Sri Sharada Institute of Indian Management-Research

7, Institutional Area, Phase-II, Vasant Kunj, New Delhi- 70 Website: www.srisiim.org

Project on Service Marketing

McDonalds : Behind The Golden Arches

Submitted to:- Sanjeev Sareen

Group Sandeep Kumar (20100144) And Binoy

McDonald: Behind The Golden Arches

Declaration
We, Sandeep Kumar & Binoy sinha student of PGDM (2010-12) hereby declare that we have completed this project on Methodology used in project Selection. The information submitted is true to the best of our knowledge.

Binoy Sinha Sandeep Kumar (PGDM 2010-12)

The McDonalds Story - Genesis.........................................................................3 Business Model.....................................................................................................4 McDonalds in India.............................................................................................5

Challenges in Entering Indian Markets............................................................5

Segmentation, Targeting and Positioning.............................................................5

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McDonald: Behind The Golden Arches

Customer Perception and Customer Expectation ................................................7 McDonalds Marketing Mix (5 Ps).......................................................................7 The McDonalds Experience..............................................................................11 McDonaldizing the Suppliers.............................................................................13 Importance of PLC in McDonalds......................................................................14 Competitors Analysis..........................................................................................15
Two Dimensional Perceptual Mapping..............................................................16

SWOT Analysis..................................................................................................16 The Road Ahead.................................................................................................17 Exhibits...............................................................................................................18

1. McDonalds Indian Menu............................................................................18 Survey Questionnaire....................................................................................18

References...........................................................................................................24

The McDonalds Story - Genesis

The story of McDonalds started in 1954, when its founder Raymond Kroc saw a hamburger stand in San Bernardino, California and envisioned a nationwide fast food chain. Kroc proved himself as a pioneer who revolutionized the American restaurant industry. Today McDonalds is the worlds largest fast food chain serving 47 million customers daily. McDonalds is now one of the most valuable brands globally, worth more than $25 billion. The Golden Arches and its mascot Ronald McDonald have gained universal recognition. Though the company has roots in the US, McDonalds today has become an accepted citizen of the world. Year 1955 1957 Events Ray Kroc opens his first restaurant. McDonalds Corporation is created Quality, Service, Cleanliness and Value (QSC & V) becomes company motto

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McDonald: Behind The Golden Arches 1963 1965 1968 1974 1996 Ronald McDonald makes debut The company goes public Big Mac is introduced` Happy Meal is launched McDonalds opens in India, the 95th country

Business Model
Franchise Model Only 15% of the total number of restaurants are owned by the

Company. The remaining 85% is operated by franchises. The company follows a comprehensive framework of training and monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and Value propositions offered by the company to its customers.

Product Consistency By developing a sophisticated supplier networked operation

and distribution system, the company has been able to achieve consistent product taste and quality across geographies.

Act like a retailer and think like a brand McDonalds focuses not only on

delivering sales for the immediate present, but also protecting its long term brand reputation.

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McDonald: Behind The Golden Arches

McDonalds in India
McDonalds entered India in 1996. McDonalds India has a joint venture with Connaught Plaza Restaurants and Hard Castle Restaurants. Connaught Plaza Restaurants manages operations in North India whereas Hard Castle Restaurants operates restaurants in Western India. Apart from opening outlets in the major metros, the company is now expanding to Tier 2 cities like Pune and Jaipur.

Challenges in Entering Indian Markets

Regiocentricism: Re-engineering the menu - McDonalds has continually adapted

to the customers tastes, value systems, lifestyle, language and perception. Globally McDonalds was known for its hamburgers, beef and pork burgers. Most Indians are barred by religion not to consume beef or pork. To survive, the company had to be responsive to the Indian sensitivities. So McDonalds came up with chicken, lamb and fish burgers to suite the Indian palate.

The vegetarian customer India has a huge population of vegetarians. To cater to

this customer segment, the company came up with a completely new line of vegetarian items like McVeggie burger and McAlooTikki. The separation of vegetarian and non-vegetarian sections is maintained throughout the various stages.

Segmentation, Targeting and Positioning

McDonalds uses demographic segmentation strategy with age as the parameter. The main target segments are children, youth and the young urban family.

