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MARKETING STRATEGY REPORT A New Product for Happiness and Its Marketing Strategy

Kings Quarters

Ali-Reza Khaleeli MKT203- Marketing Analysis and Management

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Definition of Happiness According to Merriam-Webster’s dictionary the definition of happiness is as follows, “the state of being happy, an experience that makes you happy”. It is the latter that will be in focus going forward. With billions of people inhabiting this earth it is impossible to find one umbrella definition of happiness that all can relate too. Everyone’s situation and emotions are different. It is too hard to find a single product or service that will create a sense of happiness for all. It is because of this that I decided to ask myself what makes me happy and look at empirical evidence to lead me to define happiness. After much research two defining activities shaped my definition of happiness. These activities are the consumption of food and communicating with those important to us. America is known as a nation of consumers. We consume everything from natural resources to reality TV. We are a nation that imports more than we export. We consume whatever is put in front of us but there is one thing above all that we have a notorious reputation for consuming. That is food. Americans worldwide are known for our extremely large portions and appetites. As of 2010 Americans consumed the most pounds per capita, at 1400, than any other nation (Klein 2010). This fact would not surprise most and lead me to research the connection between food and happiness. In 2011 a research project was conducted that took 59 students who were randomly assigned to a hopeful or happy emotion induction. A writing task, essay, was used to induce the desired emotion. At the beginning of the emotion induction each student was given an equally weighted bowl of M&Ms and raisins. Once the induction was finished, students completed identical unrelated tasks that allowed time for consumption. The remaining M&Ms and raisins were weighed at the end of the session. The results had happier students consuming significantly more food than hopeful students (Winterich, Haws 2011). With the introduction of the iPhone and Facebook the way in which we communicate has forever been changed. A little over a decade ago the most common way of communication was face-to-face. In this day and age there are several ways to communicate with one and other. A study in 2012 looked to see how face-to-face and computer-mediated communication methods affected one’s happiness. The 41 participants where asked to keep a “contact diary” of all interactions they had with pre-selected network members. The interactions where limited to six communication modes: face-to-face, Skype or other videoconferencing programs, telephone, instant messenger, texts, and e-mails. These network members were family, friends or romantic partners of the individual participant. Within the diary participants answered questions about happiness, atmosphere, duration, interaction, and laughter for each communication mode with each network member. The participants would record approximately how many minutes they spent interacting with a particular network member that day over each communication mode. There were two major

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findings from this study. “Increases in the duration of communication events predicted happiness only for FTF interaction” while “The occurrence of laughter positively predicted happiness within five of the communication modes”

(Vlahovic, Roberts, Dunbar 2012). These results show a direct correlation between the level of communication and level of happiness. Finally a study conducted by Raghunathan and Corfman in 2006 brought together these two activities by looking at the direct influence congruent and incongruent communication had on ones perception of the food they were consuming. In this experiment 126 participants were used and paired with a “confederate”. Two types of orange juice (good quality and poor quality) were presented to the participant and their confederate. They could not differentiate the OJ just by looking at it. In half the experiments the confederate was positive about the good quality OJ and negative about the poor quality (congruent) and vice versa for the other half of experiments (incongruent). The results were that the participates were more likely to agree with the confederate regardless of the level of quality. “Specifically, we propose that congruence of opinions about shared stimuli enhances a person’s enjoyment of shared experiences both by engendering a feeling of belonging and by increasing confidence in the accuracy of his or her views” (Corfman, Raghunathan 2006). These above studies led me to believe that the combination of food consummation and communication would lead to high levels of happiness. A product that would open the flow of communication by bringing people together, whether face-to-face or digital, to enjoy a meal. Essentially a place you could eat and socialize. Survey In order to justify the above studies and move forward with my product idea I first surveyed a group of young adults, both men and women, to see if food and the ability to communicate would bring about happiness. Since the presence of food was essential to my definition of happiness I felt the survey needed to focus around restaurants. One type of restaurant in particular, fast food. I asked a variety of questions to not only gauge their interest in the food but to see if they felt like it was an appropriate place to socialize. I asked a variety of questions including, consistency of food quality, taste of hamburger/coffee, look of the dining area, availability of WiFi, a place to meet with friends, a place to study or work, noise level, value menu availability and so on, a seen in Figure1. A total of 42 participants took the survey, 30 male 12 female, with an average age of 29 years. I felt the best way to interpret the data set was through quadrant analysis. Quadrant analysis is an efficient method of organizing customer satisfaction data. It turns that data into a simple story that will tell the organization where and how

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to improve their product/service. It highlights the certain aspects or features of a product/service that the customer enjoys the most. Quadrant analysis plots the products/services of the organization by the customer rating. The plots are divided into four quadrants with performance and importance along the x and y-axis, respectably. A seen in Figure2. Figure1 Figure2

