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CASE 2-RRM

mcDonalDs ongoing marketing challenge: Social Perception in India


A Story Began.. It was a busy day at the Mumbai Central Station in India, marked with the usual rush of passengers. A large group of passengers was ready and anxiously awaiting to board their respective trains. Porters in their red uniforms were seen carrying baggage to help the travellers. Food vendors, bookstalls, newspaper sellers... It was a mini marketplace. A family with two kids arrived in an air conditioned car two hours earlier then their scheduled departure. After they entered the train station, the humid weather, the typical odour at the railway station and the crowd made them uncomfortable. With a bored look, the children looked around and suddenly shrieked with joy. Excited, they indicated a sign to their parents. It was the Golden Arch of McDonalds. Smiling, the family entered Ronalds place, McDonalds, for a great time before they boarded the train. They were sure that that the experience would be wonderful like the ones they had during their earlier visits to They were Indian customers who considered McDonalds as a symbol of the American culture. Availability of McDonalds in their country reflected the beginning of globalization which had brought in western brand influences into the Indian markets. The impressive aspect was that the intangibles of the fast food service had made the maximum impact on the customers. The Indian customers had always seen the kitchen doors of the other restaurants with a sign Restricted Area or For Employees only. Now in McDonalds, they were able to see the operations and hence the conviction in the QSC Quality, Service and Cleanliness was quick and lasting.

Introduction McDonalds restaurant in Delhi In 1996, McDonald's opened in India for the first time, a country where the majority of the population was Hindu and vegetarian, and the cow was sacred. McDonalds opened its doors in India in October 1996, demonstrating what the McDonalds experience was all about. McDonalds in India was a 50-50 joint venture partnership between McDonalds Corporation (U.S.A.) and two Indian

businessmen. Amit Jatias company, Hardcastle Restaurants Pvt. Ltd., owned and operated McDonalds restaurants in Western India, while Connaught Plaza Restaurants Pvt. Ltd., headed by Vikram Bakshi, owned and operated the North Indian operations. These companies signed their joint-venture agreements with McDonald's in April 1995 and along with their Indian management team trained in McDonald's restaurants in Indonesia and the U.S.A. before opening the first McDonalds restaurant in India. The entry of McDonalds in India was perfectly timed. The market had begun to open up. The economy of the country was growing stronger. The customer markets were eager to acquire newer products and use newer forms of services. Foreign brands were valued and perceived to be superior in quality. According to a report of AC Neilson, among the worlds consumers, Latin Americans and Asians were the biggest supporters of globalisation and the value that it added to the various aspects of their lives. In a way McDonalds revolutionized the food retailing business in India. It introduced the Indian customers to service standards which were available in the western world for years. These service standards were visible and noteworthy and hence triggered quick acceptance within the customers. McDonalds positioning in India as a family restaurant further fuelled its success. India as a market was a unique example of diversity. Divided into 28 states and 7 union territories, the vegetation, climate, religion, language, clothing, and food varied from one state to another. With the combination of spices in a unique way, food of these states reflected their traditions and culture. Hence the biggest challenge to any food business in India definitely was about balancing the diversity and the product offerings. McDonalds got clearance from Foreign Investment Promotion Board (FIPB) of India in 1991. But it was only after five years of preparation, that the first restaurant became operational in 1996. It worked on developing local relationships with local partners to facilitate the raw material. Indian companies for their operational convenience had divided the Indian subcontinent into four zones, the progressive West, the powerful North, the traditional and culturally rich, South and East. McDonalds opened their first restaurant in the capital of India which is Delhi. The second restaurant was opened in the financial capital of India, Mumbai. McDonald initially concentrated in the West and North regions. Later the company exhibited ambitious plans for expansion in Eastern and Southern regions. History McDonald's expansion worldwide was mind boggling. It operated over 31,000 restaurants worldwide and employed more than 1.5 million people. With their presence in more than

119 countries in six continents a global traveller saw them everywhere. The first store opened near Chicago on April 15, 1955. McDonalds since then has expanded phenomenally.

