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The external environment and its effect on


strategic marketing planning: a case study for
McDonald's

Article in J for International Business and Entrepreneurship Development · January 2008


DOI: 10.1504/JIBED.2008.019163

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

111
2 The external environment and its effect on strategic
3 marketing planning: a case study for McDonald’s
4
5
6
7 Demetris Vrontis*
8 School of Business, University of Nicosia, 46 Makedonitissas Ave.,
9 P.O. Box 24005, 1700 Nicosia, Cyprus
1011 Fax: 00357 22 353 722 E-mail: vrontis.d@unic.ac.cy
1 * Corresponding author
2
3 Pavlos Pavlou
4
5 Department of Management and MIS, School of Business,
6 University of Nicosia, 46 Makedonitissas Ave., P.O. Box 24005,
7 1700 Nicosia, Cyprus
8 Fax: 00357 22 353 722 E-mail: pavlou.p@unic.ac.cy
9
Abstract: This case study has been compiled in order to illustrate the effect of
2011 the external environment on the international marketing strategy of
1 McDonald’s, the fast food chain. An external environmental analysis is
2 necessary, as effective marketing strategies cannot be developed without firstly
3 analysing the environment in which the company operates. The paper analyses
4 a number of the theoretical approaches to strategic planning to be considered in
international marketing.
5
6 Keywords: adaptation; international; marketing; McDonald’s; standardisation;
7 strategy.
8
9 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:
30 a case study for McDonald’s’, Journal for International Business and
1 Entrepreneurship Development, Vol. 3, Nos 3/4, pp.289–307.
2
3 Biographical notes: Demetris Vrontis is the Founder and Editor of the
4 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
5 Business at the University of Nicosia, Cyprus. His prime research interests are
6 international marketing, marketing planning, branding and marketing
7 communications. He has published over 45 refereed journal articles, contributed
8 chapters and cases in books/edited books and presented papers to conferences
9 on a global basis. He is also the author of eight books, mainly in the areas of
international marketing and marketing planning
40
1 Pavlos Pavlou graduated from the University of Leeds in England with a BSc
2 in Engineering and from Salford University with a PhD in Management.
3 He spent 13 years in the UK’s NHS and in consultancy organisations
(PricewaterhouseCoopers and KPMG) in the UK and Cyprus. In 2005 he joined
4
the University of Nicosia as an Assistant Professor in the School of Business.
5 He teaches international business, leadership development and quality
6
711
8

Copyright © 2008 Inderscience Enterprises Ltd.


290 D. Vrontis and P. Pavlou

111 management at the undergraduate level and strategic management at the MBA
2 level. He is a member of the Editorial Review Board of the EuroMed Journal of
Business. His research interests include strategic performance management,
3
international business and corporate governance systems.
4
5
6
7 1 Introduction
8 1.1 McDonald’ s operations in international markets
9
1011 McDonald’s is the leading global foodservice retailer with more than 30,000 local
1 restaurants serving 52 million people in more than 100 countries each day. It is one of the
2 world’s most well-known and valuable brands and holds a leading share in the globally
3 branded quick service restaurant segment of the informal eating-out market in virtually
4 every country in which it operates.1
5
6 1.2 Situation analysis and marketing planning. A theoretical outlook
7 The importance of the internal and external environment and their effect on the
8 development and implementation of marketing planning is crucial and should be highly
9 considered by any organisation wishing to be profitable in the increasingly competitive
2011 international marketing arena. Multinational companies that desire to prosper, should
1 develop a coherent international marketing plan (see Figure 1) having, as a starting point,
2 the analysis of the environment. Based on that, the company objectives, strategies and
3 tactics are drawn, aiming for organisational success and profitability.
4 Multinational companies should have in mind that effective marketing strategies could
5 not be developed without firstly analysing the external and internal environment in which
6 the company operates.
7 The external environment for a company covers many aspects. It is suggested that the
8 environment covers two main areas:
9
 the macro-environment
30
1  the micro-environment.
2 The macro-environment consists of forces such social, cultural, legal, economic, political
3 and technological. Within this are included factors such as demographics, green issues and
4 larger societal and environmental forces. The micro-environment includes other
5 environmental constraints, such as the structure of the market, the suppliers, customers,
6 trends of the market, the public and competition.
7 Equally important is the internal environment incorporating the examination of the
8 company’s marketing mix (product, price, place, promotion) and service mix (people,
9 process management, physical evidence). An analysis of the internal environment also
40 covers other factors such as sales, profitability, market share and customer loyalty.
1 The internal audit examines the company’s own resources and supplies suggestions as
2 to the company’s strengths and weaknesses. Internal considerations are mainly
3 controllable by the company and, therefore, companies should mostly avoid any problems
4 from this area. It is evidently proven that product development and strategic formation is
5 based upon the internal organisational capabilities.
6
711
8
The external environment and its effect on strategic marketing planning 291

