The Era of New Brand Leadership:

We are experiencing three over-arching colliding forces: increased globalization, increased localization, and increased personalization… all happening simultaneously. Even though the world feels closer, brand leaders cannot ignore the increased importance of relevant local differences and the compelling desires for personalized experiences.
How can organizations build strong brands in this more global, more local and more personal world? Globalization represents coherence, reliability, and certainty. Globalization addresses collective, shared truths such as hunger, family, status, performance, and acceptance. Yet, as the world becomes more global, people become more protective of local differences. Brands need to behave respectfully relative to geographic, country-specific, community-oriented, neighborhood-focused variances. Customers resist standardization and fear homogenization. Personalization respects each of us as individuals: personalization addresses our individual needs and our individual differences. It enhances our aspirations for respect, status and positive self-image.
Brand success will be determined by how well organizations manage at the intersection of these three forces of globalization, localization and personalization. Enduring profitable growth in today’s world requires a new marketing approach: The Collaborative Three-Box Model. The Collaborative Three-Box Model is an organizational mindset responding to the current challenges. Marketing has evolved from 1) global standardization: the One-Box model that focuses on global brand standardization of product, strategy, and marketing worldwide; to 2) the “Think Globally. Act Locally.” approach: a Two-Box model enforcing a common, central strategy where regions have responsibility for global execution of the common strategy… and now to the most effective approach, 3) The Collaborative Three-Box Model.
The once popular standardized approach to global marketing recommended that a global brand should be the same everywhere. Marlboro and Coca-Cola were used as iconic examples as the way forward. British Airways adopted this standardized marketing approach with the launch in 1989 of their global slogan, The World’s Favourite Airline. According to this model, global brands are squeezed into a standardized, single brand box. With the One-Box Model local markets merely executed directions from central headquarters. This resulted in globally centralized and locally indifferent organizational cultures. In a fragmented, segmented and fractionalized world, homogenization of marketing thinking is a formula for brand sickness.
For most brands, the limitations of The One-Box Model led to the development of The Two-Box Model: “Think globally. Act locally.” Marketers recognized a need to respect local differences and to execute global brand strategies in locally relevant ways. Regrettably, this approach often became just another means for the center to keep control. We will do all the important strategic thinking at the global center. You merely execute what we say in local ways. It was a hand-off model that merely transferred central brains to regional brawn. As a result, there was no accountability. When the results were poor, the center complained that the brand strategy was poorly executed. At the same time, the regions complained that the poor strategy and lack of resources to implement the poor strategy were the reasons for failure. No one felt responsible. No one took accountability.
Global brands and the organizations that own them need to adopt a new, collaborative approach. The Collaborative Three-Box Model is a shared responsibility model. The Collaborative Three-Box Model focuses on making brands and organizations bigger, better and stronger. It is a strategic and organizational approach and mindset that:
Clarifies the role of the global teams and clarifies the roles of the Regional/Local teams
Generates a collaborative brand-business culture
Stimulates and activates a return on global learning
Creates Brand Frameworks to guide brand actions
Encourages regional and local creativity within the Brand Frameworks
Builds internal pride and accountability in all brand functions worldwide

The Collaborative Three-Box Model provides structure and processes and also properly allocates responsibilities so the central global teams and the local/regional teams know what each has to do and for what each team is accountable. Each Box has a series of procedures with corresponding, essential tools that must be followed.
Here is a brief précis of The Three-Box Model:
Box #1: Create the brand’s common global ambition, its vision of perfection. A brand’s global ambition crosses geography. Global brand leadership has the ultimate responsibility for this step with the input of the regions. The responsibilities are shared 80% global and 20% regional/local.

Box #2: Define the global brand Plan to Win. The Plan to Win is built by defining the priorities for each of the 8 P’s: Brand Ambition (Purpose, Promise), Action Priorities (People, Product, Place, Price, Promotion), Measurable Milestones (Performance). The responsibilities for developing the Plan to Win are shared 50/50 between global and regional teams. This cross-functional team requires complete collaboration and trust. Box #2 sorts out the priorities and provides direction for successful collaboration. This team also defines the Brand Framework. This Brand Framework specifies the non-negotiable boundaries that guide all action on behalf of the brand.

