NEAR EAST UNIVERSITY
FACULTY OF ECONOMICS AND ADMINISTRATIVE
SCIENCES
DEPARTMENT OF BUSINESS ADMINISTRATIONS
MAN 400
BUSINESS POLICY AND GRADUATION PROJECT
,, TITLE: MARKETING ORIENTATION, MARKET SHARE
AND PROFITABLITY
PREPAIREDBY:M.OGUZAYATA
SUPERVISOR: AHMET ERTUGAN
STUDENT NUMBER: 990434
CONTENTS PAGE
TABLE OF FIGURES
LIST OF TABLES
ACKNOWLEDGEMENTS
ABSTRACT
I. INTRODUCTION
1.1. Problem Situation
1.2. Aim
I. 3. Methods
II. Marketing Orientation, Market Share and Profitability
III. CASE STUDIES
III.
I.
Description of Fast Food Industry
III.1.1. Total Global Market Size
III.1.2. Trends
III.1.3. Customer Wants and Needs
III.1.4. Effects of Globalization
III.1.5. Competition and Market Leaders
III.1.6. Pest Analysis
III.2. CASE STUDIES
III.2.1.
Mc
Donald's Corporation
III.2.2. Rainforest Cafe
1
2
2
3
4
9
11
11
12
12
13
14
••
17
18
20
20
III.2.3. Dave&Busters
III.2.4. Starbucks
IV. STATISTICAL ANALYSIS
IV.
1.
Marketing Concept
IV.2. Comparison
CONCLUSION
RECOMMENDATIONS
REFERENCES
APPENDIX
21
29
31
32
33
TABLE OF FIGURES
IV.2.1.
Mc Donald's Profitability Figure
IV.2.2. Dave
&
Busters Profitability Figure
IV.2.3.
Starbucks Company Profitability Figure
IV.2.4. Rainforest Cafe Profitability Figure
IV.3.
Market Share's of Selected Companies;
IV.4. Relation between Marketing Orientations
And Market Shares Of Companies
IV.5.
Relation between Profitability and Market
Shares of Companies
LIST OF TABLES
Table IV. I. Scientific Assessment Criteria
Table
IV.
I. 1. Marketing Orientation of the firms
Table IV.2. Comparison of the Companies and their
Performances
24
25
26
27
28
30
30
22
23
29
ACKNOWLEDGEMENTS
I would like to thank all my teachers who have invested in me for many
years with great patience and good will. I would like to extend a special
appreciation to
my
Supervisor Mr. Ahmet Ertugan who encouraged and advised
me on this project.
ABSTRACT
This project aimed to find out whether there is a link between marketing
orientation, market share and profitability.
Four well known organizations were evaluated first to find out their
approach to marketing. Than we looked into the market share and the profitability
of the restaurants. The findings were that the McDonald's was clearly identified
as the top marketing oriented organization. The other three were close to each
other, Dave&Busters was in the second place towards Mc Donald's, Starbuck's
fallowed Dave&Busters and the last one is the Rainforest Cafe.
The McDonald's is the outright number one in all aspects. In fact the
results were in relation. When listed one after the other the companies rankling in
the order of market share also had the same rank with the marketing orientation
and the profitability.
Our research was limited to only four companies. When there are only
limited companies under research there are chances that the results could change
when larger samples are used. To make a stronger point it is advisable to carry out
a research on many more companies. A difficulty with this project was that the
companies under focus were not exactly in the same line of work. There are slight
variations in the services that they give. Therefore it is also advisable that the
companies selected for the study should be well selected.
1
I. INTRODUCTION
Importance of marketing orientation is much discussed issue. It is generally
accepted that the firms need to be more marketing oriented in the competition run
economies where the customers are the "kings". Designing the products according to
the needs and wants of the consumers plays a big role in the success. Most of the
companies, before introducing new products and services, make extensive researches
to find out the needs and wants of the consumers. They then design their goods and
services accordingly. However to be marketing oriented has some costs. While some
firms just· produce their goods or design their services without any expenses the
marketing oriented firms need to get into expensive research projects and invest time
and money. The question is it worth it?
Although there are many studies on marketing and market orientation there is
little evidence about the relation of marketing orientation with the market share and
profitability. How well do the marketing oriented companies do compared to those
who care less about marketing? This study will try to develop some relationship and
provide information about the relation of marketing orientation market share and
profitability.
Four well known organizations will be evaluated first to find out their
approach to marketing. Hey will be ranked according to their marketing orientation.
Each company will be analyzed to find out their financial performance and
profitability. Then they will be compared to find out the correlation between the
marketing orientation and the market share and the profitability.
After the introduction the study will continue with a literature review. This
part wilJ give extensive information on the marketing orientation, market share and
profitability issues. Studies and works in this area will be evaluated. The next part of
the report will be about the industry. The industry under our focus is the fast food
industry. This is a fast growing industry throughout the world. There is also a fierce
competition in this industry. The report will be continued with the four selected
cases. After brief introduction of each organization their financial positions will be
evaluated. Financial evaluations will be carried out and after determining the
marketing orientation rate of each company there will be correlation analysis. The
study will end with a conclusion.
2
1.1. Problem Situation
There are many different ways to determine the reasons behind success and
failure. Organizations need to understand the real reasons behind successes of certain
companies in order to adopt certain strategies and be successful. One of the main
determinants of success is market share. To put simply, only successful companies
can build large market share. In addition, successful companies also have high
market share growth rate. One of the most popular portfolio concepts, "Boston
I
Matrix'', classifies companies with large market share in high growth markets as
stars. But the real question is to find out whether marketing orientation leads to high
market share and profitability.
Marketing of products and services may differ from company to company.
While some organizations are product oriented the others may be more customers
oriented. In the competition driven economies the consumers have greater say.
Consumer satisfaction has become a buzzword in the recent years. At the same time
companies need profits. The problem is how we can build a relationship between the
marketing approach, market share and profitability?
1.2. Aim
General belief is that the marketjng oriented firms are more successful and modem
marketing managers should focus on the customer in order to shape their products
and services accordingly. This project aims to find.
out whether there is a link
between marketing orientation, market share and profitability. There will be an
objective approach to identify the rate of marketing orientation of the firms and see
whether this necessarily has a positive effect on the market share and the
3
1.3. Methods
Method of the study will be to use case studies and the financial reports of
companies under our investigation. There will be three variables under investigation.