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Once the data was collected and ran through SPSS, predictive analytics software, the end results were telling. The majority of attributes pertaining to food fell into the quadrant of high importance/high performance, which was expected. Not all, but a majority of the attributes pertaining to socializing fell into the quadrant of high importance/low performance, as seen in Figure3. What this tells me is that people would like to social at fast food restaurants but the restaurant itself is not conducive for that. With the combination of the above studies and the confirmation of my study, I decided to move forward with my idea and create a product where food complemented communication. Figure3 Background Small businesses are the backbone of the US economy and the driving force behind job creation. As of 2010 there were 27.9 million small business verses 18,500 large businesses. As numerous and important as small businesses are, they have a low success rate, none more evident than in the restaurant business. In the restaurant business you only have a 40% chance of staying open past 3 years (White 2011). It is because of this low success rate that it would be most advantageous to associate with an established and prominent restaurant. When looking at the restaurant industry one sector stands out. That is fast food or fast

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casual restaurants. In 2012 half of the meals eaten out where at a fast food/fast casual restaurants and in 2013 fast food/fast casual restaurants accounted for more than half of the top 10 most visited businesses in America (Mahapatra 2013). When dealing with the fast food industry one rules above the rest, as seen in Figure4. McDonalds has established itself as the primer fast food restaurant throughout the world. They have every aspect of dinning covered and have something to offer everyone. Figure4

The real competition is between second and third, Burger King and Wendy’s. Abroad Burger King has a much larger presence than Wendy’s but in 2012, for the first time in forty years, Wendy’s surpassed Burger King in U.S. sales. This trend continued in 2013. U.S. sales account for roughly half of Burger Kings total sales and dropping down to third not only hurts Burger King’s bottom line but their market share. In order for Burger King to separate itself again from Wendy’s it must look towards its consumer and see what possible value it can add. How it can create higher sales from its current customer and win back those who have left to eat elsewhere.

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Product All Burger King has to do to get the boost it needs in U.S. sales is to look up. Look up at McDonalds and see what they did to reverse their lose of market shares. From 2005-2009 McDonalds’ market share continually drop year after year. They were able to reverse that trend when they shifted their focus back to the value menu and revamped their McCafe (coffee) selections, as seen in Figure5. McDonalds’ decision to revamp McCafe wasn’t so much about attracting new customers, as it was preserving current customers. McDonalds felt that if they offered multiple coffee drinks and styles they would be able to prevent current customers from spending their money on coffee drinks somewhere else, as seen in Figure6. They wanted their current customers to spend more and that they did. Figure5

Figure6

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With the correlation between food, communication and happiness it is obvious that in order for Burger King to regain the market shares and sales it has lost to Wendy’s it must take advantage of this correlation. Using McDonald’s success as a guide I am proud to present the Kings Quarters. The Kings Quarters will be rolled out simultaneously with a $2.4 billion investment in upgrading and redesign all U.S. Burger Kings. The focus of the redesign will be making the interior more conducive to the flow of communication. The idea is to promote a location where you can go to enjoy your favorite food while connecting with the people you care about. Increasing not only the customers’ happiness but Burger Kings profits as well. The free WiFi means you can connect with these people even if it is not face-to-face. The charging stations at every table will allow you keep your wireless device up and running

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and hopefully, ever so often, attract a new customer who is need of a charge. The wireless printing option, only available to paying customers, will help to promote the Kings Quarters as place to conduct business or study. The redesigned interior will help to reduce noise volume so you can better concentrate on your work/studies. In addition, the free refills offered on all regular large and medium coffee should help to attract the working crowd. With the WiFi and printing opinions it could make the Kings Quarters a daily pre-work destination. The additional dollar menu choices and partnership with Green Mountain coffee is the true focus of the Kings Quarters. We have seen what a shift in focus did for McDonalds and in partnering with a prominent coffee maker hopefully the same results will follow. Green Mountain coffee has established itself as one of the premier coffee brands in the U.S. In 2006 they acquired Keurig and since then have taken over the single-serve coffee brewing industry. You can find a Keurig machine and Green Mountain coffee K-Cups in almost every office in the U.S. and many households as well. In 2012 Green Mountain represented 21% of global K-Cup sales, behind only Nestle. The combination of Burger King and Green Mountain is sure to turn heads and not only help to attract new customers, but much like McDonalds, encourage their current customers to spend more. Again a Quadrant Analysis was in order to determine if the Kings Quarters would effectively reach its market. The same group of participants was used in this analysis. After the participants answered the first series of questions, they were shown the above ad. They were asked to rate the Kings Quarters on a scale of 1-5 (1=poor, 5=excellent) based on the same questions as before, see Figure7. The results were encouraging. It seems that the ad was effective in driving home the message Burger King wants the consumer to receive. The ad was not only effective in promoting the new partnership with Green Mountain but also enforcing the idea of the Kings Quarters as a place to socialize, see Figure8. Figure7 Figure8

