Apr 20, 2009
McDonald’s International Strategy: Squander Brand Equity?
McDonalds has expanded to international markets in the face of increasing regulations in the United States and domestic market saturation. They initially entered international markets by leveraging standardized product offerings, clean and bright environments, and American brand equity. However, recent years have seen McDonalds adapt to local regions by remodeling its retail space while changing the product line to appeal to local tastes. While the strategy has paid off well in the short term and McDonalds has realized that they must adapt to each country they enter, their tactics of both catering to local tastes and changing the restaurant’s design and appeal is diluting brand equity. This will have disastrous consequences in the long term.
McDonald's World Locations
“The Golden Arches” have become synonymous with not just fast food but also American culture in foreign countries (sad, but true). By adapting the food offerings to local tastes, McDonald’s risks losing its connection with American culture. According to Business Week:
If you don’t fancy a Big Mac in the branch at the Piazza di Spagna in Rome, you can order pasta freshly cooked to order. In France, McDonald’s serves wine and runs an annual promotion called Le Saga du Fromage, where instead of the usual cheddar, burgers are topped with beloved French cheeses such as Reblochon. – Business Week
This reduces the appeal McDonalds leveraged when initially entering. Ultimately, consumers in foreign countries have a number of choices for local foods while McDonalds is among the few places to have traditionally American fast food. Still, McDonalds may be able to cater to local tastes as long as it focuses on its core competency of fast food.
In Europe, unfortunately, McDonalds is straying from its fast food roots. In an effort to compete with coffee shops like Starbucks, McDonald’s is turning the restaurant space more upscale and comfortable, while offering healthier and more locally palatable foods. They are also offering Wi-Fi and rental iPods. However, this strategy not only dilutes the brand equity by adapting to local tastes, but also moves McDonalds even further away from its core competency of fast food. With Wi-Fi and music, who needs their food served fast? Europeans no longer expect American food from McDonalds, nor can they expect a fast food environment. While this may be profitable to regain lost market share in the short run, it is a dangerous strategy in the long run.
The future of the golden arches?
By tailoring the restaurant space and product offerings locally, McDonalds is actually moving away from the development of a truly global brand. It is clear that McDonalds’ adaptation tactics are diluting its brand equity and straying from its core competency. As the company continues to expand, they will have a hard time creating a global brand because the McDonalds’ dining experience will be radically different from country to country. If they continue this strategy, they will have a hard time remaining a globally meaningful and recognizable brand.
What’s your suggestion? You pose a problem, which little more than speculation to back you up, but provide no solution. I would imagine that ’sticking to the core’ would eventually lead to McD’s become marginalized and eventually fading as a relic of the olden times. With general anti-US sentiment world wide (thanks to the previous administration), and an increasing spotlight on the unhealthiness and low quality food put out by the chain, McD’s has no choice but to adapt or embrace its entrance into the final phases of the business cycle. Then again, my thoughts are about as fact based as yours. Lets see some numbers!
Well Ted, if history serves as any example then this is not purely speculation. Historically, when brands spread themselves too thin then they tend to fail. Brands are experiences and ideas; and when the McDonald’s experience in Europe is radically different than that of other places (and we are not talking about food here but the general atmosphere and dining experience) it will dilute brand equity. This is not something that is necessarily supported by quantitative data – because ultimately brands are subjective qualitative entities that can be (crudely) measured quantitatively. As we become a more global society and international travel begins to drop in price, McDonald’s will find that many customers will be unhappy with the radically different brand experience found in Europe vs the rest of the world. I can support this with other research that has been done.
“The degree to which….[a] company is judged to have integrity depends on the consistency of its past actions, credible communications about it from others, belief that it has a strong sense of justice, and the extent to which its actions are congruent with its words; integrity is an antecedent to trust” – http://www.traveldailynews.gr/makeof2.asp?subpage_id=703
“According to their reasoning, brand reliability is related heavily to the consistency of brand performance as signalled by the overall satisfaction consumers have with the brand. In comparison with brand reliability, brand intentions capture the essence of brand trust that is not securely rooted in past experience. However, the fact that past experience (e.g. satisfaction with the brand) is not an exact barometer of brand intentions does not imply that past experience plays no role in explaining brand intentions.” – http://goliath.ecnext.com/coms2/gi_0199-977297/Development-and-validation-of-a.html-page.html
You could also put it the other way around. I don’t know if this makes much sense to someone from the US because you really have to place yourself in a different context, but McDonald’s would most probably be quite incapable of penetrating the Western European market were it not for its transculturation capacity — France is, in that sense, a good example. Ethnocentric management would not have led the corporation very far; in many cultures, eating food has to be a privileged, enjoyable moment; nonetheless I do not see how brushing aside ethnocentric considerations has to lead McDonald’s to a sort of “dilution” or “loss of identity”. Their added value remains the same: organization and strength of the supply chain; only the business models subtly vary, but it’s crucial they do.