Box #3: Bring the brand to life. This must be the responsibility of the local/regional teams. It is the local responsibility to create regional/local plans because all results are local. The regional/local teams must creatively implement the Plan to Win in creative, locally relevant ways. It is important to note that all local/regional creativity must be within the Brand Framework and in sync with its brand ambition from Box #1. We call this approach Freedom Within the Framework. In Box #3, responsibility is 80% regional/local and 20% global.
The new Collaborative Three-Box Model means that marketers must abandon the idea of “Think Globally. Act Locally.” Local marketers must “think locally, not just “act locally.” Local marketing is not just about implementing the ideas from the remote, central big thinkers.
Using cross-functional, cross-geographic teams, The Collaborative Three-Box Model reorganizes relationships between global and regional teams. It optimizes and restructures their roles and responsibilities. By properly assigning accountability, this new Model celebrates the fact that regional teams know the local customer best. Regional/local needs must be catered to while keeping the integrity of the brand intact. Reading lists may be different by country, but the Amazon brand retains its brand essence even when delivering regional and personal relevance. There is no question that in a world where there are three colliding forces of increasing globalization, localization, and personalization, organizations must build global brands that are both locally relevant and respect personally differentiation if they want to experience high quality revenue growth,
The Collaborative Three-Box Model is more than a mere process. And it is more than marketing communications. It is the best way to run a global business. How you run your brand is how you run your business. The Collaborative Three-Box Model is a business culture. When there is a conflict between culture and strategy, culture always wins. The Three-Box Model is how we will work together better worldwide. It is the best approach for managing the tensions that arise from global and local decision rights, clarifying the role of the center relative to the role of the regions. It is the best approach for managing at the intersection of globalization, localization and personalization.

 

The Four-Year Trend That is Killing McDonald’s

It is all about traffic. For all the fanfare about All Day Breakfast, McDonald’s (NYSE: MCD) in the USA has not been able to stem its steady four-year decline in customer traffic. Guest counts have declined for over four years. True, the fast food restaurant category is experiencing decline. But, McDonald’s is declining at a faster rate.

Increased sales on an ever-shrinking customer base is a certain path to brand disaster. Bloomberg obtained an internal email which summarized a September meeting with McDonald’s executives and franchisees. It read, “Growing customer counts is our main challenge.” (Business Insider, October 16, 2016)

When Steve Easterbrook became CEO in 2013, he brought over his favorite slogan from the UK… “To be a modern and progressive burger company.” Yet, the business has experienced steady decline in customer counts over the last four years. The big turnaround initiative reflecting this new vision was providing a customized dining experience called, “Create Your Taste.” allowing customers to build burgers from more than 30 premium ingredients, buns, and sauces, including bacon, caramelized grilled onions, chili lime tortilla strips, guacamole, and jalapenos. While McDonald’s acknowledged that it was necessary to simplify the menu and reduce operational complexity, this customized meal initiative did the opposite. Service times took 8 to 10 minutes, a killer for a fast food brand. Focused on competing with fast casual brands like Panera Bread (NASDAQ:PNRA) and Chipotle (NYSE:CMG), “Create Your Taste” gave direct competitors like Wendy’s (NASDAQ:WEN) and Burger King an opening to increase their share of fast food customers.

All Day Breakfast was the next big effort to reverse transaction decline. It has failed to stem the transactions decline. Instead of bringing in more customers, All Day Breakfast items seem to be merely replacing other menu item options. Again, it is increasing operational complexity, slowing down service and increasing franchisee tensions.

The continued transaction decline in Q4 is being blamed on the bad weather in the USA. The bad weather cannot be the cause of a steady decline over the last four years. To address the continued transactions decline, McDonald’s primary focus is now an increased emphasis on discounts and special deals. Without a focus on a better quality food and service brand experience McDonald’s is trying bribes. Excessive discounting and deals are brand debasing rather than brand building. McDonald’s must stop the hemorrhaging of its customer base. Using extensive discounting to deliver top-line sales is the wrong medicine to cure this brand disease.