111 Figure 1 The STRATICS PROCESS – marketing planning


2
3
4
5
6
7
8
9
1011
1
2
3
4
5
6
7
8
9
2011
1
2
3
4
5
6
7
8
9
30
1
2
3
4
5
6
7
Source: adapted from Vignali et al. (2003)
8
9 Every company, after considering both its internal strengths and weaknesses and the
40 external environmental influences that affect it (opportunities and threats) is in a position
1 to develop an effective marketing plan. Failure to understand the external and internal
2 capabilities may lead to sub-optimisation of the organisation’s strategy and resources
3 invested.
4 Multinational companies must highly consider environmental auditing and the
5 development of the SWOT (strengths, weaknesses, opportunities and threats) analysis. This
6 is vital if they want to capitalise on organisational strengths, minimise any weaknesses,
711 exploit market opportunities as they arise and avoid, as far as possible, any threats.
8
292 D. Vrontis and P. Pavlou

111 It should be noted that the external environment is very important as it dictates the
2 behaviour of any marketing orientated organisation. Consequently, for the purpose of this
3 case, considerations for the analysis of the external environment are highlighted for
4 McDonald’s.
5
6
7 2 McDonald’s and its external environment
8
9 2.1 Political/legal factors
1011
Political factors include laws, agencies and groups that influence and limit organisations
1
and individuals in a given society. The dimensions being evaluated include the
2
government attitude to foreign markets, the stability and financial policies of a country and
3
government bureaucracy.
4
Political and legal forces are highly important as they cover many aspects of company
5
policy. Government policy affects industry as a whole through regulatory bodies such as
6
the Department of the Environment and the Department of Trade and Industry. These
7
bodies develop policies on the trading, restrictions and standards within their particular
8
field. The policies created can affect businesses in various ways; in how their products are
9
produced, promoted and sold.
2011
Multinational companies should understand that the political background is different
1 across the regions of the world. Many former centrally planned economies, for example,
2 are still heavily protected by the government. In such a climate, it is more likely that
3 proposals for a joint venture will be accepted.
4 It is argued that the legal ramifications of marketing a product internationally are very
5 complicated. Each country has their own legal system and when a company
6 internationalises then it must keep within these legal systems.
7 A legal issue occurred in Russia for McDonald’s when, in 1993, a law was passed
8 in Moscow requiring all stores to have Russian names, or at least names translated into
9 the Cyrillic alphabet. This meant the company had to translate its brand name to
30 . This enabled McDonald’s to at least retain the sound of its name. This
1 also occurred in Japan where the pronunciation of its name was changed to MaKudonaldo
2 (Daniels et al., 1998).
3 Moreover, the law in Russia states that at least a three-quarters majority vote is needed
4 to approve important decisions. Therefore, the representatives of McDonald’s and the City
5 Council must agree on all major decisions, which could hamper opportunities identified
6 by the company (Daniels et al., 1998).
7 When it comes to developing marketing mix elements in foreign markets, the
8 company’s approach may have to be adapted. The legal environment must be assessed to
9 determine whether it would affect the launch of a product into a new country. In many
40 countries, government and regulations have a direct influence on product design. Law
1 often imposes minimum or special product standards, which may necessitate the shape,
2 kind, components or even the brand name of a product used.
3 Government regulations and restrictions regulate the content of promotion. The law
4 restricts the advertiser’s freedom, particularly with regard to the advertising message and
5 visual presentation. Promotional activities also may have to be changed, depending on the
6 country involved and the legal systems that take place. For example, in France and China,
711
8
The external environment and its effect on strategic marketing planning 293

111 door-to-door selling cannot be used as it is prohibited (Vrontis and Vronti, 2004).
2 Moreover, Germany forbids superlatives or comparative claims. The words ‘better’ and
3 ‘best’ are words to be avoided. In the case of product comparisons, the manufacturer with
4 whose products the advertised products are compared may be able to sue for damages.
5 Price regulations may be another factor that a company needs to look at when
6 launching into internationalisation. In some countries governments may control the price
7 that is set for products. For example, Ghana controls the manufacturers’ profit margins,
8 which indirectly controls the price paid by customers (Muhlbacher et al., 1999).
9
1011
2.2 Economic factors
1
2 Economic factors include factors that affect consumer purchasing power and spending
3 patterns.
4 Economic trends are again, to a large extent, bound up in government policy and are
5 a crucial issue to businesses and marketers because of the way they affect consumer
6 spending power. In periods of relative prosperity, a consumer’s disposable income will be
7 relatively high and, therefore, there is a willingness to spend more money. Price becomes
8 a less sensitive issue and this affects marketing strategy itself. During a recession,
9 however, spending power decreases making price more relevant.
2011 The differences that exist between countries in different stages of economic and
1 industrial development have a profound influence on price setting. Differences in income
2 levels may suggest the desirability of systematic price variations. It is, therefore, important
3 for McDonald’s to understand that, in countries with a lower stage of economic
4 development, it is necessary to set a lower price.
5 The limited purchasing power in developing countries, often combined with low levels
6 of literacy, poses special problems for marketers on promotion. Although theoretically a
7 company has a wide choice of promotional tools, in practice the choice of effective tools
8 is somewhat limited. For example, in foreign markets with low economic development,
9 McDonald’s should try to use cost effective methods of promotion, otherwise the final
30 price would be beyond the reach of most customers.
1
2 2.3 Technological factors
3
4 Technological developments have made international travel and communication more
5 accessible to consumers and led to a situation in which social habits and fashions change
6 much quicker. Moreover, lifestyles and attitude changes cause changes in product demand
7 and how products can be sold to customers.
8 Technological factors include forces that create new technologies, creating new
9 product and market opportunities. It is based on considerations as to whether the local
40 market has sufficiently developed technologies to take full advantage of the product. It
1 should be noted that high technologies are required to make full use of the variety of
2 promotional methods using alternative advertising media such as television or websites
3 (Vrontis and Vronti, 2004).
4 McDonald’s successful internationalisation can be partly attributed to the way the
5 company has overcome technological problems. The systematic substitution of equipment
6 for people and the carefully planned use and positioning of technology have helped each
711 franchise to be of the same high standard. When McDonald’s entered the Russian market,
8
294 D. Vrontis and P. Pavlou

