What’s So Good about the Pricing Strategy of McDonald’s 🍔 India?
The pricing strategy in Mcdonald’s India is so different from other countries. Can a popular American franchise like McDonald’s be successful in a country that considers its cows as deities?
Can McDonald’s really serve burgers to a country that’s pretty much vegetarian?
Will culture and religion be surmountable challenges for this fast-food giant or will they find their costs spiralling out of control as they build their business in a totally different market?
In this article, we will take a close look at how McDonald’s is currently building their McDonald’s franchise in India. We will share with you McDonald’s international pricing strategy in India and look at how the fast-food giant is competing with local traditions, cultural differences and existing competition to establish their global McDonald’s brand.
Policy of Diversity
The McDonald’s corporation is well known for its policy of local customs and culture. They have a menu specially catered for India with vegetarian selections to suit Indian tastes and preferences.
But, creating a menu that Indians want to eat – let alone pay for – has not been easy for McDonald’s. McDonald’s had to re-invent its product price promotion and distribution strategies repeatedly in its 11 years in India. The special requirements of a vegetarian menu have been a significant challenge for a very western and very American business and brand.
India demands that McDonald’s offers vegetable products which are 100% vegetarian. They want McDonald’s to abide by strict food preparation requirements and a vegetarian menu. This includes:
- different food groups to be prepared separately using dedicated equipment and utensils,
- cooking oils that are strictly vegetarian oils – not animal-based oils, and
- cheese and sauces that are completely vegetarian and egg-less
Competition against the traditional street vendors
There is plenty of existing competition in the Indian fast food space. McDonald’s has had to compete with a range of alternatives to maintain control of the Indian market. India’s street fast food, for example, has many forms and varieties, and it’s very popular amongst Indian people.
Generally speaking, though, when a fast-food chain gives Indians what they want (listed above), they do quite well in India, both in financial terms as well as in popularising its quick service culture among the population.
Fast food is very popular in India. What’s more, India’s fast-food industry is growing quickly. It’s now at 40% per annum, generating over Rs. 4800 cores in sales and over Rs. 7000 cores in multinational segments.
There are also unique varieties of fast food in different states of India which can be difficult to serve well and are generally much cheaper than a McDonald’s meal. For example, the most authentic cuisine is Indian street food can be bought for a few rupees from portable stalls found in the Indian cities and towns.
Street vendors are a serious competitor to McDonald’s in India. Street vendors offer hot fresh, enticing snacks which many people really enjoy and prefer. These street foods are popular mainly because they are available at half the price of any restaurant food, including McDonald’s.
Take-out food, fast food, and snacks are easily available which is another factor undermining McDonald’s convenience offer. It doesn’t take much time to prepare street food either, so vendors present a very convenient and tasty eating option.
Diverse eating culture
With the long and established street food tradition in India, McDonald’s has had to double its efforts to build its position and keep on competing and growing each day. Growth in India has been very costly and drawn out. They are now into their 12th year of growth in India, yet they have experienced multiple revenue lags and cost blowouts along the way.
The main problem for McDonald’s in India is that there’s a very large consumer base with lots of regional differences, habits and values. For the past 11 years, McDonald’s has had to adapt its traditional fast meal options with new offers. Many haven’t work. They’ve learned to cater their menu to people local’ tastes and preferences.
For example, they’ve replaced beef with chicken in areas that chicken is acceptable. The Maharaja Mac is the local version of the standard Big Mac.
They’ve also catered to strictly vegetarian consumers by creating the Masala Grilled Veggie Burger, McAllo Tikki and McVeggie.
In 2013, McDonald’s opened its first vegetarian restaurant to cater to the local vegetarian consumers. They’ve also produced the McCurry Pan, a baked menu item with curried vegetables because a certain region did not value their oil-based cooking preparation techniques.
McDonald’s Indian menu can be classified into 2 main categories: branded affordability (BA) and branded core value products (BCV).
- the BCV products largely include the McVeggie and McChicken burgers that cost Rs 50-60,
- the BA products include McAloo Tikki and Chicken McGrill burgers which cost Rs 20-3
Both categories are created to accommodate consumers with differing price perceptions.
