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Introduction
In this paper, the marketing strategies of two fast food restaurants, McDonald’s and Little Chef, are reviewed and compared to one another. Both companies are in the fast food sector. Little Chef serves customers from only one country while McDonald’s serves clients from different countries across the world, and this creates a significant difference in their marketing strategies. This difference is discussed in the paper.
The paper is divided into four distinct parts: definition of terms, overview of the organizations, the marketing strategies and conclusion. Important terms used throughout the paper are defined and explained briefly.
The overview helps readers to understand the organizations better, which in turn enables them to understand the marketing mix better. In the marketing strategies, market segmentation, targeting, positioning and marketing mix are thoroughly reviewed before the paper is concluded.
Definition of Terms
Marketing Strategy
Every organization has a number of marketing goals all put together at the start of the business year or the start of the business. In order to achieve these goals, the marketing manager, together with his team, have to sit down and come up with a way to attain these goals.
This is the organization’s marketing strategy. The marketing strategy is based on market research done by the organization’s marketing team and focuses on the best product mix that will maximize profits. Once the strategy is complete, it is set out in a marketing plan and executed (BusinessDictionary, 2011).
Critical Analysis
In academic writing, the critical analysis of a subject or topic involves consideration and evaluation of material authored by other bodies, investigating whether the basis of these claims is sound, and scrutinising whether or not these the claims made by these authors apply to the situation being examined.
A critical analysis must not be based purely on description, but must examine the content of other authors and judge how applicable and relevant they are to the topic at hand using knowledge gained in the field, at work, through study or by experience. Not everything written by the authors is to be taken at face value (Birmingham City University, 2011).
A critical analysis is a piece of subjective writing, since it expresses the opinion of the writer, and how the writer evaluates a text. An analysis breaks down a topic into study parts to ease the analysis process (LeJeune, 2001).
Product Mix
In order to achieve maximum profit potential, some of its products have to be marketed together to minimize cost. The process of marketing a range of products that are related to one another and help reduce marketing cost – hence maximising profit – is what finding the organization’s product mix is all about (BusinessDictonary, 2011).
Overview of the Two Organizations
McDonald’s
McDonald’s started as a small restaurant, founded by brothers Richard and Maurice McDonald. Despite slow beginnings, McDonald’s soon picked up and became a fast-food selling restaurant, a business idea that was picking up in the 1940s. Success for the company, however, came when the McDonald brothers’ equity in the firm was purchased by Ray Kroc, an American investor and businessman.
With aggressive business tactics and tactical genius, Kroc expanded the business into one of the most recognizable brands in the world today. With 64 million customers served daily in its restaurants, it is the globe’s largest hamburger fast food restaurant. Hamburgers and other fast foods are not the only source of income for McDonald’s. It also gains large amounts of income from fees paid by franchises, royalties and rents.
The company’s financial performance over the last five years, despite the recession, has been steadily growing, partly because of its marketing strategy.
According to figures released by the company in October 2011, the company’s revenue rose by 5.5 per cent because of the popularity of its Monopoly game in the United States. Revenues also rose in Europe by 4.8 per cent and in the Middle East/Asia Pacific/Africa region by 6.1 per cent (Associated Press, 2011).
Little Chef
Little Chef is one of Britain’s most successful, and most controversial, fast food restaurants. The fast food chain identifies itself as a ‘roadside restaurant’ that serves over ten million people every year. It was established in 1958, the same year that Britain got its first motorway.
It has grown from a single, 11-seat restaurant to a 162-restaurant chain. Apart from serving tea, bacon eggs and sausages, it offers its customers additional services like Wi-Fi internet connectivity, free ice cream for children under ten, and a ‘to go’ menu for customers who want to take their food away (Little Chef, 2011).
The company went into administration in 2007 after it was revealed that it was losing over three million pounds per year. It was purchased by the investment company RCapital, and revamped to ‘keep up with the needs of customers’ (Baker, 2011).