111 the company took into account that technology transfer could provide important long-term
2 benefits to the Soviet citizenry. Also, since the Soviet machinery lagged 15–20 years
3 behind Western technology, new machinery from Holland was used to harvest potatoes
4 used to make French fries.
5
6
2.4 Socio-cultural factors
7
8 Shifts in spending power are also affected by sociological demographic trends. Analysis
9 of population fluctuation suggests to marketers in which age groups there is going to be
1011 the largest demand for particular goods. A baby boom, for example, will increase the need
1 for baby products initially then, in following years, a greater demand for toys, educational
2 products and children’s clothes etc. Another emerging trend is the changing family, with
3 the traditional family unit of mother, father and two children in decline. The increase in
4 one person households creates different needs in home products as homes require smaller
5 products and money is spent due to more frequent home movement. Changes in
6 demographics can, therefore, affect things such as the development, designing, packaging
7 and promotion of products. It could also shape the organisational setting of strategies and
8 strategic planning.
9 In the case of McDonald’s, several social forces greatly affected its success in US.
2011 One factor was the prevailing family structure in the US and the trend towards a
1 youth-orientated culture. In the 1960s and the 1970s the decision-making role had changed
2 to such an extent that children often made the selection of a place to eat. McDonald’s
3 special emphasis on children and teenagers as advertising targets was successful largely
4 because the strategy capitalised on these existing social trends.
5 Another important factor was that the value that US society placed on time favoured
6 the consumption of meals with minimum time effort. Saving time, in fact, created the
7 desire for meals purchased outside the home on an unplanned or impulse basis. The result
8 was a burgeoning demand for low-priced food that was available any time and that could
9 be purchased with minimum shopping effort.
30 Economic factors are important for McDonald’s in determining a consumer’s ability
1 to purchase a product. Whether a purchase actually occurs, however, depends largely on
2 cultural factors. Therefore, to understand markets abroad, the company must have an
3 appreciation of buyer behaviour.
4 Culture could be defined as institutions and other forces that affect a society’s basic
5 values, perceptions, preferences and behaviours. Culture includes the entire heritage of a
6 society transmitted by word, literature or any other form. It includes traditions, habits,
7 religion, art, education, language, family and reference groups. While satellite television
8 and the international media are shrinking the world and homogenising consumer tastes,
9 culture continues to pull in the opposite direction. Traditions and religious beliefs run deep
40 and could often conflict with international media messages.
1 When McDonald’s entered India, the chain decided not to launch its Big Mac burger
2 as a result of deferring to the Hindu prohibition against beef consumption. The company
3 instead served chicken, fish and vegetable burgers. This was the first McDonald’s without
4 beef. A so-called ‘Maharaja Mac’ was also created, using a patty made from lamb. In some
5 countries, McDonald’s has been forced to change its food preparation methods as well; in
6 Singapore and Malaysia, for example, the beef that goes into burgers must be slaughtered
711 according to Muslim law.
8
The external environment and its effect on strategic marketing planning 295

111 In terms of language, when McDonald’s expanded in Puerto Rico in the early 1980s
2 the company employed US TV commercials dubbed in Spanish. When prospective
3 customers objected, the company eventually relented and developed a Spanish language
4 campaign just for Puerto Rico. Sales showed a considerable increase.
5 Moreover, in Southern China, McDonald’s is careful not to advertise prices with
6 multiple occurrences of the number four. The reason is simple: in Cantonese, the
7 pronunciation of the word four is similar to that of the word death (Whalen, 1995).
8 In Japan, where family ties are strong, McDonald’s has enjoyed a surge of popularity
9 as, in its approach, it invites consumers to associate the restaurant with family members
1011 interacting in various situations. Starting in 1996, McDonald’s campaign in Japan depicted
1 various aspects of fatherhood. One spot showed a father and son bicycling home with
2 burgers and fries; another showed a father driving a van full of boisterous kids to
3 McDonald’s for milkshakes.
4
5
6 2.5 Environmental factors
7 The climate and physical terrain of a country are important environmental conditions
8 which have a significant effect on the demand and the type of product made available.
9 Prior to entry into a new market, it is very important for McDonald’s to consider the
2011 physical terrain and climate in the appraisal. Altitude, relative temperatures and humidity
1 are some of the climatic conditions that can affect products in foreign markets.
2 Being environmentally friendly is another important issue to consider. Environmental
3 groups forced McDonald’s to reduce its use of plastic and styrofoam packing. While
4 McDonald’s internal market research shows that environmental issues will have neither a
5 positive nor negative impact on sales, they have agreed to work with the Environmental
6 Defence Fund, an environmental pressure group, to reduce unnecessary and harmful
7 waste.
8
9
30 2.6 Stakeholders
1
It is important that multinational companies highly consider and value their general public
2
or stakeholders – their staff, suppliers, distributors, shareholders and the consumer itself.
3
How a consumer and, indeed, the other ‘publics’ mentioned, view the company and the
4
products marketed is important, firstly in order to assess what market you are in but,
5
secondly, to assess whether the corporate image of the company is functioning in a
6
positive manner. Public perception of your product allows it to be positioned or
7
repositioned to reach the required target market and, therefore, be successful. If you view
8
your product as portraying a certain image that is at odds with the public perception of it,
9
obviously your marketing strategy is not functioning properly. Likewise, if your business
40
itself is viewed in a negative light by actors both internal and external to the company,
1
steps need to be taken including the design, quality, marketing and strategy of what is
2
3 offered to correct this and therefore create a feel good factor. Having a good relationship
4 with all publics is highly considered by McDonald’s.
5
6
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296 D. Vrontis and P. Pavlou

