Marketing

The value disconnect: Why lowering prices isn’t improving sales in quick-service restaurants

The value disconnect: Why lowering prices isn’t improving sales in quick-service restaurants

Fast-food giants are cutting back prices in the hopes of reinvigorating sales. McDonald’s, for instance, recently announced plans to discount soda prices and offer more “value deals.” The world’s largest quick-service restaurant (QSR) company is hoping that offering cheaper products will attract discount-hungry customers.

Other QSRs have also been pursuing the low-price strategy—with companies like Taco Bell seeing promising results.

Despite industry-wide price cuts, the QSR market is struggling. Major fast-food chains had a sluggish performance in 2016. Between 2008 and 2016, restaurant chains have lost 14 percent in foot traffic.

So why is the low-price strategy not working for QSRs? And what do companies like McDonald’s need to do to lure back customers?

How QSR customers define “value”

Many QSRs like to use the term “value” when marketing their cheapest products. But from the consumers’ perspective, “value” and “cheap” aren’t necessarily the same thing.

A study from the market research firm Phoenix Marketing International, for instance, found that customers don’t mind paying more for higher quality restaurant products. Customers care more about value than price, according to the study.

There is a consumer appetite for high-value products. The low-price strategy’s failure to reinvigorate sales for many QSRs, however, suggests that there is a growing disconnect between how QSRs and consumers define value.

From the consumers’ perspective, “value” and “cheap” aren’t necessarily the same thing.

Now is the time for executives to re-evaluate what “value” means to their consumers. To avoid a race to the bottom, business leaders need to determine whether simply cutting prices is the best way to meet customer expectations.

To redefine value, companies need to engage directly with consumers and use that insight to improve decision-making. Here are three ways consumer insight can help QSRs boost the value of their products, drive sales in the process and avoid making costly pricing mistakes.

1. Manage the price perception

According to the management consulting company Bain & Company, how consumers perceive value is more important than the product’s actual price. “The intense competition on pricing that pervades many industries makes consumer perception more important than ever,” Bain researchers explain. “Managing price perception, not just pricing structure and actual price points, has become a critical capability for firms in consumer markets.”

Perception is reality, and it’s something that QSRs can help influence. According to Bain’s research, companies should start by understanding how their current price position compares to competitors and comparable products. Market research can then be leveraged to determine how consumers view various price points, and why.

“By aggregating hundreds or thousands of (customer) responses, a distinct pattern of price perception for each company will emerge,” say Bain’s study.

2. Understand your company’s differentiators

To optimize pricing, many companies take a value-based approach. Often called “value pricing,” this strategy hones in on what makes your company and products unique in the marketplace. It’s a strategy that requires knowing how much consumers value your product’s differentiators.

It’s hard to get value pricing right and to understand your differentiators without deep, ongoing consumer insight. For instance, engaging with consumers directly can reveal a company’s biggest competitors and why people choose one restaurant over another. Consumer feedback provides a source of insight that can objectively show what makes a company unique.

More importantly, consumer insight can validate the price points consumers are willing to pay for a company’s differentiators. As these consumer tastes change over time, revisiting this feedback with new input allows you to see the evolution in trends and spending habits before these changes impact your business.

3. Improve customer experience

Most customers care more about their experience in a restaurant than food quality or price. According to a study commissioned by the software company Empathica, providing a superb service is the biggest differentiator for QSRs. Satisfied guests are four times more likely to recommend a restaurant to friends and family, the study found.

Keeping consumers happy may seem obvious, but it’s no easy feat. Consumer expectations and preferences are evolving quickly. In addition, not every consumer wants the same experience. For instance, some people value speed of service, while others care more about the restaurant’s cleanliness. Ongoing input from consumers can help prioritize the aspects of the experience that will convince them to keep coming back.

Boosting value requires knowing what your customers want

Experts believe the QSR industry will see a modest increase of one percent in-store visits in 2017. The pressure is on for companies like McDonald’s to boost value for customers.

As the industry’s sluggish sales demonstrate, offering dollar-menus and deeply discounted burgers won’t cut it anymore in this competitive space. More than ever, QSRs need to identify ways to deliver value to their hungry customers.

In this $141 billion industry, failure to get closer to consumers can be a multi-million dollar mistake.

Enterprise Guide to Customer Intelligence



Subscribe to the Vision Critical blog

Get free customer intelligence tips and resources delivered weekly to your inbox.

By completing this form you consent to receive emails from Vision Critical. You can unsubscribe at any time. Learn more in our privacy policy.