This chapter is from the book
This chapter is from the book
This chapter is from the book
What’s Going On?
Before accepting the offer at McDonald’s, I interviewed the top management. Among others, I spoke with members of the senior leadership team, including Matt Paull, Mats Lederhausen, Mike Roberts, Claire Brabowski, and Jim Skinner. There was amazing consistency in these conversations: The McDonald’s business model is built on increased distribution. It was the “field of dreams” approach to growth—in other words, “build it and they will come.”
They all agreed that the McDonald’s brand was in trouble. They recognized that recent growth was attributable only to the opening of new restaurants, not increased visits to restaurants. They recognized that the brand image was suffering. Everyone seemed to agree that the business model was not working anymore, but no one had outlined what specifically was wrong and what had to be done.19
Joan and I discussed the McDonald’s offer. We analyzed my discussions with the management team. We considered all the ramifications for our consulting practice that we had nurtured and grown over the past 20 years. What would this mean for our consulting business? How would we manage with one of us in Chicago and the other in Stamford, Connecticut? We concluded that this was a unique opportunity—an opportunity to put into practice our principles and to be accountable for results.
We saw the challenges. But we believed in the principles and process, and we knew that it could happen—we could help change and shape the trajectory of the brand.
Lack of Relevance
With the help of Joan Kiddon, we reviewed marketing research, read what we could find in the corporate archives, reviewed presentations and speeches, read McDonald’s PR, met with a wide variety of people in different functions, and visited stores. I met with crew members, store managers, franchisees, and McDonald’s executives. I talked to people who were familiar with the original brand vision, such as Fred Turner (Ray Kroc’s right-hand man), Al Golin (Ray’s PR advisor), David Green (previously chief marketing officer for International), Keith Reinhard (of DDB advertising), Cheryl Berman (of Leo Burnett advertising), Paul Schrage, Denis Hennequin, Dean Barrett, and others. It was clear from all of this information that McDonald’s had lost its way. It was also clear that the brand had lost consumer relevance.
Loss of brand relevance was the key issue. The overarching challenge, then, was how to make the McDonald’s brand relevant again. As a brand loses relevance, the customer base shrinks, and there is a decline in customer loyalty. At the same time, price sensitivity increases. Sales, market share, and profitability decline. The times had changed, and yet time stood still at McDonald’s.
Many issues needed to be addressed:
- Outdated store designs
- Inconsistent advertising
- Overemphasis on deal promotions
- Declining product quality
- Lack of successful new products
- Poor service
- Insensitivity to increasing health consciousness
- Insufficient relevant choices
- Decline in Happy Meal sales
- Shrinking customer base
- Lack of organic growth
- Inadequate training
- Decreased franchisee confidence
- Reduced employee pride
- Inconsistent global brand focus
Successful brand revitalization would have to address all these issues. The first priority was a refocusing of the growth strategy. Jim Cantalupo redefined the growth goal from trying to grow by merely opening more stores to focusing on attracting more customers to our stores. Instead of the original plan of opening 1,300 new stores for 2003, Cantalupo reduced this to opening about 600 new stores.20
How would McDonald’s meet its profitable growth objectives? Jim said, “We will grow by becoming better and not just bigger. We are going to do fewer things and do them better.”21 To be better, not just bigger, McDonald’s needed to move from being supply-driven to demand-driven. The mindset had to change from selling what we want to provide, to providing the brand experience customers want.
To restore McDonald’s brand relevance, everything needed to be reexamined. Nothing was sacred. Everything communicates. Brand revitalization includes more than just advertising and promotion. It includes training, product development, store design, pricing, packaging, public relations, and human resources.
In late September 2002, in various conversations, I was told that McDonald’s had lost focus on the brand. McDonald’s had become so cost-driven that the focus was on finance rather than on brand-building. People were feeling that there was a lack of direction. McDonald’s had lost its way.
McDonald’s forgot Ray Kroc’s (founder of McDonald’s) view that we cannot just be a provider of convenient, low-cost food; we are an experience: We have entertainment value.
The McDonald’s habit was to excite the owner-operators and try to address their concerns with new advertising at the biannual owner-operator conventions. Instead of focusing on the real challenges, the focus was on the advertising. In some cases, advertising created for the convention was rarely seen by consumers, if seen at all.
So, for example, when research showed that McDonald’s service experience was a negative, rather than investing in improving the service, McDonald’s launched a new advertising campaign, “We love to see you smile.” Of course, consumers reacted negatively. Why should they smile, when the quality was cut, the service was inadequate, and the stores were not attractive?
Therefore, not surprisingly, among the first things I was asked to address was the need to develop new advertising. Creating new advertising is fun and makes for great conventions, but without addressing the real underlying problems, it does not produce great marketplace results.