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The ultimate outcome of any new product rollout is to increase sales, market shares and profit. It is through this rollout that you hope to attract new customers and encourage current customers to spend more. With the rollout of the Kings Quarters, Burger King hopes to accomplish both. Burger King’s revamped coffee selection and partnership with Green Mountain will address that later issue of getting customers to spend more. As shown above, McDonalds was able to drastically decrease the amount their customers bought coffee at Starbucks and other coffee stores. This directly led to a boost in sales and increase in market share. Based off of this, Burger King is very hopeful the Kings Quarters will have the same effect. McDonalds was the first and only fast food restaurant to aggressively go after coffee drinkers. Coffee has been a mainstay on many fast food menus for years but not in the selection and variety that McCafe offers. It is hard to say if the Kings Quarters will have the same effect on its customer that McCafe had on theirs but it is a positive indicator of how the market will react to an increase in coffee selections. In order to attract new customers, the Kings Quarters hopes to play on the correlation between food, communication and happiness. The Kings Quarters promotes a more social and open dinning experience than any competitor. The redesigned interior will allow for a more social atmosphere and help to increase the level of communication between customers. With a dramatic shift in living our lives over the web, the free WiFi will help to keep customers connected. With the reduction in noise, thanks to added sound absorbing materials and redesigned interior, one will be better able to interact with those they came with. This should also help to attract business people and students. A quite place to do work/study with free WiFi, refills and printing is hard to come by. When you pair all of this with a larger and more attractive value menu, there is no reason why Burger Kings customers won’t fell an increased level of happiness. Something they will share with their friends and family. A reputation of sorts will start to build around the Kings Quarters and before you know it new customers will be stopping by to see what it is all about. Target Market Fortunately for the fast food industry everyone is a part of the target market. Sure there are individuals within each segment of the market who wouldn’t eat at a fast food restaurant but each segment is still targeted by fast food restaurants. This is something that for a while Burger King lost sight of. “For years Burger King had been primarily focused on appealing to young men, but the chain had been struggling in recent years” (Morrison 2012). With a change in marketing strategy, starting in Q1 2012, Burger King was able to successfully add a mix of both women and customers over 50 to their client base. Initial improvements seen in Q2 where outmatched by significant improvements in Q3. This increase was not only relegated to their client base but to sales as well. Since then Burger

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King has continued to revamp and increase their menu offerings, all in an attempt to capture each market segment. There has been recent criticism that fast food restaurants have been targeting minorities and the low-income segment. A recent study released by The University of North Carolina’s school of Global Health found that “among 21 different studies that analyzed the relationship between fast food restaurant locations and socioeconomic factors, three-quarters (76%) of them determined that fast food restaurants were predominantly placed in low-income neighborhoods. They also found 10 of 12 studies that analyzed fast food locations and race determined that fast food restaurants were more prevalent in neighborhoods with larger populations of minority residents” (Adams 2012). Fast food restaurants have been quick to deny this and cited this study and others like it at using selective data to draw their conclusions. Industry/Market Trends There are a few industry and market trends that are of concern to the fast food industry and others that are seen as advantageous. For now these concerning trends have not had a negative effect on revenue, as seen in Figure9, but the more these trends gain ground the large the threat becomes. Figure9 The first trend has both its positives and negatives. A large shift in demographics is currently going under way in the U.S. and it seems as though the fast food industry is poised to benefit in part. The first shift focuses on the Baby Boomers. In 2011 the first Baby Boomers turned 65. This will continue until the year 2030. By then these baby boomers will account for over 18% of the population. This

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18% will control around one-third of all consumer spending in the U.S. They are a below-average consumers of fast food and as they age will become more and more health conscious. The additional coffee offerings will hopefully sway some of these baby boomers to visit a Burger King. The shift in demographics that should benefit the fast is food industry is the population growth in the fastest-growing US minority group. The Hispanic population represents over 50% of US growth and Hispanic customers visit fast food restaurants quite regularly and generate a large amount of business. This group is expected to reach over 66 million by 2020. (Hines 2013). The second prevailing market trend is flexibility in both menu and hours. “Customers want breakfast, lunch, and dinner at various times in the day, experts say, and they’re also looking for smaller portions to tide them over until their larger meals. Flexibility gives operators an ability to offer items that appeal to a wider range of consumers” (Wolf 2014). In 2013 McDonalds launched a late-night breakfast menu that made breakfast options available late at night. Not only that but customers could pair breakfast and lunch items together. Instead of fries with a burger you can get a hash brown. The test markets included Texas, Delaware and Ohio. According the Phil Saken, communication manager at McDonalds, “The test went very, very well”. McDonalds is starting to offer the late-night breakfast menu in more states. The last trend and the one that posses the biggest threat to the industry is food transparency and quality. Years ago fast food customers cared little and knew even less about the caloric content of their food. That has all changed in the past few years. Whether it is “government agency pushing for the posting of nutritional details, technology making online meal calculators commonplace, or brands using their sustainability guidelines as a competitive advantage”(Hines 2013) customers are surrounded by information they never had before. The availability of this information could be damaging to the industry. Secondly, food quality has emerged as an increasingly popular trend amongst restaurant goers. They are just as concerned with the quality of their meal as they are the calorie count. Most customers are far from convinced their favorite fast food restaurants are offering up the highest quality ingredients but “moving forward, taking credit for their heightened focus on food quality will be critical for brands that want to stay on top” (Hines 2013). The trend around transparency and quality go hand in hand and if not addressed in a timely manner could prove disastrous.

