McDonald’s competes in an oligopolistic market structure which has a direct effect on pricing strategy. In this type of market environment, organizations increase profits by producing where MC=MR or marginal cost is equal to marginal revenue. McDonald’s and their competitive organizations set the prices for their industry. “Because of their “fewness,” oligopolies have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions” (Brue et al, 2009). The two main competitors for the McDonald’s corporation are Burger King and Wendy’s. The pricing summaries for all three organizations are very similar.
With prices fairly consistent, how are companies competing efficiently? My recommendation would be to offer a diverse variety of products at moderate prices. Promotional offers and value pricing can be an efficient way to generate profit. McDonald’s Dollar Menu is a highly efficient price strategy to retain sales during declining economic times. “While dollar menus have driven sales, price wars have affected profits. Companies may offer meal packages or “super-size” options to increase the customer check and provide additional consumer value” (Hoover’s, 2009). The dollar menu is a fairly consistent strategy amongst McDonald’s competitors but the selection of product is limited.
Another strategy that McDonald’s has implemented is penetration pricing. They have made a distinct effort to introduce a new product line to consumers while offering the product at a low cost. For example, when McDonald’s partnered with Green Mountain Coffee, they ran a promotion where coffee was free from the hours of 4 AM – 7 AM. This generated awareness for the new product while bringing more profit to the organization.
McConnell, C. R., Brue, S.L., & Flynn, S.M. (2009). Economics: Principles, problems, and policies (18th ed.). New York: McGraw Hill/Irwin.
McDonald’s – Fact...
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