Adding fuel to the fire, information from the recent Nomura franchisee survey (Investor’s Business Daily, October 17, 2016) indicates that the continuous discounting is resulting in increased franchisee concern that McDonald’s only cares about top-line corporate sales and not about running profitable restaurants. “McDonald’s does not care about the operator. It only cares about stockholders.” The financial health of the franchisee is a brand-business imperative. Without franchisees upholding the brand, shareholders will wind up with nothing to hold. McDonald’s is cutting its costs by laying-off corporate staff, cutting back on corporate support and training, cutting back on real new product innovation. McDonald’s income goes up as franchisee profitability goes down.

McDonald’s is relying on financial engineering to prop up its shares, increasing debt to buy back shares and continuing to increase the dividend payout. One thing is certain, none of these actions will turn around the shrinking of the customer base. Financial engineering to enrich loyal shareholders is only a temporary cover up that in no way addresses the consistent declines in guest counts. Growing comparable sales while comparable transactions decline; growing corporate revenues while franchisee profitability declines; growing shareholder returns through financial engineering while failing to grow customer share through effective marketing; increasing revenues on a declining customer base, all lead to a weakened business that extracts value from the brand rather than invests value into the brand.

McDonald’s appears obsessed with becoming something that it is not rather than working to evolve based on its enormous brand strengths. McDonald’s does not seem proud to be the biggest and best fast food brand in the world. Why? Is this what becoming a “modern progressive burger company” is intended to mean? If so, then the brand will continue to experience traffic decline, and the challenge will continue to be to try to increase revenues from a shrinking customer base.

Here are actions McDonald’s should take now to revitalize the brand and increase traffic:

Provide great tasting food
It is great that McDonald’s wants to remove unwanted ingredients from its foods. It is admirable to focus on how animals are treated. However, McDonald’s is not a health food store or the Humane Society. McDonald’s customers will not trade-off taste for socially acceptable, “cleaner” food. Discounts will not make the food taste better. The McDonald’s customer wants delicious food, at a very affordable price, served quickly in a clean environment.

Innovate or die
Where are the new products? New technologies keep the brand up-to-date but we cannot eat a kiosk. Three types of Big Macs are just playing catch-up to Burger King and Wendy’s. Where are the real food innovations? Innovation is news; food news brings customers into the stores.

Improve service speed
Speed of service is still a problem. For fast food, it can be a killer. Consistency and speed are what attracted Ray Kroc to the McDonald’s business. The first word in fast food is “fast.” Complexity needs to be dramatically reduced.

Focus on franchisee profitable revenue growth
McDonald’s is built on the principle that by working together you work better. Ray Kroc said, “None of us are as good as all of us.” And when referring to the franchisees, “You are in business for yourself but not by yourself.” However, today franchisees increasingly feel that corporate support has been cut back. Costs are being transferred from the corporation to the franchisee. Focusing on top-line sales at the cost of franchisee profitability is not only bad management but goes against a core foundation of the brand.

Build real loyalty, not deal loyalty
Real loyalty cannot be bought with bribes. Luring customers with incentives makes people loyal to the deal instead of loyal to the brand. If guests do not prefer the experience, making it cheaper will not be the cure. McPick 2 will not reverse declining transactions.

McDonald’s current value is built on a consistent pattern of increased dividends and share buybacks not packed restaurants delivering delicious tasty food served quickly with a smile. Investing in growing a base of loyal customers must be McDonald’s highest priority. The bottom line must be more customers, more often, more loyal, more sales, more profitable. Fiddling with financial engineering while focusing on increasing sales from a base of fewer, less frequent, less loyal customers is a formula for failure.

The Drum

There was a seismic shift in the business landscape on Friday, June 16, 2017. Amazon purchased Whole Foods, the organic food purveyor. The headlines and grocery stock prices reflected the surprise. There are discussions about the future of the grocery store. Just recently, in The New York Times, there was an article about what the challenges are with grocery stores, not the least of which is the array of products that do not match the way people actually want to eat today.

The US grocery business is under pressure. Mainstream, Main Street supermarkets, like Safeway, Stop & Shop, Kroger’s, Piggly Wiggly, are being stressed from the low price end by brands such as Aldi and Lidl. Purveyors of high margin foods such as Seattle’s PCC, Trader Joe’s, Sprouts, Big Bear, for example, put pressure on these brands by selling organic, fresh, chemical-free items. Walmart is committed to grocery and to online with the purchase of jet.com. Target has cut back on grocery. The industry is undergoing massive changes.

