TACO BELL AGAIN POISED TO CHISEL AWAY COSTS

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Our competitors have figured out value pricing, so I think it's time for Taco Bell to make its next big move. Just when they all think that we stopped, maybe we're going to fool them and come back and take another cut like they've never seen before. Make 'em hang by their fingernails."

Them fighting words come from John Martin, Taco Bell's CEO, who believes that nothing less than a total reinvention of the PepsiCo subsidiary will enable it to be ready for the next wave of price cuts. What Mr. Martin wants to do, he told Forbes ASAP, is to give Taco Bell customers 40 cents of food for the dollar vs. the industry average of 27 cents.

Taco Bell's entire operation has been turned inside out to squeeze costs. Mr. Martin told Forbes ASAP that lowering margins is "a noble cause" because everything Taco Bell does is aimed at giving more to the customer. Advertising costs went down because of this single-minded pursuit.

Taco Bell had to spend 8% on advertising "when we had a consumer proposition that was the same as everybody else. But if you have something better, you don't have to spend as much." So ad costs have been cut to 5.5%.

Forbes ASAP is about technology in business, and Mr. Martin talked about how Taco Bell borrowed ideas from other industries. "We don't have to go out and invent new technology. We were an industry that had ignored and shunned technology. As restaurateurs, we think we personally have to shred the lettuce and we have to wash the dishes. But people like Susan [Cramm, Taco Bell's VP of information technology] would say, `Wait a minute, John. They've been doing this with technology in the pharmaceutical business for 15 years.' We don't even have to take a big chance. We just need to go out and figure out how we can apply some of these things in our business. That was the core of it."

Another way Taco Bell uses technology is to outsource "all bad work," Mr. Martin told Forbes ASAP-"any work that isn't internally motivating and where we can't provide career paths."

So outsourcing is more for cultural reasons. "We expect to get a financial benefit from outsourcing, but even if it's a financial push we know it's the right thing. It gets us focused on innovation."

The "consumer proposition," as Mr. Martin calls it, allowed Taco Bell to "loosen the organization" and focus on things like reengineering and changing how it does business.

How marketing has changed. It used to be that the marketing department's job was to figure out how to sell what the manufacturing department made. Now the entire enterprise is driven to support the marketing proposition. As John Martin explained it to Forbes ASAP: "When people clearly understand that they're doing this for the consumer, that's a lot different from saying, `I'm doing it for shareholders or so that Martin's office can be nicer."'

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