Question

The fast-food industry in the United States has typically used drive-through windows to increase profitability. With 65 percent of fast-food revenue derived from drive-through windows, these windows have become the focal point for market share competition among fast-food outlets such as Wendy’s, McDonald’s, Burger King, Arby’s, and Taco Bell. Even chains that did not use drive-through windows in the past, such as Starbucks and Dunkin’ Donuts, have added them to their stores.1 Production technology changes have included the use of separate kitchens for the drive-through window, timers to monitor the seconds it takes a customer to move from the menu board to the pickup window, kitchen redesign to minimize unnecessary movement, and scanners that send customers a monthly bill rather than having them pay at each visit. Now, in an attempt to cut costs and increase speed even further, McDonald’s franchises have tested remote order-taking.2 It takes an average of 10 seconds for a new car to pull up to a drive-through menu after one car has moved forward. With a remote call center, an order-taker can answer a call from a different McDonald’s where another customer has already pulled up. Thus, a call center worker in California may take orders from Honolulu, Gulfport, Miss., and Gillette, Wyo. This means that during peak periods, a worker can take up to 95 orders per hour. The trade-offs with this increased speed at the drive-through window are employee dissatisfaction with constant monitoring and the stress of the process, decreases in accuracy in filling orders, and possible breakdowns in communication over long distances. However, this technology may be expanded to allow stores, such as Home Depot, to equip carts with speakers that customers could use to wirelessly contact a call center for shopping assistance. In Asia and other parts of the world where crowded cities and high real estate costs limit the construction of drive-throughs, McDonald’s and KFC have added motorbike delivery as part of their growth strategy.3 Fifteen hundred of the 8,800 restaurants in McDonald’s Asia/Pacific, Middle East, and Africa division offer delivery, while half of the new restaurants KFC builds in China each year will offer delivery. The delivery option requires an area in the restaurant to assemble orders that are placed in battery-powered induction heating boxes. Along with cold items in insulated containers, all of the orders are placed on the back of yellow and red McDonald’s branded motorbikes or electric scooters. Most McDonald’s delivery orders are phoned in, but the company has started offering Internet-based ordering in Singapore and Turkey. The number of call centers may be reduced in the future as online ordering increases. Neither McDonald’s nor KFC plan to use this technology in the United States, where McDonald’s derives two-thirds of its sales from drive-through customers. This case illustrates how firms can use production technology to influence their costs, revenues, and profits. Because firms in more competitive markets may not have much ability to influence the prices of their products, they may depend more on strategies to increase the number of customers and lower the costs of production. These strategies may involve changing the underlying production technology, lowering the prices paid for the inputs used, and changing the scale of operation.

Answer 1

In today's competitive,changing the price of aproduct is not in the hands of the seller, as customers are being offered with a wide variety of options. Increase in the price of product offered by one player would make the customers to switch to the competitors product and thus leads to decrease in the revenue of the seller who increases the price.

Elsewhile the selelrs are moving towards making their production more cost effective so they can easily compete with their competitors.

Below mentioned startegies are adopted by the manufacturer to be competitive:

• Sourcing the raw material in bulk quantity directly from the supplier without any middlemen involved and thus saving on the margin paid to the middlemen.
• Operating on a large scale and thus achieving economies of scale of production and thus reducing average cost of production.
• Change in production technology, ie. moving from labor intensive to capital intensive technology, using automated or robotics technology, integrating with the supplier through erp and thus saving on costs.
• Vertical integration, where the manufacturer take on either the supplier activity (Backward Integration) or the distributor activity (Forward Integration) and thus saving on the costs.