Redefining Value

Abstract

The February 1997 announcement by McDonald's that it will slash the price of its Big Mac sandwich to 55 cents (bundled with other items) was a surprise move intended to stem market-share losses to competitors Burger King and Wendy's. The announcement represented a major strategic about-face for McDonald's, which has formerly employed mostly nonprice-related strategies to sell its products. The deep discount entails a risk that McDonald's brand value will drop in consumers' estimation. Moreover, the chain will have to substantially increase sales to offset the revenue lost from the discount. The irony of discounting is that it does not always drive demand, but instead merely represents a windfall to demandinelastic loyal customers. Instead of discounting, McDonald's and its competitors usually employ non-price tactics to differentiate their products-giving them the liberty to set prices higher than they might otherwise be able to achieve. McDonald's and its competitors already have used most of the panoply of non-price strategies, which include offering quantity discounts, charging different prices for different meal periods, and bundling products to raise check averages. The so-called "Campaign 55" announcement by McDonald's may be a signal that the company has reached a plateau in its product life cycle. If that is true, the company must now develop strategies that will lead to a "rebirth" of the chain in consumers' minds, whether by menu or product changes, service refinements, or an adjustment of the value equation. The goal for McDonald's, now that it has called attention to pricing, is once again to disconnect consumers' buying behavior from price-related concerns.