Marketing Mix model McCarthy - Assignment

The marketing mix
McCarthy (1975) formulated the concept of the 4Ps – product, price, promotion, and place
marketing mix. For many years these have been used as the principal foundation on which a
marketing plan is based. However, with particular attention being paid to services marketing in
recent years, theorists have identified additional variables which could be added to the 4Ps. Fifield
and Gilligan (1996) recognised the following variables as an integral part of the marketing mix –
process, physical, and people.
It is these 7Ps that we will use in analysing the marketing mix of McDonald’s:
Product – features, quality, quantity.
Place – location, number of outlets.
Price – strategy, determinants, levels.
Promotion – advertising, sales promotion, public relations. (5) People – quantity, quality, training,
promotion.
Process – blueprinting, automation, control procedures.
Physical – cleanliness, decor, ambience of the service.
Product
One of the aims of McDonald’s is to create a standardised set of items that taste the same whether
in Singapore, Spain or South Africa. McDonald’s learned that, although there are substantial cost
savings through standardisation, being able to adapt to an environment ensures success.
Therefore, the concept of ‘‘think global, act local'' has been clearly adopted by McDonald’s.
Adaptation is required for many reasons including consumer tastes/ preferences and
laws/customs. There are many situations where McDonald’s adapted the product because of
religious laws and customs in a country. For example, in Israel, after initial protests, Big Macs 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). Such innovations 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 ritual cleanliness; the chain was rewarded with a halal (‘‘clean'',
‘‘acceptable'') certificate, indicating the total absence of pork products.
There are also many examples of how McDonald's adapted the original menu to meet customer
needs/wants in different countries. In tropical markets, guava juice was added to the McDonald's
menu. In Germany, beer is sold as well as McCroissants. Chilled yogurt drinks are available in
Turkey, espresso and cold pasta in Italy. Teriyaki burgers are sold in Japan, vegetarian burgers in
The Netherlands. McSpaghetti has become increasingly popular in the Philippines. McLees
(grilled salmon sandwich) are sold in Norway, McHuevo (poached egg hamburger) in Uruguay.
In Thailand, McDonald's introduced the Samurai Pork Burger with sweet sauce. These are all
examples of how McDonald's has adapted its product offer in international environments.
Irrespective of variations and recent additions, the structure of the McDonald's menu remains
essentially uniform the world over: main course burger/sandwich, fries, and a drink –
overwhelmingly Coca-Cola. The keystone of this winning combination is not, as most observers
might assume, the Big Mac or even the generic hamburger, it is the fries. The main course may
vary widely, but the signature innovation of McDonald's – thin, elongated fries cut from russet
potatoes – is ever-present and consumed world-wide by all McDonald’s customers, irrespective of
their religious beliefs or political stance! It is understandable, therefore, why McDonald’s has

made such a fetish of its deep-fried potatoes and continues to work on improving the delivery of
this industry winner.
Quality
Quality Assurance teams are responsible for monitoring the quality of McDonald’s food products,
both in the restaurants and at suppliers at all stages of production. This involves a continuous
round of visits, inspections and audits, announced and unannounced, to all production facilities,
distribution centres and restaurants. Visits even extend to secondary suppliers such as farms, to
monitor crops growing in the field or to inspect seeds prior to planting.
Every supplier manufactures to very tight specifications, which detail the exact quantity and
quality of raw ingredients and the dimensions of the finished product. The specifications also
stipulate extensive checking procedures. In addition to studying all production run records which
are sent to McDonald’s by suppliers, McDonald’s regularly take samples of stock at distribution
centres to ensure that they conform to specifications.
The quality controls continue when the food arrives at restaurants. No delivery is accepted until a
series of quality and safety checks is completed. All restaurant staff receive comprehensive
training in food safety and hygiene and food preparation procedures. This is a global practice and
is one of the distinguishing features of McDonald’s as a fast-food restaurant.
Place
McDonald’s currently has over 24,500 restaurants in 116 countries across the world (see Table I).
McDonald’s continues to focus on managing capital outlays more effectively through prudent and
strategic expansion. In 1998, the company added 1,668 restaurants system-wide (whether
operated by the company, franchisee or joint venture), compared with 2,110 in 1997 and 2,642 in
1996. In 1999, McDonald’s expected to add about 1,750 restaurants with a continued emphasis
on traditional restaurants primarily in locations outside the USA.
McDonald’s realises the potential for growth in international markets and plans to benefit from
lessons that they learned in the USA. For example, they used to add 300-400 restaurants a year,
every year, in the USA regardless of circumstances. It was a strategy that created a gap between
them and the competition. However, they realise looking back that they could have built even
more restaurants at a time when competition was not so great. This would have meant that a lot of
those ‘‘other'' restaurants could have been McDonald’s. They have applied this lesson to their
rapidly growing international business, especially in markets where competition is not so strong.
For example, McDonald’s added 415 restaurants in Japan, accounting for 25 per cent of system-
wide restaurant additions in 1998. Longer-term, markets like China, Italy and Mexico are
expected to represent a growing proportion of restaurant additions. Although this strategy is an
example of globalisation, it is still clearly a ‘‘glocal'' focus as McDonald’s can now share ideas,
best practices and human resources across borders, thus further enhancing its competitive
advantage and strengthening its leadership position.
Price
McDonald’s has realised that, despite the cost savings inherent in standardisation, success can
often be attributed to being able to adapt to a specific environment. This is indeed the case with its
implementation of its pricing strategy, which is one of localisation rather than globalisation.
Table II illustrates the comparative Big Mac prices (flagship brand of McDonald’s) from around
the world. It succeeds in highlighting the point that McDonald’s has had to come up with different

