How to discount and not influence people …

In our last post we looked at McDonald’s strategy of value add and in-menu differentiation.

Just as interesting is the lack of such a strategy at Burger King, which is offering $1 double cheeseburgers and promoting the cost-cutting move heavily in paid media.

While this move has raised the ire of some of BK’s franchisees, the strategy raises a larger question of ‘Should you discount to get market share?”

Obviously, the BK executives think the discounting game is a good one to play, even if the chain has always played from behind in terms of its market share compared to McDonald’s.

Back in the day, Burger King had a compelling differentiation strategy with its “Have it Your Way” campaign, which pitted its “made to order” burgers against McDonald’s pre-fabbed sandwiches.
 

Taking a page from the Jack Trout classic “Differentiate or Die,” BK took an “against positioning” strategy against a market leader, giving customers a compelling reason to make a switch to a truly innovative and “different” kind of quick service burger experience.

Since then, BK (much like a number of domestic beer brands and other quick service chains) has adopted a number of slogans, tag lines, ad campaigns and discount promotions … none of which have ever really worked to help the company gain market (or more importantly) wallet share.

Meanwhile, McDonald’s sails along.

Not that McD’s hasn’t had a few outright product failures along the line …

They have.

The difference is that McDonald’s can afford to have some of those bad initiatives go wrong.

They have the price points and profits to cushion the blows of their mistakes.

In the discount game, not only does BK need to increase volume for each discounted burger it sells, it has embarked on a perception strategy that also puts the company in a “cheap food” hole.

What type of customers is BK really trying to attract when its leading promotion is a $1 burger?

In our coaching business, one of the most important lessons our customers learn is the danger and potential disaster of a discounting policy.

It’s always better to add value, or find a key difference to promote to your customers … all at a price point that adds to your bottom-line, without having to rely on volume.

Will the BK strategy be successful long term?

I doubt it.

And I would be surprised if the company continues the strategy … especially in the face of franchisee resistance to the idea.

But … we’ll continue to track the company’s progress and if the strategy does prove to be successful, it will definitely make news.

Why?

It would be one of the few times a company (outside of say, Wal Mart) … has successfully used discounting instead of innovation to gain market share in a fairly mature industry at the expense of the market leader.

Then again … anything could be possible!

Jodie Shaw

A hot start for McDonald’s cool new strategy …

It used to be one of the best selling items in a typical McDonald’s wasn’t a burger, but rather a soda … more specifically, some small, medium or large sized Coke.

The franchise is looking at the beverage category again … in a big way …

MMMM … tasty beverages!

The new concepts are tracking well … and adding positively to same stores sales.

Is it a good strategy?

I think it’s certainly an interesting one … as McDonald’s is looking to take advantage of shifting demographics … as well as a return to a value-oriented mindset for many consumers as a result of the current economy.

Can the company and its franchisees can maintain volume (as well as the quality of the new drinks) over time?

It is part of a strategy of differentiation for the company … one that started with the McCafe concept (which was originally tested in Australia).

Instead of reverting to discounting, McDonald’s has done a good job over the years of finding “value adds” to their menu.

Not everything has worked … but the fact that McDonald’s can hold price points while its competition reverts to discounting (see for example, Burger King … a strategy we will look at in our next post), makes the differentiation strategy a winner over time.

In the meantime, it will be interesting to see how the “Beverage Wars” will be fought within the context of the “Burger Wars” … and what the results will ultimately be from this “cool” new initiative.

Jodie Shaw

Action Coaching: When in Doubt … Export!

I found some interesting stats in the latest Business Week …

Yellow Tail … an Australian-based wine, owns second place in category, just percentage points behind long-standing U.S. based-Sutter Home.

As a native Australian, I find this curious, since “Down Under” … Yellow Tail is dismissed as an off-brand.

(Then again, I also don’t quite understand the popularity of Outback Steakhouse [a uniquely American invention] or Foster’s beer, the latter of which is an “off” brand most Aussie’s don’t drink at all …).

I guess the point here is that if you can’t make it “here” … go “there.”

Yellow Tail got its boost in terms of market share when the Casellas family (makers of the brand) joined with W.J. Deutsch & Sons to distribute the wine in the U.S.

First year sales weren’t impressive (a mere 112,000 cases sold) … but within four years, that number jumped to 7.5 million cases, boosted by distribution through Costco.

Yellow Tail also benefits from a lower price point (at least in terms of other domestic Australian wines).

Bluntly put, most Australians wouldn’t pay $7 per bottle of wine unless we were cooking with it.

But for younger U.S. consumers, who like the somewhat unconventional look of the brand and its lower price point, Yellow Tail is a definite winner.

The larger point here is that the global market these days is truly that … and a product that has potential has a lot more potential markets to test than a domestic market.

It worked for Foster’s … and it worked for Corona.

Does it only work for wines and beer?

Well, the McCafe concept from McDonald’s was first tested in Australia before it was imported back to the U.S. … so there are examples in other categories and industries.

Are there any in yours?

Could your product under a different brand or a private label succeed in other markets?

Something to think about …

Jodie Shaw