As such, there are relatively few substitute goods (other types of foods are more expensive and, as a result, cannot be considered as substitute goods), the level of necessity is high (fast food is, for many of the poorer communities, the only source of food and, because of this, people are willing to pay a higher price without changing their volume of consumption), but also because of habits: people who consume fast food will simply grow too attached to it to give it up even if the price is slightly increased.
There is also another important element to be mentioned: the price hikes were reasonably low. For a $5 Big Mac (the price is actually lower, but as a reference), the 3.3% increase in its price represents $0.165. The amount is significantly low, too low to be noticeable by the consumer when completing his individual purchase. Added over time and over the high volumes that are being sold, however, this does represent an important financial impact.
The previous paragraphs represent a theoretical analysis of the price elasticity of demand in the case of McDonald's products in Australia and, as a concrete fact, the expected results of a demand-based pricing strategy. The paragraphs below will examine what actually happened.
McDonald's Australia reported for 2009 a 6% increase in revenues from sales to $898 million
. The main reasons that are quoted as having led to the increase in revenue are a series of refurbishments for different restaurant locations, as well as the fact that the menu was diversified so as to include healthier options. None of the two reasons seem to be correlated to an increase in prices, which may mean either that neither revenues (total or marginal) was affected by the increase in prices and the change to a demand-based pricing strategy or that the impact was significantly small and, as such, not recorded as an overall cause. The overall revenue of McDonald's Australia was $1.7 billion in 2009, although this was also not related to the new pricing strategy, but rather to the recording of a sale to McDonald's Asia Pacific.
Survey
1. Where do you live?
2. What is your average income?
a. Under $15,000
b. $15,000-$25,000
c. Over $25,000
3. What is your education?
a. High School diploma
b. College Education
c. Masters or higher
4. How often do you eat at your local McDonald's?
a. once a week
b. 2-3 times a week
c. 3-5 times a week
5. How much do you expect to pay for a Big Mac or similar?
a. $4
b. $5
c. Higher than $5
6. How would a 20 cents increase in the price of your Big Mac influence your purchasing preference?
a. Yes
b. No
Explanation of survey
The first three categories of questions plan to associate the socioeconomic status of the participants in the survey. Most of the respondents had an income of at most $25,000 a month and usually just a high school education. On the other hand, question 4 was used to determine both the preference for fast food and, in particular, for McDonald's among all the other fast food outlets. Questions 5 and 6 in the survey were used to determine the price sensitivity of the McDonald's products, notably that of the most representative product, as well as the price elasticity to demand.
Results
Out of the total of 45 people that were included in the survey, 80% were included in the first two categories of income, which is important to determine the structure of the surveyed group from a socioeconomic perspective. At the same time, 74% mentioned eating at the local McDonald's at least 4 times a week, showing that the group is relevant from the point-of-view of the subject of the survey. The most important question for the purpose of the survey, question 6, had 81% of the respondents point out that their purchasing preference was not influenced by the increase in the product price or by any change to McDonald's pricing strategy, as described. This 81% are important to the final conclusions on the impact of a demand-based pricing strategy on the revenues at McDonald's.
Limitations of survey
The survey is limited because of the reasonably low number of respondents. Despite the fact that most of them belong to the same socioeconomic category and that their answers show that the increase in the price of McDonald's products did not affect their purchasing preferences (both in terms of turning to other fast food companies or other food products in general), the survey was done, because of the material and technical constraints, on a limited number of people. Around 1,500-2,000 would have probably...
Fast Food Nation" Chapter 3 "Behind the Counter" Process essay: The process of coaching children in youth sports In his chapter, "Behind the Counter," of his expose Fast Food Nation, the author Eric Schlosser highlights the darker side of working at a fast food restaurant. The labor is frequently young, often exploited, and regarded as a disposable commodity by the managers. In fact, it works to the company's advantage if there
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