First there will be an investigation of the marketing orientation. This will be
performed by using the web sites of the organizations. The web sites give a good
idea about the approaches of the companies. A set of questions will be listed and see
how each company rate on these items. The second variable is the market share of
the companies. This will be determined by the figures provided in the cases and also
the web sites of the companies. The final variable is the profitability of the
companies. Profitability will be found by dividing the profit to the total revenues.
After the determination of three variables it will be possible to make arguments about
the problem question.
4
Il.
Marketing Orientation, Market Share and Profitability
In his essay "Marketing Myopia", Theodore Levitt (Levitt, 1960) suggests that it is
usually the fault of the top-level management that the companies get into the trouble.
He gives the example of the film companies of Hollywood after the introduction
television in the market. He explains that those who simply saw themselves as film-
makers had vanished but those who saw themselves as leisure businesses changed
shape and strategy and continued with their business. Some of the organization's
managements lack creativity and innovation. UsuaJJy
the circumstances may lead to
this. Problem free periods may decrease the need for imagination (Levitt, 1966, p.7).
For the relation between the market orientation and the market share Levitt puts
forward the Ford example. Recognizing the need of the consumer for low-priced cars
Ford managed to standardize automobile production and reduce the prices to such a
level that the consumption exploded and the Ford immensely increased its market
share (Levitt, 1960, p 11)
Doing business is not always straightforward. Opening a franchise in a new country
is not just selling hamburgers. In case of new McDonald's investments in Germany
for example meant teaching the Germans what hamburger is (Peters, 1982, p.241)
Buzzel and friends argue that the key for profitability is large size market share
(Buzzel, 1975, p.293). Argument follows that the big market share leads to economy
of scale and gives company a market power. But the essentiality of
good
management is also acknowledged (Buzzel, 1975, p.295).
Market attractiveness and competitive position have been identified by previous
conceptual and empirical work as major influences on organizational"performance.
Market attractiveness represents the long-run profit and growth potential for all
participants in an industry or market, while competitive position relates to the
strength of the organization relative to competition (Day 1984). The two variables
thus represent key aspects of both the external and internal environment for strategic
5
decisions. Market attractiveness and competitive position form the basis of most
contingency approaches to marketing strategy and have been included in previous
attempts to develop conceptually integrated models of business performance (Park
and Mason; 1990).
Although one can not convincingly argue that the marketing strategy variables
considered cover all aspects of marketing strategy, it is argued that they represent
crucial areas and serve as an adequate starting point for assessment of marketing
strategy-performance relationships. Boxer and Wensley (1986) identify three crucial
areas of marketing-related interaction between an organization and its external
environment: interaction between the organization and its competitors, interaction
between the organization and its customers, and interaction between the organization
and other parties in the organization's channel of distribution. Each of the five
marketing strategy variables considered here is focused on one of these areas of
interaction.
Aggressiveness is concerned with the interaction between an organization and its
competitors. The variable reflects degree of competitiveness (
or competitive posture)
in relations with competing organizations. Early PIMS studies (e.g., Buzzel, Gale,
and Sultan I 975), prescriptions grounded in the growth-share matrix (Boston
Consulting Group 1972), and Porter's (1980) generic cost leadership strategy
emphasize the importance of aggressiveness in seeking market share. This aggressive
or competitive orientation is often cast in military terms. Kotler and Achrol (1981),
for example, describe "attack strategies'' aimed at increasing market share.
Defensiveness, adaptability, and specialization focus on the interaction between an
organization and its customers. Defensiveness refers to the emphasis placed on
preserving current products and markets. Fornell and Wernerfelt (1988) indicate that
defensive marketing strategy involves reducing customer exit and product/brand
switching through switching barriers and customer satisfaction Defensiveness also
reflects the notion of "defense'; (Kotler and Achrol 198 1) and "hold" (Buzzel, Gale,
and Sultan 1975) strategies aimed at holding current customers and thereby
6
business attempts to identify and capitalize on emerging market opportunities. Thus,
it reflects the key dimension underlying the Miles and Snow (1978) strategic
typology (McKee, Varadarajan, and Pride 1989). Specialization reflects the extent to
which a business attempts to create a unique product (or set of products) that is
perceived by consumers as clearly superior in value. Specialization, generally termed
differentiation, has been suggested as a key strategy dimension in the marketing
(
Abell 1980
), business policy (Hall 1980
), and industrial organization economics
(Porter 1980) literature.
Cooperation is concerned with the interaction between an organization and other
parties in the organization's channel of distribution. The variable refers to an overall
coordinative posture in relations with other members of the marketing channel
system. Traditionally, marketing channels consisted of "highly fragmented networks
in which loosely aligned manufacturers, wholesalers, and retailers . . . bargained with
each other at arm's length, negotiated aggressively over terms of sale, and otherwise
behaved autonomously" (McCammon 1970, p. 43). Beginning in the 1950s, planned
vertical marketing systems, which strategically link various parts of the production
and marketing process, emerged and began to displace traditional marketing
channels. Cooperation reflects an organization's reliance on these systems.
One performance variable, profitability, is considered in this study. Conceptual and
empirical literature in marketing, business policy, and industrial organization
economics suggests that each environmental and marketing strategy variable is
positively related to an organization's profitability. This literature is summarized in
the following section, which also presents the research hypotheses.
The definitions and meanings of the term 'market orientation' as used by different
authors are somewhat diverse. Kohli and Jaworski (1990) and Narver and Slater
(1990), who led the research stream in the early 1990's, both developed appealing
definitions and measures of market orientation. Kohli and Jaworski (1990, p. 3)
found from extensive qualitative research that inter functional co-ordination should
be limited to 'coordination related to market intelligence'. The term market
7
information sharing equates closely to what Kohli, Jaworski and Kumar termed
'intelligence dissemination' (1993, p. 476).
Many other studies have adapted the original Narver and Slater (1990) and Kohli,
Jaworski and Kumar (19~3) instruments, (e.g. Pelham
&
Wilson 1996; Pelham
1997). Furthermore, the customer orientation component itself is viewed as having
two sub-components. The first relates to customer analysis, that is, a deliberate
emphasis on understanding customer needs and wants. The second is customer
responsiveness: responding to the information received about customer needs and
preferences. This view of the construct is similar to Pelham ( 1997) who used the
terms customer understanding and customer satisfaction orientations; as well as a
competitor orientation. As Gray, Matear, Bashoff & Matheson ( 1998) note, a
company should not only analyze customer needs and share that knowledge within
the organization, but must act on it.