111 2.7 Customer tastes


2
Customer tastes is another very important issue to consider. Every company should
3
undertake market research and understand consumers’ needs and wants. Based on that, it
4
should design marketing strategies and tactics to meet the needs and requirements of its
5
target audience. This is crucial as, by undertaking necessary adaptations, the company can
6
maintain its marketing orientation and go in line with the marketing concept.
7
McDonald’s is not an advocate of global marketing where this involves products and
8
services being treated as though the world is a single, uniform entity, thus marketing
9
standardised offerings in the same way everywhere. They follow an internationalisation
1011
marketing strategy which involves customising marketing strategies (this may also include
1
pricing strategies) for different regions of the world according to cultural, regional and
2
national differences in line with local needs. Therefore, the concept of ‘think global, act
3
local’ has been clearly adopted by McDonald’s (Vignali, 2001). Below are some key
4
examples of the Internationalisation marketing strategy pursued by McDonald’s.
5
6
7 2.8 Product
8
One of the aims of McDonald’s is to create, where possible, a standardised set of items
9
that taste the same whether in Singapore, Spain or South Africa. Vignali (2001) notes that
2011
adaptation is required for many reasons, including consumer tastes/preferences and
1
laws/customs. There are many situations where McDonald’s adapted the product because
2
of religious laws and customs in a country. For example, in Israel, after initial protests, Big
3
Macs are served without cheese in several outlets, thereby permitting the separation of
4
meat and dairy products required of kosher restaurants. McDonald’s restaurants in India
5
serve Vegetable McNuggets and a mutton-based Maharaja Mac (Big Mac). Such
6
innovations are necessary in a country where Hindus do not eat beef, Muslims do not eat
7
pork and Jains (among others) do not eat meat of any type. In Malaysia and Singapore,
8
McDonald’s underwent rigorous inspections by Muslim clerics to ensure ritual
9
cleanliness; the chain was rewarded with a halal (‘clean’, ‘acceptable’) certificate,
30
indicating the total absence of pork products. There are also many examples of how
1
McDonald’s adapted the original menu to meet customer needs/wants in different
2
countries.
3
In tropical markets, guava juice was added to the McDonald’s product line and
4
Bananafruit pies became popular in Latin America. In Thailand, McDonald’s introduced
5
the Samurai Pork Burger with sweet sauce. In Germany the chain sells beer and
6 McCroissants, while wine is served in France. Chilled yogurt drinks are available in
7 Turkey, espresso and cold pasta in Italy. Teriyaki burgers are sold in Japan and vegetarian
8 burgers in The Netherlands. Australian outlets used to offer mutton pot pie and, in the
9 Philippines, where noodle houses are popular, natives go for McSpaghetti.
40 The varied offerings also include banana fruit pies in Latin America, kiwi burgers
1 (served with beetroot sauce) in New Zealand, noodle soup served in most Asian markets
2 and chilli sauce to go with fries in Mexico and Singapore. McLaks (grilled salmon
3 sandwich) are sold in Norway and McHuevo (poached egg hamburger) in Uruguay. In
4 Thailand, McDonald’s introduced the Samurai Pork Burger with sweet sauce. Moreover,
5 in France, McDonald’s have adapted the ‘McDeluxe’ to have a delicate old mustard and
6 pepper sauce, a slice of cheddar cheese, fresh onions and a whole lettuce leaf to appeal to
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The external environment and its effect on strategic marketing planning 297

