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Demonstrate knowledge applied to evaluate marketing practice in relation to the cross-functional aspects of business & management with the goal of enhancing long-term shareholder value or other measures of success.
The product life cycle concept refers to the process of dividing the marketing of different products into four dissimilar stages that include introduction, growth maturity as well as decline (Clow and Baack 2012). The product life cycle illustrates different stages of the product that passes through the market. The life cycle diagram therefore assists us to track different changes in the product over a definite period. This also helps in upholding different marketing stratagems. The life cycle diagram not only assists in showing diverse stages of life cycle as well as the curve for the products of the McDonald’s but also presents six different stages of decision-making facets that includes audience, market, volume of sales, level of competition, business focus as well as design focus (Glynn and Woodside 2012).
As per the above diagram, it can be inferred that the product life cycle can be divided into four different stages as per the sales figure of the products of a corporation. In the introduction stage, the product sales are low and gradually it gains momentum and reaches the stage of growth with increase in the volume of sales (Hollensen 2010). The amount of sales at the growth stage increases at an increasing rate and thereafter the momentum and the product enters the stage of maturity. In the stage of growth of the product life cycle, the sales figure of the firm increases but flattens to certain extent and attains a point where the sales value reaches the maximum. Consequently, the sales of the product drops and the product finally enter the decline phase.
The product life cycle also helps in understanding the audience that comprises of the early adopters, mainstream, late adopters as well as laggards (Hollensen 2010). The early adopters generally operate at the stage of introduction, while the mainstream audiences are at the stage of growth. On the other hand, late adopters can be positioned in the maturity stage with the laggards at the decline stage (Hollensen 2010). Again, the market size of the product can also be ascertained from this product life cycle where the market size is small in the introductory stage, growing in the growth stage, large during the phase of maturity and contracting during the stage of decline (Glynn and Woodside 2012). Furthermore, the sales of the product are low during introduction, high during growth, flattening during the phase of maturity and moderate during the period of decline (Homburg, Krohmer and Kuester 2013) . Again, the level of competition is also low during the stage of introduction, high at the time of growth, high during the level of maturity and becomes moderate during the period of decline. However, the business focus is on the awareness regarding the product at stage of introduction, thereafter on the share of the market during the stage of growth. Next, the firms concentrate on the process of customer retention during the period of maturity and ultimately on transition during the period of decline (Hutt and Speh 2010).
Similarly, the pricing strategy of McDonald’s can also be expressed in the similar way as is shown in the figure below:
Pricing decision in the context of Product Portfolio Management (PPM) and Product Life Cycle (PLC)
Pricing strategy refers to the policy of pricing for the products offered by the company. The pricing strategy might possibly change during different stages of the product life cycle.
Pricing Strategy of McDonald’s
Price of McDonald’s products are comparatively high at the introductory stage in order to cover up all the production costs. During the period 1937 and 1960, the price was set at 10 to 19 cents (Mcdonaldsindia.com 2016).
The growth stage encompasses the introduction of different competitors that consists of Burger King, Jack in the Box as well as Wendy. Therefore, during the period of 1960s as well as 1990s, the price of the products further increased more than 30 cents to 2 dollars that was comparatively lower than the competitors were.
The pricing stage during the maturity stage therefore refers to the further decline in the overall prices in order to accommodate different saturated market. Therefore, the management of the company McDonald has set the price at approximately 89 cents during the period 1990s until 2010 (Mcdonaldsindia.com 2016).
BCG Model Product Portfolio Management of Mc Donald’s
The BCG model is founded on product life cycle notion that might be used to settle on different priorities in the product portfolio of a specific business (Hollensen 2010). The BCG framework has two different dimensions that include the market share as well as growth rate of market. The BCG matrix leads to four different categories specified in the portfolio of a particular corporation, namely, Star, cash Flows, Dogs and Question Mark. The Stars represent both high growth s well as high share in the market. On the other hand, the cash cows are associated to low growth as well as low market share. Again, the Question Marks can be associated to the high rate of growth and but low share of the market (Hutt and Speh 2013).
The BCG Matrix of McDonald’s shows that the fast food chain can be positioned in the particular quadrant of Star as the company has both high rate of growth as well as high share of the market. The company uses huge amount of cash and is regarded as a leader in this particular business in order to generate large amounts of cash. Again, the company regularly balances the entire net cash flow. However, the management can also attempt to preserve shares since the rewards can be a source of income in case if the market share is preserved.
