February 14, 2013

McDonald's in Rome – Taking on the pizza

The WBS MBA face-to-face Marketing course in Rome was invaluable. It comprised 3,5 days of theory covering various methods and tools and applied group work, as well as 1 day (on day 4, with some evening research work the night before) for a group assignment. The assignment represented 20% of the Marketing module’s final result, so getting a good mark for it is certainly beneficial.

What we had to do remained a mystery until the late afternoon of day 3. The task was to identify a business or organisation in Rome that we considered to be ‘good at marketing’ and justify the selection. We then had to conduct research to substantiate an assessment of how well they understand their customer, while evaluating if and how well their marketing mix works. Providing some recommendations for improving their success within the market was also suggested.

By this time our group had worked together on four case studies and we spent the evening before having dinner in the city of Rome, trying to conduct blind research on a topic we had no knowledge of. Within the group development sequence of forming, storming, norming and performing, I would say we were right in the middle.

Choosing the assignment topic

Our first task was to brainstorm a few potential organisations. The list included Ferrari, a football team, the Catholic church, Prada, a gelato store, the Spanish Steps, the Vatican and even the Crowne Plaza St Peters (where the course was being held). While there were some decent candidates we kept scrutinising the ‘good at marketing’ requirement and also considered how easily we could conduct certain research online. We also wanted a brand that most of the audience would immediately recognise. The result – McDonald's.

We pitched it to Prof Lloyd Harris and it caught him by surprise. His comments seemed to echo our initial thoughts. Why go for a non-Italian business? There’s a risk there. It could pay off. Our response to these thoughts was that McDonald's would have a continuous battle to promote convenience and burgers over a culture that clearly promoted (perhaps myopically) slow food. One of the group members suggested that Italy, and specifically Rome, is all about the three Ps – Pizza, Pasta and Panini. (I have recently discovered the fourth P - Peroni!)

Our quest involved finding out why and how McDonald's was Taking on the pizza. That became our tag line.

Distributing the workload

We split our group of nine into two subgroups: the first focused on researching and assessing the customer segmentation and understanding piece; the second focused on evaluating the marketing mix. I was part of the marketing mix team, where the four of us each took one of the Ps – Product, Price, Place and Promotion. Our ultimate goal was to research and analyse the Ps, compile slide content, compile presentation notes, think of potential questions we could get asked by the audience, and provide references for the statistics and quotes we used.

Managing time

We decided to do some work individually and to review and critique the consolidated version as a group. We set deadlines for individual research to be handed in, for slide content to be prepared, for the group reviews, and for dry runs. We spent the evening of day 3 covering ideas, research and some slide content. It wasn’t a late night. We must have gone back to our rooms by 23:00 (ish), whereas some groups were up for much longer. A suggestion for future attendees – get through as much as you can the night before. The time on the morning of presentation day flies by so quickly.

In the morning, we took stock of slide content we were missing and spent a couple of hours filling the gaps. As a group we edited, added and cut lots of content on each slide for about 1,5 hours and then performed a quick colour test on the projector. Since we were using a McDonald's theme, some of the arrows and box colours needed to be changed – the yellows and oranges were not the best option for a projector.

We took an hour for lunch, taking a break from the think tank to recharge and release some stress. It was a great idea to eat outside at a nearby café, as the fresh air and sunshine certainly lifted my spirits. It also gave us a chance to compare panini prices in a suburban cafe.

We then spent the balance of the time (about 1 hour) doing dry runs and refining our timing. The presentation was meant to be 15 minutes long, so we aimed for 14. The slide deck already contained about 12 slides so we knew we were pushing it. The delivery had to be timed to perfection.

The content

This is the basic concept of what we conveyed as our assessment of McDonald's in Rome. It's split into the main topics we discussed.

Customer

The two main target markets we identified were local teenagers/students and tourists. An additional set would be families, which we suggested could be targeted more aggressively by pushing the healthy menu options. A Happy Meal Sport Camp is one sign that McDonald's in Italy is trying to promote a more active lifestyle.

We discussed demographic and psychographic profiling of the desired customer segment and looked at how they created local celebrities (through advertising) and menu items devised by a Michelin star chef to become more adaptable and more appealing to Italian customers.

Feedback and interaction with consumers is also encouraged through the Italian Facebook page.

Product

McDonald's retained the international menu options for the tourist market, and to attract locals who wanted to try the world-famous burger and chips combo. They also introduced varieties for the local palette; including panini-styled burgers or sandwiches, a McItaly burger, mozzarella sticks, a parmigiano snack, and some new healthy items such as cherry tomatoes and kiwi on a stick.

The Italian coffee and sweet culture is reinforced through the hundreds of McCafés in Italy and some of the stores feature gelato bars.

Local sourcing of ingredients is favoured, which helps their image on a public relations perspective and from a societal marketing concept point of view.