111 their tastes and in Greece and Cyprus the introduction of the Greek Mac has been a huge
2 success.
3 These are examples of how McDonald’s has adopted its product offer in international
4 environments.
5
6
2.9 Structure of the market/competition
7
8 The issue of the competitive environment must be seen as probably one of the most
9 important issues. By gathering continuous data about competitors, such as their strategic
1011 strengths and weaknesses, their objectives, strategy, tactics and reaction patterns and the
1 sort of marketing activity/budget, a company can decide its own position in relative terms
2 and be prepared for what challenges are facing them in terms of competitor attacks. This
3 information also can be used to interpret sudden moves by competitors and how they will
4 respond to a move you are considering taking.
5 Porter (1980) and Doyle (1983) are both proponents of positioning strategy. Porter
6 considers the external factors which impact upon a firm’s competitive positioning. Doyle
7 refers to the choice of target market segment which describes the customers. A business
8 will seek to serve and the choice of differential advantage which defines how it will
9 compete with rivals in the segment.
2011 Porter claims that competition is at the core of success or failure of the firm and that a
1 successful competitive strategy can establish a profitable and sustainable industry
2 position. He claims that there are two fundamental questions underlying the choice of a
3 competitive strategy: firstly, how attractive is the industry with regard to profitability and
4 secondly, what are the determinants of a competitive position within an industry.
5 According to Porter there are five competitive forces that will govern the rules of
6 competition and these rules will prevail in any industry both in domestic and international
7 markets. The five forces are:
8  the entry of new competition to the market
9
30  the threat of substitutes or replacement products
1  the bargaining power of buyers
2
3  the bargaining power of suppliers
4  the rivalry between firms of the same sector.
5
6
7 2.9.1 Threat of rivalry/competitors
8 The concentration of firms within the fast food industry is low due to the established
9 presence of McDonald’s, Burger King and KFC. However, in certain markets,
40 McDonald’s will face competition from established domestic fast-food outlets.
1
2 2.9.2 Threat of new/potential entrants
3 The barriers to entry are quite high for new entrants, as the size of McDonald’s means they
4 have achieved economies of scale and have preferential access to raw materials and
5 distribution channels. New entrants may find that a high cost of investment is required in
6 securing plant and machinery.
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298 D. Vrontis and P. Pavlou

111 2.9.3 Threat of substitutes


2 A substitute product is one that can be used as an alternative to a company’s own. It could
3 be argued that the threat of substitutes to McDonald’s comes from pizzas and other
4 domestic kebab and fast food houses. However, most of the above do not have the same
5 level of convenience that McDonald’s offers, in having a number of outlets in big cities
6 and also through the use of multiple drive-through outlets.
7
8 2.9.4 Bargaining power of buyers
9 This area is perceived to be fairly low risk for McDonald’s as consumers have little control
1011 over the variations in the product offerings, price and place of distribution. However,
1 international market research should take place and any necessary adaptations made. The
2 company should keep customers satisfied, as switching cost is low and the possibility of
3 switching to another brand in case of dissatisfaction is relatively low.
4
5 2.9.5 Bargaining power of suppliers
6 This ranges from the threat of forward integration to the threat of cutting off supplies. As
7 McDonald’s has a great deal of influence over their suppliers, due to the fact that it aids
8 them and trains them, the threats from suppliers are low. Due to the scale of McDonald’s
9 operations, suppliers are keen to retain their contracts with the firm. McDonald’s
2011 internationalisation could also mean greater sales potential for suppliers.
1
2
3 2.10 Competitive positioning
4 So, what is a good strategy? Can a firm position itself in order to gain competitive
5 advantage over its competitors? Is there a specific position a firm should take in order for
6 its strategy to be successful?
7 Rumelt (1980) states that competitive advantages can normally be found in superior
8 resources, superior skills or a superior position. Resources and skills enable a firm to do
9 more or do it better than the competition. Different resources and skills will be required
30 depending on the industry or market segment. Positional advantage is how the
1 arrangement of these resources and skills are used to out manoeuvre the competition.
2 Positional advantage can be gained by forward planning, greater skill and resources or
3 luck! Once a dominant position is gained it is difficult for the competition to dislodge the
4 incumbent firm provided the position merits continuation and that it is extremely costly
5 for competitors to take over.
6 As long as environmental forces remain constant position can remain constant.
7 Positional advantage can take the form of size or scale, differentiation from competitors
8 and successful trading names. To be successful, a company needs to get both its strategy
9 and tactics working in harmony to provide the optimum return bounded by efficiency
40 (McDonald and Leppard, 1993). Both strategy and tactics should be designed after a
1 careful consideration of the situational environment.
2 It is apparent from Figure 2 that businesses finding themselves to the left of this matrix
3 are destined to die, strategy being the key factor as to how quickly. Considering
4 McDonald’s international performance we can argue that the company is thriving as it is
5 effective – doing things right (having the desired effect, producing the intended result) and
6 efficient – doing the right thing (able to work well and without wasting time or resources).
711
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The external environment and its effect on strategic marketing planning 299

111 Figure 2 Strategy tactics grid (for colours see online version)
2
3
4
5
6
7
8
9
1011
1
2
3
4
5
6 Source: McDonald and Leppard, (1993, p.7)
7 The firm has to consider more than the industry structure, it also has to take an appropriate
8 position within the industry. This positioning will determine the competitive advantage a
9 firm can have, namely low cost or differentiation against competitive scope at the broad
2011 or narrow market (see Figure 3).
1
2 Figure 3 Porter’s generic strategy grid (for colours see online version)
3
4
5
6
7
8
9
30
1
2
3
4
5
6
7 The official stance on McDonald’s pricing policy is highlighted in the company’s mission
8 statement, where it states the most fundamental element of determining price:
9
40 “Being in touch with the pricing of our competitors allows us to price our
1 products correctly, balancing quality and value.”
2 Overall the ultimate goal of McDonald’s pricing and differentiation mix is to increase
3 market share. The strategies of cost leadership and differentiation are used
4 interchangeably within the internationalisation approach of McDonald’s.
5
6
711
8
300 D. Vrontis and P. Pavlou

