McDonald's secret marketing sauce

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Rarely in U.S. history has a brand drawn as much debate over its imprint on marketing as McDonald's. Yet despite the chain's rich advertising history and the fact that it owns one of the world's most recognized icons, pundits seldom cite its marketing as the reason for McDonald's being, according to Interbrand, the seventh most powerful brand in the world.

Most of the credit instead goes to its unit growth; Mickey D's usually speedy and efficient operations rooted in QSC, or quality, service and cleanliness; and the business model built by Ray Kroc, the salesman who made the Golden Arches into a retailing powerhouse.

In looking back at all the moves-right and wrong-that McDonald's Corp. has made since its founding 50 years ago, the secret sauce for the hamburger hamlet over that time has remained its trinity of national, co-op and local store marketing. That so-called three-legged stool is the constant force that propelled the Golden Arches to become one of the world's most powerful brands and protected its image with consumers in hard times. It also has hobbled the company when one of those legs was weakened or absent.

"I don't think they've changed the edifice of marketing. They didn't create any new marketing concepts," asserts Phil Kotler, marketing professor at Northwestern University's Kellogg School of Management. He says public relations was really more powerful than advertising for McDonald's, particularly in its early years.

"If you're talking from 1957 to about 1966, yes on PR; after that, no," says Paul Schrage, former senior exec VP-chief marketing officer for McDonald's. Mr. Schrage, who retired in 1997, calls the early PR efforts "invaluable" for "endearing" the brand built around kids to the local community. But he and other former executives say McDonald's touchpoint marketing strategies are what defined the brand.

BURGER VS. MCD'S BURGER

"We said anybody could sell a hamburger but not a McDonald's hamburger," Mr. Schrage says. "A lot of things would go with it: the cleanliness of the stores, the friendliness of the people, the speed of service and the quality of the product."

From the landscaping to the tidy washrooms, all those things went into a McDonald's burger, he says. "After that, we always marketed on a three-legged stool. The thing that made McDonald's grow was that we were very aggressive."

"For me, it's always been about the moment of truth at the front counter and the drive-thru, and the customer experience and the restaurant," says CEO Jim Skinner. "It's one customer at a time, one hamburger at a time. I've got headlines I like to throw around when people start pushing the rocket science buttons around here."

Early on, one of the most important decisions that Multimixer salesman Ray Kroc made after he got his first McDonald's franchise from brothers Dick and Mac McDonald was to tap into the power of its "fishbowl" building design that made the concept a draw for kids. Believing that McDonald's was as much in show business as it was the food business, in 1957 Mr. Kroc hired entertainment press agents Max Cooper and Al Golin for $500 a month to promote the chain. The two spent much of their time placing stories about McDonald's, trying to make the name synonymous with hamburgers. One of their first coups was getting front-page news of Mr. Kroc handing out free burgers to Salvation Army workers in Chicago during the holidays.

"In doing those things in the early days, [Mr. Kroc] wanted to show that despite the fact it was a low-priced food item, [operators] would have the respect of the community if you really got involved ... and you would donate money to the local cause," says Mr. Golin, now CEO of PR agency GolinHarris, which has kept the McDonald's account since those early days. "I created the term `trust bank,' which is building up deposits of good will in this bank of trust and to call on it if you ever need it in terms of a crisis. And that was something that McDonald's believed in very thoroughly. McDonald's really set the tone for an industry that [at the time] had a very dubious reputation."

By 1959, franchisee contracts required that 2.5% of sales be allocated to promoting their business, according to John Love in his book, "McDonald's: Behind the Arches."

Expansion-minded McDonald's became a national advertiser long before it had enough stores to benefit from such a move. Mr. Cooper was advertising manager (today he's a franchisee with 44 stores in the Birmingham, Ala., area) when an NBC salesman offered McDonald's a quarter-sponsorship of the Macy's Thanksgiving Day Parade. Mr. Cooper took the idea to then-President Harry Sonneborn, who turned him down three times. "It always took three times," Mr. Cooper says with a laugh.

Mr. Sonneborn would agree only if the chain could have a marching band. "Macy's was furious," Mr. Cooper recalls. "They couldn't stop it. Our first buy in the Macy parade was 31/2 minutes and was $75,000 in 1965." McDonald's used the ad time for the national debut of Ronald McDonald as the chain's kid-friendly mascot. Sales soared, defying the chain's typical late fall sales slumber.

A year later for its parade band, McDonald's picked two high school All-Americans from every state and the District of Columbia to be on the squad. "The two winners were like local heroes like `American Idol,' " Mr. Cooper says. Then, it found the biggest drum at the University of Texas and had a new skin with the "McDonald's All-American Band" name placed on it.

AHEAD OF ITS TIME ON TV

National ads catapulted the brand into America's consciousness, and McDonald's was hooked on the tactic. "We were way ahead of our time on national TV," says Mr. Schrage. After seeing the success of pooling funds for co-op marketing, McDonald's in 1967 formed the Operator National Advertising Council, or OPNAD, with each franchisee contributing almost 1% of its topline sales. "If we hadn't formed it, growth would have been a lot slower," Mr. Schrage says.

