In 1996, McDonald’s, the world’s biggest fast food restaurant chain, found itself in a proverbial pickle. A tight labor market, additional costs resulting from minimum wage increases, and price pressures on raw materials sent the burger giant’s operational costs spiraling upward, which in turn helped to depress profits. All this came at a time when McDonald’s major rivals, Wendy’s International and Burger King Corporation, were using innovative marketing strategies to eat into the Golden Arches’ share of the pie. McDonald’s first attempt to arrest these trends was the May 1996 introduction of the Arch Deluxe, a ‘‘premium’’ sandwich targeted at adult consumers. The strategy seemed valid at a time when inflationary forces were ascendant in the economy. In order to sustain profits, McDonald’s needed to develop a product consumers would be willing to spend more money on. The only problem was that the Arch Deluxe proved to be unpopular with consumers. Furthermore, the ad campaign designed to promote the new entree featured grimacing children clearly turned off by the new ‘‘grown-up’’ burger. McDonald’s had consequently alienated one of its core markets—little kids—in pursuit of invigorated sales to adult customers. As Arch Deluxes piled up on warming racks waiting for consumers who were not buying them, the burger giant scrambled to rethink its approach. The result was an ambitious price-cutting promotion that seemed to fly in the face of the economic winds that had spawned the Arch Deluxe. The new campaign was heralded by months of anxious anticipation. In a statement to the press at the end of 1996, McDonald’s announced that it was ‘‘on the threshold of an unprecedented value offering that will be good news for our customers, our franchisees, and our business . . . and bad news for the competition.’’
Consumers across the country got a taste of the new direction almost immediately. As of April 11, 1997, price promotions began to figure more prominently in McDonald’s national advertising. Before then, these efforts were usually focused on the local or regional level. After two weeks of ‘‘national price point advertising,’’ the new national campaign began on April 25, 1997.
Dubbed ‘‘Campaign 55’’ for the year McDonald’s was founded, the promotion lowered the price on a rotating slate of sandwiches with the purchase of french fries and a soft drink. A similar deal was launched on a rotating basis through the chain’s breakfast menus. The value pricing plan was accompanied by a new advertising campaign, ‘‘My McDonald’s,’’ created by the Leo Burnett Agency, McDonald’s longtime ad partner. As the overall architect of the campaign, Burnett received the bulk of the ad work, although McDonald’s other roster shops, DDB Needham Worldwide and Burrell Communications, also received some assignments. The stakes were enormous. McDonald’s was luring its customers into restaurants with a 55-cent promise and risking their anger when they were hit with a $1.79 actual price tag after the mandatory purchase of fries and a drink. If consumers refused to accept the deal, they could view McDonald’s as having reneged on a promise. More importantly, the chain’s pursuit of sales volume came at the expense of franchisee profitability—a strategy that threatened to erode the sometimes tenuous bonds of trust between the parent company and its retail partners. ‘‘Campaign 55’’ would prove to be a marketing debacle for McDonald’s and its partners at Leo Burnett. When the dust settled, the landscape of two of America’s signature industries—fast food and advertising—had been dramatically changed.
In 1982 McDonald’s, citing the need for a bigger agency, jettisoned Needham in favor of its crosstown Chicago rival, Leo Burnett. One of Burnett’s first campaigns introduced consumers to the children of ‘‘Camp Nippersink,’’ solidifying the burger giant’s hold on the kids’ market. By 1988, however, the Golden Arches began a long-term effort to win the hearts and minds of the adult dinner crowd. One of the first campaigns in this initiative, ‘‘Mac Tonight,’’ parodied a familiar Brecht-Weillsong—to little apparent effect. The Arch Deluxe failure was thus only the last in a series of unsuccessful attempts to secure the adult market. That misstep, compounded by eight straight quarters of declining sales, prompted McDonald’s executives to rethink its marketing approach. The end result was ‘‘Campaign 55.’’
In a December 1996 memo, McDonald’s Chairman Jack Greenberg outlined the burger maker’s overall market strategy. He wrote of the company’s intention to ‘‘reenergize and focus . . . U.S. marketing efforts and develop a national value proposition.’’ It was a significant departure for a company that had always offered its price promotions on the local and regional level. In late February 1997, several senior Burnett executives met at McDonald’s Oak Brook, Illinois, headquarters to map out an advertising strategy for ‘‘Campaign 55.’’
At the same time, McDonald’s franchisees were being briefed on the new pricing strategy via closed-circuit television. Shortly thereafter, franchisees were given a chance to approve the national discount plan. At least 75 percent of the burger maker’s 2,700 owner-operators needed to give a thumbs-up in order for the plan to go forward. They did so, but not without trepidation. Many owneroperators viewed the pricing plan as a drastic, even desperate move and an overreaction to the sales slump. Some expressed skepticism about whether the ‘‘home office’’ had done the research to make certain this was what consumers wanted. Many of these reservations would prove to be prescient in the weeks and months to come.
