McDonald's CMO Bullish on Tiered Value Menu Amid Competition

Can winning back customers be as easy as 1, 2, 3? McDonald's is about to find out.

The Golden Arches kicked off the national marketing of its new $1 $2 $3 Dollar Menu on Jan. 4 with traditional and social media campaigns meant to educate customers about its latest value play with humor.

The lineup of four items each at $1, $2 and $3 could help the leading restaurant chain win back customers it admits have headed elsewhere. One often-quoted statistic from McDonald's came at a March investor meeting when executives said the chain had lost 500 million customer visits since 2012.

Since then it has remodeled more U.S. restaurants, rolled out mobile ordering, started delivery with UberEats and updated its menu with items like popular buttermilk crispy chicken tenders. And it seems to be working: McDonald's posted a healthy 4.1 percent increase in comparable sales in the third quarter. Now, it's out to win back more of the customers who haven't visited or visit less often.

"The business objective was to really bring back consumers that we know we've lost over the last few years because we have not had consistent national value," says U.S. Chief Marketing Officer Morgan Flatley.

Visits to McDonald's longstanding U.S. restaurants fell in 2013, 2014, 2015 and 2016, then rose in the second and third quarters of 2017. (Full-year 2017 data is not yet available.)

McDonald's needs to use its industry-leading marketing budget (it spent nearly $1.46 billion in 2016) to entice people in an increasingly price-focused U.S. fast food market. Chains including Taco Bell and Wendy's, aware of McDonald's plans for the $1 $2 $3 Dollar Menu, introduced new or updated low-priced offerings this month.

"What I feel is really unique and compelling about this offering is just the breadth of the menu and the multiple price points and the simplicity of it," Flatley says of her chain's strategy. "I think we always have to be aware of competition but I also will say we're very focused on running our play and I'd say very bullish on our play."

TV spots began airing this week. A 15-second spot gives customers the basics.

The campaign, which includes TV, radio, digital and social elements, has storylines meant to be funny and relatable.

A 30-second spot shows how to budget-consciously replace lunch swiped by an officemate.

One is meant to get parents thinking of McDonald's Happy Meals, which are now $3.

And a fourth suggests McDonald's items make a handy replacement for a tailgate trip that takes a turn for the worse.

The main creative campaign comes from McDonald's dedicated U.S. agency We Are Unlimited.

There's also a social media sweepstakes push from McDonald's longtime public relations agency Golin. A Jan. 10 Facebook Live event recalls a 1970s game show, complete with a studio audience and those long, skinny microphones. The hosts are actor Alfonso Ribeiro and game show star Wink Martindale (yes, the one from Tic-Tac-Dough and other shows) and includes giveaways of $1 $2 $3 McDonald's cards. Other prizes are available in a social media photo sweepstakes.

At first, the campaign will run for about six to eight weeks and will be supported later in the year, as well as into 2019. "It's one that we are not going to walk away from," says Flatley.

The menu has a mix of products. For $1, there's a sausage burrito, McChicken, cheeseburger, or any size soft drink. For $2, there's Sausage McGriddles, 2-piece Buttermilk Crispy Tenders, Bacon McDouble, or a small McCafé beverage. For $3, there's the Sausage McMuffin with Egg, its new Classic Chicken Sandwich, the Triple Cheeseburger, and the Happy Meal.

"Strategically, we wanted to make sure we were choosing items that really would bring consumers back to McDonald's," says Flatley. The items on the $1 $2 $3 Dollar Menu may change over time. Another big push from McDonald's this year is going to be its "hot off the grill" fresh beef, which will also get big support from Flatley's team.

Some already say the menu, out since late December in some locations but officially launched Jan. 4, should succeed. Cowen and Company analyst Andrew Charles said he now expects McDonald's U.S. comparable sales to rise 5 percent this year, up from a prior forecast of 4 percent, driven by his "increased confidence" in the launch of the new $1 $2 $3 Dollar Menu. He raised his target price on the stock, currently trading around $174 per share, to $200 (up from $185).

Meanwhile, Wendy's has new ads for its expanded 4 for $4 value meal. Wendy's introduced the 4 for $4 in October 2015 with a Jr. Bacon Cheeseburger, chicken nuggets, fries, and a drink. Now there are eight sandwich choices. Taco Bell is promoting the variety of $1 items it sells and will introduce $1 Nacho Fries on Jan. 25. Burger King's current deals include two for $6 crispy chicken or Whopper sandwiches, as well as 79-cent sausage biscuits.

The $1 $2 $3 Dollar Menu is just the latest price-focused play at McDonald's, which introduced a Dollar Menu with eight products priced at $1 each back in 2002. In March 2012 it shifted to an Extra Value Menu with items up to $2, which did not meet sales expectations. It began advertising the Dollar Menu & More in November 2013, with items at $1, $2, and $5. Then, the McPick 2 value menu debuted on Jan. 4, 2016, letting customers pick two of four items (McChicken and McDouble sandwiches, mozzarella sticks and small fries) for a total price of $2. The McPick 2 menu has rotated in the past two years and has included bigger items and pricing, such as McPick 2 for $5 with items including the Big Mac and 10-piece McNuggets.