Throughout the 1970s and '80s, McDonald's built the chain with mom and pop operators, doling out stores one at a time rather than with territories as competitors did. By competing with other local franchisees, operators put additional emphasis on local store marketing and promotion, like sponsoring a Little League team, participating in parades and running birthday party programs.

The corporate offices fed a steady stream of local marketing tools to operators and their local agencies. Corporate also began employing local store marketing reps to help guide franchisees.

By then, franchisees were contributing roughly 4% to support national and co-op marketing, plus whatever they spent for their own community relations. Franchisees have the option of how they contribute that 4%, and some use it entirely to promote their local stores, while others focus more on the co-op or national funds.

"In my experience, a few other systems might have tried to copy a few components, but nobody has ever matched McDonald's in terms of local store marketing on a chainwide basis," says Dick Adams, a former franchisee turned consultant.

Much of the local-community focus dwindled in the 1990s as priorities changed: building new stores, product development and national discounting. "Local store marketing doesn't produce instant results or measurable results, so if you're management, you're going to focus on OPNAD and the national message," Mr. Adams says. "You're not going to wait for franchisees to sponsor a Little League game." Managers also had less time to promote individual stores as the number of stores per franchisee grew from one or two a decade ago to about five today, Mr. Adams says.

During its period of rapid global expansion, the brand lost touch with its local markets. Many franchisees lost interest in community relations that didn't offer the immediate sales pop.

BUILDING THE `TRUST BANK'

"Local store marketing and reputation advertising were the two things that built the trust bank," says Roy Bergold, former VP-chief creative officer at McDonald's. "In the stores that did it, it's tremendously successful, but it's very difficult to get franchisees to do it because it's hard to do. They would rather rely on their co-op promotions and national promotions to carry it."

But this didn't presage a death knell for local clout. Today, as McDonald's faces growing scrutiny over childhood obesity, there's a renewed focus on grassroots marketing, such as youth team sponsorships, to overcome the image of a greedy multinational without a care for local folks' well-being. Most observers credit the late Jim Cantalupo with bringing back the focus on building sales in existing markets with a back-to-basics approach. When McDonald's roused Mr. Cantalupo out of retirement in 2003 to run the company, he slowed expansion and put the emphasis back into growing sales at each store rather than simply growing stores.

"I don't think anything had as big an impact on the strategic growth of the brand as when our strategic concept was to grow the visits more than to grow the stores," says Larry Light, exec VP-chief global marketing officer.

Mr. Cantalupo died of a heart attack on April 19, 2004, on the morning he was to address a franchisee convention in celebration of the revitalization, just 16 months after taking the helm.

Like a baby-boomer preparing for the golden class reunion, McDonald's under Mr. Cantalupo feverishly worked to transform itself with his "Plan to Win." One defining moment was in February 2003 when McDonald's met with all its marketing agencies and charged them with finding a way to communicate the new strategic direction of "Forever Young."

"Our brand character had to change in us from the child in all of us to the young adult every one of us aspires to be," Mr. Light says. The strategy focused on re-energizing the youthful spirit with employees first, then current customers and later lapsed customers. By that September, McDonald's unveiled its global "I'm lovin' it" campaign and its "Freedom Within a Framework" plan for localizing the concept.

"What it did was allow us now to have a much better seamless integration of our national message and our co-op messages, because we were all working from the same advertising and communication principles," says Bill Lamar, senior VP-chief marketing officer for McDonald's USA. "We are very well-coordinated and synergistic to a degree higher than any time in McDonald's history, and that's a credit to our agencies, both national and local."

The brand cut price promotion from 80% of the marketing mix to 20% in the past two years. "That's a massive change," Mr. Light says. "June 2003 was the first time in 10 years that we ran a Big Mac commercial without a price point, and sales of the signature burger went up 16%."

The effort also reversed a five-year trend of declining customer traffic, growing customer visits by 2 million per day (from 48 million to 50 million), Mr. Light says, adding, "The majority of those incremental 2 million visits comes from increased visits from our customers."

"I give Cantalupo all the credit for the turnaround," says Jack Trout, president of consultancy Trout & Partners. "It was a business strategy turnaround, and it gave them the momentum. I don't think marketing turned them around."

THINKING YOUNG, BUT OLDER

Mr. Trout does credit Mr. Light's work to shift the marketing target to young adults. "That's an interesting change of direction," he says.

At its half-century mark, McDonald's is still refining its three-legged marketing stool and its new marketing segmentation.

"We got our messaging out of balance in trying to focus on both moms and kids and also on young adult males," Mr. Light says. "We overfocused on moms; we didn't pay enough attention on young adult males."

Still, and especially today, what McDonald's has done better than anybody else over the years is establish consistency in its company approach to marketing, from local store marketing and co-ops to its "brand journalism" segmentation, says Chris Carroll, senior VP-director of marketing at Subway Franchisees Advertising Fund Trust, the co-op of the No. 4 fast-feeder.

"Everybody is in lockstep," he says. "Nobody is going to be great day in and day out for 50 years, but I think they've probably had more good years than everybody else, and when they get it right, they put a bigger hurt on everybody else.

"For a brand that big to go out and do that has been brilliant."

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