It was last January, and Oak Brook-based McDonald’s Corp. was frantically trying to create an ad campaign to prop up its sagging Arch Deluxe sandwich line.
But the advertising and promotional agencies working on the project couldn’t forecast what would happen next.
In a matter of days, agency insiders said, the company suddenly and uncharacteristically shifted gears.
In the face of six straight quarters of same-store sales declines, McDonald’s senior management decided to embark on a whole different strategy that would tie a deep price discount into a marketing initiative that would harken back to 1955, the company’s founding year.
Over the course of just three months, the company devised the plan, presented it to its franchisees and launched it.
Even though it wasn’t fully test-marketed, Campaign 55 was slated to be the main promotional vehicle for the company at least through December.
But last Tuesday, after running it for only six weeks, the company decided to pull the promotion at lunch and dinner, saying it didn’t meet its expectations.
At any other time in McDonald’s history, the super downsizing of Campaign 55–or C-55 as it is referred to internally–would be a blip. And today, it’s not something that will significantly damage the company. In fact, fueled by new store openings in the U.S. and abroad, McDonald’s systemwide sales were up 6 percent last year, and net income increased 10 percent to $1.6 billion.
“For McDonald’s it’s unusual, but it’s not unusual in the industry to have a promotion that doesn’t work,” said Dennis Lombardi, an executive with Technomic Inc., a Chicago-based restaurant consultancy.
But to franchisees and analysts, Campaign 55 is the latest in a series of recent marketing missteps at a time in its history when same-store sales–sales at stores open at least a year, the financial barometer for its individual franchisees–are stagnant.
McDonald’s USA Chairman Jack Greenberg denied in an interview that the fast-food giant needs a marketing overhaul, and defends the company’s record in scoring hits, saying its ultimate significance to the company has been distorted.
“We’ve had three very good promotions in the first quarter with the Chicken McNuggets promotion and the french fries promotion in January. Our Monopoly game in March was the most successful one we’ve run,” Greenberg said. “You get three home runs, but if you strike out once, you’re (labeled) a bum.”
But analysts contend that the whole Campaign 55 situation is symbolic of the uncharted waters McDonald’s now finds itself in. For years, McDonald’s has been admired worldwide for its ad campaigns, which have produced such memorable slogans as “you deserve a break today.”
Greenberg contends that McDonald’s has to take chances.
“I don’t feel defensive about it,” he said. “We tried something that was bold. We learned something and then we acted. If you only take the safe way, you don’t get the reward.”
In the late 1980s, it was McDonald’s chief competitor, Burger King, who was struggling, trying a number of different promotions and ad campaigns to draw customers in again, and facing the heat of angry franchisees and shareholders.
Burger King learned the hard way from its mistakes. Three years ago, the firm pared its menu and overhauled its marketing, taking a “back to basics” approach that some analysts believe McDonald’s should try to emulate.
It changed advertising agencies, focused on the taste of its flame-broiled burgers, and developed a simple ad campaign, using pop songs from the 1970s to promote specific sandwiches with the tagline: “Get your burger’s worth.”
It also took advantage of a falling out McDonald’s had a few years ago with Walt Disney Co. and began picking up tie-ins with blockbuster Disney movies like “Toy Story.”
“If you go back before 1993, it was amazing to everyone now, but we didn’t focus on the things we did well,” Paul Clayton, president of Burger King, North America, said in a telephone interview from his Miami office.
“There is always pressure to take your eye off the ball,” he said. “This is a mature industry. There is great pressure on short term sales. I’m not surprised about the attention McDonald’s is getting right now, because they’re a world-class brand.”
It’s not that McDonald’s hasn’t tried to jump-start its marketing. Two years ago, it made it a top priority to get Disney back as an exclusive promotional partner. After lengthy negotiations with Disney, it signed a multiyear exclusive deal that gives McDonald’s the key to Disney’s vault of upcoming movies, including “Hercules” and “Jungle Book” this summer.
But it also made some unusual changes in its marketing department.
The chain made a dramatic move last year in hiring an outsider to take over the marketing reins–a significant move in a company that usually grows its own. Brad Ball, who eventually was named senior vice president of marketing, was a partner in one of McDonald’s West Coast regional ad agencies.
A veteran of the fierce pricing wars in the early 1990s between chains on the West Coast, Ball was considered a no-nonsense advertising executive willing to take chances.
McDonald’s was hoping his arrival would usher in a new era of marketing. One of Ball’s first moves was to bring in Fallon McElligott, a Minneapolis ad agency known for its sometimes daring creative advertising, to work on the Arch Deluxe line.
Shortly after, the company began taking heat from franchisees for advertising that showed, among other things, kids frowning at the prospect of eating an “adult” burger.
Although the company has never shared results, the launch of the new line, on which $80 million was spent in advertising, was lackluster at best. While the advertising did produce a trial of the burger, people weren’t asking for it again in the numbers the company expected, analysts said.
“The problem was that they couldn’t get rallied around a single idea,” said one ad agency executive with ties to McDonald’s. “And then they decided not to support it.”
Greenberg said that the decision to dial down the advertising spending behind the line was a normal course.
“We add products from time to time and it’s always a delicate balance,” Greenberg said. “You can’t advertise every product all the time. With all the classic sandwiches you have, it is very difficult to focus time and money on one product. All parts of the McDonald’s experience need to be communicated.”
It was then, agency insiders said, that Ball and other members of top management sought out the Campaign 55 idea, which some franchisees say was flawed from the start because it confused consumers.
“Fifty-five cents is below our costs,” said one suburban Chicago franchisee, who requested anonymity. “The owners were going to have to tie it to something else, and they knew that. That wasn’t communicated to the public until after the campaign started. I think that contributed to the flop.”
“They brought this on themselves,” said Dick Adams, a former McDonald’s franchisee, who leads a consortium of operators and contends that franchisees weren’t fully informed of the whole program.
“From our point of view, the system can only be healthy with an honest and open dialogue with franchisees.”
McDonald’s Greenberg contends the company has a good relationship with its operators.
“We have the best operators of any system,” Greenberg said. “We are always engaged in discussions with them. I think if you talked to them 30 days ago, you would be hearing something different. The noise from the operators is constructive and not negative. If their instincts are that something won’t work, we won’t do it. They voted overwhelmingly for Campaign 55.”
The Campaign 55 discount wasn’t the only major marketing initiative the company was trying to take public.
At the same time, McDonald’s put ad agency Leo Burnett on the spot to develop a new campaign and theme around the Campaign 55 promotion. What Burnett came up with was a personalized theme that tried to convey all the elements of the promotion.
The “My McDonald’s” theme was launched to introduce Campaign 55, but some advertising executives said it looked like the company was trying to do too much in one campaign, mixing messages about service, value and quality in the same 30-second spot.
“The client seems confused and that’s blending into the marketing messages,” said Jim Schmidt, executive creative director with Chicago-based McConnaughy Stein Schmidt Brown. “On the plus side, they haven’t pulled a Snapple and started handing out free samples on Michigan Avenue.”
Snapple recently was sold by Quaker Oats Co. at a loss of $1.4 billion, in part because of an ineffective marketing campaign.
But analysts say that marketing is only one part of the problem. The chain’s food may be the single biggest hurdle. Faced with competition from a number of different outlets, consumers may be getting tired of the taste.
And that may be why McDonald’s is again tinkering with new products outside the burger realm. Insiders say that the chain is about to go into test with a line of focaccia sandwiches, and is drawing up plans for other new products.
That would be OK with some analysts.
“Wendy’s seems to be doing just fine with their stuffed pocket pitas,” said Technomic’s Lombardi.