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McDonald: Behind The Golden Arches

% of kids who influence what FMCG brand their family buys

80% 70% 60% 50% 40% 30% 20% 10% 0%

71% 59% 52%

Biscuits

Burgers & Pizzas

Fruit Juices

As shown above, kids reign supreme in FMCG purchase related to food products. So to attract children McDonalds has Happy Meal with which toys ranging from hot wheels to various Walt Disney characters are given (the latest in this range is the toys of the movie Madagascar). For this, they have a tie-up with Walt Disney. At several outlets, it also provides special facilities like Play Place where children can play arcade games, air hockey, etc. This strategy is aimed at making McDonalds a fun place to eat. This also helps McDonalds to attract the young urban families wanting to spend some quality time while their children have fun at the outlet. To target the teenagers, McDonalds has priced several products aggressively, keeping in mind the price sensitivity of this target customer. In addition, facilities like Wi-Fi are also provided to attract students to the outlets like the one at Vile Parle in Mumbai.

Mc Donalds mein hai kuch baat projects McDonalds as a place for the whole family to enjoy. When McDonalds entered in India it was mainly perceived as targeting the urban upper class people. Today it positions itself as an affordable place to eat without compromising on the quality of food, service and hygiene. The outlet ambience and mild background music highlight the comfort that McDonalds promises in slogans like You deserve a Break Today & Feed your inner child. This commitment of quality of food and service in a clean, hygienic and relaxing atmosphere has ensured that McDonalds maintains a positive relationship with the customers.

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McDonald: Behind The Golden Arches

Customer Perception and Customer Expectation

Customer perception is a key factor affecting a products success. Many potentially revolutionary products have failed simply because of their inability to build a healthy perception about themselves in the customers minds. McDonalds being an internationally renowned brand brings with it certain expectations for the customers.

Target Segment A Family with children

What is McDonalds for me? A treat to children, a fun place to be for the children.

Urban customer on the move Great taste, quick service without affecting the work schedule Teenager Hangout with friends, but keep it affordable.

Customers expect it to be an ambient, hygienic and a little sophisticated brand that respects their values. The customers expect the brand to enhance their self-image. Customer responses obtained at the Vile Parle, Mumbai outlet confirmed the fact that they connect strongly with the brand. However, fulfilling some of the customer expectations like a broader product variety provide McDonalds a great scope for improvement.

McDonalds Marketing Mix (5 Ps)

After segmenting the market, finding the target segment and positioning itself, each company needs to come up with an offer. The 5 Ps used by McDonalds are:

1. Product 2. Place 3. Price 4. Promotion 5. People

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McDonald: Behind The Golden Arches

Product: How should the company design, manufacture the product so that it
enhances the customer experience?

Product is the physical product or service offered to the consumer. Product includes certain aspects such as packaging, guarantee, looks etc. This includes both the tangible and the nontangible aspects of the product and service. McDonalds has intentionally kept its product depth and product width limited. McDonalds studied the behaviour of the Indian customer and provided a totally different menu as compared to its International offering. It dropped ham, beef and mutton burgers from the menu. India is the only country where McDonalds serve vegetarian menu. Even the sauces and cheese used in India are 100% vegetarian. McDonalds continuously innovates its products according to the changing preferences and tastes of its customers. The recent example is the introduction of the Chicken Maharaja Mac. McDonalds bring with it a globally reputed brand, world class food quality and excellent customer specific product features.

Place: Where should be the product be available and the role of distribution
channels? The place mainly consists of the distribution channels. It is important so that the product is available to the customer at the right place, at the right time and in the right quantity. Nearly 50% of U.S.A is within a 3 minute drive from a McDonalds outlet.

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McDonald: Behind The Golden Arches There is a certain degree of fun and happiness that a customer feels each time he dines at McDonalds. There are certain value propositions that McDonalds offer to its customers based on their needs. McDonalds offers hygienic environment, good ambience and great service. Now McDonalds have also started giving internet facility at their centres and they have been playing music through radio instead of the normal music. There are certain dedicated areas for children where they can play while their parents can have some quality time together.

Price: What should be the pricing strategy?

Pricing includes the list price, the discount functions available, the financing options available etc. It should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part which generates revenue. All the other three are expenses incurred. The price must take into consideration the appropriate demand-supply equation. McDonalds came up with a very catchy punch line Aap ke zamane mein ,baap ke zamane ke daam. This was to attract the middle and lower class consumers and the effect can clearly be seen in the consumer base McDonalds has now. McDonalds has certain value pricing and bundling strategies such as happy meal, combo meal, family meal etc to increase overall sales volumes.

Promotion: What is the suitable strategy and channels for promotion of the
product?

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McDonald: Behind The Golden Arches

The various promotion channels being used by McDonalds to effectively communicate the product information are given above. A clear understanding of the customer value helps decide whether the cost of promotion is worth spending. There are three main objectives of advertising for McDonalds are to make people aware of an item, feel positive about it and remember it. The right message has to be communicated to the right audience through the right media. McDonalds does its promotion through television, hoardings and bus shelters. They use print ads and the television programmes are also an important marketing medium for promotion. Some of the most famous marketing campaigns of McDonalds are: You Deserve a break today, so get up and get away- To McDonalds

Aap ke zamane mein ,baap ke zamane ke daam.