It has been widely assumed for many years that market orientation is linked to better
company performance. The theoretical basis for this expected link was elucidated
early on by McKitterick ( 1958) who highlighted that in a competitive environment,
organizations must be highly cognizant and responsive to customer needs, or else
rivals will devise products more attuned to those needs and capture their business.
Narver and Slater (1990) explicated this view further, arguing that if there is a strong
market orientation within a business, there will be greater effort expended to offer
superior value to buyers, and so there will be a greater likelihood that superior value
will be offered. Therefore the highly market-oriented business will enjoy an
advantage over competition in the eyes of customers which will lead to better
profitability.
There are numerous published studies that have examined the association between
market orientation and company performance. The appendix provides a summary,
based on a literature search ofrelevant journals from 1990 to early 1999. There may
be other studies that this search did not yield, but the summary is comprehensive
enough to portray the general weight of evidence to date. From many studies,
majority found a direct positive association between market orientation and
8
performance. This body of research is a good example of how continual replication
in a particular area can help to develop reasonably robust empirical generalizations.
9
m.
CASE STUDIES
m.ı.
Description of Fast Food Industry
Fast food is becoming more and more popular. There are many reasons for
this. One important reason is that the levels of earnings are increasing and people are
prepared to spend more money on food. Instead of cooking at home they may get
food to their house and just eat it. Second reason behind this new trend is
standardization of food products. Many fast food chains such as McDonalds,
Kentucky, Pizza Hat and Pasta Villa, are making extensive research and make
products that the consumer enjoy eating. They have become very specialized and
produce food which is almost impossible to make at home. Another interesting
aspect is the cost of the food from the fast food chains. Since they deal with large
quantities, the costs are coming down. A similar food may cost a lot more if made at
home. So, why waste time for cooking at home, one can just telephone and order any
kind of food they like. The fast food chains are now getting more and more
specialized with fast delivery systems. The basic aim is to deliver fast. The home
delivery is not limited to only fast food chains, even the small Chinese restaurants are
making deliveries at home.
Fast food industry is so common place in today's modem life because the
number of working people increases. Economic conditions force people to work, to
earn money for a good future. ~o, this directs people to eat outside. And, to save
time, they prefer to fast food industry. Fast food industry is an attractive market,
'
there are too many customers and products are standardized. Because market is still
growing, sales are high and the companies enjoy the high sales and high profits. Also
customers have many alternatives to go to eat, so the switching cost is high. This
makes market alternative. But in some conditions, the market is unattractive such as
strong competition, huge competitors, many substitute products etc. Although there
are some conditions which make the market unattractive, there are huge numbers of
fast food restaurant. And new restaurant are opening at faster pace than any other
industry.
10
The single largest segment in terms of profits in franchising is the consumer
retail business selling food. With the growth of franchise operations, there has been a
marked tendency on the part of small business owners to become part of a larger
franchise operation. Many originally small individual enterprises have become parts
of a national franchise by entering franchise agreements.
The key of success for fast food is in their secret recipes. All the fast food
organizations make many scientific research and tests to make the most delicious
meals for their customers.
Fast foods are the "Convenient Meals", serving customers delicious, already
prepared complete family meals, sandwiches and snacks at affordable prices.
KFC is a good example for a franchise business. They have franchise
organizations all over the world. Franchise arrangements are characterized by a
contractual relationship between a franchiser (a manufacturer, wholesaler, or service
organization) and franchisees (independent entrepreneurs who purchase the right to
own and operate any number of units in the franchise systems). Typified by a unique
product, service, business method, trade name, or patent, franchises have been
prominent in many industries, including fast foods, video stores, health and fitness
centers, hair salons, auto rentals, motels, and travel agencies.
Pricing of the fast food products depends on the costs and location of each
individual restaurant. While the prices of the products are similar within a country,
the prices may vary from state to state. The important idea behind pricing is to first
make profit and the second, be competitive. The pricing of the fast food products are
'
usually done in such a way that is more value for given amount of money in
comparison with other fast food. It is also a sensible alternative for home cooking.
The products are only a little more expensive than cooking home. The reason for this
is the volume of business. Since the volume is very high the costs are lower.
Suppliers are in fierce competition to supply their products to fast food chains.
Fast food chains use advertisements as part of their promotional activity.
They are all symbolized by a symbol, in the case of Kentucky for example the name
of the Colonel, and the expression "finger licking good". This expression goes down
11
very well in every language. KFC advertise in the public places and recently they
started to sponsor sports activities and races.
When they are launching a new product they make big news about it.
Fast food has become an important par of the modern life. They are specialist
in their fields. They have cooking, preparing, serving and distribution of their own
styles. First of all they give the impression that the place is modern and clean.
Everybody can trust their products.
They have menus that are very practical, easy to follow and nice to look at.
Fast food chains serve to all kinds of people. There are cases when the children are
more enthusiasts, but usually people at all age make use of the fast foods.
One recent development art this sector is serving to homes. Hot meals are delivered
at very short notice
m.ı.ı.
Total Global Market Size
Birth place of the franchise fast-food business is the United States. With the
1996 figures the market size of the fast food was around 800 billion dollars. The
sector employed about 8 million people. The sector is growing at a rate of around 55
every year. Although there is lack of information about the global market size it can
be estimated to be around 3 trillion dollars.
m.1.2.
Trends
The US fast food market is at a point of saturation. There are many businesses
competing in this market. The growth rate was above 7% in the years prior to the
1994 but this has dropped below 55 in the recent years. There is no more room for
improvement. The only way for the fast food companies to grow is to exploit the new
foreign markets. This is what many companies are doing. The United States is the
motherland of the fast food business. It is clear that for a company to become a
multinational enterprise there is a need for a competitive sector at the home country.
