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Organizations utilize various strategies such as corporate and business level strategies to earn an above-average return and achieve strategic competitiveness. A strategy that is uniform with the realities and conditions of an organization’s internal and external environment integrates and allocates available competencies and resources to align them appropriately with opportunities present in the external environment. This paper will focus on McDonald’s corporation business and corporate-level strategies, competitive environment, and the market cycles.
Business-Level Strategies
A business-level strategy is an organized and combined set of obligations and activities an organization utilizes to achieve a competitive advantage via exploiting critical competencies in a particular product market. It is concerned with the organization’s choices on how it plans to compete in individual product markets. The choices are fundamental because the organization’s strategies impact its long-term performance (1). Companies make choices among competing alternatives as a way of determining how they will seek strategic competitiveness. A company attains a competitive advantage when it creates superior value for customers where competitors cannot replicate the value the organization’s products make. The importance of a business-level strategy is to develop uniqueness between the company’s position and its competitors.
McDonald’s Corporation operates in the fast-food part of the industry. Their top products include hamburgers, chicken, fish, pork, sauces, beverages, fries, desserts, salads, and breakfast items. For its fast-food business, the company uses the cost leadership strategy. The cost leadership strategy is an organized set of actions adopted by an organization to produce products with characteristics acceptable to clients at the lowest cost compared to its competitors (2). This strategy enables McDonald’s company to deliver food products or items to its clients or customers offered with acceptable levels of differentiation and at a low price.
Clients obtain acceptable differentiation levels in terms of the hygiene of the company units, service quality, taste quality, and the value customers presume to receive when purchasing McDonald’s food products. Efficient use of this strategy enables a company to earn above-average returns despite having strong competitive forces. A low-cost position is beneficial because competitors hesitate to compete on price specifically before evaluating the possible results of such a competition. Therefore, the cost leadership strategy is a good choice for the company as it enables the company to maximize its profits and boost its sales from low costs (2).
Typically, companies that use a cost leadership strategy search for low-cost producers worldwide. They subcontract several functions such as manufacturing goods to maintain their low costs compared to their competitors. In the case of McDonald’s company, they are the world’s largest buyers of lettuce, pork, tomatoes, beef, and potatoes. They buy these ingredients in enormous wholesale amounts to keep their prices low. As a result, multiple suppliers would want their business, and hence they can receive huge discounts on their products. In addition to buying ingredients in bulk, McDonald’s also uses cheap ingredients. The company has continued to use caged eggs historically as the price of producing caged eggs is significantly lower compared to cage-free eggs (2). The company also acquires cheap ingredients from foreign countries. For example, when buying a product from a developing nation like coffee from Guatemala, they will incur less cost compared to when they purchase the same product from a domestic producer.
To maintain their low prices, McDonald’s receives discounts from partners such as The Coca-Cola Company. The company gives them huge discounts in exchange for being the restaurant’s soft drink provider. The company also uses preservatives in some of its ingredients to prevent losing money on food waste (2). Moreover, McDonald’s spends very little on labor as the company utilizes unskilled workers that they train instead of hiring skilled chefs that require higher salaries.
Corporate-Level Strategies
A cooperate-level strategy is an approach that a company uses to gain a competitive advantage by selecting and managing various businesses that compete in diverse product markets. This strategy assists companies in selecting new strategic positions expected to raise the company’s value (1). It focuses mainly on the product an organization is selling, management of the business headquarters, and the principal rival in the market.
McDonald’s fast-food uses a dominant business diversification strategy as most of the company’s income is generated through product leveraging, franchises, and fast food owned by McDonald’s. This strategy is significant as it enables McDonald’s to generate high returns. The higher returns are because the company mainly uses its ability to provide superior and fulfilling services to the clients. Also, the strategy is secure as it has fewer challenges since the company focuses on managing a few businesses and utilizes its resources efficiently (2). This is portrayed by the company offering fast food products at cheaper prices than their competitor with acceptable quality levels. This corporate-level strategy is significant for McDonald’s as the company has a higher revenue generation in this industry compared to other organizations.
From 2019, McDonald’s report, the company has focused on leasing its properties at large markups owned by McDonald’s. The company had 38,695 restaurants, and it franchised 36,059. More than 93% of the restaurants are franchised, making the most revenue generation for the company (2). This model is advantageous to McDonald’s as it is stable and predictable, making it easy for profit generation. Furthermore, the company can negotiate deals because it has control of the land and long-term leases. The franchises are subjected to the monthly subscription fee, thereby expanding their revenue generation capacity. The company has a strict rule regarding the franchises’ liquidity and net worth. The franchises are responsible for managing the restaurant requirements such as ordering the supplies, renting the premises, and payment of the employee salaries. This reduces the organizational pressure towards handling the local employees’ payments.