Challenges for McDonalds in India: Vegetarianism: The major issue was beef. Cow being sacred and worshipped, beef could not be served. Muslims did not eat pork. The challenge was to change the form of the worldwide popular Hamburger to make an entry into India. With 25-30% of the population being lacto vegetarian and a large majority eating meat, an alternative to beef and pork was necessary. The population of a billion was undoubtedly a promising opportunity for an international company. McDonalds accepted the challenge and created the Aloo Tikki Burger known as McAloo Tikki especially for the Indian vegetarian customers. Indians also used more spices in their food. Aloo- Tikki was a potato patty with spices. It also made a chicken and fish option available for the non vegetarians. McDonalds even separated the non vegetarian cooking process and the vegetarian cooking process to convince the customers of the Shudh Shakahari Experience which means pure vegetarian experience. In addition, the crew cooking vegetarian food were asked to wear green aprons. McDonalds in India was one of its kinds as it did not offer beef at all. In order to convince and change the perception of the customers about the burgers they offered, McDonalds made attempts to clarify their stand about beef in India. So the world famous hamburger was without meat. This was indeed a classic case of product adaptation, to gain foothold in a new market.

Competition from Local Food Retailers: The competition from the local food retailers was intense. The food retailers had been doing business for years. Their familiarity with the market and the understanding of the local taste gave them a competitive edge. There were numerous eating joints which offered snacks and meals with affordable price tags. Organized food retailing was dominated by the north Indian style and the south Indian style restaurant chains. The metropolitan cities and some developed urban areas offered superior dining experience through the existence of some fine, classic restaurants. But the price was expensive and only a select group of customers could afford to make visits there. On the other hand, the size of the unorganized food retailing was larger and

comprised of roadside food vendors, dhabas (the eateries on the highways) and on the outskirts of the cities and a plethora of small eateries. Local food in a large assortment was widely available within acceptable price ranges. It was observed that food choices made by consumers were impulsive. Aroma, taste, habits and visibility worked on the subconscious level and played a major role in affective decision making. The local food business exactly understood the psychology of the customers and operated accordingly.

Target Marketing: Value propositions had to be directed to the right target market to establish a new product. An interesting question was who would eat at McDonalds? In order to develop the marketing strategy, it was important for any company to understand the consumer market. The more one knew and understood about consumers, the more effectively one could communicate and market to them. Four aspects of consumer behaviour which needed to be examined to understand a consumer market were the ability of the people to buy, consumer needs, buying motives and the buying process. The initial attempt of McDonalds was to induce trials and get the customers into the restaurants. Word of mouth and advertising was expected to reveal the experience of eating at McDonalds. McDonalds Value Meal addressed the price sensitivity of the Indian consumer market. However, irrespective of this effort, McDonalds was affordable to select customers only. These were the ambitious middle, upper middle and affluent classes who were keen to combine eating with fun. Children were the major influencers. McDonalds advertisement put forth an attractive proposition to the children segment that played a major role in the decision making as regards the choice of a restaurant. Happy Meal was used to reflect the fun element of the experience at McDonalds. Happy Meals were all about the simple pleasures of childhood, a time of excitement, joy, and being treated special. Each Happy Meal was themed and had on offer, a set of collectible toys from that particular theme. One theme typically was used for duration of 4 6 weeks. In this deal the customer got a choice of a burger, a drink and a toy. Happy Meals were a huge success. The rising income levels in India increased the disposable income. Fun and entertainment assumed importance in the financially stable families. McDonalds was perceived to be a fun place with special areas marked for kids, toy gifts and of all the attraction of a burger. Subsequently, McDonald introduced newer menus appealing to the India taste. Children in

India preferred a burger over pizza and McDonald, the king of burgers was announced as the number one in a survey titled Indias most respected companies by Business Week in India for Food retailing in 2006. Youngsters valued McDonalds for the trendy environment and the joint acted as an interesting meeting place. In United States, two thirds of the business of McDonalds was done at the drive through window. In India, because of unavailability of space and lack of proper infrastructure, the company could not do so. However, home delivery was an area of consideration. In March 2007, McDonalds announced that it would invest about Rs 3 crore (US $0.75 million) over the next three years to strengthen its home delivery services. It launched an all-India single home delivery number 66-000-666 to facilitate this service. In March 2007, the company's Managing Director Mr.Vikram Bakshi said Mc Delivery currently accounts for almost 5 per cent of the overall sales and with the introduction of the new system; the company is looking at a substantial share of 7.5 per cent in the turnover by next year.

Pricing Food pricing was a sensitive issue in India. An ideal strategy was to focus on customers ability to pay and tap the rich and upper middleclass population in India. Although McDonalds strategy was to increase sales volumes by making products available at affordable price, its products were perceived to be expensive. The company outlets in Delhi and Mumbai initially were opened due to the increased affordability of people with western exposure and brand recognition factors in metros. Additionally, people in the metros were open to experiment with variety of foods. Absorption of newer cultures was faster in the Metros than other areas. The mass markets in India were price sensitive. The positive factors were the growth in consumer markets with rapid growth in disposable incomes, development of modern urban lifestyles and the demand for value.