Fast food is becoming more and more popular in every part of the world. There are
many reasons for this. One important reason is that the levels of earnings are
12
at home they may get food to their house and just eat it. Second reason behind this
new trend is standardization of food products. Many fast food chains such as
McDonalds, Kentucky, Pizza Hat and Pasta Villa, are making extensive research and
make products that the consumer enjoy eating. They have become very specialized
and produce food which is almost impossible to make at home. Another interesting
aspect is the cost of the food from the fast food chains. Since they deal with large
quantities, the costs are coming down. A similar food may cost a lot more if made at
home. So, why waste time for cooking at home, one can just telephone and order any
kind of food they like. The fast food chains are now getting more and more
specialized with fast delivery systems. The basic aim is to deliver fast. The home
delivery is not limited to only fast food chains, even the small Chinese restaurants are
making deliveries at home. The key of success for fast food is in their secret recipes.
All the fast food organizations make many scientific research and tests to make the
most delicious meals for their customers.
nı.ı.s,
Customer Wants Needs
There is an important change in the lifestyles of the consumer. More and
more people are taking part in the working life with less time at home for cooking.
Additionally people are earning more money and hence they have greater ability to
spend on ready food rather than to cook at home. Another breakthrough is in the
communications technology. People are more aware about the developments in the
other parts of the world. People being more aware about the trends in the countries
increase the demand for similar services at each country.
Basic needs of the consumers are fast and standardized food that they can
tract for hygiene, quality and value. They also need these services as fast as possible.
m.ı.4.
Effects of Globalization
Globalization is in progress. Most important development in this field is
increased communications. By the developments in the communications people are
more aware about the developments around the world. And being aware people have
bigger expectations. Opportunities existed for quality, clean, quick, and value for
13
money restaurants. Many fast food chains identified this opportunity and made the
right investment at the right time. Same opportunities existed in many parts of the
world. The success of the firm is identifying the opportunities and using them.
Threat came from the new entries to the market. There are many big hamburger
restaurants with similar services, and the entry into this market is relatively easy.
cDonald's avoided the threat of competition from the other companies by
differentiating their products and services. They built an image for cleanliness,
quality and fast service. They also proved themselves in many other parts of the
world. They face threats from the local producers. For example in Japan they are
competed by the fast sushi. Being flexible helped the firm to get rid of the threats.
They allowed local McDonald's restaurants to make products according to the local
needs and traditions.
Europeans are known to be people that spend a long time around the eating
table. May be it was natural to think that the fast food was not something for the
Europeans. But another truth about the Europeans is that they are in lack oftime.
Everybody is in a rush to do something. McDonalds is a fast food, but this does not
mean that you have to eat fast. The restaurant is arranged in such a way, in Europe
that people can take their children into. They were the first restaurants to allow
children into the restaurants. It was not allowing but also encouraging. They usually
give presents for the children. They usually have special packages to the children.
For the children and young people, going to McDonald's is a fun. This is a strategy of
McDonald's.
~
ID.1.5. Competition and Market Leaders
Fast-Food business is relatively easy and less expensive business type that
can be entered. Start up franchising fee for McDonalds is $45,000 this is much lower
for other chains, for example the similar fee for domino Pizzas is about $1,000. Due
to ease of setting up a fast food there is an intense competition in this sector. In the
international arena the competition is even worse since there are many local
traditional stores with local menus. In Turkey for example there are many small
sandwich stores and kofte restaurants that are traditional alternatives. McDonald's
Corp. dominates the landscape with about 12,000 U.S. restaurants and more than
14
20,000 worldwide. But in spite of a new menu, its U.S. same-store sales, measuring
· sales from restaurants open at least a year, have been shrinking.
This will be their sixth consecutive quarter of lower comps (same store sales)
in the U.S. Wendy's International Inc., on the other hand, has seen U.S. same store
sales rise 5 percent to 6 percent in the fourth quarter, following an 8 percent gain in
the third quarter. Burger King, a unit of Grand Metropolitan Pk, said its U.S. same
store sales rose 2.6 percent for fiscal 1996 ended Sept. 30.
Burger King had 8,696 restaurants worldwide at the end of fiscal 1996,
including more than 6,600 in the United States.
At this point, Wendy's may have the most significant new product offering in
1997, fresh pita sandwiches containing grilled chicken and salads. They are being
tested in 11 U.S. markets and may be rolled out nationally next year. In 1996,
McDonald's stole the menu spotlight by introducing its Arch Deluxe hamburger,
garnished with lettuce, tomato and a mustard-mayonnaise sauce, as well new chicken
and fish deluxe sandwiches.
In spite of those new menu items, McDonald's same store sales continue to
show declines compared with a year ago.
McDonald's U.S. same store sales were down in the first nine months of 1996
but declined to comment on the fourth quarter.
Looking ahead, the most significant event for McDonald's likely will be the
start of its IO-year exclusive marketing alliance with Walt Disney Co. That alliance
gives McDonald's exclusive rights to marketing tie-ins, such as toy giveaways, to
Disney movies.
m.ı.6.
PEST Analysis
1 Political Situation
USA is politically very stable country. There is little interference with the
economy and free enterprises are supported to grow and flourish in this country. The
politics of the USA has little influence on the economy. Federal governments at the
state level have great autonomy. The United States is geographically one of the
world's largest countries, and it is the third most populous (after China and India).
15
The 50 states are blessed with a variety of resources that provide the basis for a
highly productive economy--in fact; the United States is the world's wealthiest
nation. For most of the 20th century the country has enjoyed economic superiority,
particularly during the post-World War II era. Yet the population, per-capita wealth,
and general welfare are unevenly distributed, with affiuent areas often contiguous
with areas of poverty. Beginning in the 19?0s the United States faced economic
difficulties brought on by a high foreign trade deficit, the declining value of the
dollar abroad, high governmental spending, and inflation. In the 1980s, inflation was
brought under control, and tax-cutting stimulated economic expansion in some
sectors. The trade deficit remained, however, and the national debt burgeoned. To
address the issue of deficit spending, Congress in I 993 passed a budget combining
tax increases and spending cuts. That same year a recovery was under way from a
national recession that began in 1990, although economic restructuring eliminated
much new job creation. Stressed by economic and social issues not easily resolved,
voters in 1994 elected a Republican majority to both houses of Congress for the first
time in 40 years.
ı.
2 Economies
USA is a leader country in the world economy. By the early 1990s the gross
national product (GNP) of the United States reached about $6 trillion, the highest in
the world. The per-capita income of more than $23,000 is also among the worlds
highest.
