Comparing McDonalds and Starbucks Businesses - Essay Example

Comparison of McDonalds and Starbucks businesses Market segment, Target Market, composition Market segmentation is a concept in economics and marketing. A market segment refers to a subset of a market which comprises of firms or people who have one or more characteristics which drive them to demand similar products or services based on products’ qualities such as function and price. A true market segment is distinct from other market segments, is homogenous within the segment, responds in a similar manner to a market stimulus and it can be accessed by a market intervention. Market segments allow marketers to divide people based on these characteristics and charge them different amounts. Different firms develop different ways of segmenting their market and creating product differentiation strategies which gives a firm a temporary competitive advantage. To gain competitive advantage on the sale of coffee in Australia and US, McDonald’s stores decided to set up McCafe to cater for coffee lovers segment. McCafe were different from other regular McDonald’s stores in that they sell items such as lattes and cappuccinos in real cups and cakes are lined up in display cases unlike the usual patisseries. On the other hand, Starbucks mode of segmenting their market relied on provision of fashionable, spacious interiors. This mode of segmentation was not able to win the market for the firm in Australia however because of the entrenched coffee culture. Target market is the people or firms to which products or services are developed for. The target market for McDonalds is coffee lovers initially in Sydney, Australia. On the other hand, the target market for Starbucks is new markets with no café culture like United States and other countries such as UK, most of Asia and Canada. However, the firm’s efforts to enter target market with established coffee culture have been futile as exemplified by its unsuccessful entry in Australian market. Market composition for the two firms has been mainly coffee lovers. Customer Loyalty brand loyalty Double Jd Customer loyalty is the loyalty to the brand and to the company. A comparison of McDonald’s and Starbucks shows that McDonald has a high customer loyalty in Australia as opposed to Starbucks while Starbucks has a high customer loyalty in USA. Brand loyalty is the trust of the customer that the brand will continue to deliver on its promise to the customer. Many customers in Australia love McCafe as opposed to coffee offered by Starbucks. Thus the brand loyalty for Starbucks in Australia is low as opposed to that of McCafe brand of McDonald’s. This is done through communication, customer service, and trust and loyalty programs. Starbucks, failure to win Australian market could have been due to poor communication and loyalty programs. the firm, seem not to have made enough market research in Australia because whereas the café culture in Australia favored small, boutique and very European style café culture, Starbucks wanted to impose a United states’ café culture of fashionable, spacious interiors. The management was not even bothered with the rejection of traders in the Melbourne city. Small brands attract fewer customers and also their customers buy them less frequently. This twin disadvantage of the less popular brands is termed double jeopardy. Studies have indicated that double jeopardy effect is a behavioral phenomenon relating to the size structure of the market. The unsuccessful entry of Starbucks in Australian market could be explained by this double jeopardy effect. The market was saturated by European café culture and introduction of unknown USA café culture which was totally different was bound to fail because of the market size and structure. The hostility that Starbucks encountered in Australian market illustrates how small brands are disadvantaged in new markets. Poor understanding of consumers in Australian markets could have catapulted the hostility that Starbucks faced in Australian market. This is because the firm invested little energy in learning the market and putting in place the needed strategies for new market entry. It seems McDonald’s had learnt the Us market well and that is why it did not encounter hostility when it entered the US market with McCafe culture in spite Starbucks having established American café culture. Market research five steps Market research is research into a specific market, segment or audience type. It is a regular design, collection and analysis of data and findings that are related to a marketing situation facing and organization. Market research can save much time and money and open a way for new products and services that can be profitable to the firm. Five basic steps have been identified to be essential in a market research. First step is the identification of the area of research. This is followed by selection of a suitable method of carrying out the research. The next step is the collection of the required data which is both primary research and secondary research data. The fourth step is the analysis of the data collected and its conversion into meaningful information. The final step involves reporting the data in an appropriate format. From the way the market reacted to both Starbucks and McDonald’s brands it is apparent that Starbucks does not carry out market research while McDonalds carries out comprehensive market research. This is because McDonald was able to penetrate the Australian market and USA markets that had well established different culture. Their success can only be attributed to comprehensive market research and acting upon the reported findings to tailor their products to the needs of the market. However, the case is different for Starbucks. The fact that the firm has only been able to establish itself in markets with no prior culture coffee culture is an indication that the firm either does not carry out market research or if does, its management does not put into consideration the findings of the market research. The inability of the firm to take heed of the outcry of its potential customers in Australian markets and instead try to impose on them alien coffee culture that ended up failing is a result of poor understanding of the market. This has resulted in Starbucks not being able to penetrated many markets and as a result lost time and money in form of investments made in such markets as exemplified by shut down of its stores in Australian market. New product development The success and sustainability of a firm depends to some extent on improving and