Marketing Lessons in Value Creation: McDonald's, a Case in Point (2024)

By Mohammad Sabbouh | April 6th, 2021

Who doesn't know McDonald's? It's fascinating how almost everyone has been in McDonald's at least once in his life. Whether McDonald's is your favorite restaurant or not, the brand has proved a solid success over the past 66 years! Today, McDonald's operates through 38,695 outlets in 120 countries, making it the ever-most popular fast-food chain, outperforming its rivals Wendy's, Burger King, Subway, Taco Bell, and KFC. The company was ranked number seven for the most valuable U.S. brands of 2020 and globally tenths, with its estimated brand value of 143.8 billion U.S. dollars (Forbes, 2020). What marketing strategies did McDonald's deploy to deliver such a value while maintaining its consumers' breadth? How did the company develop its value chain to facilitate the value delivery process?

"It's said that a wise person learns from his mistakes. A wiser one learns from others' mistakes. But the wisest person of all learns from others' successes."John C. Maxwell, New York Times Bestseller Author

McDonald's sets marketing at the beginning of its strategies while keeping the consumer at the center. They deliver value through a simple process of 3 phases:

1. Choosing the value
2. Providing the value
3. Communicating the value

McDonald's develops its offering following the value proposition of providing steady quality with decent value pricing that is served quickly and consistently across the globe. For McDonald's to fulfill value creation and choose its value, it performs marketing by segmenting its markets and consumers, targeting the attractive segments, and positioning its brand accordingly.

McDonald's performs four types of segmentation: Geographic, Demographic, psychographic, and behavioral segmentation.

Consumer Segmentation & Targeting

McDonald's segments its markets according to global geographic segmentation: The Americas, Europe, Asia Pacific, Middle East, and Africa. Each geographic segmentation undergoes sub-segmentation to cater to different markets and cultures that share similar needs. To target those markets, McDonald's paid attention to the local variations. For instance, they noticed that people in China & India prefer chicken over beef, creating an 80% chicken-based menu (Shilpa Kannan, 2014). They also adapted their menu to match different regions. For instance, they introduced for India meals like McVeggie (Shilpa Kannan, 2014), Chicken Maharaja-Mac, McSpciy Panee; whereas, in Egypt, they introduced McArabia and McFalafel (Iceblink, 2013), and in the Philippines, they introduced McSpaghetti to adapt the cultural taste of the consumers in those regions.

One of the reasons for McDonald's success is having excellent market research and offering realization process. McDonald's considered local demographics and customer preferences in a multi-cultural country like India. They faced challenges where the cow is deemed sacred and worshiped and Muslims don't eat port. After doing proper research, McDonald's concluded that most Indians were vegetarians, so they introduced "McAlo Tikki" as an alternative to chicken nuggets and other chicken and veggie-based menus. According to the market research findings and proper segmentation, McDonald's created a more personalized experience and built a deeper understanding and relationships with the customers. On the other hand, McDonald's delivered value efficiently, leading to customer management fulfillment.

McDonald's defines its demographic segmentation by taking variables like age, family size, and family lifestyle and associating them with consumer needs. The company successfully segmented its consumers to Kids (3 to 7 years), families, students, and working adults: McDonald's launched campaigns and designed different products and settings for their consumers to target those attractive segments. For instance, to attract kids, McDonald's launched a 60 seconds commercial advertisem*nt in 1965 called "Decision Makers," introducing characters like "Grimace," "the Hamburgler," and "Mayor McCheese," which helped lure children into their restaurants (Keller Kevin, 2016). They made a demographic study for their branches that host families more than bachelors and created play areas to target both kids and families. With the play area concept, social factor plays a role by influencing the parents by their kids to go to McDonald's. In 1979, they introduced the "Happy Meal," boxes with circus wagons containing the favorite food for kids, along with fruit snacks and juice. McDonald's introduced student meals for outlets that they operated for 24 hours for schoolers. In contrast, they catered to working adults' busy schedules seeking convenience meals, "Grab & Go," Drive-Thru, and McDelivery.

McDonald's performed a cross-segmentation (Demographic & Geographic) by noticing that some countries' age mix is young while others are not. For example, in India, 26.7% of the population is 0-14 years old (Statista, 2019). Consequently, they launched McDonaldland fantasy world, issued membership cards targetting kids below 12 years, and provided McDonaldand kidswear. (Mark Bellomo, October 2016).