111 The McDonald’s positioning in the cost leadership quadrant is achieved not only
2 through economies of scale in research, development and promotion but also through
3 learning, knowledge and experience in production and operational processes as well as the
4 way it manages its franchises. Vignali (2001) provides an explanation of the pricing
5 decisions of McDonald’s. He notes that this is based on a six step approach, namely:
6
7 1 selecting price objectives
8 2 determining demand
9
1011 3 estimating costs
1
4 analysing competitors’ costs, prices and offers
2
3 5 selecting a pricing effort
4
5 6 selecting the final price.
6 The use of a differentiation strategy is where the firm attempts to diversify from its
7 competitors by adding something to its product that will provide a unique value to its
8 customers. There are also various ways a firm can differentiate depending on the industry
9 in which it operates, however the costs of this differentiation policy must be lower than
2011 the additional pricing the firm can obtain. Differentiation for McDonald’s is achieved
1 through a perceived superior quality product which surpasses their nearest rivals and high
2 brand image and recognition. The company also has used their promotion and packaging
3
as a means of further differentiation, for example, the golden arches, which have become
4
an internationally recognised symbol for high quality at low cost. They can, therefore,
5
adopt a premium pricing policy in many markets where economic conditions allow.
6
There are several approaches a firm can take to become a low cost producer, which can
7
be used in isolation or as a combination to differentiation. The most basic way to a low
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cost is to remove all the ‘extras’ from the product and produce a no frills offering. The
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danger in this strategy is that the way is paved for a feature war. The design or make up
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of the product can create advantages, for example the use of alternative materials. The
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standardised production and operational processes a firm employs can also reduce costs.
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Another example would be the efficient use of distribution networks, manufacturing
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4 systems or the use of low cost labour and product innovation.
5 The McDonald’s company has perhaps, contrary to Porter’s warning, managed to
6 adopt both a differentiation and a cost leadership strategy.
7 McDonald and Leppard (1993) have developed a strategic focus matrix (see Figure 4)
8 which emphasises the impact of time on business activities. The elements relating to the
9 marketing mix have been emboldened to show where they are positioned in relation to
40 time. It is our view that McDonald’s adopts the following recommendations, not only in
1 the short term but also in the medium and long term.
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The external environment and its effect on strategic marketing planning 301

111 Figure 4 Strategic focus matrix (for colours see online version)
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2011 Source: McDonald and Leppard (1993)
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3 2.11 Strategic marketing planning
4 Strategic marketing planning makes use of a number of analytical models that help to
5 develop a strategic view of the business and, thus, can be used as decision-making aids.
6 The Boston Consulting Group (BCG) matrix (see Figure 5) is one of these models.
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8 Figure 5 The Boston Consulting Group matrix (for colours see online version)
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111 Products or services and their respective strategies fall into one of four quadrants of
2 the BCG matrix. The typical starting point for a new business is as a question mark. If
3 the product is new it has no market share but the predicted growth rate is good. What
4 typically happens in an organisation is that management is faced with a number of these
5 types of products but with too few resources to develop them all. Thus, the strategic
6 decision-maker must determine which of the products to attempt to develop into
7 commercially viable products and which ones to drop from consideration. Question marks
8 are cash users in the organisation. Early in their life, they contribute no revenues and
9 require expenditures for market research, test marketing and advertising to build consumer
1011 awareness.
1 If the correct decision is made and the product selected achieves a high market share,
2 it becomes a BCG matrix star. Stars have high market share in high-growth markets. Stars
3 generate large cash flows for the business but also require large infusions of money to
4 sustain their growth. Stars are often the targets of large expenditures for advertising and
5 research and development to improve the product and to enable it to establish a dominant
6 position in the industry.
7 Cash cows are business units that have high market share in a low-growth market.
8 These are often products in the maturity stage of the product life cycle. They are usually
9 well-established products with wide consumer acceptance, so sales revenues are usually
2011 high. The strategy for such products is to invest little money into maintaining the product
1 and divert the large profits generated into products with more long-term earnings
2 potential, i.e. question marks and stars.
3 Dogs are businesses with low market share in low-growth markets. These are often
4 cash cows that have lost their market share or question marks the company has elected not
5 to develop. The recommended strategy for these businesses is to dispose of them for
6 whatever revenue they will generate and reinvest the money in more attractive businesses
7 (question marks or stars).
8 Having used the Boston Consulting Group matrix above, it should also be noted that
9 the BCG matrix suffers from limited variables on which to base resource allocation
30 decisions among the businesses making up the corporate portfolio. Notice that the only
1 two variables composing the matrix are relative market share and rate of market growth.
2 Now consider how many other factors contribute to business success or failure.
3 Management talent, employee commitment, industry forces such as buyer and supplier
4 power, environmental sensitive practices, corporate governance, corporate social
5 responsibility and the introduction of strategically-equivalent substitute products or
6 services, changes in consumer preferences and a host of others determine ultimate
7 business viability.
8 The BCG matrix is best used, then, as a beginning point but certainly not as the final
9 determination for resource allocation decisions as it was perhaps originally intended. In
40 other words, just analysing the coordinates of a product into the dogs category would not
1 necessarily mean that it should be singled out for termination. The technological,
2 production and market synergies (with reference to a perceived ‘total offering’) to
3 customers should also be parts of any elimination of ‘dogs’.
4 Further, if we consider McDonald’s position as market leader within the ‘restaurant
5 based fast food’ market (this is as opposed to frozen home made fast food items) and the
6 relative profits derived from this market, then it becomes clear that they are positioned in
711 the ‘protect position’ quadrant of the Mckinsey matrix (Figure 6). This means that the
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The external environment and its effect on strategic marketing planning 303