Amazon and Whole Foods is a brilliant combination. Both Jeff Bezos and John Mackey are passionate about their brands. Jeff Bezos’ driving passion is an unrelenting focus on very basic customer retail needs: selection, convenience (speed and delivery) and low price. John Mackey is passionate about organic, sustainably sourced foods with the mission under the heading Values Matter that says, “At Whole Foods Market®, “healthy” means a whole lot more. It goes beyond good for you, to also encompass the greater good. Whether you’re hungry for better, or simply food-curious, we offer a place for you to shop where value is inseparable from values.”

Both brands will learn and gain from each other. Amazon will learn about traditional retail and the customer behavior in traditional retail. Amazon will probably seize the chance to disrupt traditional with non-traditional approaches. By applying its superior technology and information management systems to traditional retail, Amazon will be able to provide superior, personalized service with better selection, convenience and lower prices. This will threaten the “traditional” retailer who does not have access to Amazon’s systems, power and scale. Whole Foods has the opportunity to expand outside of the physical store. In 2015, it created a new store concept in order to attract Millennials. It is hipper, cooler, a smaller format with less expensive prices. The jury is out on its performance. Now, rather than create a new physical store concept, Whole Foods can learn how to win online. One should not be surprised. In an interview with Annie Gasparo of The Wall Street Journal in 2015, John Mackey spoke of the new concept, saying, “ You have to be willing to evolve with the marketplace, You can’t not do that because it might possibly take sales from your existing flagship brand.” He also said that Whole Foods is compelled to “keep up with times.” Well, today’s announcement is just that.

The match-up of these two powerful brands and their respective passionate and powerful owners is a merger that has everyone buzzing about the possibilities and future of grocery. But, there is one other seismic change that happened with this merger. On Thursday, June 15, 2017, John Mackey publically condemned the behavior of Jana Capital the activist hedge fund that was hounding him to implement their type of financial engineering, and destroy his brand. According to John Mackey’s quote in Financial Times, “They’re greedy bastards, and they’re putting a bunch of propaganda out there trying to destroy my reputation and the reputation of Whole Foods, as its in their self-interest to do so. They just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist it. That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if the want to take it over.” John Mackey lived up to expectations on Friday. And, he has accomplished what no other company has when faced with the activist invasion: he told Jana where to go, he told Jana that they would have to fight him, and then he pulled off one of the greatest anti-activist, anti-financial engineering coup of all times. He not only snatched his brand from the hands of financial engineers: he sees the future, and is on the pathway to future success.

 

 

 

How to Revive McDonald’s

With fourth-quarter earnings dropping 21% and global sales down, the company needs a back-to-basics turnaround.

In 2002 McDonald’s was losing market share. Employee and franchisee morale were extremely low. The popular view was that the time for McDonald’s had passed. Shares were in severe decline.
Then the company’s chief executive officer, Jim Cantalupo, and president at the time, Charlie Bell, instituted a turnaround that took less than a year to show results. I was at McDonald’s and participated in designing and executing the turnaround plan. The momentum carried the brand until the effects of misguided decisions in recent years put McDonald’s into another downward spiral.

On Monday, the company announced that in January its global sales in restaurants open at least 13 months fell 1.8%—that’s a serious decline in the fast-food industry. Recently, McDonald’s reported a 21% drop in fourth-quarter earnings and announced that CEO Don Thompson would retire at the end of the month.

Another fast turnaround of the McDonald’s brand is possible—and it is essential for the company’s future. If you don’t take care of the short term, there will be no long term. Here are a few immediate actions that would reignite McDonald’s.

Stop the hemorrhaging: Plugging the holes in the bottom of the brand bucket must be the first priority. Going after new customers—as McDonald’s has lately been doing in trying to attract Millennials by offering more customization of its food—without focusing on customer retention won’t succeed. It costs much more to attract a new customer than it does to keep a customer loyal. Love the customers you have.

Focus on the direct competition: Why are Burger King, Chick-fil-A, In-and-Out Burger, Popeye’s, Subway, Wendy’s and others doing well while McDonald’s struggles? In the short term, the company needs to grow its share within the direct competitive set. Be the best in class. For McDonald’s, the class is quick-service hamburger, chicken and sandwich chains. “Fast casual” restaurants like Boston Market, Chipotle Mexican Grill and Panera Bread are rising in popularity, but they’re not the direct competition.