McDonald's performs behavioral segmentation to understand consumer behavior, which classifies buyers based on their knowledge, use, or response to a product. To make McDonald's experience memorable, they came up with free spaces for occasions like birthday parties. McDonald's aimed to target existing consumers who felt bored with the traditional burgers and other customers who prefer to eat higher quality burgers. In 2015, McDonald's launched the "Signature Collection" of premium burgers (Leonie Roderick, November 2015). McDonald's also targeted coffee lovers by introducing McCafe to their menu.

While geographic, demographic, and behavioral segmentations are critical, McDonald's did not underestimate psychology's power! With psychographic segmentation, McDonald's classifies buyers based on their psychological and personality traits, lifestyle, or values. McDonald's has catered its offering according to the convenience and lifestyle of its consumers. The "Signature Collection" mentioned earlier also targeted niche customers who value premium offerings. For instance, McVeggie was the best offering for vegetarian-based diet consumers.

McDonald's Brand Positioning

McDonald's creates a positioning profile for all segments and products. They developed a unique customer perception of their brand. Since its early days, McDonald's started "Speedee," who is their clown-shaped man, which got high popularity among children.

McDonald's provides value by the different offerings that target different segments. As discussed earlier, the product design is catered to geographic, demographic, behavioral, and psychographic segmentation. McDonald's designs its prices to attract a wide breadth of consumer segments. For example, McDonald's launched 1$ meals to target lower-income consumers and "signature meals" to attract a higher income class. To enhance value creation, McDonald's paid attention to the efficiency of food delivery. Their high-volume assembly kitchens are designed to deliver fast food at speed for time-conscious customers. Distribution of the food locally is provided through restaurants, kiosks, and mobile App while globally McDonalds' had 38,695 outlets, where they own 7% whereas the 93$ is owned by franchisees (Akhilesh Ganti, 2019)

To communicate the value, McDonald's launched hundreds of campaigns as part of their Plan to Win 5Ps marketing Mix Strategy (Product, Price, Place, Promotion & Packaging). The company uses the promotional mix of advertising, sales promotion, public relations, and direct marketing. McDonald's uses T.V., radio, print media, online media, and advertisem*nt to communicate their value (Pauline Meyer, 2020). For instance, coupons and freebies are offered to attract new consumers. Besides, events like McDonald House Charities and the McDonald's Global Best Green environment program are designed to support the corporate brand's value (Pauline Meyer, 2020). McDonald's used several mantras to leave an impression on consumers like "It's a good time for the Great Taste of McDonald's," "Food, Folks, and Fun," "We love to see you smile," and "I'm Lovin' it." Also, they promote their figurehead, Ronald McDonald, in a clown character that resembled the value in kids' minds, who will eventually grow up and with emotional connection.

Value Chain

To deliver value, McDonald's enhanced the nine value chain activities: Inbound logistics, operations, outbound logistics, marketing and sales, Services, procurement, technology development, infrastructure, and human resources.

1.Inbound logistics

McDonald's purchases raw vegetables and other raw materials from fixed pre-defined suppliers. To reduce the cost and ensure a product of the highest quality, McDonald's ran a backward vertical integration with suppliers of primary raw materials, including beef and milk. For the other materials like vegetables, they buy them from local groceries. (Dipesh Sharma, 2014).

2.Operations

McDonald's designed high-volume kitchens to serve its consumers efficiently and effectively. Instead of having a significant number of appliances, they created the speedy kitchen with a huge grill to cook a considerable number of burgers, a dressing station, a fryer operated by one person, a beverages fountain, and a counter. Mass production requires a warehouse to store the raw materials, transporting them by trucks to the retail restaurants. An automation software keeps track of available materials and regularly addresses the shortages without manually requesting them. Having such a system allows the operations to run smoothly, and the restaurants focus on the core of the business. (Dipesh Sharma, 2014).

3.Outbound logistics

McDonald's follows its value proposition by quickly providing the highest quality of food within a clean environment. Adapting the co-creation approach, McDonald's established a team to monitor tweets about their products and services (Keller Kevin, 2016). From that monitoring, they will measure customer satisfaction and address any arising dissatisfaction. Based on the customer feedback, McDonald's continues to optimize the menu to create better consumer value.