Its marketing campaign after it was bought out of administration also involved a marketing campaign by celebrity chef Heston Blumenthal (Warman, 2009). Little Chef is now picking up, thriving and looking fabulous under the new management.
Marketing Strategy
Segmentation
Market segmentation refers to a marketing practice where organizations divide their target markets into smaller units – or segments – and apply different marketing strategies depending on the nature of each segment. Market segments are demographic, geographic, psychographic, transaction or functional (Wedel & Kamakura, 2000).
Demographic markets are divided in terms of the markets demographic elements. The most common used demographic elements used are age, sex, financial status, religion and nationality. Geographic markets are divided according to their geographical location, climatic condition or location from a point. Psychographic segmentation is done based on the knowledge, attitude and opinion that the market has towards a product.
Functional segmentation depends on how and why different customers in a market use a product. Transactional segmentation is an easy way of segmenting a market that involves using a large number of unique criteria to divide the market. Transactional segments are based on different elements like memberships or even specific demographic elements (Smith, 2004).
Market segments are significant because they enable a company concentrate their resources on one segment and create products that appeal to various segments. If a car company segments its market demographically, for example, younger members of society will have cheaper and perhaps flashier cars targeted at them, while high-end, high performance and expensive cars will be marketed to the older and wealthier.
McDonald’s
As a global brand, McDonald’s segmentation strategy is geographical on a global scale and demographic at a local scale. This is the case because the company has to consider its global performance as a business, while, at the same time, it has to appeal to different customers and their demographic needs.
The key to marketing on a global scale is to reduce cost of marketing, therefore, increasing profits. The key to marketing on a regional or demographical scale is to ensure that customers in a certain region are not left because of demographic issues (Kotler & Armstrong, 2010).
As a global business, McDonald’s segments its markets regionally first. Every region has countries where McDonald’s franchises are located. The main criterion used to select each country is the potential for growth, and the potential to maintain a high level of annual income turnover. In Europe, for example, the United Kingdom is one of McDonald’s largest markets, with over 1,200 outlets across the country.
This comes as no surprise, considering that the UK is one of the world’s largest economies in the world, has one of Europe’s highest populations and is the largest consumer of fast food in the world after the United States, Japan and Canada (Walkman, 2007).
The European region has the largest number of McDonald’s franchises. This is because Europe is the richest region in the world, with several countries in the world among the world’s top ten richest economies. In addition, Europe is the richest continent in the world (Masters, 2009), although the current economic decline in the continent may not be an encouraging sign for McDonald’s.
After the economic crisis of 2008, McDonald’s pulled out of Iceland, one of Europe’s hardest hit economies, after it realized that it would not be making sustainable profits from the country. Other countries where McDonald’s does not operate in are Albania, Bosnia and Herzegovina (Batty, 2009).
This mode of market segmentation, where a region is selected, and specific countries within the region are chosen to have McDonald’s franchises, combines both demographic and geographic segmentation. Geographically, more aggressive marketing is done in countries that present higher potential for growth than countries with lower productivity.
Higher potential is determined by the country’s location, its infrastructure and its climatic conditions, all of which are geographic factors. However, this potential is also determined using demographic factors like the citizen’s income levels and the markets’ potential for return on investment.
In Africa and South America, for example, only countries with the highest GDPs and higher levels of income are targeted. McDonald’s has franchises only in Brazil, Argentina, Columbia, Chile, Uruguay, Egypt and South Africa (McDonald’s, 2011).
Little Chef
Unlike McDonald’s, Little Chef is only operational in one country, the United Kingdom. Its market segments, just like McDonald’s, are both geographic and demographic. Naturally, however, the segments are not the same as McDonald’s, as discussed below.
Little Chef is a roadside café, with menus specifically designed to serve travellers. Therefore, the main geographic segment is roadside locations. Nearly all Little Chef cafes are located along a road or highway in Britain. The total number of current Little Chef restaurants exceeds seventy, all located along highways.