Fix the food: People are not lovin ’ McDonald’s food. A 2014 Consumer Reports survey of 21 burger brands ranked McDonald’s at No. 21, last place. McDonald’s is a restaurant; food taste matters. Popeye’s refocused on its Louisiana food heritage. In-and-Out nourishes its cult following. McDonald’s must revive founder Ray Kroc ’s food-quality passion. Continuous food improvement is a never-ending challenge. Making an even better hamburger is a bigger opportunity than launching a new snack wrap.

Restore fast-food service to fast food: Customers will not wait if they want fast food. Obsessed with how Chipotle does business, McDonald’s sees customization as magical brand elixir. But Chipotle doesn’t compromise service speed for food excellence and customization. Chipotle’s average service time is less than 60 seconds. Average service times in the California test markets for the new McDonald’s burger bar, called Create Your Taste, run as much as seven minutes, according to news reports. Slow service, in an effort to provide customization, won’t save the McDonald’s brand.

Focus is fundamental: Focus on doing a few things extraordinarily well. The “better burger” chains like Five Guys, Shake Shack and Smashburger raise the standard on food quality, but they also demonstrate the power of menu focus. The McDonald’s menu now has more than 100 items, which makes it harder to run the restaurant and harder for customers to decide what to order. It complicates the supply chain. It complicates employee training. Over the past few years, McDonald’s moved from a disciplined, strategic approach to a tactical, try-anything approach.
Restore relevance: Loss of relevance was one of the major issues the brand faced in 2002. In addition to significant demographic, behavioral, economic, social and competitive changes, there were significant changes in attitudes toward food. These same forces are still at work. For example, increased nutritional knowledge, as well as competition from fresh food at grocery stores, have changed the way people eat.

Re-energize the Plan to Win: The 2003 global turnaround plan, called “Plan to Win,” aligned the entire organization to execute “the right actions executed in the right way to achieve the right results.” The basis for it was a laser focus on the customer. Over the past decade the customer focus has been lost.
Adopt a disciplined new-product process: New products are important to maintain customer interest. Too many new products introduce complexity, and too many rollout failures damage brand credibility. In the previous McDonald’s turnaround, we adopted a management system for new products that carefully moved them through a three-year development pipeline. The goal: a few heroes and no zeros.

Internal marketing comes first: Customer focus is important, but employees come first. In 2003 we invested in an internal marketing effort to rebuild employee pride. Jim Cantalupo fought against the demeaning characterization of “McJobs.” Charlie Bell led the effort to build internal alignment behind the “Plan to Win” across 119 countries. (Jim died in 2004 and was replaced as CEO by Charlie, who died the following year.) We launched the new advertising approach internally, reaching out to about 1.5 million employees before the marketing was launched externally. In a service business, a proud, aligned workforce is powerful.

Rebuild trust: Without trust, nothing else matters. In 2003, McDonald’s had to regain credibility with employees, suppliers, franchisees and customers. We adopted a variety of trust-building programs around the world, such as Paul Newman endorsing our salads; an association with Oprah Winfrey’s trainer; the “Open Doors” program in France, with teachers, parents and children invited to the restaurants to see how the food is prepared; and a relationship with Food Group Australia, accredited dietitians who helped develop a healthier-food program Down Under.
The McDonald’s trust bank needs trust deposits. Yet it doesn’t help much to have transparency for food that customers don’t want to eat. Sometimes the more you know the worse it makes you feel: 19 ingredients in McDonald’s fries! These include sodium acid pyrophosphate, hydrogenated soybean oil with tertiary butylhydroquinone (TBHQ) and the delightful dimethylpolysiloxane added as an antifoaming agent.

In 2002 commentators said that McDonald’s was dying. They were wrong. The company became one of the best-performing U.S. businesses for nearly a decade. It can happen again.
Mr. Light, chairman of Arcature LLC, a brand management consulting company, is the former chief marketing officer of McDonald’s and the co-author, with Joan Kiddon, of “Six Rules for Brand Revitalization” (FT Press, 2009).