111 company should concentrate efforts on maintaining its existing strength by investing to
2 grow at maximum digestible rate.
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4 Figure 6 The McDonald’s company’s position in the Mckinsey matrix (for colours see online
version)
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8 Source: Day (1986)
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It is also recommended that they can capitalise on ‘first mover’ advantage and therefore
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‘drive’ market innovation. This reflects the concepts of the ‘inside-out’ or competencies
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based approach or the capabilities based approach – i.e. due to their relative size in the
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market, McDonald’s can, to some extent, drive the market.
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2.12 Strategic options
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6 Markides (1999) further states that behind every successful company there is superior
7 strategy. The company may have developed this strategy through formal analysis, trial and
8 error, intuition or even pure luck. No matter how it was developed, it is the strategy that
9 underpins the success of the company.
40 Strategists have a tremendous amount of both latitude and responsibility in developing
1 and balancing the strategic options of an organisation. The countless decisions required of
2 these managers can be overwhelming considering the potential consequences of incorrect
3 decisions. One way to deal with this complexity is through categorisation; one
4 categorisation scheme is to classify corporate-level strategy decisions into three different
5 types or grand strategies (Porter, 1985). These grand strategies involve efforts to expand
6 business operations (growth strategies), decrease the scope of business operations
711 (retrenchment strategies) or maintain the status quo (stability strategies).
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304 D. Vrontis and P. Pavlou

111 More specifically, growth strategies are designed to expand an organisation’s


2 performance, usually as measured by sales, profits, product mix, market coverage, market
3 share or other accounting and market-based variables. Typical growth strategies involve
4 one or more of the following:
5  with a concentration strategy the firm attempts to achieve greater market penetration
6 by becoming highly efficient at servicing its market with a limited product line
7 (e.g. McDonalds in fast foods)
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9  by using a vertical integration strategy, the firm attempts to expand the scope of its
1011 current operations by undertaking business activities formerly performed by one of
1 its suppliers (backward integration) or by undertaking business activities performed
2 by a business in its channel of distribution (forward integration)
3  a diversification strategy entails moving into different markets or adding different
4 products to its mix. If the products or markets are related to existing product or
5 service offerings, the strategy is called concentric diversification. If expansion is into
6 products or services unrelated to the firm’s existing business, the diversification is
7 called conglomerate diversification.
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9 When firms are satisfied with their current rate of growth and profits, they may decide to
use a stability strategy. This strategy is essentially a continuation of existing strategies.
2011
Such strategies are typically found in industries having relatively stable environments. The
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firm is often making a comfortable income operating a business that they know and see no
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need to make the psychological and financial investment that would be required to
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undertake a growth strategy.
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Finally, retrenchment strategies involve a reduction in the scope of a corporation’s
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activities, which also generally necessitates a reduction in number of employees, sale of
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assets associated with discontinued product or service lines and, in the most extreme cases,
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liquidation of the firm.
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Nonetheless, even considering which strategy to pursue – and McDonald’s is indeed
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pursuing a growth strategy through its continuous franchising international and domestic
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expansions – is not enough in defining strategy correctly. Mintzberg (1994, p.28)
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discusses the concepts of strategy as a position and strategy as a perspective. He notes that
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“as position, strategy looks down . . . to the “x” that marks the spot where the product
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meets the customer . . . and it looks out . . . to the external marketplace. As perspective, in
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contrast, strategy looks in . . . inside the organisation, indeed, inside the head of the
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collective strategist . . . but it also looks up – to the grand vision of the enterprise”.
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Mintzberg provides an illustration to demonstrate the concept. This has been adapted
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and shown in Figure 7.
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2.13 Utilisation of value chain
1 Viswanathan and Dickson (2006) provide a conceptual three-factor model describing the
2 right conditions for the standardisation of products and services for a global organisation.
3 Although it has been argued that McDonald’s uses a customised approach for setting up
4 its local strategies in the various countries in which it operates, the Viswanathan and
5 Dickson model (Figure 8) encompasses elements that, if considered by international
6 companies, could perhaps be used to enable them to capitalise on their experiences
711 elsewhere for successfully launching and managing their expansion.
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The external environment and its effect on strategic marketing planning 305

111 Figure 7 Position and perspective concept (for colours see online version)
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7 Source: Mintzberg (1994, p.28)
8 Figure 8 Standardising global marketing strategy
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711 Source: Viswanathan and Dickson (2006, p.51)
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306 D. Vrontis and P. Pavlou

