McDonald’s generic strategy determines its basic approach to developing its business and competitive advantage. As the biggest fast food restaurant chain in the world, McDonald’s uses its intensive growth strategies to support continued business development and expansion. The related strategic objectives dictate the company’s operational activities, especially in responding to economic changes and the actions of competing firms. Variations in market conditions impose pressure on the business to adapt or reform its strategies. As such, McDonald’s generic strategy and intensive growth strategies change over time to ensure long-term business viability.
McDonald’s generic strategy defines the firm’s overall business approach. The intensive strategies determine McDonald’s approach to growing its business in the global fast food restaurant industry.
McDonald’s Generic Strategy (Porter’s Model)
McDonald’s primary generic strategy is cost leadership. In Porter’s model, this generic strategy involves minimizing costs to offer products at low prices. As a low-cost provider, McDonald’s offers products that are relatively cheaper compared to competitors like Arby’s. However, the company also uses broad differentiation as a secondary or supporting generic strategy. This secondary generic strategy involves developing the business and its products to make them distinct from competitors. For example, through McCafé products, McDonald’s applies the broad differentiation generic strategy.
Vertical integration is a strategic objective linked to McDonald’s cost-leadership generic strategy. For example, McDonald’s owns facilities that produce standardized mixtures of ingredients. Also, cost minimization is a financial strategic objective based on the cost leadership generic strategy. In addition, product innovation is related to McDonald’s broad differentiation generic strategy.
McDonald’s Intensive Strategies (Intensive Growth Strategies)
Market Penetration. McDonald’s uses market penetration as its primary intensive strategy for growth. In applying this intensive strategy, McDonald’s grows by reaching more customers in markets where it already has operations. For example, McDonald’s opens new restaurants in North America and Europe by franchising, joint ventures or corporate ownership. A strategic objective connected to this intensive growth strategy is global expansion through new locations. McDonald’s generic strategy supports this intensive growth strategy because low costs and low prices empower the firm to easily penetrate markets.
Market Development. In its early years, McDonald’s used market development as its primary intensive strategy for growth. However, market development is now a secondary intensive growth strategy because McDonald’s already has restaurants in most regions around the world, except Mongolia, some parts of the Middle East and west Asia, and the majority of African countries. A strategic objective for this intensive growth strategy is to establish new locations in new markets, such as new McDonald’s restaurants in African or Middle Eastern countries where the company currently has no operations. Based on its generic strategy of cost leadership, McDonald’s supports this intensive growth strategy by using low prices to compete in new markets.
Product Development. McDonald’s uses product development as its tertiary or supporting intensive strategy for growth. In applying this intensive growth strategy, McDonald’s develops new products over time, such as new McCafé products. These new products may be variations of existing products, or entirely new products. The strategic objective for this intensive growth strategy is to capture more consumers by attracting them to new products. This intensive growth strategy agrees with McDonald’s broad differentiation generic strategy in terms of new products that make the company distinct.
Strategic Analysis and Recommendation for McDonald’s
McDonald’s generic strategy of cost leadership enables the company to sustain its market leadership. The company’s broad differentiation strategy also helps. However, a possible strategic direction for McDonald’s continued growth is to establish more locations in developing economies and in countries where the firm has no market presence. The recommended strategic goal is to fuel business growth through a combination of the market penetration and market development intensive strategies.
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