GROWING REVENUE — and the Value-Minded Guest

Posted on Posted in MMM
McDonalds is working hard to maximize revenue and to leave less money on the table. Last week, the McDonalds Corporation introduced a new value menu, "McPick 2", which allows their value-minded guests to choose two of the following items for $2: a McDouble, a McChicken, small fries and mozzarella sticks. The new concept replaces the Dollar Menu which the company began moving away from in 2012. After testing a variety of new concepts including the 'Dollar Menu & More', McDonalds believes that the McPick 2 concept will be successful because it effectively captures the simplicity and intuitive nature that made the Dollar Menu successful for so many years.
 
Wendy's recently introduced a similar concept, replacing their 99¢ Menu with Right Price Right Size Menu. Similar to McDonalds, this menu includes 4 items (Jr. Bacon Cheeseburger, chicken nuggets, fries and a drink) for $4, making the perceived value still at a dollar per item. Both the McDonalds and Wendy's menu concepts are designed to generate a higher spend per guest. At McDonalds, where the minimum spend from the Dollar Menu used to be just a buck, guests must now spend in increments of $2, $4, $6, etc. At Wendy's, the new Right Price Right Size menu item-which is certainly a lot of food-has the potential of increasing gross revenue among Wendy's value-minded guests by $3 per guest.
 
Value must resonate. At McDonalds, the offerings are limited (burger, chicken sandwich, fries, and mozzarella sticks), allowing the restaurant to keep costs down but also reducing the offer's appeal by limiting the selection of available items. In contrast, Wendy's approach is both unique and intriguing. By offering four items for $4, Wendy's is doing more with more and has created a model where guests can proportionately justify value as "more for more". It is, in fact, a lot of food for just $4. By offering three meal items and a beverage for the low price of $4, Wendy's has also built in additional savings in food cost. Perhaps a better deal for the McDonalds model might be to offer a $3 McPick 2 that includes choice of two menu items (double burger, chicken sandwich, fries, mozzarella sticks) but to also include a beverage. This would accomplish two things: A) improve the customer's perception of value (again, more is more) and, B) increase net revenues because the margin on beverages is almost all profit.
 
In our attractions world, we can design products that specifically target the value-minded guest. By designing packages where value of experience is presented intuitively and accompanied by an attractive pricing structure, even value-minded guests will have a difficult time saying "no thank you". Take for instance a museum that offers FREE DAYS for its residents during select periods throughout the year. Guests who visit during these times are looking to spend very little-if anything. That said, if the right deal can be constructed to include select secondary spends and priced to move, even the value-minded guest will be compelled to buy.   The key is to design an offer they can't refuse while ensuring that you aren't cannibalizing your main revenue streams. Value-minded guests will and do spend money. You just have to create offers that they can't resist. It's all about not leaving money on the table.
 
 

"Price is what you pay.  Value is what you get.

 

- Warren Buffett