Eating Habits Eating out was a special occasion to many Indian families. Meals had been an essential medium for social sharing and relationship. Whenever families decided to eat out, the choices available were abundant. The trend in metropolitan cities was however changing. With more nuclear families and dual income households, the demand for fast and readymade food was growing. The needs of the growing working population stimulated the need for new products and services. McDonalds needed to find ways and

methods to motivate the customers opt for initial trials and acceptance. The conventional eating pattern of Indians involved breakfast, lunch and dinner. Lunch and dinner menus were complete meals providing the right balance in terms of nutrition. Breakfast was conventional as per the family culture and upbringing. Burgers were likely to be slotted in the category of snacks. But globally burgers and beverage brands were linked with poor eating habits. The market situation called for focus on the environment within the restaurant and western association. Advertising and Marketing Initiatives at McDonalds Advertising was known to have an impact on the minds and the hearts of the consumers. But product and the value offered needed to be attractive and powerful to maintain consistency in sales and build customer loyalty. Advertising was the backbone of McDonalds marketing strategy in India. The positioning had been directed towards establishing McDonalds as a family restaurant. Special efforts were made to not allow it to get converted into a typical teenage hangout. Advertisements were created using storylines with focus on emotions. Through a variety of advertisements, the visit to McDonald was portrayed as a special occasion providing excitement and satisfaction to the customers who comprised of families with kids and the youngsters. Advertising helped in building brand recall, but advertising alone was not able to sustain the brand. Despite the fact that McDonald's was a fast food chain of restaurants, in India it was positioned as the family restaurant and outlets were called McDonalds Family Restaurant. Extra care was taken to make the restaurants child friendly, by providing play areas wherever possible so that the parents could relax and have a good time while visiting McDonald's. The counters were low, tables were rounded so that children did not hurt themselves in the restaurant and the menus are pictorially depicted so that a child could order a meal without bothering parents. The entire restaurant was attractive and child friendly. When operations in India began, initially McDonalds positioned itself as a place to visit with the baseline "McDonald's mein hain kuch baat" (Theres definitely something about McDonalds) in their advertisements. People were encouraged to try the McDonald's experience. However, over the years, after McDonald's had been hugely accepted by Indian customers, there was a need to evolve the communication strategy and move on from trying to encourage and motivate people to visit for the first time to making McDonald's a regular experience. After McDonalds established itself and people knew

what McDonald's was all about, the baseline was changed to Toh aaj McDonald's ho jaye" (Let it be McDonalds for today), which talked about an everyday experience. The objective was to continue positioning McDonald's as a comfort zone for families. The brands media strategy focused more on the electronic media. The advertising continued to use emotional appeal to display family ties and fun at McDonalds. Indians being emotional found it easier to correlate themselves with such types of emotional messages. Advertisements with audio visual appeal created more impact on the viewers. So McDonalds narrated the fun filled environment at their fast food outlet using electronic media. McDonalds did have enough repeat customers. The customer base increased substantially since they started operations. The strength of McDonald's as a brand in India was that it was the most recognizable brand world over amongst all age groups. It was the Indianization of the brand that helped McDonalds establish in a new market successfully. The brands success was attributed to its promise of a great fun filled experience delivered at its outlets. McDonald's executed promotional campaigns involving children. McDonalds used kids as an entry strategy to the family. World over McDonalds was a family restaurant and children were an integral part of a family. During the last few decades, kids had become the target audience for most categories including consumer durables. In the 1990's, India saw a major shift to nuclear families. When joint-extended families existed, the head of the family made most decisions. In smaller-nuclear families, individual opinions had become more dominant, whether it was buying a refrigerator or a TV or whether it was about eating out. Children were an integral part of the decision making process for buying things and played an influential role. Word of mouth and peer pressure worked effectively for this age group. Children influenced the decisions of parents, and McDonalds realized that this group could no longer be ignored. McDonalds Happy Meals were often accompanied with Lego toys to attract children and the restaurant maintained several Play-Zones to provide children with a fun experience. The restaurants hosted birthday parties, played latest pop-music hits and became a favorite place even for the new generation of jean-clad Americanized teenagers of India. McDonalds even introduced unusual ice-cream flavors such as bubblegum, green apple and berry to entice the curious youngsters. Using collectable toys, television commercials, promotional schemes in schools and figures such as Ronald McDonald, McDonalds pursued its main target group children. Many parents objected strongly to the influence this had over their own children. McDonalds

adhered to all the advertising codes in each country.