-Agriculture, fishing, and forestry together employ less than 3% of the total
labor force and contribute about 2% of the GNP. The leading crops, in order of
value, are com, soybeans, wheat, cotton, hay, tobacco, potatoes, peanuts, sorghum,
and rice. Most livestock is produced in the West and Midwest. The United States is
the world's leading producer of soybeans and com and among the leading producers
of meat, wheat, and tobacco.
Almost one-fifth of the labor force is engaged in manufacturing, and industry
contributes about the same proportion to the GNP. In the early I 990s the value added
by manufacturing was more than $1 trillion. The leading industries in terms of value
are transportation equipment, electric and electronic machinery, food and related
16
products, industrial machinery and equipment, chemicals, fabricated metal products,
paper and related products, instruments and related products, primary metals,
petroleum and coal products, and rubber and plastic products. Large corporations
I
dominate the U.S. manufacturing sector; in 1991 the 100 largest industrial concerns
held 75% of manufacturing assets. The United States is a world leader in production
and export of various types of machinery, including office and telecommunication
equipment; of transportation equipment, such as automobiles; of industrial raw
materials; and of chemicals.
3. Society and the Social Conditions
There are many ethnically different communities living in harmony in the
USA. Due to the high income people have good buying power. It is said that the
Americans spend only 11% of their income on food. This means that they can easily
afford to eat outside. Due to their culture and fast life style, that lives them little time
to spend in their kitchen, the Americans mainly dine at the restaurants. The fast food
restaurants are a great part of their lives. More recently the Americans are ordering
their fast food meals such as Pizza, Chicken and Hamburgers to their home.
4.
Technology
The USA is one of the most advanced countries in technology. After all this is
the country most advanced in the space technology. USA is producers of most
advanced equipment machinesy and tools in the world. They are actually exporters of
technology. Many important technology devices are either imported from the USA or
produced under patent of USA firms.
Apart from physical technology, the USA is also very advanced in the fields such as
management techniques. Their new ways to approach to management and
17
ID.2. Case Studies
ID.2.1. McDonald's Corporation
McDonald's Corporation is the most well known fast food industry all around
the world. The Group's principal activities are the development and operation of
franchises and services within a worldwide system of restaurants. These restaurants
prepare, assemble, package and sell a limited menu of value-priced foods. The
restaurants are operated by the Group or by franchisees, that are independent third
parties or by affiliates operating under joint-venture agreements between the Group
and local business people. Major trademarks include McDonald's, Ronald McDonald
and Big Mac. The Group operates primarily in the quick-services hamburger
restaurant business. In addition, the Group also operates other restaurant concepts
like Aroma Cafe, a small chain of coffeehouses. Company-operated restaurants
accounted for 74% of 1998 revenues and franchised and affiliated restaurants, 26%.
McDonald's is a very customer oriented organization since they develop their
products always the customers in mind. More than that they make convenient
arrangements so that their customers can obtain their products at any place. To
satisfy consumer desires, the fast-food industry has set its sights on unusual places
such as gas stations and convenience stores. Fast-food chains are focusing on
developing their growth strategies on these companies for several reasons. First, gas
stations occupy excellent locations. One industry expert commented "Let's face it,
the petroleum companies own most of the best comers
Another desirable aspect of gas stations and convenience stores is their ability
to generate high consumer traffic throughout the day. It is rare for even the largest
restaurant site to consistently generate that much traffic. Another attraction is the
reduction in plant, property, and equipment costs. Sharing property and facility costs
can be advantageous to both parties. In most cases, the site requires only
modifications to an existing building, rather than building a brand new facility.
In 1994 McDonalds's opened its first trial restaurant in Wal-Mart; it now has more
than 800 Wal-Mart locations nationwide. McDonald's now has operations in
hospitals, airports, shopping malls, riverboats, military bases, ski lodges, theme
parks, race tracks, casinos, and museums.
18
Alternative retail sites are not even strategy limited to fast-food chains
anymore. The trend has expanded to include retail stores such as The Body Shop,
Sunglass Hut, Starbucks, Disney, and Au Bon Pain. Airports have seen the biggest
growth in this market; they are expected to see even more.
When we look into the USA market we can see that the market share of
McDonald's is changing from time to time. As first company of its kind they had
very large market share at the beginning. There market share in 1981 was 40 percent.
After many other similar restaurants were opened the market shares in 1991 dropped
to 28 percent. However clever strategies brought up the market share in the States to
50 percent in 1995 which is very high.
McDonald's is a very profitable and high revenue company. When we look at
theglobalrevenuesin1996itwasl0.7,
this increased to 11.4 in 1997, to
and 12.4 in 1998
1m.2.2. Rainforest Cafe
The Rainforest Cafe has positioned itself in the themed restaurant niche. This
niche has two distinct types of restaurants; passively themed restaurants and
aggressively themed restaurants. Examples of passively themed restaurants include
the Olive Garden, Red Lobster, and the Outback Steakhouse. Examples of
aggressively themed restaurants include the Hard-Rock Cafe, Planet Hollywood, and
the Official All-Star Cafe. Consumers seem to enjoy the complete experience of
themed restaurants. These experiences include good food, great entertainment, and a
retail store all in the same location.
The restaurant industry has, in general, reached the mature stage of the
business cycle. The theme restaurant industry is still in the growth cycle. The
increased number of mergers and acquisitions are indicators of a mature industry.
When there are fewer opportunities for physical expansion and increased competition
within the industry, more consolidation is expected. The Rainforest Cafe and other
1
19
theme restaurants have avoided the major industry trend-by concentrating on a niche
that still has enormous potential for growth. The trend toward theme restaurants
appears to be continuing as people expect more from their eating experience.
The Rainforest Cafe is also market oriented company. They are well aware
that the complete entertainment experiences have become more prevalent as the
consumer demands more from every activity, including eating. With the increased
number of players in the theme restaurant business, it is important to have first
mover advantage. The Rainforest Cafe has laid the ground-work to obtain and
maintain this advantage. As long as Rainforest Cafe continues to stay one step ahead
of the competition, success should continue. Like the Hard-Rock Cafe, the Rainforest
Cafe must develop a following of loyal customers to buffer the inevitable changes in
consumer tastes and desires.
Rainforest Cafe has been outperforming the competition in the industry. Its
table turnover ratio is seven times per day, twice that of the themed restaurant
industry average. Rainforest cafe can potentially serve twice the number of people
and meals than the competition, leading to substantially larger sales and profits on
the investment. The increase in table turnover is due partly to the technology that
Rainforest Cafe utilizes.