On April 4, 1997, McDonald’s restaurants across the United States began offering 55-cent Egg McMuffin breakfast sandwiches with the purchase of hash browns and a drink. Three weeks later, on April 25, the promotion was expanded to Big Macs as well. Quarter Pounders were next up in the rotation, with their price reduction commencing in mid-June. McDonald’s dedicated $66 million worth of national advertising to the valuepricing plan, much to the dismay of some regional shops, which had benefited enormously when McDonald’s diverted $150 million from national to regional advertising in 1996.
As a national campaign with an enormous advertising budget, ‘‘Campaign 55’’ was theoretically aimed at all fast food consumers across the United States. But in a fast food market dominated by large chains, the real target was those consumers who had strayed to other burger purveyors on the issue of value pricing. In the late 1990s, fast food was one of the most developed sectors in the restaurant industry, with the fast food hamburger category being perhaps the most competitive; there seemed to be McDonald’s, Wendy’s, and Burger King outlets on most every corner. And consumers were using increasingly sophisticated criteria to decide where and how to spend their money. In this environment the goal for these companies was market share gain. McDonald’s aim with ‘‘Campaign 55’’ was to convince customers to visit its restaurants instead of its competitors. Very often a promotion like a price-cutting program can play a big part in convincing the customer. Wendy’s, with its 99-cent Super Value Menu, and Burger King, with its 99-cent Whopper and $2.99 Whopper Meal Combo, had stolen away some of McDonald’s pricing edge, and had scored notable market share gains. McDonald’s hoped that customers who had been wooed away by the promise of value would respond favorably to ‘‘Campaign 55.’’
COMPETITION
For quite some time, McDonald’s had understood the root of its troubles: smaller chains were using seemingly tastier, more diverse menus and shrewd marketing to eat into their market share. Burger King in particular relied on product-focused ads to score sales increases of 2.6 percent per store for the year ending September 30, 1996. While McDonald’s overall sales remained strong, the company felt it had to do something to stem the market share erosion. It responded initially by opening more restaurants. The thinking was that even if store volume did not increase, sales would go up because of the increased number of stores. In addition McDonald’s could collect more rent and franchise fees. But franchisees soon called for a halt in expansion. They found their own profits plummeting as new outlets opened up close by, cannibalizing their sales. A program to introduce new sandwich items, such as the Arch Deluxe, also failed. McDonald’s seemingly was left with no alternative but to slash prices.
As word leaked out about the nature of the promotion, industry observers began to fear a burger price war. The prospect of falling profit margins helped to depress stock prices for McDonald’s and its major competitors, Wendy’s International and Grand Metropolitan, the parent company of Burger King Corporation. Both companies rushed to announce that they had no plans to match McDonald’s price cuts. ‘‘We’ve attached ourselves to a strategy that states it’s not a great value if it’s not a great tasting burger,’’ said Andy Bonaparte, Burger King’s director of advertising.
While the Golden Arches was using its partnership with the Walt Disney Corporation to tie into that company’s 1997 summer movie releases, Burger King returned fire with adult-targeted tie-ins to the blockbuster film Jurassic Park: The Lost World starting on Memorial Day weekend. Ads for that onslaught were created by Ammirati Puris Lintas of New York. In a special promotion aimed at children, BK Kids Meals were offered with giveaway toys from director Steven Spielberg’sThe Land Before Time video series.
McDonald’s marketing officials expected the value price promotion to spur consumer traffic and nudge patrons into paying full price for the chain’s higher-margin french fries and soft drinks. Accordingly, the chain advised its franchisees to increase on-hand packaging and food supplies by 10 to 15 percent in anticipation of a corresponding hike in sales.
While the focus of the campaign was national, the media plan called for a window of local spot promotions in April 1997. McDonald’s envisioned ‘‘Campaign 55’’ as an integral part of a summer marketing blitz tied to the June release of the Walt Disney Company’s animated feature Hercules and the comedy-adventure film George of the Jungle in July. ‘‘Campaign 55 is not a short-term promotion,’’ declared McDonald’s spokeswoman Anna Rozenich. ‘‘It’s designed to increase restaurant profit and cash flow over a long period of time.’’ Indeed, the burger giant planned its marketing calendar around ‘‘Campaign 55’’ well into 1998, the idea being that every month or so a different sandwich would be featured at the discounted price. Initially, the price reduction was to be accompanied by a promise to offer the customer free food if an order was not served within 55 seconds. After complaints from owner-operators about the feasibility of this and all aspects of the marketing plan, however, this feature was abandoned.
Coincident with the April 4 price reduction promotion was the debut of the ‘‘My McDonald’s’’ national television campaign created by Leo Burnett. The commercials showed McDonald’s owner-operators and restaurant workers expressing the company’s core values. Its only seeming relation to the price promotion was the emphasis on the year 1955—the year McDonald’s was founded and when the ‘‘core values’’ presumably were formulated. ‘‘This is not in the least a price promotion,’’ remarked McDonald’s senior vice president of marketing Brad Ball.