This dominant business-level strategy has enabled the company to gain clients’ confidence in the market as they can manage the franchise with unique management. This enables them to achieve clients’ loyalty, expanding the business to various parts of the world (2). Additionally, the organization’s marketing strategy is constant for all franchises. They utilize social media, television, and ads to advertise their products in the market.
Competitive Environment
McDonald’s distributes their products through deliveries in some countries through McDelivery though it is not available in all countries. The company also uses extensive distribution as most of their restaurants are open 24 hours a day, thereby making food products available for sale. Their products are primarily found in ski-thru, drive-thru, sit-down, and counter-service restaurants. This enables the company to use the selective distribution channel sustaining a push-and-pull marketing distribution (2). They also avail their products for sale in kiosks, McDonald’s mobile app, and Postmates website and app. The organization also provides its food products in many locations to ensure that the customer’s demands are met anywhere and at any time.
The overall objective of each McDonald’s restaurant is to provide food for the customers at a competitive value-driven price. Their prices are relatively low as this attracts more customers, thereby increasing their profit margin (2). The company does not set a price for franchisees as it allows them to set their prices as they wish in the local market as long as they offer a competitive, driven price. However, their prices slightly vary in different restaurants and set them on a demand-based strategy.
McDonald’s primarily uses advertisements among its marketing strategies. It communicates with its customers using the internet, television, magazines, newspapers, and other media (2). The company also utilizes sales promotion, for example, customers are eligible for a free cup of coffee or tea if they purchase six cups of coffee or tea and collect six stickers. In addition, they offer freebies and coupons for specific products.
KFC is a potential rival to McDonald’s as they use product uniqueness and quality to boost their sales and use the differentiation strategy as a result. Their products are popular due to their original chicken recipe with outstanding taste and quality. KFC Company uses an integrated distribution channel for their physical assets and employees to distribute their products directly (3). This aids in decreasing the total margins, developing closer relations with their customers, and controlling the operating activities efficiently. They also have numerous outlets in different locations where they can deliver for online customers. This enables the company to have offline and online deliveries. The company also uses the internet for selling, purchasing, and marketing communication. Also, KFC uses retailer distribution due to increased demand for its products. It franchises its brand name and the receipts of some traditional foods to its international restaurant.
On pricing, KFC offers a menu with affordable prices and has embraced inventive strategies to compete in diverse market locales. The company focuses on young individuals in semi-urban and urban areas. They offer differentiation pricing, and their food products are available in units and bundles or combos. Moreover, they charge less in combos compared to units or individual products. On their marketing strategy, the company utilizes promotion as the primary tool in communicating their various offers on their chicken products to their customers. Additionally, their company logo of the smiling colonel is possibly the image that most customers relate the company with chicken. Moreover, they use advertisements to make sure that their clients are always reminded how their chicken is delicious (3). They also sponsor several organizations like cricket teams with the company logo on their team uniforms when they attend tournaments and matches. Therefore, the organization has increased its sales using premiums, coupons, exhibitions, and entertainment. They offer free incentives such as free meal vouchers and meals to their clients after they use a certain amount of money purchasing their products. From the above analysis, McDonald’s will be successful in the long run because of its strategies.
Market Cycles
Slow cycle markets are markets where competitors cannot emulate an organization’s competitive advantages that are usually long-term and would be costly to imitate. Organizations can sustain their competitive advantage in this market cycle over a long period. However, companies in a slow-cycle market can begin to see a decrease the competitive advantage value it creates for their target clients over time. On the other hand, fast cycle markets are markets where rivals can emulate the capabilities of an organization that influence its competitive advantages, and emulation is mostly fast and cheap (1). Companies in this market do not have a maintainable competitive advantage and utilize speed to compete efficiently and even control the market. In a slow-cycle market, McDonald’s will be successful in the long term due to their low price products hence having a more sustainable competitive advantage. In the fast-market cycle, McDonald’s will still be successful because KFC cannot emulate their low prices, yet they can imitate KFC’s product uniqueness.
Sources
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning.
McDonald’s Announces New Growth Strategy. Corporate.mcdonalds.com. (2020). Web.
Uddin, S. (2020). Operational strategies and management of KFC: An Enquiry. EPRA International Journal of Research & Development (IJRD), 172-179.
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