Rainforest Cafe is in a class with two largest theme restaurant chains: Hard
Rock Cafe and Planet Hollywood. Hard Rock Cafe has annual sales of $400 million
with approximately 70 restaurants in 20 countries. Planet Hollywood reports annual
sales of $373million with 55 restaurants around the world. With only six units open,
Rainforest Cafe had over $48 million in sales.
Rainforest is not yet a multination. Their basic operations are'in theUSA. All
the following details are at corporate level. Rainforest Cafe future restaurant units
range in size from 300 seats to more than 400. Comparatively; Planet Hollywood has
seating capacities ranging from 150 to 650 seats and Hard Rock Cafe's are slightly
smaller. The average check per person at Planet Hollywood is approximately $16 per
person at Hard Rock Cafe; it is $12 per person. Comparatively, Rainforest
Cate's
average check is $13. Hard Rock Cafe has annual sales of $10.8 million (including
food, drinks and merchandise), compared with Planet Hollywood's $14.3 million in
annual sales. Rainforest Cafe has annual sales of approximately $8 million.
20
ID.2.3. Dave and Buster's
Dave and buster's targets adults between the ages of 21 and 50 and
discourages children and teenagers by requiring them to be accompanied by an adult.
The concept has been successful so far.
Dave and buster's is not merely a place to eat; it is also a place to have a drink
and to be entertained among the video games, simulated casino tables, karaoke
stations, simulated golfgames and even bowling lines. The target age group of 21 to
50 years olds seems to find the mix of entertainment and food attractive.
D&B's success is also attributable to the hosting of corporate private parties.
To facilitate, banquet rooms are equipped with audiovisual equipment for
presentations. The locations are appealing to corporate organizers because after
functions, entertainment is immediately available. Birthdays, high school reunions,
bachelor parties, and the like are also held in these rooms. Group business also adds
volume to soft periods in the business cycle.
Turnover of the company at corporate level in the USA in 1995 was 47 million,
in 1996 50 million dollars, in 1997 90million, in 1998 130 million and finally in
1999 180 million dollars. Gross profits in the same years were 40, 41, 70, 101 and
145 respectively.
The company has achieved steady increase in both sales and gross profits.
The average increases are about 50 million dollars every year. Since there are many
more places where new businesses can be opened, the company has a good chance of
increasing their sales and profits even more.
ID.2.4. Starbucks
Starbucks is classified as a member of the restaurant industry, which includes
restaurants, bars, and other way-from-home dining facilities. The restaurant industry
is relying on continued economic expansion, low unemployment, and low inflation to
continue to boost its sales. High consumer confidence is the key ingredient to
21
restaurants are streamlining their menus and offering less in the way of new
products.
It is predicted that the Starbucks wiJl remain a leader in earnings growth for
its industry. Starbuck' s growth is very fast. The annual growth rate for sales, net
income, and earnings per share is 6
I
.1, 75. 3, and 56.5.
The typical Starbucks customer is one who thinks of himself or herself or as
more discriminating and willing to spend more money for a quality product. These
customers do not consume large amounts of coffee and are therefore able to qualify
why they entitled to a good coffee product. To maintain this quality image Starbucks
has entered into several joint ventures or strategic alliances with domestic and
foreign companies to develop and market product ranging from coffee to coffee ice
cream. So
tar,
the company has yet to derive any profits from these joint ventures.
Two investments do appear to be promising. The first is an alliance with PepsiCo for
the development of a line of coffee-based bottled beverages sold through grocery
stores. The second is with Dreyer' s Ice Cream for coffee ice cream.
IV. STATISTICAL ANALYSIS
IV.1. Marketing Concept
One way of determining the marketing orientation of an organization is to
visit their web sites and see how they appeal to the browsers. Web sites usuaUy
demonstrate the organizations approach to marketing. It's easily understood whether
a company is marketing oriented or sales oriented. A market oriented company gives
only information above interests to the consumer. For example instead of saying how
'
good their products are they stayed the benefits that the consumers will get from their
products. Instead of boosting about the numbers of their business units attempt to
help the consumers to locate the most appropriate store near them. To find out which
of the four companies from our inspection is more market oriented I prepared nine
I
questions to be answered by visiting their web sites'. I checked the web sites to see
whether they have information about the nine questions, namely; Product Benefits,
Retail Locator, Multiple Languages, Multiple targets for Gender; Multiple targets for
2
22
Age, Societal Marketing Concept, Customer Feedback, and Non Product
Information.
Scientific Assessment Criteria
Companies were evaluated at each heading with points ranging from 1 to 5. 1
is the lowest mark and 5 is the top mark. Following criteria was used to make it fair
and scientific measurements. Web pages were researched and the following aspects
were checked. 1 point was given for the each feature at the internet web page.
Item
I
2
3·
4
5
Product
Product
Menu option
Information
Search option
Information
Benefits
option at tlıe
about new
about tlıe
main page
dishes
benefits
Retail Locator
List of
Restaurant
Search option
Country
Locator at
restaurants
locator
selection
different
option
languages
Multiple
Good English
Easy to
Man menu at
Select country
Each country
Languages
understand
different
option
uses their own
languages
languages
Multiple
No bias in
Equal
No
Press releases
Global Appeal
targets:
gender
treatment for
discrimination
Gender
different
on income
segments
level
Multiple
Appeal for
Appeal for
Young
Middle age
All family
targets: Age
kids
Youth
married
Societal
Careers option
New release
Fund raising
Use of
Social
marketing
on social
.
Recycle
'responsibility
concept
issues
page
Customer
Information to
Information to
Clear address
Survey on tlıe
Option to
feedback
customer
the
and links
net
feedback
shareholders
Non Product
Information
What's new"
Social issues
News releases
Reports
Information
about the
option
'
company
Fun To Surf?
color
Images
Use of
links
Games
23
Table IV. 1 .1: Marketing O ·
-
f the fi
3Benefit
MCDONALDS
RAINFOREST
STARBUCKS
DA VE&BUSTERS
Product Benefits
4
2
2
3Retail Locator
5
2
3
4
Multiple Languages
5
1
34
Multiple targets: Gender
4
3
34
Multiple targets: Age
5
3
3
3
Societal marketing concept
42
3
4Customer feedback
5
5
5
5Non Product Information
4
Q2
3
Fun To Surf?
