McDonalds has always been a company that shares in the happiness of a child. Recently after taking my own children to McDonalds, I have found that there is not a breakfast option for children. McDonalds should add a happy meal option to the breakfast menu. Current demands by consumers are to add a happy meal option allowing parents to purchase child sized portions of breakfast items. This option could help McDonalds to increase profits by attracting more consumers. Shareholder reports show a quarterly cash dividend per share increase of 15% and annual dividend of $2.80 per share. Comparable sales grew 5.6%.
Cash by operations increased $808 million to $7.2 billion. Return to shareholders $6.0 billion (McDonald’s.com, 2012). Elasticity of demand and the market structure for the company’s good or service. * Profit-maximizing quantity is figured by determining the elasticity of the product. * By dividing the change in quantity sold by the corresponding change in price, you get a coefficient that tells you how elastic or inelastic your product is – with coefficients between zero and one being inelastic and coefficients greater than one being elastic. * The elasticity of this particular product is determined by the individual instead of the population. Considering this fact, fast food is considered an elastic good. An elastic good is more of a luxury, and fast-food is not a requirement to survive.
* An elastic good, the price must be set at a reasonably low level to increase the revenue. * McDonalds can use the formula of marginal cost = marginal revenue to determine its pricing. Demand is elastic when it is easily affected by the raising or lowering in the price of a product or service. * When McDonalds raises its prices, sales will decrease. Decreasing prices, McDonalds will see an increase in sales. * McDonalds has such a competitive market. To stay ahead of competitors, they have a lower price alternative from competitors. Therefore, pricing must be given a great deal of weight in your marketing strategy because other conditions exist.
* The degree of elasticity will tell McDonalds how much they can raise prices before sales start to decline. Not everyone can afford to eat out all the time and people who do go out for breakfast are usually going to work or dropping children off at school. * Calculation Elasticity of Adding Happy Meal (Q2-Q1/Q1) Q1 – 20 Q2 – 23 total quantity demand increase total 15%. (P2-P1/P1) P1 – $6 P2 – $3 total price decreased by 5%. Divide percent change in quantity by price 15% divided by 5% = 3% elasticity. Company’s Strategies to Increase Revenue
* Exploring the competition to see what the others are doing in terms of fast-food breakfasts and children. * Customer focusing strategies to see what other customers want in the children’s breakfast meals. This can be done through questionnaires and feedback surveys both in and out of the store. * Using proper training methods to ensure quality service to customers. * Proper introduction in promoting the new breakfast will ensure customers know about the new product. Define the Economic Theory and Show How You Can Determine the Profit-Maximizing Quantity. * Economic theory is a theory of commercial activities (such as the production and consumption of goods), (McConnell, Brue, & Flynn, 2009).
* Determining the profit-maximizing quantity requires and understanding the economic concept of marginal analysis. Marginal analysis is the study of incremental changes in profit. The quantity that maximizes profit is where marginal profit shifts from positive to negative (eHow.com, 2013). How Could You Use the Concepts of Marginal Costs and Marginal Revenue to Maximize Profits? What Information Do You Need to Determine This? Without This Information, How Would You Make a Decision? * Determine the profit at each level of sales. As sales increase, account for labor costs, quantity discounts, increased shortage (loss, theft and breakage) and other variable costs. * Determine the marginal profit at each incremental increase in sales. Marginal profit is defined as the change in profit for each additional unit sold.
* Determine the profit maximizing quantity. This is the point before marginal profit becomes negative. Why? It is likely that the more items sold, the higher variable costs are. Variable costs include labor, commissions, raw materials and shortage. In addition, when large quantities are sold to one party, a quantity discount is often given, resulting in lower per-unit revenue. * Determine where expenses could be lessened and revenue could be increased to optimize sales. Marginal analysis is not static (eHow.com, 2013). * [email protected] = $150, [email protected] = 250, [email protected] = $550, [email protected] = $500 -50 negative marginal profit. * Without this information, you are taking a guess on the decision causing potential risk. Pricing and Non-Pricing Strategies
* Price is one of the essential elements of the four P’s of marketing, which include price, promotion, place and product. * Research should be conducted in a number of areas including the customer market, competition and the life cycle of the product. * By examining each of these areas, McDonalds can develop a pricing strategy for its products and services. * McDonalds must find a way to attract their customers. The children’s portions will be smaller than regular portion so the price will be less. * The non-pricing strategy will be the new menu marketing options. Using children’s television and radio stations will help in this strategy. What Are the Barriers to Entry For Your Chosen Product? Can You Create or Increase Barriers to Entry? If so, how?
* Entry barriers are the result of competitive behavior by existing businesses within the marketplace. There is no limit to the barriers a particular business may face (eHow.com, 2013). * Barriers are McDonald’s competitors of the same market and right now the competition of a fast-food breakfast kid’s meal option is non-existent among the competition. * According to the current economic state of our country, credit borrowing from lenders will not be needed. * Costs of supplies will not be a barrier because the items are already a part of McDonald’s menu. Demand by customers will increase or decrease cost supplies during the implementation stages.
* McDonald’s internal countries will also help to increase profits. * Choosing long-term goals for competitors following McDonalds will eventually cause competition barriers. Consistent analysis of current market conditions will help McDonalds to continue a profit growth. Are There Other Ways to Minimize Costs for the Company or Product? * Analyze labor costs. Offering flexible work schedules, recognition, additional benefits and ongoing training can help retain employees. * Reduce supply costs. Supplies have two major categories–product materials and office supplies. Check multiple sources to ensure lowest cost. Research the use of the supplies. * Reduce operating expenses. Review electricity expense. Ideas such as this can have multiple benefits, including boosting employee retention, saving on utilities. (eHow.com, 2013). Conclusion
The above business proposal outline will help in defining what McDonalds would do when implementing the idea of adding a child’s happy meal to its menu. This proposal would help in achieving McDonald’s goals of quality food and customer service.