Ethics and Social Responsibility In India, Mrs. Maneka Gandhi, a popular environmental activist and her supporters launched an aggressive campaign against fast food chains which contributed in the destruction of the ecological balance and promoted unhealthy food. To respond to such campaigns, McDonalds launched several pro-green advertisements such as We love Green and funded community related activities including Keep our city clean. McDonalds sponsored Olympic Day Run in 2005 and offered baked potatoes and McCurry Pan instead of fries. As a part of its Corporate-Citizenship strategy and to help its own brand and reputation in India, McDonalds participated in community-related projects targeting children. McDonalds in India hosted interschool arts competition and raised funds for charity on World Childrens Day. The restaurant celebrated Childrens week every year from November 14-20 and tactfully supported educational programs for girl-child to promote goodwill among community organizations who worked towards improving status of women in India. McDonalds also partnered with local health organizations to make India Polio-free by helping to set up Pulse-Polio program to provide free vaccine to children. In November 2006, McDonald's India announced the completion of its annual fundraiser, McDonald's World Children's Week 2006 `Each One Contribute One'. The month-long campaign garnered proceeds for vision correction of the visually and economically challenged children. As part of `Each One Contribute One' programme, Re 1 was contributed on the sales of all meals sold from October 13 - November 20, towards the corrective eye surgeries of the needy children. McDonald's did not offer any beef or pork items in India, and even created egg less products for their vegetarian customers. French Fries in India were not beef flavoured as in the US. During popular religious festivals in India, McDonalds introduced more vegetarian selections.

Growth Plans In 2006, McDonalds celebrated its tenth anniversary in India. McDonalds India planned to invest Rs.300 crores- 400 crores (US$ 75 Million - US$ 100 Million) in the next three years

to add 100-125 restaurants in the country as against the then existing number of After establishing itself in the Northern and the Western India, McDonalds opened their first restaurant in Eastern India at Kolkata. Out of the total investment, Rs.100 crore (US $ 25 Million) was to be spent to concentrate on the new Eastern region. The focus was on expansion of the brands presence and introduction of new formats. The company adopted a cluster approach to identify key locations in a 500-700 km radius of the city for further expansion. McDonalds partnered with BPCL (Bharat Petroleum Corporation Limited) and HPCL (Hindustan Petroleum Corporation Limited) to set up restaurants targeting the automobile driving consumers. The plan was to set up drive through eateries at the fuel stations. Petroretailing was evolving in India. Petroleum bigwigs proposed to upgrade the service experience to the customers at the gas stations. In order to target the shopping mall and cinema lovers, the company setup outlets in new shopping malls and new multiplexes in the countrys metros. In order to tap the potential among the middle-class Indians, the company partnered with railway stations and bus stations. McDonalds also introduced the concept of Litter Patrols where the employees of McDonalds would go around the market every day picking up garbage left behind not only by customers from McDonalds restaurants but also by other visitors in the area, resulting in a cleaner neighbourhood. According to Mr.Vikram Bakshi, even when India is the youngest market for the Big Mac in the Asia Pacific region, the penetration it has achieved in the country matches most of the countries, where the chain is 20-30 years old. Despite the fact that globally McDonalds slowed down its expansion, there were no restrictions on the Indian operations. This fact revealed the companys perspectives and plans for India. India was identified as one of the top 10 markets for McDonalds. McDonalds India operated around 100 restaurants across the country which includeed 11 drive thru restaurants, a new concept to the Indian market. With 5000 employees working, the company intended to hire another 10,000 to 15,000 people in the next few years. McDonalds strategy revolved around customizing the taste of their menu to suit the Indian palate. Only time would tell if McDonalds localization strategies and positioning as a family restaurant would continue to appeal Indian population.

Questions for Discussion

1. Does local adaptation contribute to business growth in a country? Explain McDonalds efforts to adapt to the local culture in India. What challenges did McDonalds face in India? 2. Have you ever visited a McDonalds store? Compare and contrast your experience with another quick-service restaurant or fast-food joint you visited earlier. How can McDonalds improve? Should it alter its strategy?

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