By directly targeting travellers, the restaurant has segmented its market geographically. As defined before, geographic segmentation is not only about countries or regions, but it is also about proximity to certain points.
The main demographic element used by Little Chef is age. Most of their foods are relatively affordable and do not focus on a religion, gender or financial status. Most of their foods are ‘normal’ foods consumed by a majority of Britain’s population.
This is known as undifferentiated marketing and is further explored in subsequent sections (Kotler & Armstrong, 2010). They serve breakfasts, main courses, light choices, desserts and drinks (Little Chef, 2011). However, they have a menu for children.
The children’s menu consists of two distinct segments: Children Up to Ten Years, and Toddlers & Babies. For children up to ten years, Little Chef has a distinct menu that serves breakfast, main meals and puddings. For toddlers and babies, they serve food in three categories: 4+ months, 7+ months and 10+ months.
Targeting
Market targeting is the next step after market segmentation. A market segment is a set of potential buyers with common characteristics that an organization chooses to serve. There are three aspects to consider when choosing a target market.
The first is the size of the market, and its potential for growth. The second is the market’s structural attractiveness. The final consideration to make is the business’ objectives and resources (Bragg, 2004).
When targeting a market, there are three options an organization may opt for. The first is undifferentiated marketing, where a company may choose to target its product to the entire market, regardless of geographical or demographic differences.
Coca-Cola’s initial marketing strategy was in this form, although customer needs are now considered in the manufacture of diet sodas, caffeine free soda and other considerations (Kotler & Armstrong, 2010).
The second option is to target several segments and develop distinct products for each segment. For example, airline operators have business and economy classes, and marketing is done differently for each target group. This is known as differentiated marketing (Kotler & Armstrong, 2010).
The third option is to segment the market and target one market. This is known as concentrated marketing. Rolls Royce, for example, develops its vehicles only for high-end customers looking for, and willing to pay for, comfort and luxury (Kotler & Armstrong, 2010).
McDonald’s
Over the years, McDonald’s has become famous for targeting families with their ‘happy meals’. Its lower-priced menu means McDonald’s franchises appeal more to larger families than smaller ones.
The traditionally cheaper prices of food at McDonald’s signify that it targets a larger spectrum of customers than other fast food restaurants in the United States and across the world. In addition, most McDonald’s franchises are located in suburbs and downtown areas of crowded cities across the globe, which takes them closer to a large number of middle-class citizens (Greco & Michman, 1995).
McDonald’s has been accused in the past of specifically targeting children with its promotional material. The use of colourful advertising and targeted messages has raised concerns in America over business ethics and the regulation of advertising among large corporations.
Teinowitz and MacArthur (2005) reported that McDonald’s were reportedly targeting children as young as four in their marketing campaigns. The main ethical issue raised was the manner with which McDonald’s was taking advantage of the vulnerability of children.
Little Chef
Towards 2007, Little Chef was accused by several publications and experts for their inability to tap into new target markets. Roadside restaurants are a highly lucrative idea. However, their inability to adapt to the changing needs of customers is reported to be one of the major sources of its downfall.
Based on the organization’s core concept, Little Chef’s target market are travellers along British roads. All its restaurants are located along busy motorways and highways in the United Kingdom. Just before it went into administration in 2007, criticism was directed towards the company’s marketing strategy by many experts including Andy Poole, a Senior Accounts Manager at a leading Public Relations firm in the United Kingdom.
Little Chef still has a vast target market of consumers aged 25 years plus with mass potential that has not been tapped into. Hopefully this will be realised and any future investment spent on unlocking this rather than trying to target new markets with lame publicity campaigns and branding techniques (Poole, 2007).
Positioning
Once a company decides to target select market segments, the next step is to occupy a unique position within the customer’s mind. This means that the customer has to have a different and unique perception towards a company’s product.
As Ries and Trout (1972) explain, “Positioning is not what you do to a product; it is what you do to the mind of a prospect.” In essence, market positioning answers the organization’s question of ‘who’ they want to be.
