mac, they might assume that the representative they are talking to is and employee working inside the building (Hanacek, 2007).
However, due to technology at certain McDonald’s restaurants, the person could actually be talking to an order taker in completely different state. For McDonald’s outsourcing order taking allows them to handle 30 additional cars per hour (Hanacek, 2007). At the same time, the error rate in order taking is cut significantly because the order process becomes more efficient and accurate this way. Some other innovative ideas from McDonald’s include the dollar menu, which was later expanded into a breakfast menu in 2010 (Hanacek, 2007).
This was McDonald’s way to combat the recession. By adding a little extra bonus to the menu with hopes to catch more morning business, but breakfast sales failed to experience the necessary growth desired by the company due to higher unemployment rates and less commuting traffic. While breakfast accounts for only about 25% of McDonald’s revenues, breakfast food is sold at a higher-than-average profit margin (Hanacek, 2007). With the introduction of specialty coffees, McDonald’s attempted to become more than just a fast food restaurant.
It was hoping that its customers would now visit McDonald’s to sip on cappuccino while sitting in the Mccafe (Thomadsen, 2008). Wishful thinking, perhaps, but in reality not much has been settled under the so-called “Coffee War” between McDonald’s and Starbucks. Innovative and creative yes, but can McDonald’s really compete with Starbucks coffee (Thomadsen, 2008). According to Thomadsen (2008), McDonald’s might make coffee affordable but the taste will never measure up to Starbucks. Basically, all McDonald’s has done with its specialty coffees is created a split between two types of coffee drinkers.
One coffee drinker is in need of a cheap coffee fix, and the other is looking for the Starbucks Cafe experience (Thomadsen, 2008). Moreover, in 2008 McDonald’s was announced as one of the most admired companies, ranking number 9 in innovation, and number 1 in the industry category for best food services (Hanacek, 2007). In fact, McDonald’s was also recognized for its green salads, transfat-free oil, healthy happy meals, and nutrition information on the packaging, but most of all Micky D’s was recognized for being the king of junk food (Hanacek, 2007).
McDonald’s senior vice president J. C. Gonzalez-Mendez said that the innovation at McDonald’s can be attributed to its suppliers (Hanacek, 2007). While it may be spurred by one of its suppliers at any given time, it is always shared with the other suppliers because that is apart of their makeup and their relationship is based on trust and mutual respect. (Hanacek, 2007). Innovation with a side of fries is what employees call it (Hanacek, 2007).
McDonald’s warehouse is some 24,000 square-foot in Romeoville, and it has a staff of 30 who develop prototypes and run simulations of new procedures, technologies and restaurant layouts around the clock (Gudman & Russell, 2006). This warehouse location does almost everything short of taking orders and making food itself. It has up to three kitchens going at a time, and is a split mirror image of any McDonald’s at any given time around the world, from the basic burger spot in Boise, Idaho, to the luxurious Mc-digs near Rome’s Spanish steps (Gudman & Russell, 2006).
The staff in this warehouse is responsible for testing close to 2,000 ideas in these kitchens just last year (Gudman & Russell, 2006). Not only that, but these test suggestions come from McDonald’s very own customers as does suggestions from employees, franchisees and vendors. The key to understanding McDonald’s culture is to remember that approximately 85 percent of its restaurants are owned by franchisees (Thomadsen, 2008). These are entrepreneurs who are fiercely competitive, of whom own small businesses that mostly want to do right by their customers.
Yet most of them have different ideas about how to run a successful business. So for McDonald’s the challenge is brining together the owner-operators and the innovation process. Moreover, the owner-operators are the ones who invent many of the biggest successes, like the Big Mac and the Egg McMuffin (Thomadsen, 2008). Also McDonald’s support what is known as the “leadership and innovation committee,” so that the organization as a whole can respond to customer needs by establishing several groups and processes to create, review, and pilot innovations that include owner-operators.
McDonald’s feels that it needs to do more to stimulate and satisfy the whole customer experience, thus Mike Roberts, chief operating officer and one of the company’s top executives, Ralph Alvarez, travel weeks at a time to study competitors (Thomadsen, 2008). One result of this is a restaurant redesign, much of which comes from France, to deliver a quieter environment that engages the customer in all five senses, because McDonald’s not only wants people to enjoy their Big Mac, but the want them to enjoy their Big Mac in a relaxed, attractive setting (Thomadsen, 2008).
In addition, this program is intended to help the team lead at the enterprise level, which is grounded in seeing the business through the customer’s eyes and focuses on significantly differentiating the business strategy from that of their competitors so that the can develop value curves and suggest ways to drive growth and lead from a customer perspective (Gudman & Russell, 2006). Innovation at this scale, often involves a metaphor or theme that someone can relate to easily and use to help organize their thinking.
At McDonald’s this evolves from the focus on the customer at the center rather than conceiving itself as a retail operation. It is about turning ideas into new products, “thinking big, starting small, and scaling fast,” a concept attributed to Mats Lederhausen, managing director of McDonald’s Ventures and a leader in the company’s strategy efforts (Gudman & Russell, 2006). Without a doubt McDonald’s is a model of international financial success.
The process by which McDonald’s globalized itself is not limited to the fast food industry or to its nation of origin. The very idea of the McDonald’s India model is built on the principles that fast food restaurants should appeal to customers, workers and managers across societies and around the globe. What it all boils down to is efficiency, calculability, predictability and control. Efficiency is attractive to customers who have time constraints and are eager to eliminate their hunger as soon as possible.
Calculability is another feather of the McDonaldization process which affect the size of portions and the cost of production, as well has how long it takes to obtain the product. Predictability is a key component for consumers. The McDonald’s logo is a guarantee that regardless of location that the burger even if it is an “Indian style chicken patty” and the fries will be identical in some form or fashion. All these quantitative elements are emphasized in McDonaldized systems and brought to the consumer through its very core innovative activities.