Mcdonalds Is One of the Most Recognized

McDonalds is one of the most recognized brands in the world, and has been highly successful over the course of its history. The company current has revenues of $22.7 billion and assets of $30.2 billion (MSN Moneycentral, 2010). This report will utilize a number of tools to analyze the strategy of McDonalds, and how the firm deals with its environment.

The first tool to consider is Porter's Five Forces. This tool outlines the different cost and price drivers within the industry. Pricing power both on the supply side and the demand side is critical to maintaining profitability. The five forces are supplier power, buyer power, threat of new entrants, threat of substitutes and intensity of rivalry (QuickMBA, 2010). McDonald's has tremendous power over its suppliers for a couple of reasons. Its volume is great, and many of its suppliers are dependent on this volume. The inputs are not especially differentiated, which gives McDonald's switching power to hold as leverage over its suppliers. McDonald's has moderate pricing power over its customers. The company has a strong brand, and this drives business to McDonalds. Competition reduces this pricing power, but consumers are less price sensitive with McDonalds than they are with many other fast food chains.

There are few barriers to entry, although it should be noted that McDonalds enjoys significant economies of scale and it is difficult for competitors to build to that level. There is a high threat of substitutes, in other burger chains, other fast food and other eating options entirely. That there are a number of other players in the industry results in a highly intense rivalry. Firms compete on brand, on food type and on price in this industry, so to succeed means being better than rivals at all of these things at once. Overall, this is an unfavorable industry in which to operate because other supplier power, most of the forces imply a lack of pricing power from which to derive profits. McDonalds has offset some of these forces with its size, brand and muscle, so for McDonalds the industry is moderately favorable.

The PESTLE analysis examines the external environment from the following perspectives -- political, economic, social, technological, legal and environmental. McDonald's enjoy a positive political environment. There are some laws with respect to food safety and employment, but in general there is no negative political influence on the company. The economic environment at present is difficult. Even a cheap restaurant like McDonalds is a luxury for some, so when unemployment is high and the economy is depressed, McDonalds is likely to lose sales, and this is what has happened in the past year. The social environment is generally positive. While the company definitely has a large number of vocal detractors, the fact remains that most Americans eat at McDonalds and have a favorable view of the company.

The technological environment is rapidly changing, but poses more opportunities than threats to McDonalds. The company encompasses new technologies for cooking, logistics, procurement and marketing, and its competitive situation has not generally been harmed by recent technological developments. The legal environment is generally favorable for McDonalds. While any company of its size can expect to face legal action on multiple fronts, there is little in the way of major legal action against the company that would impact in a profoundly negative way the company does business. The environmental environment is the least favorable for McDonalds, primarily because its core business is beef, it encourages needless driving and it still has wasteful packaging. While this imposes some costs on the company, concern for the environment has yet to signal a quantum shift in the McDonalds business model.

The company operates a cost leadership strategy in the food service category in general. The entire fast food segment operates as cost leaders in a state of monopolistic competition, and within that McDonalds is a differentiated provider. The company uses its marketing techniques, its strong brand name, its unique appeal to children and its host of signature products as a means of differentiating itself from its competitors. The company's stock of locations -- more than its competitors and its ability to adapt its menu around the world also serve as points of differentiation that are difficult for competitors to match.

The company's competitive strategies are wide-ranging. McDonalds focuses on saturation marketing in order to keep its name on the minds of consumers. McDonalds is also focused on attracting children, in order to create lifelong consumers. The company keeps its costs low by focusing on low wages and efficient operations. The menu is subject to frequent change, as are the physical restaurants, to keep a fresh appearance. In addition, McDonalds also competes in different food areas from time to time. It launched pizzas to take on Pizza Hut (although this failed), espresso to take on Starbucks and in many countries it has fried chicken to take on KFC. McDonalds also has worked to earn a reputation as an employer of choice, particularly at the executive level, because it understands that its systems require top management personnel for implementation, and wishes to ensure a steady supply of great managers throughout its ranks.

Ethically, McDonalds has had some challenges in the past. The company has had issues with environmental activists, and has made some changes in order to address issues raised by those groups (The Independent, 2008). McDonalds has also come under fire recently for the poor health levels of its food, in particular in combination with its aggressive marketing to children (Woodard, 2010). McDonalds generally attempts to address the ethical issues raised, because the company is concerned about its public image. It has made changes to its menus, for example, in order to appease those concerned about the unhealthiness of its foods.

Overall, McDonalds is a highly competitive company. It operates in a difficult line of business. The fast food segment is characterized by all players competing as cost leaders. Within those constraints, firms attempt to differentiate themselves. Competition is intense, because there are few barriers to entry and once firms gain some economies of scale they have pricing power over their suppliers. McDonalds addresses these challenges in a number of ways, including keeping its menu fresh, building on its strong brand, adopting an ethical leadership position, and marketing aggressively.