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McDonalds: How badly do you want fries with that?
February 26, 2009, 8:34 pm
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McDonald’s has caused a furore – not because they’re killing us this time, although they’re still doing that – for their new pricing strategy.

When deciding their prices for the new year, the company will be suggesting to its franchisees a demand-based increase.

It’s simple: if your store has higher demand, your prices will increase more.

From the ‘leaked document’ this will mean that generally prices will rise in low-income areas and

They seem to be calling this a ‘price optimisation strategy’. (See their recent 10-K form.)

Fine, if you feel you can charge more then general business rules suggest you’d be creating waste if you didn’t have a price increase.

But…

  1. Any first-year econs student can point to a P-Q graph (holding a precious burger in their other hand) and tell you that a price increase will most likely lead to a decrease in demand. Are they trying to level demand out across their stores?
  2. Low-income areas will definitely take a hit in demand from a big price increase – they go to McDonald’s because it’s quick and cheap. It’d be a mistake to take one of these factors away from their key clientele.
  3. Funny phenomenon – I know at least a few people who just won’t bother buying something they know will be cheaper elsewhere. They’ll travel to the other store or just find something else. If there is no way of doing either of those, they build a general resentment towards that brand. We know when we’re being exploited. (Most of those people are asian, I grant you.)
  4. The brand backlash will be pretty huge.
    Especially now that the tabloids have picked up the story and are running with the ‘discrimination against the lower classes’ line.
    The initial leak was ‘exclusive’ to the Herald Sun which explained the demand basis, but subsequent articles have jumped on the tail with their take.
    Aussies love nothing better than a story of the battler up against the big man, and unless a union dispute blows up soon the reporters will be dining out on Micky D’s for the next week. Not in a good way.

So yes – you might be able to charge more, but is that really a great long-term strategy? Sure, bad PR will largely be short-lived, but so will the extra benefits.

Some locations – hospitals, remote areas, airports – could get away with this. But should they?

Will be waiting to see how this is executed, and what the company’s next action will be.

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4 Comments so far
Leave a comment

Hey there!

Interesting little scoop. I’ve worked in retail and seen this happen, in fact you’ll find supermarkets, petrol stations all have different pricing in different locations.

Which is ok when you start off this way, when you try and implement it to an internationally renowned brand… then, good luck.

Comment by nextbrett

Cheers for the comment! Petrol is expected, sure. And we’ll usually head to the same supermarket most of the time out of habit, or because it’s the most convenient to get the stuff we need.

But a standard product, that has so many potential replacements – that really push the line, especially when everyone is scrutinising their spending.

I don’t know how far this will be rolled out though. The 10-K hints at international application but so far the only confirmation I’ve seen in my skimming is Queensland.

Comment by katherineliew

[…] seems that Australian McDonalds are implementing a demand-based increase of prices, arguably hurting the poor m…. Katherine writes about how this could be a big mistake, not only because of the awkward renaming […]

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