4.Marketing & Sales

McDonald's extended its presence almost everywhere globally. A total of 38,695 restaurants is established in around 120 countries serving 58 million customers each day. As described extensively earlier, McDonald's maintained comprehensive marketing strategies to adapt to environmental changes; the most impactful one was in 2003' Plan to Win Strategy'. The savior plan was based on the 5Ps marketing matrix (Product, Price, Place, Promotion & Packaging), which moved the company from a decline in profit in 2001 to 15 years of profitability growth. McDonald's changed its mission from "The world's best quick-service restaurant" to "Being our customer's favorite place and way to eat" and core values of operational excellence, leadership, marketing, and innovation. Consequently, the sales increased by 87%, stock share tripled, and market share increased, exceeding competitors like Wendy's, Burger King, KFC, and Pizza Hut by 20% (Hima Bindhu, March 2017).

5.Services

McDonald's provided its consumers with complimentary Wi-Fi, making it a good choice for coffee-shop lovers. McDonald's also offered pre-paid Arch cards which provide consumers special discounts for holidays and special occasions. Besides, McDonald's hosts special events and parties to make the consumer experience memorable. (Dipesh Sharma, 2014).

6.Procurement

McDonald's e-procurement portal, called SystemMcDonalds, is an efficient software that allows franchises worldwide to buy anything needed to run their restaurants at competitive prices.

7.Technology Development

McDonald's worked on modernizing the restaurants. Signing a five-year agreement with Fujitsu, McDonald's was able to develop its technology infrastructure. They launched screen ordering and table serving (Stephanie Strom, November 2016) by reducing the queue waiting time which was the bottleneck for their service efficiency. Eventually, saving customer's time and satisfying their needs (hunger) enhanced consumer value creation tremendously.

8.Human Resources

McDonald's believes that its business's success comes through the employees. They developed a process of four actions: Getting people, preparing them, simulating them, and keeping them. The process moves from staffing to training, motivation to achieve goals, and maintenance by retaining productive employees. The company created an incentive program for employees to boost their performance by offering a cash and non-cash incentive system. (Mahrukh Rafique, March 2019).

9.Infrastructure

McDonald's uses complicated and advanced I.T. systems while maintaining an eco-friendly and sustainable workspace.

Value creation does not come by accident. It rather goes through a systematic approach to understanding the markets and the buyers and then developing marketing plans accordingly. McDonald's journey could be an excellent example, but it's not the only one. Top marketers provide marketers the opportunity to learn from them and pursue their marketing activities towards value creation."It's said that a wise person learns from his mistakes. A wiser one learns from others' mistakes. But the wisest person of all learns from others' successes."John C. Maxwell, New York Times bestseller author

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References:

• Statista (2020): McDonald's global brand value from 2006 to 2020.https://www.statista.com/statistics/326059/mcdonalds-brand-value/
• Shilpa Kannan (November 19, 2014): How McDonald's conquered India.https://www.bbc.com/news/business-30115555
• Iceblink (2013): Marketing - Mcdonalds Mcfalafelhttps://www.termpaperwarehouse.com/essay-on/Marketing-Mcdonalds-Mcfalafel-Segmentation-And/252829
• Keller Kevin (2016): Marketing Management-Pearson Education-Chapter 11.
• Leonie Roderick (November 4, 2015): McDonald's looks to 'enhance brand image' with premium burger launch
• Statista (2019): India: Age distribution from 2009 to 2019.https://www.statista.com/statistics/271315/age-distribution-in-india/
• Mark Bellomo (October 4, 2016): The Weird History of McDonaldland Toys.https://www.mentalfloss.com/article/69989/brief-history-mcdonaldland-and-toys-and-lawsuit-it-spawned
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• Hima Bindhu (March 12, 2017): McDonald's "Plan to Win" – A Revitalization Strategy.https://smarketingmania.wordpress.com/2017/03/12/mcdonalds-plan-to-win-a-revitalization-strategy/
• Stephanie Strom (November 17, 2016): McDonald's Introduces Screen Ordering and Table Service.https://www.nytimes.com/2016/11/18/business/mcdonalds-introduces-screen-ordering-and-table-service.html
• Mahrukh Rafique (March 6, 2019): McDonald's HRM.https://www.slideshare.net/mahrukhrafique1/mcdonalds-hrm