Food, Folks, and Fun Im loving it.

People: How to converge the benefits of internal and external marketing?

McDonalds understands the value of both its employees and its customers. It understands the fact that a happy employee can serve well and result in a happy customer. McDonald continuously does Internal Marketing. This is important as it must precede external marketing. This includes hiring, training and motivating able employees. This way they serve customers well and the final result is a happy customer.

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McDonald: Behind The Golden Arches The level of importance has changed to be in the following order (the more important people are at the top): 1. Customers 2. Front line employees 3. Middle level managers 4. Front line managers The punch line Im loving it is an attempt to show that the employees are loving their work at McDonalds and will love to serve the customers.

The McDonalds Experience

Marketing in a services industry is becoming an increasingly complex challenge. The paradigms of service marketing demand a passionate understanding of customer expectations and perceptions, and linking them to product design & delivery as well as operational planning. This is where McDonalds has excelled due to its ability to successfully integrate the customers perspective in its products and operations in a comprehensive manner. The revamped menu in India is an example of McDonalds strategy of integrating the customers perspective in its products. And, the operational integration is evident from McDonalds emphasis on its suppliers as its customers as well as its treatment of its consumers as coproducers of services. The ultimate aim of Service Marketing is not just to become a Service Leader but to create a Service Brand. The Service Delivery Process is the key to achieving this aim of Service Marketing.

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Service Delivery Process

Core Product

Supplementary Process

During the Service Delivery Process, each moment of interaction between the firm and the customer, called Moments of Truth, helps understand the opportunities that a firm has to win or lose the customer. For example, these moments of truth are created for McDonalds every time the guard at the McDonalds outlet meets the customer, every time an attendant takes down the order from the customer waiting in the queue, every time the cashier interacts with the customer, every time the attendant helps the customer guided the customer towards the table, every time the attendant cleans the table, etc.
Customer Moments Of Truth The Service Encounter

Service Provider

Service Delivery Points

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McDonald: Behind The Golden Arches Managing these moments of truth is a great challenge in Service Marketing especially due to customers involvement as a co-producer of services (e.g. McDonalds self-service concept wherein the customer not only collects the order but also cleans the table after consuming the food). However, McDonald's has been able to create a great experience for its customers by understanding the nature of the entire Service Delivery Process and the various stages in the process that are exposed to the customers. Transparency in the processes at its outlet has helped McDonalds bring the back office in its outlet at the front so that the customer is able to know the operations and provide feedback on service design improvements. Internal Customer Focus is equally important as External Customer Orientation in order to win these moments of truth. McDonalds focus on its People and their service delivery methods therefore plays a very important role in creating a successful Service Brand. The quality and the consistency of the service delivered by McDonalds have been greatly enhanced by the combination of the factors mentioned above. This has helped McDonalds become Service Leader and a successful Service Brand. This is evident from the fact that very few of its customers opt for take-home parcels or home deliveries while most of them prefer to eat at the outlet and enjoy the McDonalds experience.

McDonaldizing the Suppliers

McDonalds has changed the nature of not only the food service industry but also the food processing industry as well. McDonalds realized that the battle between fast food chains would increasingly be one of efficiency of supply, lower cost production and greater desire to innovate. It pioneered with innovative and sophisticated food distribution and packaging systems when the traditional food processors were unwilling or unable to supply food items that McDonalds demanded. They achieved amazing consistency by devoting more attention than anyone else to field service and training at store level. Production was concentrated in huge plants devoted exclusively to McDonalds. McDonalds also started with tiny suppliers and grew with them displaying great loyalty. Nowhere is the supplier loyalty more evident than in development of new, improved products. Some of McDonalds classic food items like Filet-o-Fish, French Fries, Chicken Nuggets etc. are results of supplier innovation. Interestingly, it took KFC more than three years before in finally introduced its own version of chicken nuggets. Thus supplier technological expertise had given McDonalds a product which was not a mere marketing innovation but a technical one. McDonalds attempted to squeeze labour out of the stores by
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McDonald: Behind The Golden Arches moving more preparation back into the processing plant, creating the opportunity to develop unique products based on suppliers processing skills. For the first time, McDonalds suppliers became the focal point of new product development. This converted the fastfood industrys most fragmented distributed system into more efficient one which helped McDonalds reduce its inventory and manage costs effectively.

