Mcdonald's Pricing

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Price

McDonald’s has realised that, despite the cost savings inherent in standardisation, success can often be attributed to being able to adapt to a specific environment. This is indeed the case with its implementation of its pricing strategy, which is one of localisation rather than globalisation.

Table II illustrates the comparative Big Mac prices (flagship brand of McDonald’s) from around the world. It succeeds in highlighting the point that McDonald’s has had to come up with different pricing strategies for different countries. More importantly, rather than just having a different pricing policy for the Big Mac in these listed countries, McDonald’s has had to select the right price for the right market. The highest comparative price for the Big Mac is that of our own country, the UK, but why is that the case? How does McDonald’s come to its pricing decision?

Pricing decisions

For each country, there is a rigorous pricing process that is used to determine the price for that particular market. The process, as described by Vignali et al. (1999), is listed below:

1. (1) selecting the price objective;
2. (2) determining demand;
3. (3) estimating costs;
4. (4) analysing competitors’ costs, prices and offers; 5. (5) selecting a pricing method; and
6. (6) selecting a final price.
The process above sets out the basic framework that allows McDonald’s to set localised pricing.

McDonald’s overall pricing objective is to increase market share. In each country, they look at the demand for their product as a barometer for setting price. In the USA, for example, a Big Mac with fries costs the equivalent of a Chicago office worker’s earnings during 14 minutes. However, elsewhere, a meal like this is perceived as a luxury, as opposed to a normal product, and would cost a lot more relative to earnings. In Nigeria, for example, a corresponding meal would represent 11 hours 23 minutes of work for someone living in Lagos. Thus, depending...
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