McDonald S The Hamburger Price Wars
Case: McDonald’s The Hamburger Price Wars
1. How serious is McDonald’s U.S. situation? Why is the company having problems?
McDonald’s U.S. situation is rather bad as the sales declined in the first three quarters of 2002 with strong competitive pressure and low consumer satisfaction. Looking at its financial performance in 2002 (Table A), it can be observed that McDonald’s SG&A had increase disproportionately in Q3 which resulted in lower operating income. Even though McDonald prides its success in its simple formula QSCV, it was not performing up to consumers’ expectations (i.e. consumers perceived McDonald to be of lower quality, service and cleanliness as compared to other fast-food chains). Moreover, McDonald is also struggling with its pricing decisions because they have not find a price structure that is feasible across different states.
Mostly, McDonald is having problems due to the way it communicates its offer – it looks at Promotion, Pricing and Product separately without looking at the big picture. Its price structure and promotional effort (such as Campaign 55) were not effectively communicated to its consumers of the value that McDonald is offering. McDonald lacked a clear strategy which resulted in poor tactical moves.
2. What is the rationale for Value Meals? Super-sizing? What is the rationale for the dollar menu?
The rationale for Value Meals and Supersizing was to increase the perceived value of its product offerings. With the product bundling and the option to super-size being priced in a way that seems more valuable to the consumers as opposed to an a la carte item, McDonald hope to help its consumers make the decision of choosing the Value Meals and the option to Supersize. In McDonald’s perspective, the idea of Super-sizing option makes perfect sense as the cost of the extra servings are minimal yet seems like a great value to consumers. On top of that, ‘Super-sizing’ also appeals to consumers who “talk thin and eat fat” by giving them
1. How serious is McDonald’s U.S. situation? Why is the company having problems?
McDonald’s U.S. situation is rather bad as the sales declined in the first three quarters of 2002 with strong competitive pressure and low consumer satisfaction. Looking at its financial performance in 2002 (Table A), it can be observed that McDonald’s SG&A had increase disproportionately in Q3 which resulted in lower operating income. Even though McDonald prides its success in its simple formula QSCV, it was not performing up to consumers’ expectations (i.e. consumers perceived McDonald to be of lower quality, service and cleanliness as compared to other fast-food chains). Moreover, McDonald is also struggling with its pricing decisions because they have not find a price structure that is feasible across different states.
Mostly, McDonald is having problems due to the way it communicates its offer – it looks at Promotion, Pricing and Product separately without looking at the big picture. Its price structure and promotional effort (such as Campaign 55) were not effectively communicated to its consumers of the value that McDonald is offering. McDonald lacked a clear strategy which resulted in poor tactical moves.
2. What is the rationale for Value Meals? Super-sizing? What is the rationale for the dollar menu?
The rationale for Value Meals and Supersizing was to increase the perceived value of its product offerings. With the product bundling and the option to super-size being priced in a way that seems more valuable to the consumers as opposed to an a la carte item, McDonald hope to help its consumers make the decision of choosing the Value Meals and the option to Supersize. In McDonald’s perspective, the idea of Super-sizing option makes perfect sense as the cost of the extra servings are minimal yet seems like a great value to consumers. On top of that, ‘Super-sizing’ also appeals to consumers who “talk thin and eat fat” by giving them