Summary of the strategic situation confronting MacDonald’s
A strategy is a defined way through which organizations undertake their processes. A strategy is a way or method of doing something at the organizational level. MacDonald’s has been faced with a couple of strategic situations that are confronting the success of the food chain within the American market. The company has had low sales that are attributed by low sales turnover in all its branches.
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The company made a loss for the first time since it was started. The sales figures are very worrying especially to the management. The company management decided to restructure by firing the CEO. The company’s decision to restructure followed the company CEO’s failure to boost the organization’s sales and provide competitive pricing for its products.
Marketing food stuffs in a highly competitive economy requires a firm to use the best marketing tools and machinery (Milne and MacDonald, 58). MacDonald’s marketing strategy has some loopholes that are being used by their competitors to out do the company in the market. The food market share where MacDonald used to control is being challenged by their rivals.
Thus, their profit margin is declining. The company’s pricing system is poor as they have failed to recognize that foodstuff prices rises with time. There is an increase in cost, and this translates to reduced sales. The company’s marketing strategy that includes the use of the franchise to market goods has been working till the early 2000s.
The company’s failure to motivate their franchises has resulted to the franchises incurring considerable cost of the service they offer MacDonald. The foods company should have resulted in an increase the price of major products so that the franchisors can earn their revenue from the service being offered. The company’s sales have been declining as a result of low sales turnover from the franchises.
The franchises end up incurring extra costs, and the sales margin was very low. Marketing refers to the process of popularizing a product or service to a potential customer. MacDonald’s marketing strategy has worked over the years until it failed to offer competitive prices for its products. The company’s marketing strategy that incorporates the use of franchises has helped the company grow over the years without any problems like those experienced in the past.
Initiatives MacDonald’s can take to strengthen relationships with franchises
Failure of MacDonald’s managers to tame the prices they offer to franchises has resulted in low sales. This has threatened the existence of the food company in the American market. In a move to help revive the sales and profits of the company, the management has done management restructuring. This introduced a new management team that enhanced the marketing strategies for the company.
MacDonald’s operate by use of a chain store that is facilitated by franchise stores. This has helped the company to expand and grow over the years. Franchises have a better understanding of the market conditions on which they operate. In this case, they are established clear information about customer preference. MacDonald’s has chosen to use franchise.
This has been necessitated by the fact that the franchise is already an established store that help supply the products and services of an organization. Thus, they charge a little fee from the company for the service offered. More than 80% of MacDonald’s sales can be attributed to the franchise business. In this case, they have been contracted to sell and supply MacDonald’s products in the American Market.
Franchises are professionals who have clear and efficient marketing skills. Thus, they help to introduce an organization’s product or services to the market (Bradach, 69). MacDonald can use various strategies to help boast their relationship with franchises. They need to review their pricing system so as to help franchises make significant sales volume.
In the recent years, there has been a massive exodus of most of the company’s franchise due to low profits earned. The franchises also tend to incur the high cost of operations. MacDonald can improve their relationship with the franchisee by products improvement and offer competitive prices for the products. If they improve the quality of the product and in turn increase the prices, the product will still fetch high sales in the market.
Managers of MacDonald need to improve the relationship between them and the franchises. It is through such relationship that the company will be able to utilize opportunities in the market. Interdependence between managers and the franchise will boost the organization’s operations. In this case, significant sales will be made as the franchise feels a part of this success.
MacDonald’s price discounting strategy
Over the years, MacDonald has utilized their competitive advantage through initiating marketing strategies that include the use of the franchise and business ventures. The trade partnership is crucial for both the organization and the franchise through setting prices that will help improve the profitability of the business. MacDonald has used price discounting method to attract customers in the organization.
In turn, this increases the sales volume for the company as it chooses to reward its customers. In a move to win customer loyalty, MacDonald has presented a strategy geared towards increasing the sales volume. In this case, customers’ loyalty is rewarded as they make their sales. MacDonald also uses the strategy to work out how franchises will be rewarded for offering their services to the organization.
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This strategy has been very helpful in maintaining the sales volume of the company. It has also assisted in making sure they remain top of their competitors. Pricing discounting has its shortcomings as it may not pick up well with customers if the quality of the product is compromised. Thus, some will not make the sale. The company’s decision to cut prices in 1997 brought about resistance from franchises as they viewed the move as a contradiction of their policy.
This made the company sales fall over in the next four months. Price discounting is viewed as “cheapening the brand” in the market through which the company shares on the stock market may suffer low prices. MacDonald decision to introduce the $1 menu on the market increased the sales volume. However, the profitability of the company remains relatively low.
Price discounting was used to wear out their competitors in the market as none could offer the $1 menu on their program. Thus, the organization retained customers, but their profit margin remained relatively low. This strategic move prompted the company to get rid of its weak franchises as they had little role in improving the company’s operations. As the organization gears for increased growth, the management need to diversify their pricing system so as to include franchises in the decision.
This will boost the relationship that exists between the food company and the franchises. Price and menu fixing in MacDonald had not always enjoyed considerable support from the franchises as they are not consulted in the process. In this regard, they will contribute considerably to the decision due to their customer interaction skills over a longer time than the company itself.
Threats to MacDonald’s
The food market is changing a lot in the country due to different factors that help shape up the industry. Prices in the food industry are vital factors that need to be controlled so as to remain competitive in this industry. MacDonald has used different strategies to market their products to their customers. As a manager in an organization, it is important to assess the organization’s opportunity and threats in a market.
MacDonald organization management is not different. Thus, there is a need to assess how the organization’s operations are being undertaken. Businesses have threats that may restrain the operations. Thus, a need to identify these threats is of great importance to the success of the organization. Threats to MacDonald are from the franchise leaving the organization to low sales turnover that have led to losses, poor marketing strategies, and rival firms.
Franchises have incurred high operation costs, and the income level remains constant. As a business, the main reason to remain relevant in the industry is to make maximum profits. Therefore, the franchise wants to maximize their profits. The McDonald pricing system that is being used by franchises is poor. This threatens the existence of the franchise as they make low sales.
The organization needs to diversify the marketing strategy to include offering quality food that will attract more customers and thus high sales. MacDonald needs to involve the franchise in decision making. In this case, the franchise has a first hand experience of how of the market conditions. Most franchise claim that the food industry is changing due to shifting feeding habits among different age groups in the country.
Improving the quality of the company’s food will attract more customers in the market. This will help revive the business profitability level. In order to remain relevant in the market, an organization can diversify its products to compete relatively well with competitors. MacDonald has assessed its threats in the market and found that they need to improve the services and products they offer to the customers.
Introduction of new products in the market will help the franchises to strategize on various products to offer on the market. This will reduce the risk of suffering another loss. The rivals have posed a great threat to the company through offering competitive foods that are fetching high prices in the market. If MacDonald does not take note of this pressure being driven by new competitors, the organization will continue to lose its market share.
The management needs to review the pricing system of most of the company’s products on the market. They need to involve the franchisor in setting prices and improving the quality of food to attract and retain customers. Failure to improve the quality of service through time taken to serve a client on one food store will result to customer dissatisfaction. In turn, this will reduce the company’s sales gradually as they will continue losing customers.
Bradach, Jeffrey L. Franchise Organizations. Boston, Mass: Harvard Business School Press, 1998. Print.
Milne, George R, and Mark A. MacDonald. Sport Marketing: Managing the Exchange Process. Sudbury, Mass: Jones and Bartlett, 1999. Print.