Price

We used the Big Mac Index (BMI) to describe how Rome is priced better than some developing cities and countries but higher than many Western cities. The 2009 BMI suggested that people in Rome need to work for 25 minutes to earn sufficient funds to purchase a big mac. Another January 2013 Economist reference indicated that the Big Mac is priced highest in Italy than in other parts of Europe.

bmi.png

We also identified that McDonald's has only 2% market share of the fragmented Italian fast food market but that it dominates the chained fast food market with 64% market share.

Place

Store locations are consistent with the global approach of obtaining high-traffic, convenient locations. The first store opened in 1986 in the region of the Spanish Steps (under much protest) and sits amongst some luxury brands.

Some 40+ stores are located in the greater Rome area and 450 stores exist in Italy. McDonald's also partnered with Agip (now Eni) to introduce drive through fast food at petrol station locations.

Using their usual model, some stores are company-owned and others are operated by franchisees.

Promotion

With 527,000 likes and 44,000 people talking about the brand on Facebook, and the 522,000 video views on YouTube, McDonald's is definitely tapping into the consumer base and obtaining feedback and input. Some of the sales promotions feature on those channels (e.g. the Family Meal).

They are also good at maintaining a positive image with the local/governmental authorities through their transparency with regard to corporate social responsibility and green approach. For the families, they have a range of menu items that include fresh fruit and vegetables, such as the cherry tomato side or the kiwi on a stick. The kids also have an option to take part in the Happy Meal Sport Camp, an outdoor activity group encouraging exercise and fun.

McDonald's had to shape the market as similar eating options weren’t popular when they arrived. This required campaigns that appealed to the local teenager and student market, but also on word-of-mouth which is a key social marketing phenomenon in Rome.

In terms of advertising, they created local heroes (who recently appeared at a brand-organised flash mob in the city) through a talent show styled series of commercials. For the tourist market, they also rely on international advertising and brand awareness.

Recommendations

We made a few suggestions but the key one was the idea that they could sponsor tourist maps that showed the locations of the restaurants. By placing city maps in hostels, hotels, airports and bars, tourists could easily identify where the closest McDonald's restaurant is, while navigating their way around the famous landmarks.

A second suggestion that stood out was to conduct a trial of a delivery service (possibly in conjunction with a mobile phone application for order capture) to local universities and hotels.

Delivery of the presentation

We were called first. It was the second time in the week of case studies that we had to present ahead of the other six groups. The advantage though, is that we could relax afterwards and watch the other groups in action without stressing about our turn.

We had four presenters (Anthony opening and covering the customer piece, Janet covering the product and price section, me covering place and promotion, and Khalid closing with recommendations). Stefan (who owned price), Laura (who owned place) and David (who worked on customer) were on standby for Q&A. Tarynn (who worked on customer) made sure the presentation was running as expected and Fahad (who worked on customer) sat in the front row to signal time checks to each presenter. It worked. We closed in 14 minutes and 40 seconds.

Feedback from the group

We caught the audience by surprise. Many mentioned that they were surprised we had chosen an international brand as opposed to an Italian one.

The feedback received from Prof Harris was valid and allows us to see where some bad decisions were made in the compilation process, or where we had simply forgotten to include some concepts. For starters, we should have discussed the extended marketing mix - all 7 Ps (which includes People, Process and Physical Evidence). Since McDonald's has a clearly consistent process in their stores (the eat-in experience, the counter order taking service) this should have been highlighted and compared with Italian expectations and concerns.

Likewise, People is a reference factor as the staff in these stores and the franchise owners are what make the process run smoothly. The other aspect – Physical Evidence (or environment) – is that some of the stores incorporate the essence of Rome (and Italy) by way of buildings, location, and atmosphere or store fittings.

McDonald's has succeeded in combating (and possibly incorporating) the Slow Food Movement by creating a ‘Cool place to hang out’. The décor is also unique. The store at the Spanish Steps is featured in YouTube videos taken by customers that show off the marble steps and large paintings. The Milan store in Galleria Vittorio Emanuele II incorporated the grand colour scheme of its surroundings (before it was forced to close).

Reflection on the process

In hindsight (which really is a wonderful thing), we should have covered all 7 Ps. Our fault was based on our focus to limit the number of slides, which allowed us to convince ourselves that the other Ps were embedded within the first four.

Overall, the experience was very rewarding. Working with the group, learning from each other and obtaining useful feedback were positive factors. Watching and interacting with the other groups (including the case study sessions) also gave me more of an appreciation for some of the brands out there, including Bulgari, AS Roma, Baffetto Italian Restaurant, Munster Rugby Club, Burberry and Xerox.


February 13, 2013

Segmentation, targeting and positioning

Following on from the buyer behaviour post, let's look at understanding the customer.

The 4Ps - Product, Price, Place and Promotion - will help us understand how to take the product to market. For now, we need to understand which type of person, organisation or entity we consider to be a customer (or potential customer).

