When McDonald's Corp. reduced the price of its Big Mac by 75 percent if customers also purchased french fries and a soft drink, The Wall Street Journal reprted that the company was hoping the novel promotion would revive its U.S. sales growth. It didn't. Within two weeks sales had fallen. Using your knowledge of game theory, what do think disrupted McDonald's plans?
Using game theory, it is possible to analyze the situation and understand what might have disrupted McDonald's plans. In this case, it appears that the price reduction strategy did not lead to an increase in sales as expected. One possible explanation for this could be that the promotion did not align with consumers' preferences and perceived value.
For example, consumers might have perceived the Big Mac as overpriced originally, and the sudden reduction in price may have signaled to them a decrease in quality or value. This perception could have outweighed the added benefit of getting a discount on fries and a drink.
Furthermore, consumers might have different preferences when it comes to their fast food items. Forcing customers to purchase fries and a drink alongside the Big Mac may not have appealed to those who only sought to purchase the burger itself. This lack of choice could have deterred potential customers.
In addition, the timing of the promotion could also have played a role. Factors such as seasonality, competition, and other external market dynamics might have influenced consumers' purchasing decisions during that period, leading to a decline in sales.
Overall, it appears that the pricing strategy, coupled with the offer of discounted meal combos, did not align with consumer preferences. Game theory suggests that understanding and considering these preferences, alongside market dynamics, can be crucial for the success of a pricing strategy.
To determine what may have disrupted McDonald's plans using game theory, we need to consider the actions and the incentives of the involved parties in this scenario. Game theory is a mathematical framework used to analyze the interactions and strategic decision-making of rational agents in competitive situations.
In this case, McDonald's designed a promotion offering a 75 percent price reduction on the Big Mac if customers also purchased french fries and a soft drink. They did so in hopes of reviving their U.S. sales growth. However, within two weeks, sales had fallen. To analyze this situation through game theory, we can break it down into the following elements:
Players:
1. McDonald's - The company designing the promotion.
2. Customers - Those who have the option to purchase the discounted Big Mac, fries, and a soft drink.
Strategies:
1. McDonald's Strategy - Offering the discounted price for customers who buy the Big Mac, fries, and a soft drink.
2. Customers' Strategy - Deciding whether or not to take advantage of the promotion.
Payoffs:
1. McDonald's Payoff - Increased sales and revenue from customers taking up the promotion.
2. Customers' Payoff - Getting a discounted meal or choosing an alternative option.
Possible Disruptions:
1. Lack of Consumer Interest: It is possible that customers did not find the promotion appealing enough to change their purchasing behavior. The discounted price may not have been perceived as significant or compelling compared to other available options, and thus, sales did not increase as expected.
2. Market Competition: There might have been intense competition in the fast-food market, with other restaurants offering alternative promotions or menu items that customers found more attractive. This could result in customers choosing alternatives over McDonald's promotion.
3. Inefficient Promotion Execution: The execution of the promotion might not have been effective. For example, customers might not have been properly informed about the promotion, causing confusion or lack of trust. Additionally, if the quality of the products or service did not meet customers' expectations, it could have resulted in negative word-of-mouth and decreased sales.
To further analyze which factor contributed to the disruption, additional research or information would be needed. However, by applying game theory, we can consider these possible disruptions and begin to understand why McDonald's plans did not succeed as intended.