BAM020 Economics For Managers
Master of Business Administration, Postgraduate Diploma and Postgraduate Certificate in Business Administration
Module: Economics for Managers [BAM020]
Coursework (October 2017-March 2018 study session)
Submission Deadline: Monday 11 December 2017 by 1pm (1300 hours) GMT
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Burger King Revives 15-Cent Nuggets in Price War With McDonald’s
Burger King is bringing back its 15-cent chicken nugget promotion, battling it out with McDonald’s Corp. over the price of one of the most popular fast-food menu items. Starting today, Burger King will sell 10 chicken nuggets for $1.49, about half the regular price of $2.99, according to a statement from the chain, which is owned by Restaurant Brands International Inc. The burger seller ran the same promotion in October for about a month until supplies waned. McDonald’s sells 50 Chicken McNuggets for $9.99, or 20 cents per nugget.
“They’re competing aggressively with McDonald’s, and they’re doing it as a very low price to draw people in,” said Darren Tristano, executive vice president at Chicago-based research firm Technomic Inc. “The goal is to steal share from the other burger brands around them.”
McDonald’s 50-piece nugget promotion is a local option for franchisees, who can determine their own timing on the deal, Lisa McComb, a spokeswoman, said in an e-mailed statement. The restaurants that will be offering the deal will mostly likely do so as a Super Bowl promotion, she said.
The fast-food industry is relying more heavily on discounts to drive foot traffic as consumers flock to fast-casual restaurants like Chipotle Mexican Grill Inc. The risk of cutting prices to drive sales is that customers will only buy the discounted items and abandon the chain once prices go up.
“They’re buying that moment’s traffic,” said Malcolm Knapp, a restaurant-industry consultant in New York. “They’re not building loyal customers who will come back for other things.”
Burger King’s previous chicken nugget promotion helped the company post a 3.6 percent gain in same-store sales in the U.S. and Canada for the third quarter. McDonald’s had a 3.3 percent drop in U.S. sales during the same period.
Burger King’s parent company completed its acquisition of Canadian coffee-shop chain Tim Hortons last month, forming the world’s third largest fast-food company and changing its name to Restaurant Brands International. The new parent company is based in Oakville, Ontario.
McDonald’s, based in Oak Brook, Illinois, has seen sales at its more than 14,000 U.S. restaurants fall in seven straight months through November. The world’s largest fast food chain is cutting down on menu items and offering more customizable burger options as it revamps domestic operations.
- Discuss the type of competition here.
- Why does such competition drive down prices for consumers? Explain why the price ends up lower than an equilibrium price.
What would you advise McDonald’s do to increase sales?
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There are penalties for exceeding the specified word count.
The maximum word limit for this coursework assignment is 2,500 words (excluding the list of references).
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You MUST state an accurate word count (excluding the list of references) at the end of your work. If you do not state an accurate word count your mark will be reduced by 5 marks.
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