Marketing scrutiny: McD's talks tough with its agencies

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McDonald's Corp. is putting marketing and advertising programs under its most intense scrutiny in years.

"Our marketing and advertising hasn't been what it needs to be," said Bill Lamar, senior VP-U.S. marketing. "We have no latitude other than to deliver better advertising and marketing programs this year."

While he strongly denied speculation that the burger giant already has considered bids from non-roster agencies, Mr. Lamar wouldn't rule out a review as a last resort.

"If we don't deliver the results we need to deliver, the answer is yes," he said. "I haven't put anybody on review or anything like that. But there's no question that our agency partners understand that we've got to perform this year. We've got to deliver results."

quick delivery

And they need to deliver them quickly. Last month, the company posted its first-ever net loss and its ninth quarterly sales decline after 140 quarters of same store sales growth. With shares trading at an eight-year low (below $15), it's newly installed management team is eager to turn the tide and boost shares.

"McDonald's current problems go well beyond poor service and low marks for food quality," said John Glass, analyst for CIBC World Markets in a note to investors last month. "If there was a persistent shortcoming of previous management, it was consistent over-promising and under-delivering on results."

This week the top 10 of the fast feeder's 42 worldwide agencies will convene with McDonald's marketing brass at headquarters in Oakbrook, Ill., to address how to improve the company's advertising. Mr. Lamar was quick to point out that the goal of the meeting isn't a global campaign. He said the company has moved away from the brand promise "of being America's and the world's best quick service restaurant experience to be more America's and the world's favorite way and place to eat. The action word is favorite."

Already, the embattled chain has begun to rethink its earlier repeated attempts to contemporize its famed "You deserve a break today" theme. Instead, agencies will focus on how to keep brand McDonald's forever young (AA, Jan. 20).

`"You deserve a break today' isn't relevant" anymore, Mr. Lamar said. While he contends the idea that McDonald's offers a break still works with some customers for some meal occasions, "It doesn't fit what the vast majority of customers are looking for from us the vast majority of the time," he said.

While capturing meal occasions is still a major corporate strategy, Mr. Lamar said that McDonald's can't be a leader in every meal occasion. "We're competitive in about two-thirds of meal occasions," he said.

focus shift

Moreover, instead of segmenting its customers by meal occasions, the chain is shifting its segmentation focus to customer loyalty. Be it a working mom grabbing lunch on the run or that same mom on a weekend shopping spree who's ready for a place to snack and relax, "our offering can be very relevant to her for that need," he said.

McDonald's also plans to focus on core equities like the Big Mac, Quarter Pounder with Cheese and Chicken McNuggets. It soon will begin testing an all-white-meat nugget and may revive the "Big Mac Attack."

Not surprisingly, the chain is again focusing on two key customer groups: young adults and families with kids, with its subgroup of moms. "We're looking at their attitudes, thoughts and beliefs to understand them better so we're more relevant to them," Mr. Lamar said.

"The difference between success and trouble for McDonald's is about 5% or 6% more or fewer visits," he said, adding that in the U.S. transactions in 2002 were down 1.7%. "We know there are some functional, tangible benefits that we have to deliver on to have that person visit us one more time in a month," he said. "We get tons of visits, but how do we get one more visit?"

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