McDonalds 5C Marketing Analysis
Posted by Sabrina Warren on Jan-10-2018
1 What is 5C marketing framework?
5C marketing framework is a tool to analyze the situational forces that form the business environment. The analysis emphasizes micro and macro environmental factors that exert a strong influence on the organizations' business operations. Marketing managers can conduct the 5C analysis to timely identify the strengths and weaknesses in the internal environment, and possible risks and opportunities present in the external environment.
2 Application of the 5C model on McDonalds
Some examples of the company related factors are given below:
2.1.1 Research and development
McDonalds spends heavily on the research and development activities to preserve its leadership position in various product segments. Heavy investment in building the IT network, marketing, product design and process optimization supports the distribution and promotion strategies.
McDonalds has a strong culture of process and product innovation. Top management supports the innovative and creative ideas, and employees are encouraged to participate in the problem solving process. The organizational culture supports the vision, mission and values.
2.1.3 Scale of production
McDonaldshas a large scale of production, which enables the company to achieve the benefits of economies of scale. Large scale production enhances the competitive strength of the company and enables the company to produce better quality products at reduced costs.
The SWOT analysis is an effective tool to analyze the company related factors. Application of this tool in McDonalds’ context involves identification of key strengths, weaknesses, opportunities and threats.
The following table presents the SWOT in the concisely summarized form:
Customer analysis mainly covers the following points:
2.2.1 Market segments
- McDonalds targets both high end and low-end market segments.
- The organization's decision to choose broader and multiple segments have expanded the scope of opportunities.
- The targeted segments are expected to have a steady market growth rate in future.
- The primary customer segment of the McDonalds is the family with children, which requires McDonalds to do social, emotional and functional jobs to keep this market segment happy and satisfied. The functional job includes performing core operations, the social job includes providing augmented services to promote family and social gatherings, and emotional job includes showing concern and commitment to take care of customers.
2.2.2 Frequency and quantity of purchases
- The quantity and frequency of purchase in the targeted market are high, and both are favorable growth indicators for the organization.
- McDonalds can adapt its marketing strategies according to changes in frequency and quantity by offering more discounts and family deals.
2.2.3 Brand loyalty
- McDonalds operates in the low-involvement product category.
- Usually, developing brand loyalty in low-involvement markets is challenging compared to high-involvement markets as a lot of alternative options are available and psychological switching costs are also low.
- McDonalds ’ customers are price sensitive. Their price sensitivity, changing tastes and preferences and high health consciousness requires McDonalds to invest in customer research activities and closely monitor their attitude and consumption behavior.
2.2.4 Customer needs
- It is important to identify the critical customer desired features and incorporate them into marketing and advertising strategies.
- Customers changing attitudes towards healthy alternatives and prioritizing the quality over price also have important consequences for the organization.
Porter five forces is a useful tool to conduct competitor analysis:
2.3.1 Bargaining power of buyers
- Strong bargaining power of buyers puts downward pressure on pricing and induces McDonalds to offer the high quality product at discounted pricing.
- Strong bargaining power makes it easier for McDonalds ’ customers to switch to other alternatives.
- There are three major reasons for strong buyer bargaining power:
- High substitute availability.
- A wide number of alternatives.
- Low economic and psychological switching costs.
2.3.2 Bargaining power of suppliers
- Weak bargaining power of supplier makes it comparatively less important strategic issue for McDonalds as suppliers cannot dictate the prices and have to accept the McDonalds ’ terms and conditions.
- Three factors result in moderate to weak supplier power:
- A large number of suppliers
- High overall supply
- Suppliers’ weak control over their distribution network
2.3.3 Competitive rivalry
- Currently, the rivalry among competitors is high, which makes it difficult for McDonalds to achieve its market growth objectives.
- The product differentiation is low and setting the differentiation basis has become increasingly challenging.
- Intense competitive rivalry is a major reason for McDonalds ’ declining profitability.
2.3.4 Threat of substitutes
- The technological advancement has raised the threat of substitutes for McDonalds .