updating its product lines. Inability to change may result in sales decline and declining competitive ability. The process of new product development is thus crucial within a firm. There are eight main stage of new product development. The first stage is the idea generation. The idea generation of Starbucks chain store resulted in development of fashionable, spacious interiors while that of McDonald led to development of McCafe. The second stage in is idea screening which entails shifting through the ideas generated and selecting those that are feasible and workable to develop. Non feasible ideas can be costly to the firm. The McDonalds was able to develop new product McCafe mainly because it studied the market well in Australia. The third stage is concept development and testing. This involves taking the feasible idea to the customers and finding out what they think about it and find out whether it will be practical. The forth stage is the marketing strategy and development which lays out how the product or service will be launched out in the market. The fifth stage is business analysis which looks more deeply into the cash flow the product could generate, its cost, the market share the product is likely to attain and the expected life of the product. The sixth stage is product development at which a prototype product is produced. The seventh stage is test marketing which involves testing the product within a specific area. For instance, McDonald’s tested its new product, McCafe in Sydney, Australia while Starbucks tested its café culture in the United States of America. The final step is commercialization which entails national launch. Compared to Starbucks, McDonalds deals in several products and its new product that was successful produced is the McCafe. We are not told the product range of Starbucks and whether it has ever developed new products in its endeavor to expand to global markets. Probably its failure in Australian market could have resulted from inability to develop new products that fit the new market. Public relation Public relations entail cultivating favorable relations for firms and products wi9th its key customers via the use of a variety of communication channels and tools. Public relations entail building awareness and a favorable image for a firm within articles and stories found in relevant media outlets. It also involves monitoring numerous media channels for public comment about the firm and its products. It helps to manage crises that may threaten the firm or its products. It also aids in building goodwill among the target market of the firm via community, philanthropic and special programs and events. Starbucks’ public relations seem to have failed the firm in Australian market if at all it was in existence. In spite the rejection of the firm prior to launching its products in Australian market, the public relations remained mum and never advised the firm’s management appropriately. Instead the firm concentrated on training its employees at the expense of winning goodwill of the target market. It could have come to the knowledge of Starbucks public relations that local traders lobbied Melbourne City Council to have the chain store closed down. This could have bothered the firm’s management to look for ways of averting rejection but instead the firm ignored these early signs of failure. Contrary to this, McDonald had no problem establishing itself in Australian market and American markets. This implies that the firm had good public relations which built goodwill among Australian and American residents. The firm also was able to monitor the reaction of the market to its new product probably to well established public relations which monitored comments from the public that it relayed back to the firm for appropriate action to be undertaken. Consumer decision making model (high model low model) Studies have indicated that consumers go through a five stage decision making process in any purchase. These processes entail need recognition and problem awareness; information search; evaluation of alternatives; purchase; and post-purchase evaluation. Recognition stage allows the consumer to recognize a need or a problem. If the need is not strong the process of information search begins. In the evaluation stage, the customer chooses between the alternative brands, products and services. As from the article in Australian market, many consumers will chose McCafe over Starbucks. The extent of evaluation is dependent on consumer involvement. Highly involving purchase involves extensive evaluation. High involvement includes those involving high expenditures or personal risk while low involvement purchases have very simple evaluation processes. The evaluation of Starbucks and McCafe are both low involvements because they involve less expenditure. This model requires that a marketer considers the whole buying process instead of just concentrating on the purchase decision, a stage that might be too late for the business to influence the choice of a consumer. Although the model implies that consumers go through all the stages every time they carry out a purchase, in more routine purchases some stages may be skipped or be reversed. The degree to which McDonalds and Starbucks standardized their global coffee offering Product standardization is a method used to reduce costs and increase quality through minimization of the differences in the products offered. It allows a firm to rapidly increase production, streamline distribution, decrease raw material costs and reinforce product branding. The two firms seem to have highly standardized their global coffee offering. This has seen Starbucks succeed in countries without prior culture of coffee through setting up of standardized café culture while McDonalds has succeeded in setting up the standardized McCafe. Strategy supported by both companies The long term outcome for both companies support different strategies. From the performance of Starbucks in different markets it is apparent that each market needs a localized strategy. This is because the firm has been able to perform better in countries with no prior established coffee culture like USA but not in those with well established coffee culture like Australian market. Contrary to this, the long term outcome of McDonalds indicates that products can be standardized and still perform better. This is illustrated by the fact that McDonalds’ McCafe was able to perform well in both Australian markets known to have well established coffee culture as well as in America a market with no prior coffee culture. Read More