5
2
3
4lfwe look out the questions that I searched; for Product benefits,
Each topic was voted between 1 and 5 points. The best performer gets 5 points and
the worst gets 1 point. At the end I added up all the points that each firm received.
As it can be seen from the chart Mc Donald's was clearly identified as the top
marketing oriented organisation.The other three were closed in each other,
Dave&Busters was in the second place towards Mc Donald's ,Starbuck's fallowed
Dave&Busters and the last one is the Rainforest Cafe.
3
24
IV.2. Graphs
Following are the profitability study of the each company. In order to find the
profitability the following formula was use.
Profitability= Net Income I Total Assets
Net Income and Total Assets were taken from the corporate level for each company.
Therefore it includes the local activities and also the international activities if there
are any.
IV.2.1. Mc Donald's Profitability Figure;
Period
N-
-
-
Bndiııa
o
o
o
o
o
o
o
o
(maaıı.)
N~ N~ N N-
M•
-
Mo~
Mo~
Ma
()g.
ı::: Q).=?
::g
o
o:
As it can be seen from the above graph there are some variations in the profitability
of the McDonald's. While it was nearly 5 percent in June 2001 it grew to more than
8 in the later months in this year. The drop in the profitability in September is most
probably due to the terrorist attacks on the twin tower.
25
IV.2.2. Dave & Busters Profitability Figure;
8
7
6
5
4
3
2
1
Period
N-
...
-
Bııdiııı
o
o
o
o
(ıııaııdıı)
o
o
o
o
~-
N., N N...•
•....•
ô
o~
('f') M ('f') ('f')a
(,Jfr
§
(I)~
o
rJ)....•
Dave Buster is much lower at the profitability ratio than the McDonald's. When the
same period is evaluated the profitability ranges from 1.83 to 2.37. These are low
profits. The same trend is applicable for this company as well and there is an
exceptional low profitability in 2001 September.
26
IV.2.3. Starbucks Company Profitability Figure;
8
7
6
5
4
3
2
I
tmtf>)Wt'?E?T?TZ IIM9ii:W5FIMffllPf" Et İ£ t;ıntN-FfYWMfI . .,,, PslodN
...
•....
...
Bndiııa
o
o
o
o
o
o
o
o
(mcmt:lM)
N,_ N N N...
•....
OAci
M M M Mta
s
c,
(I)C:
~
~
o
r:.n
Profitability of the Starbucks is also very low. Considering the same period the
profitability ranges from 1.33 to 2.06.
27
IV.2.4. Rainforest Cafe Profitability Figure;
J?eırıioo
§
-
...
...
JEndlwg8
8
oo (moınıt.hs) c--ı_ c--ı_ c--ı_ c--ı_•...•
-
o o....,
•....
...,
f')~
~
rrıfr
]
IV.3. Market Share's of Selected Companies;
28
Other
42%
Raınforest
5%
Starbucks
7%
McDonald's
36%
Dave&Buster
10%
31.03.2002 reports were used for preparation of the graph.
Since some of these companies do not function in global markets the USA market
has been taken to compare them. Total market is the total of the revenues of the four
companies plus the other 42% of the similar organizations. Comparing the four
companies in respect of their market shares we can see clearly that the market share
of McDonald's is far much hi~her than the rest of them. McDonald's share is 36% of
the whole market. Second biggest share is the Dave&Busters with l 0%. Starbucks
follow by 7% and the Rainforest is the last one with 5%.
29
IV.2 Comparison
Following table shows all the results together. As it can be seen the
McDonald's is the outright number one in all aspects. In fact the results were in
relation. When listed one after the other the companies rankling in the order of
market share also had the same rank with the marketing orientation and the
profitability.
Table IV. 2 Comparison of the Companies and their performances
Company
Marketing
Profitability
Market Share
Orientation
McDonalds
41
8.76
36
D&B
34
2.37
10
~
Starbucks
27
2.06
7
Rainforest
22
2.01
5
30
IV.4. Relation Between Marketing Orientation And Market Shares Of
Companies
Matmıt-
(II)35
30
25
20
15
10
5
o
22
27
afdııbı
As we can see from the diagram the when market share of the companies decreases,
market orientation ranges also decreases.
IV.5. Relation Between Profıtablity And Market Shares Of Companies
Pmfifıblity
10
98
7
6
5
43
2
1
o
5
7
10
36
As we can see from the diagram when the profıtablity of the companies decreases,
market share percentages also decreases.March 31,2002 Income statements of the
companies used when prepairing the profıtablity degrees.(Profıtablity
=
Net Income I
Total Assets)
31
CONCLUSION
The aim of the study was to find out the relationship between the marketing
orientation, market share and profitability. Findings confirm that the company which
is the most marketing oriented also had the highest market share in the market. The
same company also was the most profitable organization. McDonald's is clearly the
leader in all aspects. They are rated as the most marketing oriented company among
the other. Out of fifty points they received 41 points. The McDonald's holds 36% of
the fast food industry and their profitability is 8. 76. The second most marketing
oriented company is the D&B which is also second in profitability and market share.
The third most marker oriented company is the Starbucks which is also third in the
profitability and market share. The last company is the Rainforest in the marketing
orientation and this company is also last in the profitability and market share.
Marketing should be accepted as a business philosophy. In short is the
philosophy that gives the highest priority to the consumers. Marketing concept in
.this perspective is effective, efficient, and economic marketing. It emphasizes
customer orientation and coordination of marketing activities to achieve the
organization's performance objectives.
The marketing concept should be based on three fundamental beliefs; firstly
all planning and operations should be customer-oriented. That is, the organization
and its employees should be focused on determining and satisfying customer's needs.
Secondly all marketing activities in an organization should be coordinated. In reality
"'
this belief means that marketing efforts (such as advertising, product planning, and
pricing) should be combined in a coherent and consistent way and that one executive
should have overall authority for the complete set of marketing activities. Finally the
customer-oriented, coordinated marketing is essential to achieve the organization's
performance objectives.
This study proves that the marketing orientation is not waste of resources.
More customer oriented organizations tend to have larger market share and higher
profits. However the resources of every organization must be very well organized.
The critical approach in marketing orientation is to develop a philosophy rather than
allocate funds for research and other activities.