Another new pricing strategy McDonald use in India is called the Value Ladder strategy. The value ladder has the following elements:
- offer value meals using a range of price points;
- ensure affordability to attract the widest section of customers;
- create a range of new entry-level products; and
- try new items and then graduate to established menu and higher-priced items and offers
Pricing strategy of India McDonalds
The customer’s perception of value is a very important determinant of invoice price adjustments for McDonald’s. Customers have their own mental picture of what a product is worth. A product is more than a physical item or even the sum of its parts.
A price is also a psychological stimulus for the customer. The danger of using a low price as a marketing tool is that the customer may feel that quality is inferior, underselling their offer and even losing volume. Being fully aware of protecting the brand and its integrity when deciding on a price is key.
Cost-saving from standardisation
Instead of experimenting on what ingredients best suit the fast meals in McDonald’s India, they use a scientific procedure to select food ingredients. This procedure ensures McDonald’s can cut costs on items that are not necessary to put in the meals. It also shortens the time to prepare the meal and frees up time for deliveries.
Another aspect of McDonald’s food production is its spontaneous resupply of food ingredients. They essentially eliminate more expensive forecast-based purchase orders and can hold inventories when they need to.
The process of determining McDonald’s price strategy in India
Implementation of McDonald’s price strategy is localised rather than internationalised. McDonald’s has different pricing for different countries. Each country undergoes a strict process to determine the price for a particular market.
- Selecting the price objective. It depends on its business aims to gain market share in cost calculation and global pricing strategy.
- Determining demand. The determination if the demand for the product is significant enough to invest in the venture.
- Estimating costs. The balance of fixed and/or variable costs vs. the expected profits from the business venture.
- Analysing competitors costs, prices and offers. A local survey, business planning and detailed market research conducted. It determines if there is still room for another player entering the business market.
- Selecting the pricing method. It includes the list price, the discount levels and tactics available to teams, as well as the financial options available, etc. The part of the marketing strategy that generates revenue. The price must also take into consideration the appropriate demand-supply equation.
- Selecting the final price. The price determined by the pricing team that is fair to both the business and the public. For example, the team may use value pricing to determine the final invoice price.
This approach is used where external factors such as recession or increased competition force companies to provide ‘value’ products and services to retail sales.” The most notable example of value pricing is McDonald’s “Dollar Menu.” The Dollar Menu was created because McDonald’s recognized that the economy was in a decline and that their competition was getting fiercer. So they met the needs of their consumers and took control over their competitors by creating an irresistible offer for consumers.
The process above is a basic framework that McDonald’s uses to set up localised pricing.
Price bundling with psychological pricing
McDonald’s has been successful at employing cost-leadership marketing strategy by offering fast food meals at low prices. It has worked by hiring and training inexperienced employees instead of trained cooks and hiring only a few trained managers
It 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.
- Local Indians run and managed McDonald’s in India, employing local staff. It procures from local suppliers to serve its customers. McDonald’s India opened its first family restaurant at Basant Lok, in Oct 1996 and today it has 169 restaurants across India.
- This vibrant decade has seen McDonald’s evolve Indian menus, Indian sensitivities and yet remain as globally innovative as ever.
- At McDonald’s India, the single mantra driving their vision is providing 100% total customer satisfaction. The formula to achieve this goal is based on the long-standing commitment to the McDonald’s Promise.
- Being in touch with the price of their competitors allows McDonald’s India to price the products correctly, balancing quality and value.
- The fast-food industry in India has evolved with the changing lifestyles of the young Indian population. The sheer variety of gastronomic preferences across regions – hereditary or acquired – has brought about different modules across the country. It may take some time for the local enterprise to mature to the level of international players in the field.
- McDonald’s pricing strategy implemented successfully its cost leadership marketing strategy, its overall objective is to increase market share.
- Arriving at a pricing decision is large as a result of analysing demand, costs, competitor pricing. They also consider metrics such as product’s life-cycle to balance quality with value.
- Other than the cost of living, certain elements such as geographical factors, government regulation, economic climate and exchange rate also affect McDonald’s pricing strategies.
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