A good example of how to position a product is the case of Coca Cola and the Diet Coke. Most male consumers regarded Diet Coke as a girly and feminine product, and naturally they felt left out and did not feel obliged to purchase that product. In response, Coca Cola introduced the branded Coke Zero, designed to appeal to male consumers. Market positioning is used to reach out to a particular audience in a crowded market place.
McDonald’s
Dylan (2007) states categorically that McDonald’s has always wanted to be identified as a family-oriented and family friendly. It has, therefore, marketed itself in a way that draws families and family-oriented customers towards it. They developed this identity, as explained by Dylan, even before they developed their product.
It is also noteworthy to mention that McDonald’s does not only market itself as a family-oriented fast food chain of restaurants, but also as a reasonably low-priced fast food restaurant that offers meals that taste fantastic.
Obviously, McDonald’s has the potential to target a larger market audience, but they chose not to. It chose to position itself as a family-oriented fast food restaurant, and picked families and children as their target audience.
To provide better focus McDonald’s market position, certain decisions made by the company can be considered. First McDonald’s does not choose to prepare better quality meals at a higher price and longer preparation hours than its competitors.
Secondly, they have the capability to offer more meals, a wider menu and a larger variety of meals, but they choose not to and stick with well-known products. Finally, they have continued to target children and families, but not adults.
Little Chef
In an article for the Financial Times, Stern (2009) describes Little Chef with the same emotion that most analysts and pundits across Britain do: nostalgia. Most adults in the UK today remember visiting Little Chef as children with their parents. It was a must do for nearly all British children, particularly during journeys across the country.
Little Chef’s position, therefore, is already set. However, the cause of their decline in the late nineties and the early part of this century was their inability to adapt to the market’s needs. The arrival of American food and the ‘McDonald’s style’ of service caused a shift in the attitudes of the majority.
Currently, the company is undergoing an evolution. They have the advantage of heritage and market presence on their side, but it is necessary that they establish modern methods of doing business (Peletier, 2011).
Marketing mix
A firm must find a way of marketing itself to success by mixing four key elements, commonly known as the four Ps of the marketing mix. These are product, price, place and promotion. A firm must find the right product, sell it at the right price, find the right place to sell it, and find the most suitable way to promote it. Having the right product means the product must have all the right features, and it must work well.
The price of the product also has to be right, because a price too high or too low may compromise the product’s profit margins. It also has to be available in the right place at the right time, so that customers do not fail to get it. Finally, promotion is necessary to ensure customers are aware of the product’s existence and availability (The Times 100, 2011).
McDonald’s
Product
McDonald’s is very particular on the products it offers. Their top consideration when creating their menus is their consideration of the customer’s ability and willingness to spend. There is, therefore, considerable emphasis on the products that are placed on the menu.
McDonald’s is also acutely aware of the changing preferences of customers, and they endeavour to ensure that they keep in touch with their customers’ preferences.
When introducing a new product, however, McDonald’s takes significant caution to safeguard the sales of existing products. The new product must not cannibalize the sales of another product (McDonald’s, 2008).
Price
Price carries psychological connotation to the customer, and therefore the price of a product has significant bearing to the buying habits of customers. Price is therefore guided by the customer’s perception of value. As discussed in previous sections, McDonald’s has historically targeted customers in the inner cities of highly populated cities (McDonald’s, 2008).
The organization must be careful to ensure they do not price the product too high or too low. Pricing the product low could have a negative impact on the customers’ placement of the product. Low prices usually signify compromised quality. In addition, if competitors reduce their prices to match McDonald’s prices, profits will have been reduced without the company gaining market share.
Place
Place is not only about finding the right location or the best points of distribution of a product. It also about managing a range of processes to ensure the product reaches the end customer in the best possible way. McDonald’s restaurants are located in most of the world’s major cities. It places itself in cities to ensure they get the maximum number of customers that can afford and are wiling to eat fast food.