The macro environment of McDonald’s includes the economic, social, technological as well as environmental factors. The economic facets that affect the product management as well as product life cycle include the rate of inflation and the rate of exchange (Peter and Donnelly, 2013). For instance, the world’s greatest fast food restaurant and the food chain declared a rise in the prices owing to match with the food inflation that specifically includes the rise in the prices of beef s well as dairy prices . The management of McDonald’s has therefore decided to initially absorb certain costs by means of increasing the prices in order to get back the 4.5% of the overall increase in the costs of food. The management of McDonald’s is of the opinion that the inflation raises the cost of different ingredients that include Big Mac Beef, special Cheeseburger, and cheese coffee beans in addition to other things (Pasquier and Villeneuve 2012).
The rate of inflation determines the prices of the products and at the same time purchasing power of the individuals. The social factors include the level of employment that in turn affects the product portfolio management and the product life cycle (Paliwoda, Andrews and Chen 2013). Thereafter, the technological factors that exists in the external environment of the company also helps in improvement of the present technology and helps in crafting innovative products in addition to up gradation of the existing products. Furthermore, the external factors also include the environmental factor that influences the overall product portfolio management and the product life cycle. The company follows good corporate social responsibility in order to maintain sustainable process of business and to reduce the carbon footprints of the business operations.
The current economic recession was extremely upsetting for corporations operating in different trade, lessening the revenues as well as profits, reducing the customer demand for different goods as well as services. On the other hand, not all trade was adversely influenced by this economic downturn. Certain business concerns thereby experienced the increase in revenue as well as profit during the period of economic downturn owing to higher demand (Lancaster and Massingham 2010). However, in the year 2008 the overall fast food industry in the UK observed increased growth of 4.5%, from the perspective of revenue along with an increase in demand of approximately 4% for different products and services of McDonald’s products (Mcdonaldsindia.com 2016).
Again, the fast food trade has administered the proposed directive aimed at lessening the unhealthiness of the products tendered by fast food restaurant (Hutt and Speh, 2010). However, in response to this, McDonald’s in the UK phased out diverse supersize meal choice during the year 2001 owing to low demand and stopped launching it in other nations (Lancaster and Massingham 2010). The company also started tendering healthy menu alternative counting fruit smoothies, different types of salads, milk and other dairy products, water as well as fruit.
The technological advancements such as the advent of different social media affected the business operations of the company (Lancaster and Massingham 2010). The management of McDonald started operations of numerous online marketing campaigns via the Face book page as well as twitter account since 2009. The popular campaigns include the ‘Ask McDonald’s You tube campaign during the 2012, in which more than 20,000 queries of the consumers were attended primarily regarding the quality as well as supply chain of McDonald’s products and services.
Environmental Factors that affect the product life cycle include different environmental issues that encompass public awareness long with the rise in the green initiative as well (Paliwoda, Andrews and Chen 2013). As movements. The management of McDonald’s also devises various programs that can mitigate the risk of environmental damage and lessen different negative environmental features of the distinctive business production techniques (Lancaster and Massingham 2010). The management of McDonald’s has adopted the strategy of replanting trees in order to offset the effects of the omissions generated by the transportation of different goods, decrease in the overall amount of paper utilized for the administrative purposes, energy saving proposals among many others (Mcdonaldsindia.com 2016).
According to Lamb, Hair and McDaniel (2011), it has been found that the product portfolio management (PPM) has a positive effect on the product development of the company McDonald’s. The reason behind this is that the diversifying portfolio of McDonald’s is leading to production of various new products that are helping the particular company to expand globally and also to occupy most of the market shares of the competitive market. For instance, the mature market of the Europe and the U.S. of the company McDonald’s resulted into an increase in pressure from competition. Therefore, McDonald’s has started to diversify its portfolio from saturated fast food markets to McCafe in order to maintain a constant growth. The intention of this McCafe was to focus on capturing the market of hot and cold beverages within the restaurant industry. This diversification of the portfolio also leads to partnership of the firm McDonald’s with the PowerShares Dynamic Leisure and Entertainment ETF. This is also considered as a positive effect of PPM on the product development of McDonald’s. The new diversified portfolio McCafe helps McDonald’s to increase foot traffic during non-peak hours and breakfast (Posner 2011). Therefore, it can also be said that the diversification of the portfolio also helps to increase the numbers of customers of the firm. The new menu and introduction of new items at interval of time helps to increase curiosity among the customers regarding its taste and thus they visit the restaurant for having it. Thus, the PPM leads to product development and it also leads to more revenue and ultimately helps in increasing the profit margin. It can be better understood from the following pie charts.
This above pie chart represents the history of the market share. In the year 1948, the company McDonald’s was in the introduction stage of the product life cycle. Thus, it can be found from the pie chart that only 8.2 % of the market was captured by McDonald’s and remaining by the other existing companies at that time period.