New advertising without more fundamental brand experience improvements will not work. Merely launching new advertising is not a solution to a brand’s ills.
For example, the Ford Motor Company launched an extensive advertising campaign touting its quality: “Quality is Job One.” But, the product experience did not live up to the promise. After a 17-year investment in this message, Ford decided it was time to jettison this tagline.
Ford is now focused on improving quality. In June 2007, The Wall Street Journal reported that “Ford Motor Company made significant strides in a closely watched annual quality study in which each of the Dearborn, Michigan, auto maker’s domestic brands came in above the industry average, helping the company close the gap with top Asian auto makers and distance itself from domestic counterparts.”22
“The J.D. Power and Associates annual Initial Quality Study (IQS) released Wednesday, showed long-time leader Toyota Motor Corp. continuing to lose ground in the study, with its high-volume Toyota brand slipping behind Honda Motor Co. and barely outpacing Ford’s Mercury brand. Ford was the most-awarded company on a vehicle-by-vehicle basis.”23
However, to this day, Ford still suffers from a quality perception brand disadvantage. Now, that quality has improved, Ford can focus on marketing communications to close the gap in brand quality perceptions.
Crisis of Complacency
Charlie Bell often reminded me that the McDonald’s brand needed more insistence, consistence, and persistence. He would say that McDonald’s fostered a culture of stagnation that breeds complacency. It is true that large companies sometimes suffer from a “complacency virus.” Organizations like McDonald’s have a tendency to stay with something that worked too long, assuming that all the benefits would continue to accrue without ever having to make a change. Doing things in the same old way, assuming that what worked once during the best of times would continue to work even though times had changed, would not help the brand stay relevant. It was just like Michael Quinlan said...why change? Complacency got in the way of generating passion and instilling pride.
My interviews with senior management and franchisees supported the idea that without a true commitment to the McDonald’s brand promise, without the organizational change and accountability, McDonald’s would not evolve. The turnaround at McDonald’s would require what I call the Three Cs–—clarity of direction, consistent implementation, and commitment from the top down throughout the organization.
Clarity of direction involves a clear statement of the brand purpose, promise, and goals. Consistent implementation requires that the organization must be aligned around that common focus and process. And commitment of the leadership means that people look up, not down, to determine whether they should also be committed to the new brand direction.
Passion and Pride
The sense of malaise and dispirit in the hallways of Oak Brook was overwhelming. Employee pride—a critical component of brand revitalization—had dissipated; people who were working on the brand did not really believe in the brand. Ray Kroc’s vision of creating a happy place through serving people was lost. The sense of pride about working at McDonald’s was gone: On Kroc Way and French Fry Alley, it was more funereal than fun-loving and friendly. People were experiencing a crisis of confidence.
Pride is not the same as satisfaction. Pride is bigger than just being satisfied with your job. Proud employees are engaged in their work: They are committed to helping inside and outside the company walls.24
Jon R. Katzenbach, a founder and senior partner of Katzenbach Partners, a national strategic and organizational consulting firm, had this to say about employee pride: “Pride is more powerful than money. Employee pride is the powerful motivational force that compels individuals and companies to excel.”25
Internal marketing is critical to brand accomplishment. To help revitalize employee pride, Rich Floersch, was hired from Kraft Foods as the new executive responsible for HR. His goal was to re-energize the employees through improved employee communications, and improved training. His leadership was a significant contributor to the brand turnaround.
When Merriam-Webster’s Collegiate Dictionary announced that “McJob” would be added to its dictionary as a word describing “low paying and dead-end work,” Jim Cantalupo reacted swiftly. In an open letter to Merriam-Webster, he argued that the term is “an inaccurate description of restaurant employment” and “a slap in the face to the 12 million men and women” who work in the restaurant industry. McDonald’s e-mailed the letter to media organizations around the world. Cantalupo also wrote that “more than 1,000 of the men and women who own and operate McDonald’s restaurants today got their start by serving customers behind the counter.”26 This kind of leadership passion and pride contributed to the rebuilding of employee pride. For successful brand revitalization, internal marketing must precede external marketing.
Cost Cutting Versus Brand Building
Brands get into trouble when cost management replaces brand management. Unfortunately, when brands get into trouble, the focus often turns to cutting costs rather than to brand revitalization. Cost managers become risk averse.
When a brand gets into trouble, enthusiasm and entrepreneurial spirit are often replaced by brand stubbornness. Standing still is for statues, not for brands. Brand lifelessness leads to brand losses, not to brand loyalty. The first step in brand revitalization is to face the facts of failure.
However, instead of trying to make each restaurant a more desirable destination, McDonald’s focused on cost reduction rather than on brand building.