by Tiffani Bova
RED BULL
KEY TAKEAWAYS
If you choose to create a new category, you must have patience and stay focused early on. Getting distracted trying to compete with larger incumbents who play in similar product categories (soda and energy drinks) can sidetrack you.
The Customer Base Penetration path is more than “up-selling” existing customers. You can also expand “customer” to mean capturing share of similar buyers who are currently spending money with another brand. The former is the norm; the latter proves to be a bit more difficult because you don’t have actual customer data from which to mine. However, what you do know is what they like—so you can capture them with targeted marketing and advertising campaigns versus direct selling.
Market Acceleration becomes much easier if your current customers are creating new demand for you. Red Bull went straight to its target audience at college parties, libraries, coffee shops, bars, and other places they hung out. It got customers talking about it and spreading the word about its product for free. If prospective customers are awaiting your arrival to their city, country, or neighborhood, all the better for you.
Don’t be afraid to use unorthodox means to create (market) buzz around your products. It doesn’t mean you have to sponsor and then own a Formula One racing team or generate hype by having someone set a world record with a 120,000-foot skydive from the edge of space (Red Bull Stratos Jump). But what you can do is learn from Red Bull. It has always used events to reach consumers. It put the audience of its marketing efforts first and selling its product second.
Red Bull uses content and events as its sales team. Everything revolves around one concept: creating content around what its audience loves and experiences people would be interested in even if they don’t care about energy drink brands.
STORY
2
MCDONALD’S
READY, SET, BREAKFAST
LIKE MANY OTHER MAJOR CORPORATIONS, McDonald’s began as a family business, founded in San Bernardino, California, in 1940 by two brothers, Richard and Maurice McDonald. More a roadside stand than a restaurant, the original McDonald’s kept things clear, simple, and focused. It sold hot dogs, hamburgers, cheeseburgers, milkshakes, and French fries.
In 1953, the McDonald brothers began seeking franchisees and soon attracted the attention of a milk shake–machine salesman, Ray Kroc, who volunteered to help set up new McDonald’s locations across the country. The chain grew slowly—34 restaurants in 1958, 102 locations by 1959—and then it quickly accelerated. Kroc eventually got so frustrated with the McDonald brothers’ lack of long-term vision that he bought them out in 1961 for $2.7 million.
Kroc’s goal was to make McDonald’s the United States’ leading fast-food chain, setting the stage for the enormous franchise known today as the McDonald’s Corporation. It raised generations on Happy Meals and fed families with Big Macs, Quarter Pounders, Chicken McNuggets, and Baked Apple Pies.
McDONALD’S
McDonald’s sells more than seventy-five burgers every second.
McDonald’s has sold 3.6 billion Happy Meals.
McDonald’s has sold 550 million Big Macs in the United States alone.
McDonald’s has sold 9 million orders of French fries.
Sixty-two million people visit McDonald’s each day.
However, between 2004 and 2014, the most famous chain in the world was showing its age. To many it felt stale and unhealthy, a symbol of the harried, unrefined way the industrial world mass-produces, packages, markets, serves, and eats food.
Responding to quarter after quarter of nonexistent growth, in 2006 McDonald’s found itself in a growth stall. It divested itself of Chipotle, Boston Market, and Donatos Pizza, and decided to focus on its core business of hamburgers and French fries and other flagship items—which is why the company’s next decisions were so misaligned to its stated goals and the context of the market, almost bafflingly so. Instead of shrinking its menu—and eliminating non-core items such as chicken, fish, yogurt, cookies, coffee, salads, wraps, pancakes, desserts, and snacks—McDonald’s decided to expand its menu and sell more items. Its goal? To sell more to existing customers while at the same time, hoping to attract new ones (Customer and Product Diversification, Market Acceleration, and Customer Base Penetration). To put that in context, between 2004 and 2014 McDonald’s menu swelled by 75 percent. The result: between 2013 and 2015, McDonald’s share price basically didn’t move, and the company had lost more than 500 million visits since 2012.
Company executives spoke proudly of McDonald’s “robust new-product pipeline,” not realizing that employees who were once preparing 59 foods or combinations now had to juggle 121. McDonald’s had cut Chipotle loose ostensibly in order to refocus on what it did best—but by expanding the menu, the company ended up doing the complete opposite. The chain didn’t seem to understand that an option-heavy, visually chaotic menu overwhelmed customers, had led to slower customer service, quality control issues, and a muddled brand identity, all of which had a negative effect on top-line growth as well as bottom-line profit margins.
The company’s slump didn’t happen in a day, a month, or even a year. It was the culmination of dozens, even hundreds, of decisions McDonald’s had made over the past decade that had a multiplier effect across the entire organization—and not in a positive way.