Promotion
Promotion covers all aspects of communication by a company. McDonald’s uses promotional methods like promotions, merchandising, telemarketing, exhibitions, seminars, demonstrations, loyalty schemes and point of sale display.
Advertising is also widely used, particularly on TV, radio, online, in magazines and in newspapers. All these contribute to ensuring customers are aware of the existence and availability of the company’s products (McDonald’s, 2008).
The first step that McDonald’s use is to gain the attention of their customers, and to make sure they retain their interest. The next step is to ensure that these customers like the products that the company offers.
The key to reaching their customers has been to combine all these media in ensuring they reach families and young people. The messages, colours, tag lines and promotional material used appeal to the target market. Their promotional style has been accused by protesters and human rights groups as wrong, since it is considered ethically wrong to target vulnerable children with advertising.
Little Chef
Product
The main product that Little Chef offers, of course, is food. They have their menu divided into breakfasts, lighter courses, main courses, desserts, drinks, children and takeaway. Their breakfast dishes include the bloomer butty, the American style breakfast, the healthy breakfast and their famous Olympic breakfast.
The Olympic breakfast has bacon, sausage, eggs, mushroom, grilled tomato, baked beans and potatoes, served with fried bread or toast. Their light courses are salads, bloomer bread toasties and various snacks. Their main courses have burgers as their main dishes, with additional options like onion rings and Coleshaw. Little Chef serves pancakes and ice creams for dessert, hot, chilled and alcoholic drinks, and various takeaway meals.
Price
Little Chef has always priced its commodities quite highly compared to its competitors. Before the takeover in 2007, one of the chief complaints by customers was that the food was not worth the high price that was being charged by the company. The new management has revamped the restaurant, made several key changes to their restaurants and menus and most importantly, prices have not increased by much.
This makes the customers appreciate the amount of money they pay for their food. Most customers give a positive review, stating that the food may be a little expensive, but the quality is well worth the price (Little Chef, 2011). Just like McDonald’s, pricing their food too low may have compromised their market position.
Place
Little Chef targets travelling individuals and families across Britain, so it is natural to locate its restaurants along Britain’s highways. Nearly all major highways have a Little Chef restaurant. However, being on highways, the placement of their business presents two main challenges. First, the business relies heavily on travelling folk.
This is not a problem at the moment, however, but if this changes and people start relying more on cooked food, the business could be endangered. Secondly, there are situations where travellers on only one side of the highway are served and not the other.
For example, the Barton Stacey, Carcroft and Fenstanton restaurants along the A303, A1 and A14 respectively serve only westbound, northbound and eastbound travellers respectively.
Promotion
Just like McDonald’s, Little Chef uses communication media to reach its customers. In 2007, however, they had to use a more aggressive method to reach its new customers and inform them about their new look and new restaurants.
This led RCapital, the new owners of the company, to hire the services of celebrity chef Heston Blumenthal to promote its restaurants. Little Chef relies a lot on its heritage. They use it to appeal to its customers, who are primarily British.
Conclusion
Based on the history of the businesses, both companies were started around the same time but have had very different growth paths. McDonald’s has had a meteoric rise to world domination, thanks to proper management and effective marketing, while Little Chef has remained confined to one corner of the world and has struggled.
However, looking at both companies at the moment, the marketing approach used is quite similar. They have created products that appeal best to their target markets and served the food in restaurants that promote their standing as restaurants.
McDonald’s approach to marketing differs significantly from Little Chef’s because of the magnitude of the company, and its global presence. It has to adapt different marketing strategies to different cultures, regions and markets, while maintaining its core appearance and products. Little Chef, on the other hand, uses a similar marketing approach to all its restaurants no matter where they are located in Britain.
For both companies, once they have set a marketing strategy, tasks are given to different people for execution. They quantify success by ensuring they meet their short term targets, and they obtain feedback from the market using set systems.
One great way to obtain feedback has been the internet, through which the company can get fast and unfiltered feedback fast. It is important to note, of course, that all these marketing goals have to be reached within the confines of a tight and finite budget.
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