ibm-case analysis paper
TRANSCRIPT
Samanvita Chakka
IBM 301
McDonald’s Case Analysis
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Synthesis
Although it initially grew with only one simple product, McDonald’s only took
seventeen years to be a billion dollar business. When the CEO of McDonald’s, Ray Kroc,
took over the business, the number of outlets had multiplied to 2,272 and sales were
increasing beyond one billion dollars.
Not only was McDonald’s becoming popular in the United States; the business
itself was proliferating overseas. By the year of 1995, “the company had 7,012 outlets in
eighty-nine countries of the world, with Japan alone having 1,482 (130). The success of
attributed to its international enterprise, which contributed forty-seven percent of the
sales of the company and fifty-four percent of its profits.
To expand its business, McDonald’s was able to diminish its costs by twenty-six
percent through balancing building materials, equipment, and simple building layout. It
located its restaurants worldwide through established, common places, such as airports. It
also collaborated with other major companies to endorse and develop each other’s
brands, such as Chevron and Disney (131).
Due to McDonald’s sales and advertising throughout the world, the company
quickly emerged to be one of the biggest and most successful franchises. During the year
of 1996, McDonald’s had one hundred and twenty-six quarters of continuous record
earnings. By the end of the year, international businesses were the actual cause of the
company’s prosperity, giving forty-seven percent of its sales and fifty-four percent of its
profits (131).
As McDonald’s unexpected progression increased, franchises were dubious of the
headquarters’ proclamation that no other company would lose its business as McDonald’s
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opens more restaurants because the market fluctuates proportionately. Franchises worry
about the diminishing of their sales if a McDonald’s opens near them. Moreover,
McDonald’s started using Franchising 2000, a contemporary set of business practices
started by corporate headquarters, to carry out a single pricing strategy everywhere. For
example, a Big Mac would cost the same price in all places (133).
However, despite the all the success, McDonald’s had five quarters of decay in
sales by 1996. McDonald’s was popular when it comes to family with little children. Be
that as it may, as soon as the kids get older, the customers shift their loyalty to another
place. As a result, to win back its customers, McDonald’s spent $200 million promoting
its new product: the Arch Deluxe line of beef, fish, and chicken burgers. Unfortunately,
this became a failure, along with other products, and the company was under new
management by Jack Greenberg (133).
Greenberg began diversifying by buying different chain of restaurants. However,
the company still had only one percent of same-store sales growth. The main cause for
this was thought to be having the same menu. In 2001, the study in University of
Michigan revealed that conditions of McDonald’s have declined since 1995. Customers
were disappointed with slow service, incorrect orders, filthy environment, and uncivil
employees. Consequently, due to competing franchises, only one hundred and fifty new
restaurants were added, big decrease from before (134).
In response, Greenberg tried to improve the business by focusing on gaining
variety of food. He paid the business into Chipotle, Aroma (a coffee-and-sandwich bar in
London), and the Boston Market chain. New products were created and appealing
regionally, than throughout the world. For example, the McBrat was a success in
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Minnesota and Wisconsin, while the McLobster Roll was an accomplishment in New
England. However, US sales only increased by three percent in 2000, while net earnings
decreased by seven percent (135). However, non-US restaurants still continued to make
progress for McDonald’s. International business contributed to a little more than fifty
percent of the overall income by 2000, with Japan especially becoming a profitable
market by serving 1.3 billion customers a year (136).
Greenberg’s attempts for rejuvenation resulted in selling large items for cheap
prices, proposing forty menu items, and investing one hundred and fifty-one million
dollars for US kitchens to make the food have a better quality. Nonetheless, sales
remained low, profits declined during seven quarters, and the stock price plummeted to a
seven-year low. In addition, response from customers to most of these attempts was
negative and business in foreign markets was also wavering. Germany was the biggest
European market, although McDonald’s growth in the country remained still due to the
competition from Burger King, which increased in business. Even in Japan, McDonald’s
business decreased to the decline in birthrate and the competition from local competition.
Similarly, the restaurants that Greenberg bought in his attempts were not obtaining the
anticipated profits (137).
Consequently, James R. Cantalupo succeeded Greenberg as CEO in 2003. His
duty is to recover sales and profit-growth throughout the company. Cantalupo demolished
some of high-profile projects that Greenberg started, such as, a one billion dollar
technology named Innovate. He cut down capital spending by forty percent through
closing weak operating restaurants and opening few new ones. Due to this, Cantalupo
increased the dividend by seventy percent (138).
