McDonalds Pricing Strategy Management

Pricing Strategy Management
McDonald's uses a mix of price bundling and psychological pricing to remain attractive to the customers. The price bundling strategy involves combining different products into one package, which is sold at an offer. Psychological pricing focuses on the human brain, and through the use of prices such as $99.99 instead of $100, the customer feels the product is cheaper. Price bundling aims to persuade customers to shop more, and the slogan is" buying more saves more" (Smith, 2016).
Bundle pricing may package several similar products into one product or an attachment of complementary products. Having a combination of products at a reduced price is usually a good deal for a customer willing to spend more at a cheaper cost. Psychological pricing is very common at McDonald's, and through the use of the "9-digit effect," customers get attracted to products, and they are convinced the prices are low. Prices may differ in different geographical locations. Price is picked based on various factors such as demand and market, and depending on the situation on the market; it is critical to set a reasonable price (Decker, n.d; Kolmakova, 2017). Pricing differs in different countries should be selected based on the current economic state, and it should appear to favor the customer
 Here is the procedure followed in setting a product price:
· Identifying the price objective
· Check product demand
· Approximate the costs
· Identify major competitors and their prices and offers
· Pick a pricing method
· Determine the final price
McDonald's uses the above model to determine the best prices for older and new products (Smith, 2016).
Incremental cost refers to the additional cost incurred as a result of producing an extra unit. Differential cost becomes necessary when companies have two options, and they are required to determine the products that can return more profit. It is calculated by acquiring the difference amid the two possible options. Companies use break-even analysis to determine the point where the company will start making a profit. The technique works best for companies with single products, but for companies like McDonald's that deal with a chain of products, this method will not be sufficient. Break-even analysis is also not suitable for environments that require regular adjustments of prices. McDonald's keeps a close eye on what the competitors are doing, including their prices, and therefore they keep adjusting the prices. This means the break-even point keeps on changing as a result of the price adjustments. Another reason why break-even analysis does not work well for Mcdonald's is the inability to factors in competitors in the graph. Competition is an important element to consider when determining the price, and therefore excluding it in the equation will result in an inaccurate result. It is worth noting that using a low price to attract customers can hurt the brand since some people assume that cheap products are of low quality (Smith, 2016).
Pricing Decisions
Getting the pricing right is very important in marketing since it affects the profit margins, brand, and production cost. Price standardization at McDonald's is localized, and the operating environment is used in picking the best price. Each country has its price depending on several factors such as the economy and product popularity. Other factors considered in determining the price include product life cycle and competition (Smith, 2016).
The world's current changes, such need to have a healthier lifestyle, have affected different markets. Preferences have shifted to a simple but quality life, and therefore a company like McDonald's must stay updated with the current generational changes. Products leading in the past are no longer interesting to the modern generation due to cultural changes that have affected the way of living (Wells, 2020). MacDonald's raised most in-demand McPick 2 from $2 to $5 in the US. The promotion allowed customers to choose mozzarella sticks, McDouble sandwiches and McChicken, and small fries. This was the most expensive option compared to alternatives that were available in the market. Wendy's 4 was considered an option, and it went for $4 with choices being a chicken nugget, junior bacon cheeseburger, small fries, and a small drink (Smith, 2016).
Almost every product in the market has an alternative product that is termed as a close competitor. The price difference in such products determines the demand, and going wrong in setting prices may hurt a product's popularity. A competitive price strategy also considers the value that a product has to the consumers. Quality adjustments, while keeping the prices constant, can change the customers' buying behaviors. Improving the value works best for products that are already mature, and customers tend to ignore the pricing part. Customers consider prices, but they always relate the price to the quality, and therefore it is important to maintain a balance between the two (Deloitte, 2012).
Determining customer price sensitivity through numerical estimates can help pick the best price for a product. Price sensitivity shows the buyers' motivation to continue using a specific product. High motivation is an indication that the demand is high, and producing more product would translate to more profit. Low motivation is a challenge to improve product quality or lower prices to ensure the product attracts customers. Producing a product or a service that customers are not interested in will cause a loss to the company (Abdullah-Al-Mamun & Robel, 2014).
Making pricing decisions is a challenging process, and accuracy and research are needed. Prices describe a lot about a company, including the level of ethics. If customers discover that a price is not fair, they always find an alternative. There should be a balance between price and quality, but hiking prices without reason or to make more profit will always hurt the brand. However, it is critical to note that it is to raise prices if it makes customers more satisfied and happier. Buyers are always prepared to pay more for quality (Ellsworth, 2019).


References
Abdullah-Al-Mamun, M. K. R., & Robel, S. D. (2014). A critical review of consumers' sensitivity to price: managerial and theoretical issues. Journal of International Business and Economics, 2(2), 01-09.
Decker, A. (n.d.). The Ultimate Guide to Pricing Strategies. Retrieved December 09, 2020, from https://blog.hubspot.com/sales/pricing-strategy
Deloitte (2012). Global Pricing Survey Managing Global Pricing Excellence. Retrieved December 09, 2020, from https://www2.deloitte.com/content/dam/Deloitte/de/Documents/strategy/C-studie-b2b-pricing_122012.pdf
Ellsworth, M. (2019, October 1). 5 Unethical Pricing Pitfalls to Avoid. Retrieved December 09, 2020, from https://blog.wiser.com/5-unethical-pricing-pitfalls-to-avoid/
Kolmakova, L. (2017). Glocalization Marketing Strategy of Mc Donald's Case Study: Turkey.
Smith, A. (2016, May 2). McDonald's 'think global, act local' pricing approach. Retrieved December 09, 2020, from https://mpk732t12016clusterb.wordpress.com/2016/05/02/mcdonalds-think-global-act-local-pricing-approach/
Wells, T. (2020, October 23). What's McDonald's New Pricing Strategy? Pricing Out of the Slump. Retrieved December 09, 2020, from https://taylorwells.com.au/mcdonalds-new-pricing-strategy/