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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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  • Number of pages: 2

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Identification of the key problem

McDonald's is the huge corporation that has changed the economies of the whole countries. Billions of revenues, thousands of employees and restaurants all over the world enable the company to be determined as one of the most influential organizations. Though McDonald's success is significant today all around the globe, the situation was not always so profitable for the company's directors. The great example of the serious challenge that McDonald's faced throughout its pass was opening and managing the first restaurants in the Soviet Union during the second part of the 20th century.

George Cohon, the founder of McDonald's Russia, devoted more than 12 years of his life to receive the approval to open the company's restaurants in Moscow. The task was extremely difficult because the situation occurred during the Cold War between the Soviet Union and the U.S. Nevertheless, after ten years of negotiation, the approval was received and Cohon started to build the supply chain for the Soviet department; however, this was the second great challenge for him.

Russian food suppliers were very conservative and struggled to understand the new technologies that were required to match McDonald's standards. Therefore, the company had to educate farmers and invest into Soviet agriculture and quality control of the products. Despite the supply chain issues, the unstable economic conditions were another crucial challenge for Cohon and his team.

Nevertheless, despite all the troubles and hardships, McDonalds Russian opened the first restaurants in the center of Moscow. The company gained enormous success rapidly and the restaurants were one of the busiest company's spots in the world. Though Cohon efficiently resolved all the former issues connected with the restaurant management and supply chain, the economic conditions continued to get worse. Therefore, during the Ruble Crisis of 1998 the company has faced the serious dilemma connected with the currency inflation. It had to find the way of how to increase volumes and decrease risks during the crises.

Relevant Theory

Developing through globalization and opening new departments inside the foreign markets is the key strategy for the large companies craving expanding and increasing their global market share. Nevertheless, the firms always face the serious challenge of cultural difference between the home and foreign markets. These dissimilarities force organizations to adjust their corporate and marketing strategies to suit the mentality of local employers and customers.

Furthermore, McDonald applied the significant market evaluation technique to analyze the Soviet customers. Therefore, the company found out that it had great opportunities on the food market of the Soviet Union. Moreover, Cohon has chosen the differentiating strategy by analyzing the present cafes and restaurants and finding the prospective niche that was not fulfilled. Lastly, the theory and knowledge in logistics enabled the company to build an efficient supply chain and decrease food prices by involving local suppliers.

Accordingly, the use of these theories would be crucial for solving the business problem. The Crisis has significantly influenced the lifestyle of Soviet people and increased the efficiency of their mentality on the business. Considering these facts, the conclusion can be made that further market research and analysis of the opportunities would be very profitable for the company.

Furthermore, the issue is connected with the economic conditions in the Soviet Union. Therefore, the knowledge of the international economic relationships and business management can assist McDonald's to predict the future of the currency value and make more evaluated decisions.

Finally, improving logistics can save money on delivering and producing products. Therefore, by applying the theory of this discipline to business the company can create more efficient routes and increase the product's lifetime. Additionally, the marketing theory can be useful in case the company would concentrate on keeping the same prices and advertising this campaign on TV.

Alternatives

In order to prevent income decline and further bankrupting, the company has to change two aspects of its business: prices and menu. The pricing strategy has to alternative routes to choose from. First of all, the company can follow most of the other international companies working in the Soviet Union and increase its prices up to 3 times. This approach would guarantee the stable income from every sold product; however, the number of sales can decrease dramatically as people do not have enough money to pay so much for dinner or lunch. This approach requires the significant application of marketing and economic theories in order to become successful.

On contrary, McDonald's can concentrate on increasing the volumes of the sales. This can be reached by keeping the same prices that would seem noticeably lower compared to the competitors. Additionally, the company will release a massive advertisement claiming that the company would not follow the tendencies and is going to keep the same prices. This strategy is much riskier because it requires great spending on marketing and would not work in case the demand will stay similar. Therefore, this approach will require theory on logistics, marketing, and advertisement.

Despite pricing, the menu is another business aspect that can be changed in order to adjust to the severe economic conditions. Incorporating new products like cabbage soup can be beneficial because they are much cheaper than the current product line and can attract the customers that cannot afford the Big Mac menu. Though this strategy can be profitable and attract new customers in the short-term, it can spoil the brand value in the long-term. McDonald's has always been the company that worried about its branding and reputation. Therefore, association with cabbage soup and cheap food can cause the unwanted circumstances for the company's brand. Considering all mentioned above, the company has to incorporate international management and marketing theories to evaluate the perspective of the specific menu for the Soviet market.

Course of action

Considering the fact that the situation with currency is very unstable and hard to predict, it would be too dangerous to concentrate on one of the opposite strategies. Moreover, serious and rapid changes in the menu are also too risky for the company because it is hard to predict the reaction of the current audience on these innovations.

Therefore, the best strategy should be to find the right balance between price and volume. While increasing price in three times will make the company's products affordable and keep the same price tag may not increase the demand enough to keep profit, the most efficient way for Mc Donald's is to increase prices a little and advertise the fact that their products have not become pricier and still are as high-quality and tasty.

Afterward, the company would be able to adjust pricing strategy depending on the current demand. Therefore, such approach will provide McDonald's with the flexibility and opportunity to adjust to the current economic state. Finally, brand value should be number one priority because if the reputation would be spoiled, then it will not be restored right after the economic improvements. Nevertheless, this fact does not mean that the company cannot experiment with the product line. It can create some holidays special deals that will include some of the newer products created especially for the Soviet department. Afterward, McDonald's will be able to analyze the customers' reaction and decide either to incorporate the new dish into the regular menu or not.

Takeaways

The case is a great example of the efficient international management and marketing campaign. It shows that despite all the hardships and political issues there are no boundaries for the organizations that desire to develop and expand their business. George Cohon is the great example of the talented and purposeful leader that was not afraid of huge risks and critics from the colleagues. This case describes that the riskiest and standard routes can be the most profitable ones.

Creating its own supply chain by educating farmers and investing in the agriculture millions and millions of dollars was the controversial decision. Additionally, the desire to use rubles in the severe times for the Soviet economy shows that the company's prime value was customer's satisfaction and brand value. Therefore, the customer-orientated approach enabled McDonalds Russia to overcome all the hardships and become the favorite fast-food brand even today. Key takeaways from the case can be the fact that creating a personal supply chain for the company can be very profitable in the long-term and powerful brand value should be always a higher priority than the rapid income

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