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When Cantalupo passed away due to a heart attack in 2004, Charlie Bell moved to
the leading job. Unfortunately, Bell was diagnosed with colon cancer and had to quit his
job. Afterwards, Jim Skinner, vice chairman, became promoted to CEO. Skinner still
pursued the strategy targeting at improving the declining profit. Instead of opening new
restaurants, Skinner tried to improve the established ones. In his first two years,
McDonald’s stock, sales, and profit had risen continuously (138).
By late 2007, 6,500 of McDonald’s restaurants have been remodeled, with many
providing drive-through with two lanes, wireless Internet service, and digital ordering
screens. Along with the renovations, the company anticipated that addition of drinks
would add to $1 billion to McDonald’s annual sales (140).
Marketing Theoretical Framework
When applying the “SWOT” analysis to analyze McDonald’s business through
the years, it is vital to realize that the company became successful through its advantages
and despite its disadvantages. The SWOT analysis examines a company’s strengths,
weaknesses, opportunities, and threats.
Strengths of McDonald’s include its accessibility, consistent high-quality menu,
cordial employees, advertising, and its market’s target (mainly to families). With more
stores opening in convenient places, McDonald’s increased its accessibility and its
market share to the dismay of its competitors. Instead of constructing new places for its
restaurants, McDonald’s build its own business through creating restaurants in exiting
places, such as airports, hospitals, and zoos. The drive-through sales contributed to fifty-
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five percent of sales in the United States, which also meant less to spend on the seats
required inside (131).
The drive-through sales helped McDonald’s gain more area for indoor
playgrounds to appeal to many families (131). McDonald’s also used its advertising to
target mainly families and children by giving out small prizes with its meals and having
indoor playgrounds
McDonald’s also took over stores from weaker competition, therefore, expanding
its area and source of business even more. In 1996, the company bought 184 company-
owned Roy Rogers outlets and gained control of Burghy’s (a fast-food chain in Italy),
and supplemented seventeen restaurants from the George Pie chain (131).
In contrast to the strengths of the company, McDonald’s also had its fair share of
weaknesses. McDonald’s easily targeted children to its products, however, as soon as
they start getting older, the children will want to try new products at other restaurants.
Therefore, McDonald’s loses a vital source for prospering sales and business (133).
Similar to local restaurants, the business of non-US restaurants in Europe heavily
declined to the scare of the mad-cow hysteria (135).
Under the management of Greenberg, sales remained frozen and profits and stock
market prices dropped to a seven-year low. The war of prices within all burger chains
resulted in McDonald’s facing less profits with a little growth in sales. McDonald’s
business also declined in the foreign markets. Because McDonald’s target children and
families, sales in Japan fell due to the declining in birth rate. In domestic areas, the
restaurants Greenberg took over to increase diversity were not making the expected
income (137).
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McDonald’s incurred a lot of opportunities locally and nationally to improve its
business. Instead of going on a pricing war with its competitors, McDonald’s should have
spent more money to improve its existing products rather than gambling with the creation
of new meals. If it wanted to improve its variety, McDonald’s should have made food
that is similar to its competitor’s success and improve and diversify that product.
McDonald’s should have also added new products and make more combos, rather
than discounting to “keep up with Taco Bell’s value pricing” (133). It should have added
larger amounts of products for a reasonable price, rather than drastically cutting down the
pricing. For example, the company should have tried selling a better quality burger with
larger French fries for the same price as before.
Despite the numerous opportunities that McDonald’s gained, it still faced a lot of
threats among competing businesses, such as Pizza Hut, Taco Bell, and Burger King.
Wendy’s beat McDonald’s in cleanliness, service, value, and food quality. McDonald’s
also tried to provide more discounts for its products, mainly to be on par with Taco Bell’s
value pricing. Unfortunately, by 1995, promotions of cheaper prices were not winning
customers over (133). The foreign markets were also stopping the growth of
McDonald’s. As stated before, Germany was the biggest European market but
McDonald’s prosperity declined as the competition from Burger King increased (137).
Central Strategic Marketing
McDonald’s would have had ongoing success if it had effective strategic
planning. This constitutes of attention, creativity, and management commitment.
McDonald’s should have maintained an ongoing process in which managers make
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different motions, instead of forgetting about new planning until after some time because
the environment and its surroundings are constantly developing and the abilities are
progressing.