111 The use of this model serves as an aid to managers for analysing the conditions of the
2 perspective host country with regard to being favourable for the transferability of tried and
3 tested practices. If all three conditions are not favourable then management would at least
4 be in a position to know where to focus attention or where new strategies and tactics would
5 need to be customised to suit the new environment.
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8 3 Conclusions
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1011 It is argued that effective marketing strategies and tactics cannot be developed without
1 firstly analysing the environment in which the company operates. A number of
2 uncontrollable elements affect McDonald’s international marketing strategy and tactical
3 implementation. These groups of elements include the PESTLE (political, economic,
4 social, technological, legal and environmental), structure of the market and competition
5 being faced (Porter’s (1980) five forces analysis) as well as analysis of its stakeholders,
6 customers and product adaptation within its internationalisation strategy. All of these
7 aspects are crucial to a company’s strategic decision making. The level of understanding
8 that exists in these relationships will determine the success of a company.
9 McDonald’s is not making a one-time standardised global choice but it is striking to
2011 find a balance. This is not a straightforward task, as identifying the balance between
1 standardisation and adaptation is a challenge and very difficult to achieve. The goals of
2 reducing costs and complexity lead McDonald’s to consider standardisation, while
3 customer orientation sways it towards adaptation. It is evident through the analysis that
4 McDonald’s is adapting its marketing mix elements in order to go in line with the external
5 environment. At the same time, it should be noted that the company is also standardising
6 when and where possible in its desire to achieve economies of scale and global uniformity
7 and image.
8 With respect to McDonald’s internationalisation strategy, the company’s effectiveness
9 and profitability is obviously well supported by their strong competitive position and
30 market share in their primary product market. Its’ international success is achieved by the
1 company’s strategy and tactics, which complement each other and work in harmony,
2 providing the optimum return bounded by efficiency. The company is thriving as it is both
3 effective (doing things right) and efficient (doing the right thing).
4 McDonald’s portfolio of products is well managed and ensures the best fit between the
5 company’s strengths and weaknesses and for offsetting the threats found in its competitive
6 environment. In considering the strong competitive position of the firm in a highly
7 attractive market, it is suggested that McDonald’s should protect its position (Mckinsey
8 matrix). This can be achieved by concentrating efforts on maintaining its existing strength
9 by investing to grow at maximum digestible rate.
40 It is recommended that McDonald’s continue this approach, that is: simultaneously
1 focus its attention on aspects of the business that require global standardisation and aspects
2 that demand local responsiveness. When appropriate, processes should be standardised,
3 however, operation in local markets necessitates the maintenance of the appropriate local
4 flexibility.
5 McDonald’s is adopting differentiation and cost leadership strategies (generic
6 strategies). In terms of differentiation, the firm attempts to be diverse from its competitors
711 by adding something to its product that will provide a unique value to its customers. This
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The external environment and its effect on strategic marketing planning 307

111 is achieved through well-designed and managed marketing activities resulting in a


2 perceived superior quality product and high brand image and recognition. Further, cost
3 leadership is achieved, not only through economies of scale but also through learning,
4 knowledge and experience in production and operational processes and through
5 effective/efficient distribution networks and manufacturing systems.
6 It is recommended that further international expansion may benefit from the use of a
7 value chain analysis with regards to identifying the degree of homogeneity of a new
8 country with the ones in which McDonald’s already has a presence. Such an analysis will
9 help to avoid expensive mistakes and false starts, as well as achieve further economies of
1011 scale through the transferability of the experiences and lessons learned in other countries.
1
2
3 References
4
5 Daniels, J. and Radebaugh, L. (1998) International Business: Environments and Operations,
6 8th edn, Reading, MA: Addison-Wesley.
7 Day, G.S. (1986) Analysis for Strategic Marketing Decisions, St Paul, MN: West Publishing
8 Company.
9 Doyle, P. (1983) ‘Marketing management’, unpublished paper, Bradford University
2011 Management – Centre, in R. Brooksbank (1994) ‘The anatomy of marketing positioning
strategy’, Marketing Intelligence and Planning.
1
Markides, C. (1999) ‘Six principles of breakthrough strategy’, Business Strategy Review, Vol. 10,
2 No. 2.
3
McDonald, M. and Leppard, J.W. (1993) Marketing By Matrix, USA: NTC Business Books.
4
Mintzberg, H. (1994) The Rise and Fall of Strategic Planning, New York, NY: Free Press.
5
6 Muhlbacher, H., Dahringer, L. and Leihs, H. (1999) International Marketing: A Global Perspective,
2nd edn, London: International Thomson Business Press.
7
Porter, M.E. (1980) Competitive Strategy, Techniques for Analysing Industries and Competitors,
8 New York: Free Press.
9
Porter, M.E. (1985) Competitive Advantage, New York: The Free Press
30
Rumelt, R. (1980) ‘The evaluation of business strategy’, in W.F. Glueck (Ed.) Business Policy and
1 Strategic Management, New York: McGraw-Hill.
2
Vignali, C. (2001) ‘McDonald’s: “think global, act local” – the marketing mix’, British Food
3 Journal, Vol. 103, No. 2, pp.97–111.
4 Vignali, C., Vrontis, D. and Vranecevic, T. (2003) Marketing Planning. Analysis, Strategy and
5 Tactics, London: Foxwell and Davies.
6 Viswanathan, N.K. and Dickson, P.R. (2006) ‘The fundamentals of standardizing global marketing
7 strategy’, International Marketing Review, Vol. 24, No. 1, pp.46–63.
8 Vrontis, D. and Vronti, P. (2004) “Levi Strauss. An international marketing investigation’, Journal
9 of Fashion Marketing and Management, Vol. 8, No. 4, pp.389–398.
40 Whalen, J. (1995) ‘McDonald’s cooks worldwide growth’, Advertising Age International,
1 July/August, p.5.
2
3
4 Notes
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6 http://www.mcdonalds.com/corp/about.html
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