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On Monday, Julie Jargon from the Wall St. Journal wrote about the business challenges facing Burger King, in an article entitled, “As Sales Drop, Burger King Draws Critics for Courting ‘Super Fans’“. In a business that ought to be counter cyclical, Burger King had just reported their second quarter of comp store declines (-4.6%), while McDonalds continues to show business growth. Part of the reason, the article says, is that Burger King may have “relied too heavily on customers that may be permanently changing their habits.” Burger King, you see, focused much of their advertising and marketing budget on “super fans,” those customers 18-34 years old who account for half of all visits to the Burger King restaurants (almost 10 times per month).
The company launched a series of irreverent TV and online ads featuring their “big headed King character,” designed to appeal to this edgy, fast-moving audience. Burger King refused to address needs of other customers, as identified by their franchisees, particularly of moms and children, such as improved desserts. Now BK results have fallen off and the franchisees are in revolt.
The interesting question raised by Burger King’s challenges is whether a strategy that focuses on Best Customers can inadvertently lead you down the wrong path, toward alienating other customer segments. Then, when the Best Customer business begins to soften, you are left with few viable alternatives.
Let’s break down Burger King’s strategy, as we can tell from the Journal article. First, the company decided to focus product development on items that would appeal to their Best Customers. Hard to argue with that approach, right? But it appears that they did so myopically, failing to create new products that would appeal to any other segment.
Learning #1 — Focus the greatest share of your product development on Best Customers, but do not exclude other segments as well.
Second, the company chose to segment their customers primarily on highest frequency, and then craft their business model to appeal primarily to that segment. Are the highest frequency segments the only segments to target? If loyalty is defined by a behavior we call retention and an attitude we call preference, then perhaps the mom/child segment might be considered loyal as well, deserving of targeted treatment as well.
Learning #2 — Be careful of how you define Best Customers, lest you alienate other loyal customers as well.
Finally, Burger King reached out to their heaviest users with a mass media campaign that was considered effective for the audience, but potentially ineffective against other loyal segments as well.
Learning #3 — A Best Customer focused strategy is most effective when it is targeted directly to those customers through direct mail, email, web site and social media. An overly restricted focus in mass media leaves out other critical segments by definition.
So, while Starbucks is a tale of reinvention and customer connection (my previous post), Burger King is a cautionary tale. Segmentation is best applied with targeted media and communications, and for broader reach impact (mass media and products), give great care to make sure to increase appeal to targeted segments while still maintaining a solid base. Otherwise, you might find yourself, like french fries, in some pretty hot oil!
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Great article!
We’ve recently been doing a lot of “Uplift modeling” for direct marketing, which gives an interesting perspective on this question: we find that you should typically be marketing much less to the Best Customers (who’ll buy anyway), but instead focus on the “Persuadables” on the margins where your marketing can tip the balance.
Historically marketers tried to predict which customers were most likely to buy after receiving a direct mail piece (or email or phone call). Unsurprisingly, the Best Customers tend to score very highly in such models, and thus are heavily targeted in subsequent marketing. But this may not be effective in getting them to buy more (how many times a month can you eat at Burger King?!), and can even end up over-saturating and driving them away.
More recently, direct marketers are warming to the idea of Uplift modeling, which instead tries to predict how much the marketing effort *increases* (or decreases!) each customer’s likelihood to buy, as compared to no marketing. Best Customers often don’t score nearly as high: because they’re going to buy anyway, we don’t need to invest in extra incentives for them (in fact we often label them as Sure Things). It’s much better to go after customers on the margins (who we call Persuadables) where your targeting can have a real impact. You also want to avoid the “Lost Causes” (who will never buy) and especially the “Sleeping Dogs” who would have bought until your marketing pushed them away (by annoying them, or giving them an opportunity to make a considered decision and shop around).
More at our website.