In the coffee example, the first thing to consider is which type of coffee we are offering. Let's try instant caffeinated coffee granules sold in a tin.

Who would buy this? I'll assume a range of individuals of varying ages. Are some age groups more likely to buy? Would we target students? Can they afford our product? Can they afford it regularly? What about professionals? Would they prefer filter coffee, or freshly ground coffee? Do the preferences differ based on their income? Does the type of job make a difference? What about their nationality, or the city, suburb or country they live in?

All sorts of questions could be asked, and should be asked, in order to understand who the target customer is. This process is called Segmentation. Selecting a segment of the population that fits the profile of customers we would like to sell to, or that we believe to be likely buyers of our product. For some products you may do segmentation as a responsive activity, once you have observed who purchased and consumed your product. This helps you to target similar people in the next sales cycle. In other cases you may have a new product being introduced and wish to carefully profile and advertise to a target customer base. An example is a premium coffee blend, high-end coffee machines, or even exclusive jewellery, watches or cars.

Segmentation could be based on demographics (age, gender, income, household size, nationality, etc), location (city, country, etc), behaviour, lifestyle, attitudes, beliefs or a combination of these. When conducting field market research for a leading South African research company, I quite often had to search for individuals of a certain age, within an income band, living in specific suburbs, with a certain number of household members. In the coffee example we also have to consider that organisations may also purchase our product for use in their staff kitchens, canteens and meeting rooms. These potential customers would have additional characteristics we could use in the segmentation process.

Targeting refers to the way in which we rank the different segments, choose which ones to focus on, consider which resources we provide for each target segment and the approach we intend to use to target that segment. We may be constrained financially or may not have enough people to carry out advertising campaigns and other activities, so we only focus on one segment initially. We may realise that different promotion campaigns, pricing, or even product variants (labels, sizes, packaging, etc) may be required for the different segments.

A positioning strategy will uncover why the customer should choose our product. We need to identify our unique selling point, if one exists, or establish if we offer the customer more for their money, less for their money, or if it's the same as competing products. If we understand where we fit in the current market (how our coffee product compares to others that are available) then we can look at unique ways to promote the brand, and start to create areas of differentiation that make our product stand out.

While the customer should be at the centre or every aspect here, the positioning is critical to get right. If we understand how we differ from the rest it gives us the foundation to choose the right words, images, symbols, celebrities, etc in any customer-facing collateral. We could have the best product in the world but if the messaging is not right nobody will ever find out because they won't buy it.


February 11, 2013

Buying behaviour and the hunt for coffee

Day 3 with Prof Lloyd Harris in Rome and this morning we covered buying buyer. Although the concept applies to both B2C and B2B scenarios, it’s much easier to relate to the consumer thought process as we’ve all been consumers of products and services at various times in our lives.

Let’s take a highly consumed product, coffee. The first thing to consider is which type of coffee a business is offering. Are we the coffee producer? Do we make instant coffee, or another type? Who drinks our coffee? How do we attract them? This line of thinking is covered in the concept of segmentation, targeting and positioning (which you can read about shortly).

Let’s assume the role of the consumer. We like coffee, or we like to have coffee in our houses to give to guests when they visit. Coffee is a social drink, so we are likely to associate it with good times, positive experiences, and happy memories. We think of friends or colleagues, and also consider their feedback on whether they enjoyed it, despised it or were impartial to the different types of coffee they have consumed. Our buying behaviour is immediately affected by experiences and the thoughts of various influencers in our social circle.

Apart from social influences, the buyer is also affected by a range of cultural influences (is coffee drinking a norm, or do we usually drink tea?), personal influences (do I prefer instant or pod coffee?) and psychological influences (perhaps a belief that caffeine is not good for you).

These factors then affect every stage in the buying decision making process. Usually, this decision making process starts with identifying a need. We have run out of coffee. We need to get some. An information search may be required in some scenarios where high (or low) value items are being purchased but this may not always be required. We may be so accustomed to buying a regular brand or product that we don’t need to search for information about the various options available. Then again, a promotional advert in the local newspaper may surprise you with a 50% discount promotion, which completely affects your loyalty to your preferred brand.

Once the alternatives have been considered we may already be in-store and standing in the coffee aisle. The purchase decision (which should at this stage be easy) could be further affected by stock availability, price, shelf attractiveness, product (or label) attractiveness, new products, in-store promoters (humans trying to get you to taste a sample), combination promotions where competitions could be entered or other goodies could be obtained for free, or some random occurrence that sways our confidence. Hopefully, you end up buying something and, ideally, it's a jar of instant coffee as you initially intended!

This may seem like a common sense or simple process, but it's actually a very complex thought process that we digest very rapidly, often subconciously. The interesting concept is that this same purchase could consist of a fresh set of steps and decisions the next time you need to buy it.

The level of complexity involved in buying could then be expanded to scenarios where the decision making process and factors are much more evident, such as buying houses, cars, airline travel, holidays and other more high cost items.


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