- Changing trends towards healthy products also raises the consequences of this threat for McDonalds .
- Overall, the threat of substitutes is strong for the following reasons:
- High performance/cost ratio of substitute products.
- High availability of substitute products.
- Low switching cost.
2.3.5 Threat of new entrants
- McDonalds faces moderate new entrant threat, which means new entrants do not have a significant influence on McDonalds ’ market share.
- High level marketing know-how with huge expenditure on marketing activities is required to enter the industry.
- McDonalds faces a moderate threat of new entrants for the following reasons:
- High brand development cost weakens the threat.
- Low switching cost increases the threat.
- High capital cost weakens the threat.
- An in-depth collaborator analysis requires McDonalds to conduct a detailed value chain analysis and carefully consider the bargaining power of suppliers to explore the collaboration opportunities.
- Collaborators include the downstream and upstream value chain partners, business allies, community leaders, government and others. To choose the appropriate collaborator partners, McDonalds needs to evaluate different value chain factors, like- value chain flexibility, efficiency, agility, revenue sharing among value chain partners and strengths and weaknesses of possible collaborators. The detailed collaborator analysis can allow McDonalds to enhance and its supply chain efficiency and increase control over it through vertical integration.
- When operating at the international stage, multinational organizations like McDonalds must understand the local preferences of their customers and make all decisions (ranging from production to marketing) accordingly.
- An agile and flexible supply chain can make collaboration easier for McDonalds .
- McDonalds has partnered with various collaborators that allowed the company to develop new product lines and enhance the product development and distribution process.
- It is important for McDonalds to understand the behaviors, relationships, choices, purpose and
context of collaborators to make the right decision. Some important points that must be integrated into
the collaborator analysis are:
- What is the business environment in which potential collaborators operate and what strategies they are using to play in the market?
- What are their key strategic priorities and choices?
- What are their internal and external communication mechanisms?
- What are their key strengths and weaknesses, and what opportunities and threats external environment imposed on them?
McDonalds must understand the external environmental context in which it is operating to make the right business decisions and forecast the future. One important tool to understand business context is the PEST analysis.
2.5.1 Political Context
Understanding the political context requires McDonalds to identify possible political issues such as labor or tax laws, changing trade regulations or legislative problems.
- The present governance system requires McDonalds to study the changing government policies closely
- Presence in multiple markets increases the risk of political instability.
- The geo political risks have increased for McDonalds due to recent developments in the global political scenario.
2.5.2 Social Context
Understanding the social context requires McDonalds to analyze the major trends in culture, education and demographic patterns.
- A general rise in the health consciousness of customers imposes a risk to the McDonalds .
- Population growth and rising low-end market segments offer opportunities to McDonalds
- The attitude towards migration in markets where McDonalds is present requires the company to consider its impact on changing demographics carefully.
2.5.3 Economic Context
Understanding the economic context requires McDonalds to identify major economic issues like growth in important economic indicators, changes in the labor costs and business cycle stages.
- Inflation exerts a strong impact on the pricing structure of McDonalds .
- Presence in multiple markets requires marketing managers of McDonalds to adapt their strategies according to consumer behavior, which is different during recession and boom.
- The downward market pressure and changes in customers’ purchasing power should also be considered to make effective marketing strategies.
2.5.4 Technological Context
Understanding the technological context requires McDonalds to understand recent technological developments and their impact on the organization’s cost structure and other business operations.
- The entrance of new market players and their investment in research and development requires McDonalds to protect their intellectual property rights.
- The technological advancement has shortened the product life cycles, requiring McDonalds to enhance its value chain efficiency.
- Technological development has lowered production cost and increased the need to restructure the supply chain.
Overall, the purpose of understanding the context is to determine if any opportunities or risks are imposed by major external environmental forces.
Collecting the information about all 5 C elements (company, customers, competitors, collaborators and context) is a first step towards developing effective and informed marketing strategies. 5C analysis sets the foundation for developing a wise and well-defined marketing plan.
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