McDonald’s needed to improve on its variety of products. When the company
first emerged, it only sold different types of burgers and fries. It should have started with
different varieties of food. Therefore, there would be more opportunities for success,
instead of basing their profits on one product: burgers. Instead of improving on only the
burgers, McDonald’s could have made its own types of burrito, sandwiches, etc. Some
may be successful while others may not. However, McDonald’s could diversify and
further improve on their existing, popular products. This method would provide various
possibilities of success.
McDonald’s needed sound strategic planning in the beginning and throughout the
years. Sound strategic planning is based on creativity. Managers need to break automatic
presumptions about the products and the firm and build new methods to make progress.
McDonald’s should also have been reacting quickly to the changes in the markets to see
what the different flavors and tastes customers want.
Viable Alternatives
There are three viable alternatives to strategic decision-making: Ansoff’s
Opportunity Matrix, the Boston Consulting Group model, and the General Electric
model. Ansoff’s Opportunity Matrix connects products with the markets. Business firms
can achieve this by using one of these four options: market penetration, market
development, product development, and diversification. Market penetration would try to
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increase market share among existing customers. Market development attracts brand new
customers to the products that are already there. Product development promotes the
invention of new products for the regular customers. Lastly, diversification entails the
introduction of new products to new customers.
The Boston Consulting Group’s portfolio matrix differentiates each strategic
business unit by its current or future growth and market share. This follows the theory
that market share and profitability are generally linked. The measure of market share is
known as the relative market share (the ratio between the company’s share and its biggest
competitor’s share).
The Boston Consulting Group’s matrix breaks also strategic business units into
four categories: stars, cash cows, problem children, and dogs. A star is a fast-growing
market leader. Star SBUs generate a lot of profits but need a lot of money to finance the
speedy development. A cash cow is a strategic business unit that produces more cash that
it needs to retain its market share. Problem child, also known as a question mark,
indicates a fast growth but shows small profit margins. Lastly, a dog is business unit that
has a minor potential for growth and little market share.
Lastly, the third model for choosing strategic alternatives is the General Electric
Model. The characteristics of an attractive market include high profitability, rapid
growth, lack of government regulation, consumer insensitivity to a price increase, a lack
of competition, and availability of technology. This model characterizes the market
attractiveness and the business position into three levels-low, medium, and high.
It would be best for McDonald’s to consider the Ansoff’s Opportunity Matrix at
the time of this case scenario. It is stated that McDonald’s was ranked low on the quality
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of its food, service, value, and its neatness (133). Therefore, Ansoff’s Opportunity Matrix
can help McDonald’s achieve greater profit by mainly improving its product
development and diversification, such as introducing new products and making fresh
combos with the existing products.
Implementation, Evaluation, and Control Issues
McDonald’s should implement the Ansoff’s Opportunity Matrix by using market
penetration. McDonald’s should try to convince the customers to consider their products
in a different way. For example, instead of battling with Burger King, with the quality of
burgers, McDonald’s should use its product to advertise to its customers in a new light.
One way could be introducing a new item, such as a breakfast burger. This method would
help McDonald’s create a new dimension and image with its customers.
McDonald’s should also implement the Ansoff’s Opportunity Matrix by inventing
its new products to the diversification of the majority. For example, the company could
invent products to the likes of new customers, such as making its food spicier to satisfy
the appetites of people who enjoy eating hot and spicy meals. At the same time, it should
offer the simplicity of some meals, such as French fries, to people who eat consistent
types of food.
After giving the new products a trial run with its customers, McDonald’s can use
the opinions of the items to figure out which ones are successful and which aren’t. It
would help the company better understand the preferred tastes and flavors of its
customers. McDonald’s will have an easier time interpreting the overall likes and dislikes
of customers.
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After McDonald’s figures out the preferences of its customers, it could eliminate
the products that have failed in opinion and build products based on the success of its
previous moneymaking product. The new products and the old, successful products could
have similar tastes with a little more variety. This way, McDonald’s would have better
control on the expectations of its customers and products, rather than creating a
completely different product and taking a gamble on its fortune.
Overall, McDonald’s should use its popularity as a foundation for improving its
business. It should adapt itself to the mindset of its customers because in the end it is the
customers who will decide on the fate of the business. Therefore, McDonald’s should
learn from its failed attempts and improve on its successful ones.
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