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13 May, 2016 - 13:23

McDonald's is one humongous company. With 21,000 restaurants in 101 countries, it is everywhere—which is why the global economy is sometimes called McWorld. Back home in America, the executives that run this vast empire are not feeling very lordly. More than ever they find they have to kowtow to the price demands of ordinary folks like Alonso Reyes, a 19-year-old Chicago who works at a local car dealership. Never mind that Chicago is McDonald's world headquarters—he splits his fast food patronage between McDonald's and its arch-rival, Burger King, and counts every pennyworth of beef when deciding where to eat. So Reyes perked up when he heard that McDonald's had announced "an unprecedented value offering"—a USD 0.55 Big Mac that the company boasted was bad news for their competition. "Cool," said Reyes, "Coupons, specials, sales. I' ll take whatever I can get."

For McDonald's top management, this pricing strategy made perfect sense. After all, declining same-store sales in the US were the chain’s most glaring weakness. What better way to put some sizzle in the top line than a bold pocketbook appeal?

Well, McDonald's executives should have realized that there is, in fact, a better way. Apparently they took no notice of the fallout when Phillip Morris announced deep cuts on "Marlboro Friday," or of "Grape Nuts Monday", when the Post unit of Kraft Foods kicked off a cereal price war. Predictably, "Hamburger Wednesday" sent investors on a Big Mac attack, slicing 9 per cent off McDonald's share price in three days and dragging rival fast-food issues down with it. "It looks almost desperate," says Piper Jaffray, Inc. analyst Allan Hickok of the USD 0.55 come-on. Adds Damon Brundage of NatWest Securities Corporation: "They have transformed one of the great brands in American business into a commodity."

In theory, McDonald's plan will payoff, because customers only get the discount if they buy a drink and french-fries, too. Yet that gimmick-within-a-gimmick threatens to undermine pricier "Extra Value Meals," one of the most successful marketing initiatives. Consumers expecting cut-rate combos will not go back to paying full price, especially if other fast-feeders discount their package deals. 1