McDonald’s (like Starbucks) had overrun its kitchens, its employees, and its customers with too many menu “choices” (products), resulting in a decline in customer satisfaction (Customer Experience), especially in the drive-through line. This lesson is about how McDonald’s was pursuing organic growth while on the Customer and Product Diversification path, introducing new products not only to attract new customers but also to get existing customers to spend more by leaning into the Customer Base Penetration path. The combination of these two complementary efforts seemed feasible as a strong growth strategy “in theory”—and while there were pockets of success, overall the top-line revenue wasn’t seeing as significant a lift as expected. Over the course of a few years McDonald’s found itself in a pervasive growth stall. What could they do to course-correct?
Being on one of the ten paths and finding yourself in a growth stall doesn’t mean you have to jump to another path altogether in order to recover—sometimes all that is required is to back away from one path, even slightly, to give the other initiatives a chance to take hold. In this case, McDonald’s needed to retreat from Customer and Product Diversification in order to, once again, “refocus” on its core business of hamburgers and French fries and other highly desired menu items so that it could use Customer Base Penetration and Customer Experience as effective growth paths.
RECIPE FOR SUCCESS
In 1970, McDonald’s franchisee Jim Delligatti began testing out some simple breakfast item ideas in his restaurants. Within a year, breakfast accounted for 5 percent of Delligatti’s daily revenue. His idea caught the attention of Herb Peterson, who worked for Santa Barbara–based D’Arcy Advertising on the McDonald’s account. “Borrowing” the idea of an eggs Benedict sandwich being marketed on the West Coast by restaurant rival Jack in the Box, Peterson presented the idea to Kroc, who embraced it (and, as the story goes, ate two in a row). McDonald’s executive Patty Turner later coined the name for what we all know and love as the legendary . . . Egg McMuffin.
McDonald’s breakfast menu grew throughout the 1970s, a decade ahead of most competitors, and accounted for 15 percent of sales. Customers loved the breakfast menu. They loved it so much, they wanted it all day. And they asked for it. But for years and years, McDonald’s didn’t give the customers what they wanted. Why?
Speaking at the RBC Capital Markets Consumer & Retail Conference 2017, McDonald’s chief financial officer, Kevin Ozan, said: “The reality was something like All-Day Breakfast. It was the
number one most requested thing here in the United States. And our reason for not doing it always was it was going to be difficult operationally.” He continued, “So, I don’t know if we could really say we were customer centric when [what] we were really being driven by was ‘is that going to be hurting . . . our ability to be efficient for operation?’”
TOO MANY OPTIONS, TOO LITTLE TIME
When McDonald’s turned itself around, what decisions did it make to create a positive multiplier effect of successful growth? Getting itself out of a growth stall required McDonald’s to “listen to its customers”; it had been ignoring the top request for a long time—thinking it knew what its customers wanted better than they did. But in the end, doubling down on a current product (breakfast), expanding its availability (all day), and improving customer experience (shrinking its menu) was the combination recipe for success.
Now comes the hard part. What had to change prior to rolling out the All Day Breakfast menu in 2015? It focused on the sequence of steps required prior to launch. McDonald’s shrank the size of its menu to improve customer wait times and reduce the current complexity in the menu and the kitchen. The company convinced more than three thousand owner-operators to upgrade and reorganize their kitchens to accommodate breakfast alongside burgers and fries.
What if McDonald’s hadn’t done those things? Chances are the twenty-four-hour breakfast option would have been a great idea that fell flat against high customer and market expectations. What if the company had launched its All Day Breakfast menu before reducing the size of its menu? Maybe the twenty-four-hour breakfast option would have still been successful, but consumers would continue to be overwhelmed and customer service would still be less than optimal.
McDonald’s rolled out its new All Day Breakfast menu in October 2016, ten years after it had first found itself in a growth stall. Informing the New York Times that whatever progress McDonald’s might make in the future was the result of “decisions being made today,” McDonald’s president and CEO Steve Easterbrook conceded that one or two quarters of growth didn’t translate into a successful turnaround.
In fact, the smaller menu created the space for McDonald’s to absorb All Day Breakfast. Expanding breakfast—a longtime request of customers—was a key part of the company’s turnaround strategy, and it helped pull McDonald’s out of a domestic (U.S.) sales slump. McDonald’s shares rose 17 percent in 2015, and U.S. same-store sales were up 5.7 percent. In the first quarter of 2018, global same-store sales rose 5.5 percent, and U.S. stores grew 2.9 percent. Their success with breakfast created a “market share fight” between McDonald’s, Taco Bell, and Burger King.
