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McDonald’s ‘think global, act local’ pricing approach

1. Introduction
On 29 February 2016, McDonald’s raised the price of its McPick 2 for $2 to 2 for $5 in the U.S.
Customers now get to pick two items for $5.

A month earlier, the McPick was 2 for $2. The new product was more expensive than that of McDonald’s
rivals. Wendy’s 4 for $4. Burger King charged a 5 for $4 meal.

2. McDonald’s Pricing Strategy


In business marketing, there are three generic strategies: focus, differentiation and cost leadership.
McDonald’s has been successful at employing cost leadership marketing strategy by offering fast food
meals at low prices. Prices have been kept low by:

 hiring and training inexperienced employees instead of trained cooks


 hiring only few trained managers

McDonald’s pricing strategy also involves Price bundling combined with psychological pricing. In
price bundling, the company offers meals and other product bundles for a discount. In psychological
pricing, McDonald’s uses prices that appear to be significantly more affordable, such as $__.99 instead of
rounding it off to the nearest dollar. This element of McDonald’s marketing mix highlights the
importance of price bundling to encourage customers to buy more products. McDonald’s itself (2007) is
vague about its pricing strategy; the company understands that a customer’s perception of value is an
important determinant of price charged. Using low price as a marketing tool may promise customers a
product of compromised quality. Moreover, competitors can respond in a price war resulting profit
margins reduced without increasing sales.

3. McDonald’s pricing decision


Despite the cost savings which is characteristic of standardization, implementation of McDonald’s price
strategy is localized rather than globalised. McDonald’s has different pricing for different countries.
Each country undergoes a strict process to determine the price for a particular market. The process is:
 selecting the price objective
 determining demand
 estimating costs
 analyzing competitors costs, prices and offers
 selecting pricing method
 selecting the final price

The process above is the basic framework that McDonald’s uses to set up localized pricing.

McDonald’s pricing objective is to increase market share. McDonald’s mission statement highlights its
pricing policy; the most fundamental element of determining price was:

Being in touch with the price of our competitors allows us to price our products correctly, balancing
quality and value.

For instance, to penetrate the market in New Delhi, India in 1996, McDonald’s set their price by looking
at Nirula, a local food chain.
As another example of the ‘globalization’ phenomena, McDonald’s also sets prices according to the
product life-cycle (PLC). In 1997, the US market was in the decline stage of the PLC so the price of a Big
Mac was lower than that of in Japan. The Japanese market was growing to maturity so a high priced Big
Mac was profitable.

4. Conclusion

Though McDonald’s pricing strategy is successful at implementing cost leadership marketing strategy,
its overall objective is still to increase market share. Arriving at a pricing decision is the result of
analyzing demand, costs, competitor pricing, a product’s life-cycle and then balancing quality with value.

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