The new strategy carried with it a number of inherent risks. First, it seemed to run counter to the economic trends of the day. With operational costs rising, a drastic cut in prices put McDonald’s two strikes down in the effort to spur profit margin increases. This was difficult, especially for franchisees, who had already seen their margins erode due to the company’s aggressive expansion program. Another risk McDonald’s had taken was embarking on a dual campaign. In doing so, they faced one of marketing’s toughest challenges: boosting sales while building a brand identity at the same time. There seemed to be little doubt that McDonald’s needed to do both. Superior brand advertising by Burger King and Wendy’s was having the effect of luring away once-loyal McDonald’s customers; the accompanying drop in sales meant McDonald’s had to sell more food. But the quest for a quick sales spike is not always consistent with the long-term goal of building a brand identity.
OUTCOME
Reaction to ‘‘Campaign 55’’ was sharply negative from its inception. Many observers were taken aback by the degree of discounts offered. Others saw the abrupt shift in strategy as a sign that McDonald’s was confused about its marketing direction. ‘‘For the past year, McDonald’s has bounced around in terms of its marketing strategy,’’ said Stacy Jamar, a restaurant analyst with Smith Barney, ‘‘from last year taking the high road with deluxe sandwiches to this year’s pseudo price discount.’’ ‘‘I don’t think it’s a viable long-term solution to the problem they have in the U.S., which is a product problem,’’ declared Damon Brundage of NatWest Securities. Indeed, many analysts saw ‘‘Campaign 55’’ as little more than a quickfix — a pricing gimmick designed to stop the decline in sales while the company scrambled to devise and implement a real solution to its long-term problems.
For a while, the burger giant ignored these brickbats. The program had achieved some success at the breakfast level, because it spurred sales of combo meals, raising the average customer’s bill. And in mid-May, McDonald’s announced that unit sales of its Big Mac sandwich had more than doubled since the price reduction. The company enjoyed its strongest comparable April store sales in years. But part of that boost could be attributed to a popular ‘‘Teeny Beanie Baby’’ toy giveaway promotion that same month.
While official figures showed a spike in sales, there was anecdotal evidence to suggest that restaurants were not, in fact, selling more Big Macs than when the promotion began. And any increase in traffic was offset by customer confusion about where the deal actually was. ‘‘It’s a price promotion that doesn’t tell you the price,’’ scoffed Ron Paul, an industry analyst and president of Technomics. His concerns were echoed by McDonald’s owner-operators. ‘‘I think it’s because the offer is confusing,’’ said Dick Adams, the chairman of an independent association of about 100 McDonald’s franchisees. ‘‘Customers come in expecting to buy a 55-cent Big Mac and they have to buy a conventional meal package.’’ Many customers complained that they did not realize they had to buy fries and a drink to get the 55-cent price deal on their sandwich. Some customers quickly learned to supplement their entree with just a small drink and small fries. Under this arrangement franchisees found they actually lost money.
The ad campaign also proved to be ill-fated. There was considerable confusion over how the pricing plan tied in to the brand-building ‘‘My McDonald’s’’ ad theme. As many analysts had predicted, the objectives of the dual ad campaign were not always complementary. While ‘‘My McDonald’s’’ tried to build up an image for the brand, ‘‘Campaign 55’’ seemed to drag that image down by concentrating on dollars and cents details. Finally, in mid-June, following an avalanche of bad press and a near revolt among franchisees, McDonald’s discontinued the lunch and dinner components of ‘‘Campaign 55.’’ The burger giant moved rapidly to devise a local price initiative to replace the national discount program. That move came as McDonald’s prepared to implement a decentralization plan that divided the United States into regions in order to allow regional executives more power to make marketing decisions. And in August 1997, the other shoe finally dropped on ‘‘Campaign 55.’’ Following a lengthy review process, McDonald’s dropped Leo Burnett as its lead national ad agency and awarded the bulk of the estimated $350 million account to DDB Needham. This closed the book on what analysts considered one of the biggest misfires in marketing history.
About the book:
Developed as a companion to the publisher's Major Marketing Campaigns Annual, this volume profiles 500 of the most notable marketing and advertising campaigns of the past 100 years. These campaigns cover the marketing of all types of products and services, each in two to five pages, with referral to other sources for further study. Riggs (who also edits the annual) has done a superb job of encapsulating the most important aspects of the campaigns, placing them in historical context, and identifying the target market, competitors, strategies employed, and outcome for each. The size of this collection allows for the coverage of a wide variety of campaigns and the comparison of campaigns and marketing strategies in similar product or service categories. Company studies are presented alphabetically, with campaigns ("You Deserve a Break Today," "Got Milk?") products, and individuals presented through the index.
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