While the All Day Breakfast menu had shown positive returns, McDonald’s continued to build upon the success of its All Day Breakfast menu with the launch of its value menu (2017), delivery (partnering with UberEats to test), and mobile kiosk ordering, all of which have proved to be a big hit among customers. Steve Easterbrook said, “We continued to build upon the broad-based momentum of our business, making eleven consecutive quarters of positive comparable sales and our fifth consecutive quarter of positive guest counts.”
MCDONALD’S
KEY TAKEAWAYS
The answer on how best to resolve a systemic issue of slow to no growth may have been staring McDonald’s in the eye the entire time. Customers wanted breakfast all day—while it was mentioned in the Customer Experience path that you can’t give your customers everything they may want, in this case, ignoring the consistent request was a mistake. Capturing, understanding, and responding to the voice of the customer (VOC) may in fact pull you toward the answers you are looking for.
Customer Base Penetration is about selling more of your existing products to existing customers, but that doesn’t mean you have to continue to sell the same number of products. You must be willing to put all options on the table when facing a growth stall. In this case, once McDonald’s was willing to reduce the number of products they sold in order to focus on the most highly requested item—the Egg McMuffin—the All Day Breakfast campaign gave them the bump they had been looking for.
The McDonald’s story is a perfect example of how to use combination and sequence effectively. The growth strategy to launch the All Day Breakfast menu, which included products it already had (specifically, the Egg McMuffin), significantly reduced time to market; the growth paths were a combination of Customer Base Penetration, Customer Experience, and Market Acceleration; and the sequence was timed to ensure that each location would be able to update its kitchen to accommodate the new menu without negative impact to operational efficiency.
STORY
3
SEARS
UPROOTING RETAIL
We don’t need more customers. We have all the customers we could possibly want.
—EDDIE LAMPERT, CEO of Sears
BEFORE JEFF BEZOS (AMAZON), PIERRE Omidyar (eBay), and Sam Walton (Walmart), there was Richard Sears, a railroad station agent who in 1891 parlayed a surplus shipment of unwanted watches into the most famous and venerable retailer in history.
Even today, much of the marketing techniques used by Sears—he did it first—remain pretty much unchanged by online and off-line retailers around the world.
In the late 1800s, the American countryside was in a different world than the rest of the more urbanized country. All of that changed when Richard Sears and Alvah Roebuck hit upon one of the greatest sales and marketing ideas of all time: the mail-order catalog. The impact of Sears and his catalog on his time period was enormous. It allowed any person with access to the postal service to send in an order and payment and buy from Sears, which would then ship the merchandise via the post office or railroads, reaching customers wherever they are.
The company claimed the catalog “Tamed The West,” and it was called “the farmer’s friend” the “Wish Book,” the “Book of Bargains,” “The Great Price Maker,” and “The Consumers’ Bible.” Country storekeepers were very opposed to the catalogs, so much so that Sears had to camouflage the cover (in some stores) so that store owners wouldn’t throw them away. Its success was quite simple, yet profound for the time; people were delighted that a company could actually deliver all kinds of merchandise right to their homes. It was the original disrupter in the early 1900s to mom-and-pop storefronts.
SEARS INNOVATIONS
Included customer testimonials in the catalog (brand advocacy)
Mitigated the $0.25 shipping fee by applying it to orders over $10 (free shipping)
Low price/best value was the mantra
“Club order program” for neighborhoods to buy together (buying club)
Specialty catalogs
Seasonal catalogs
“Your money back if you are not satisfied”
Christmas catalog
Emphasized customer satisfaction above all else
State-of-the-art factories that helped to inspire Henry Ford’s car manufacturing plants
Offered credit cards
Standardized size and quality
The Sears catalog was the epitome of Customer Base Penetration—Sears knew its customers, and it knew what they wanted. Sears management decided, after early success with its current customers: Why not attract new customers and offer what it currently sells to more people? Then the catalog increased its products (Product Expansion) over its history, ballooning to hundreds of pages (like hundreds of items on McDonald’s and Starbucks menus), selling anything and everything, including even prefabricated (Sears) homes. The early Sears playbook created a sizeable beachhead (the catalog)—which allowed it to further optimize sales when it expanded its reach by opening retail stores (Market Acceleration), keeping any competitors at bay, all while getting ever closer to its customers’ purchasing habits (Customer Experien
ce).
Customer Base Penetration served Sears well for many decades. During the 1950s–80s era of massive consumer market growth, Sears was often first on the list of virtually every home owner and child looking to purchase almost anything, with its convenient suburban and rural locations, selling toys, tools, clothing, and appliances. Does this sound familiar? It should. Replace the above scenario with what online retailers do today with the current technology and you have a modern-day e-commerce company that is a direct imitation of what Sears did more than a hundred years ago.