This pie chart represents the existence of the company McDonald’s in the market during its growth stage. In the year 2000, the company McDonald’s had a market share of 43.1 % and the remaining 18.8 % of the market share was captured by Burger King, 12.7 % by Wendy’s and 25.4 % by others. This chart represents a significant growth of the firm in the global market.
Lastly, the above graph indicates the starting period of maturity stage of the product life cycle of the company McDonald’s. In the year 2008 the firm achieved its maturity and captured 53.5 % of the total market shares and the remaining 20.2 % by Burger King, 18.9 % by Wendy’s and 7.4 % by others. Currently, the firm McDonald’s is in the maturity stage.
The effect of the product life cycle on the firm McDonald’s can be better understood from the following table:
This table represents that the sales of McDonald’s is high in maturity stage, advertising is high, profit is also high and the competition in the market is very high. However, the investment cost has been reduced in the maturity stage (Kotler and Armstrong 2016). Thus, it can be said that the product life cycle also has a positive effect on the regulation and operation of the firm McDonald’s.
The company McDonald’s was founded in the year 1937. From that period onwards the company has modified all its products in order to cope up with the competitors. By close analysis, it has been found that there are many products that have been failed till today due to various reasons. Some of them include – Mc Grain Croquette, Hulaburger, McDLT, Arch Deluxe, McLobster, McHotdog, McPizza, McPasta, McAfrica and McLean Deluxe (Kerin, Hartley and Rudelius 2011). All these products failed due to various reasons like entry of competitors in the market, cultural difference, change in the consumer behavior and many more. Therefore, it can be said that McDonald’s has various products and each of the product has different product life cycle. The longevity of the PLC depends on both internal and external factors like – quality of food and service (internal) and competitors, changing nature of customers and demand of products (external).
The product life cycle of the firm McDonald’s is consisted of four stages – introduction, growth, maturity and decline. The firm has segmented its customers as per the four stage of the product life cycle. For instance, the management of the firm McDonald’s has denoted the audience of the introduction stage as Early Adopters, the audience of growth stage as Mainstream, the audience of maturity stage as Late Adopters and the audience of decline stage as Laggards. For the Early Adopters, the company McDonald’s put more importance to the product branding and quality level. The achievement of the intellectual property like trademarks and patents help the firm to attract more early adopters (Sheehan 2011). The implementation of the low penetration strategy helps to build market share. For the Early Adopters, the particular firm selected a selective distribution strategy. Even the strategy of promoting the products is also a part of attracting the Early Adopters. Marketing communications also help to build product awareness among the Early Adopters. The Mainstream consumers lead to the growth of the organization McDonald’s, thus the main strategy that is applied by the management team is to maintain the quality of the product and in addition to this additional features and support services should be provided (Mcdonalds.com 2016). The distribution channels are also selected based on the demand of the customers such that they accept the product. For Mainstream audiences, promotion is aimed at broader audience. The Late Adopters are the consumers of maturity stage of the product life cycle. For attracting the customers the company differentiates the features of the product from its competitors, pricing is lower due to new competition and the distribution method that is implemented for Late Adopters is more intensive and the promotion is emphasized on the product differentiation.
The bubble chart for McDonalds presented above helps in understanding the value and risk proposition associated to the operations of the company. The bubble chart is essentially divided into four different quadrants that represent four different attributes. The first quadrant in the left side above represents the high value and the low risk. The remote team creation as well as the project of product modification involves high as well as low risk. The product line extension has the NPV of less than £1.5m and can be positioned in the quadrant of low value and at the same time low risk. However, the four quadrant characterized by the low value as well as high risk is a critical section of the chart that positions the piloting of the product before the final launch.
Product Life Cycle Curve and position of product in the product range of the company along the curve
The product life cycle includes different stages that include the introduction stage, growth stage, maturity and the declining phase. The introduction of the product starts with the research and development phase that is before the product enters a specific market. The company revamped the menu by conducting thorough market research (Zou and Fu 2011). The research revealed that consumers are increasingly becoming health conscious and are keeping away from the unhealthy fast food. In addition to this, the wellness industry also represented that fastest growing sector in the entire world. Therefore, the company introduced the products such as the salads and desserts that hardly exert any adverse influence on the health of individuals (Baines, Fill and Page 2011). Therefore, the salads and the desserts is said to be in the introductory phase. The extra value meals are in the growth phase as more and more consumers has preferred the extra value meals package offering. The Big Mac is said to be in its maturity phase as the product still remains productive in the maturity after being profitable for a long time. The Happy Meals can be regarded to be in the decline stage as the sales of this particular product have decreased considerably owing to various reasons. ?
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