pricing strategies for different countries. More importantly, rather than just having a different
pricing policy for the Big Mac in these listed countries, McDonald’s has had to select the right
price for the right market. The highest comparative price for the Big Mac is that of our own
country, the UK, but why is that the case? How does McDonald’s come to its pricing decision?
Pricing decisions
For each country, there is a rigorous pricing process that is used to determine the price for that
particular market. The process, as described by Vignali et al. (1999), is listed below:
selecting the price objective;
determining demand;
estimating costs;
analysing competitors' costs, prices and offers;
selecting a pricing method; and
selecting a final price.
The process above sets out the basic framework that allows McDonald’s to set localised pricing.
McDonald’s overall pricing objective is to increase market share. In each country, they look at the
demand for their product as a barometer for setting price. In the USA, for example, a Big Mac
with fry’s costs the equivalent of a Chicago office worker's earnings during 14 minutes. However,
elsewhere, a meal like this is perceived as a luxury, as opposed to a normal product, and would
cost a lot more relative to earnings. In Nigeria, for example, a corresponding meal would
represent 11 hours 23 minutes of work for someone living in Lagos. Thus, depending upon the
perception of price by the consumer, then will the price of the McDonald’s product be
determined.
This can further be explained by looking at Vignola’s tactical model for WIX-Mapping (see
Figure 1). By looking at the product WIXMAP, it is clear that, although placed in the same box,
the consumer in Lagos perceives the McDonald’s products as having more quality than the
consumer in Chicago. Therefore, in Lagos, the consumer will be willing to pay a higher price
relative to their earnings; hence, McDonald’s prices its goods accordingly.
This pricing strategy does not always work successfully, though, as was the case in the USA in
1997 when McDonald’s was losing domestic market share. To combat this, they had to lower
prices in an attempt to increase revenues. Similar efforts had also to be made in Japan for the
same reason, proving once more the importance of correct price setting.
The official stance on McDonald’s pricing policy is highlighted in the company's mission
statement, where it states that the most fundamental element of determining price was:
Being in touch with the pricing of our competitors allows us to price our products correctly,
balancing quality and value.
Therefore, it is possible to conclude that, by looking at other competitors in each country,
McDonald’s can set the appropriate price for their products. In New Delhi, India, McDonald’s
was looking at market penetration in October 1996, and set price through looking at Nirula's, a
local food chain. They used this local example as a guideline to what the Indian would perceive as
an acceptable price and hence what they should charge.
A comparative survey of prices was carried out in Hong Kong in June 1994 and demonstrated that
McDonald’s in price is equal to or cheaper than its competitors in the fast food sector. The
remarkable thing is, however, that not only is McDonald’s competitive in the fast food sector but
its prices remain competitive with those of other food purveyors. In Hong Kong, for example, an
average ‘‘value meal'' is less than half the price of a simple noodles meal!