32
RECOMMENDATIONS
Our research was limited to only four companies. When there are only limited
companies under research there are chances that the results could change when larger
samples are used. To make a stronger point it is advisable to carry out a research on
many more companies. A difficulty with this project was that the companies under
focus were not exactly in the same line of work. There are slight variations in the
services that they give. There for it is also advisable that the companies selected for
the study should be well selected.
An argument against this finding can be put forward. In case of McDonald's
it can be claimed that it is far the biggest company with much larger resources.
Therefore it can be said that the company with more resources are able to invest
more in becoming marketing orientation. Therefore a chicken and egg situation can
be argued. Does marketing orientation make a company to grow or do the bigger
companies have better chanceto be marketing oriented? Another research can be
done to evaluate the trends of the company's marketing orientation progress. It can
be evaluated to see the relationship between the marketing orientation of the firms
and their profitability right from their establishments.
REFERENCES
33
1) Walker, Bruce C, William C.Stanton, Michael C. Etzel.Fundamentals of Marketing.USA:
Millennium Edition, 1994.
2) Cotler, Philip.Marketıng Management, USA: New Jersey Press, 2000.
3) Baker, Michael C .The Marketing Book, England: Bristol Press, 1999.
4) Levitt, Theodore. Marketing Myopia, England, 1960.
5) Peters, Thomas J. In Search of Excellence, Chapter I.Harper and Row,
1982.
6) Buzzel, Robert D. Harvard Business Review.' Market Share-A Key to Profitability', 1975.
7) Seyidoğlu, Halil.Bilimsel Araştırma ve Yazma El Kitabı, Istanbul: Güzem Yayınlan,
2000.
8) www.mcdonalds.com
9) www.daveandbusters.com
10) www.raınforestcafe.com
I 1) www.starbucks.com
12)www.dfwmusıc.com/fastfood
13) www.yahoo.com/finance
APPENDIX l
MC DONALD'S
I'
ii
-rıess .'itıırıııı;ıı v
Jona Id's ( ·, npo,aı ion , ·pc, n ı, .., in ıı,,. Ii ıod sen ice i ndıı.sı, ,, pnlıı;ıı ;ı, """' , ı i ng cııı ick
cc , csı,,,,, "nı busi ıı,·s·«·s ıı," le, ı hc-
,\icDoı,;ı Id's /ı, ,11,d These , csı,,," n nı ,, ,,., ve a varied,
_, ·nı i ı ed. va I uqı, iced ,,,,. "" in I.> I rn, n,ı cic, a, oıı nd ı he
o"'
Id ~
k
I >onn ı,ı· s menu includes
ıhucgc,s ;rnd clıccscln11cc,,
Ilic •\Inc. <)uaree, l'nunde,
oiıh nc,·se
Fil,·ı (),Fis/, and
cea I clıicl. ,.,n "'nd wic ı ,, .. ,. ('III c I. en •\ le Nuggcl s. frenci, Ii ies. sa l«ds. , ni Ik ,,h;ıl. es, Mc Fl1111y
'Cris, ,,, nd;ıes and so
fi-sc,
ve '<ones p ics, cookies a nd S<ı
fi
d ri nb ;ı
n,I
«11
w,
heveıages
In
.. ion, (/ıe resı n ur;ı ııts ''1·11 ;ı "" i ,., v
o/'oı /ıe, po,du cıs du, i ııg Ii nı i ı cd- Ii nw ı•rnnıotioııs
'Os
i matcly 80% of
'1,
I ı,,n,d d's ,c,, ı ,,, ,ra,,ıs and more
ti""'
C!O",
o ı· ı /w S,
qen ıwid
c
sııles
Oona Id's rcstı1tır:ı nı, "' ,, i,, cig l,ı , "" ket.s · \ u st r:ı Ii a.
rı
,;ı ,; 1. Ca nc,,h
I rn 11cc, Gerınn ny,
--,ı,
tlıe
Urıitcd
Kirıg.J<,1
11 nııd ıhel
lııiıcd States--!lcİc1I
Suııınınry
M cOoıı;, Id's Corp
, I,:, cl,
'J'S,
np,•,«les, Ii a nc/ı i ses a11d sm
i
ce.s " ,.,,., 1,1, ·· ide
svsremof
<rants w/ı ic/ı p,eparı>, ;ısseoı
ı,
k.
I "H•knge and sell a Ii mi I ed menu o /', "ı ,,c · priced
foods
'he three nıonı hs ended
.1/1
I
/it
2, Int :ı/ ı·evenues rose 2% to $3 6 bi II io, ı Net iııcoıne bel(,re
nting cha ııge fell 7% to
ı::
SI. 7 nı i II ion Revenues
benefited
froıı, "'""na
ııt espıınsioıı
'troııg Eucopean
perIi''
ma
n•.c.Net
inconıe was oflseı
hy
Hı
ini/1
i,",
inwccet imııa i rmen ı
lncorrıe staıenıcrıı
ı'\'1:ır 3
ı,
2002
Dec 31, 2001
Sep 30, 200 I
.J mı
30, 200
J
:SJ,597,400,000
$J,
nı,soo,ooo
$3,879_,Joo,ooo
$3,GS-5,900,000
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I
2,300,000 $2,629,900,000
$2,64~1,200.000 $2,539,500,000
$1JJ85,IOOJ)OO
$1,141,600,000
$1,235,100,()()()
$/,/tl6,400,000
NIA
NIA
N/,ı\
NIA.
ing General Arıd$4,J3,800, ()()()
$490,800,000
$4 5 6.
Ii()(),()()()$373,900,000
rative Expenses loN/A
$200,000,000
NI;\
NIA
' ı\J/,\($31,900,00())
$.l 1, ()()()_(){)()
Nlı\
.ıc;
I I, 100.
fl()()$'1R2, 700,000
$7
%,
(i()(I_ ()( }()$772,500,000
her Income And
($/
UlOOJJOO)
($9,400.000)
.ı
ı
14,500.()()()
( $
ı,
700,000)
es Net s Before Interest$6'.:/>. "()()_
0(1(/$'-173,
300,000
$861. I
nn,rınu
$770,800,000
Expense $('.?, 3 ()(). ( )()()
i/OJ,800,000
$I l O, WO,
UO()$
I 17, l 00,000
_ Before Tax