Importance of PLC in McDonalds

The requirements of customers change over time and thus the product offering has to be changed accordingly. What is the fashion today may be out of market within few weeks. Thus continuous innovation is required.

To counter these changes McDonalds has continuously introduced new products and has phased out the old ones which were at the decline stage of their PLC. The introduction is timed such that the new product does not cannibalize the product already in the maturity or growth stage. Thus the secret lies in getting profits with different products in the different stages of the PLC.

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A perfect example of revitalising a product in decline phase

The French Fries have been an important part of the McDonalds menu worldwide. But now it was in the stage of decline and was actually not generating proper return. In an attempt to revitalize it, a new variant was introduced namely Shake Shake Fries. This is being served with chatpata spice mix which has resulted in increase in the sales of French Fries and has elevated it from to the decline stage. This is used to delay the decline of a well established product which has the potential of generating further revenue.

Competitors Analysis
McDonalds has been a leading fast-foods outlet in Vile Parle. But the outlet understudy has other competitors eating away into its market share. In addition to its traditional rivalsKFC, Dominos, Pizza Hutthe firm encounters new challenges. Jumbo King competes using a back-to-basics approach of quickly serving up burgers for time-pressed consumers. On the higher end, the KFC has become potent competitor in the quick service field, taking away customers from McDonalds. Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm. At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for consumers. This brings us to service and experience based competition which McDonalds can use for competitive advantage against Jumbo King. Keeping in mind the demographics of the area, McDonalds has Wi-Fi enabled the outlet to cater to the student community. It is for this overall Food, Fun & Folks experience that customers pay a premium over the other competitors. Competition also reduces product lifecycle; inducing firms to revise their products portfolios and to revisit their product market to understand changing needs, expectations and
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McDonald: Behind The Golden Arches perception of different market segments. The new McBreakfast would be introduced between 6 to 11 am as a pilot project. This would open up a whole new revenue stream for McDonalds by tapping into the student and working population by providing a healthy and wholesome breakfast. This shows how demographic shift can affect the demand for products and services. McDonalds has anticipated these changes to maintain its competitive edge. Two Dimensional Perceptual Mapping

SWOT Analysis

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The Road Ahead

Entry to Tier 2 and Tier 3 cities The main target customer for McDonalds is the

new urban Indian family. With the customer demographics constantly changing and tectonic social and cultural shifts being observed in Tier 2 and Tier 3 cities due to globalization, the company is now expanding to Tier 2 cities like Pune and Jaipur.

Rolling out McBreakfast across all outlets In India, the company has recently

launched its entry into the breakfast food category. This is now launched on a pilot basis on select stores. In Mumbai, it available at the Vile Parle outlet. The company views this category as a key growth driver in future.

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Exhibits
1. McDonalds Indian Menu
Vegetarian McVeggie McAlooTikki Paneer Salsa Wrap Crispy Chinese McCurry Pan Pizza McPuff Non Vegetarian Chicken Maharaja Mac McChicken Burger Shahi Chicken McCurry Wrap Chicken Mexican Fillet-O-Fish

Vegetarian Menu

Non-Vegetarian Menu

Survey Questionnaire
Q. Which is your favorite product at McDonalds? 18 | P a g e

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Favourite Product
MAHARAJ MAC 10% 8% 12% 12% 6% 18% MC CHICKEN BURGER MC VEGGIE BURGER FRENCH FRIES MC CURRY PAN FILETO FISH 34% OTHERS

Q. Is the product line in McDonalds adequate?

Is the product line adequate?

28% 38% YES NO AVERAGE

34%

Q. What is the main problem you faced at McDonalds?

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Problems Faced in McDonald's

Long Queues 24% 40% 4% Rude Behavior of Employees Congestion Other 16% 16% No Problem

Q. Which area do you think needs the most improvement?

Improvement Required
Delivery Time 10% 10% 6% 20% Capaciousness Product Variety Prices 30% 24% Offers and discounts Others

Q. What is the first thing that strikes your mind about McDonalds?

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First Thing About McDonald's That Strikes Customer's mind

22% 30% 4% Burger Golden Arches Service Value for Money 18% 26% Fun

THE FREE TOYS PROVIDED WITH HAPPY MEALS (WALT DISNEYS MADAGASCAR)

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KIDS PLAYING AT PLAY PLACE- MCDONALDS VILE PARLE (MUMBAI)

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THE NEW BREAKFAST MENU STARTED AT SELECT STORES IN MUMBAI.

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References
1. Marketing Management Dr. Rajan Saxena 2. McDonalds Behind the Arches John S Love 3. www.Mcdonaldsindia.com 4. Outlet Manager McDonalds Vile Parle

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