SWOT Analyses SWOT Analysis is a useful tool used by businesses around the world. It helps businesses lay out and understand their strengths and weaknesses, as well as identify current open market opportunities and threats. See Figure9 for the Kings Quarters’ SWOT Analysis.

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Figure9 Rivals There are three major rivals that could hinder the success of the Kings Quarters rollout and prevent the growth of Burger King. McCafe, Dunkin Donuts and Starbucks are the major players in the retail coffee industry. As of 2012 McCafe made up 13% of the market, DD at 16% and Starbucks at 33%. These retailers already have a strong and loyal following. There are some coffee drinkers out there who are persuaded by price but the majority chose taste. It is because of this that Burger King’s partnership with Green Mountain is so important. Not only does the King Quarters’ prices need to be reasonable but also the quality of

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coffee needs to be amongst the best. Figure10 shows the prices of blended frozen drinks across the industry. Burger King must be able to come in right around, if not, below the industry average. Figure10

Both Dunkin Donuts and Starbucks are coffee houses trying to become fast casual restaurants. McCafe is the rival we truly want to focus on. We are trying to emulate the success they had with the 2009 revamp of McCafe. If we are to forecast our expected sales, operating costs, and level of competition we need to look at McCafe. Figure11 is an overview of McCafe drink launches with the total category sales by year and Figure12 shows the direct impact the 2009 McCafe revamp had on McDonald’s revenue. Figure11

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Figure12 As Burger King enters into the coffee shop sector, they don’t want to lose sight of their core rivals. Figure13 is a useful tool to not only track the customer traffic of their core rivals but of their newest rivals as well. Figure13

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Projections and Assumptions There are a lot of assumptions being made when predicting the impact the Kings Quarters will have on Burger King. Only one restaurant in the industry has taken on a venture this large. The norm in the fast food industry is to rollout a single offering at a time but only after months or even years of research. There have been many success and failures before but most have been on the small scale of a single offering. Investing billions to completely revamp the entire store while simultaneously rolling out an entirely new product line is not only risky but also unprecedented. Burger King must look to hit the following numbers within the first three years of the Kings Quarters rollout for it to be profitable and successful. The key indicator for the first year will be the sales of U.S. restaurants that opened within the last 13 months. These restaurants will have opened with the Kings Quarters interior and menu selection built into them. They will be a better gauge of how well the rollout is doing during the first year. The other stores will be dealing with construction, a factor that might skew their numbers. The goal will be to see a 4.2% rise in sales over that 13 month period of time. By the second year of the rollout Burger King can focus not only on sales but on operating income as well. Also looking at the sales generated by their partnership with Green Mountain coffee. At this point most customers who would have been persuaded to buy coffee at Burger King should have done so. Burger King should hope that sales fueled by the Kings Quarters would raise operating income by 6% and see an increase of about 25% in the sales of coffee from the previous year. By the third year Burger King should hope to see the following numbers to ensure the Kings Quarters was a complete success and here for the long haul. This time they should look at the sales of stores open at least 13 months. By now any store open longer then 13 months will not only have the Kings Quarters but also be established in their area. If sales at these U.S. store rose by a combined 8% over the first two quarters than the Kings Quarters is a success. Strategy Burger King needs to focus on a few specific strategies to ensure the launch of the Kings Quarters goes as planed. The first and most important is their sales promotion/advertising strategy. Burger Kings needs to get the word out about the Kings Quarters and promote their new offerings. Currently Burger King allocates $300 million to their advertising budget. That number is dwarfed by the $1 billion spent by rival McDonalds. If Burger Kings wants to effectively get the word out about the Kings Quarters they will need to at least dedicate $150 million to that promotion alone. That number is still only half of what McDonalds spent

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on McCafe advertising during the first year. Not only will they have to dedicate money to advertising the Kings Quarters they will have to be willing to initially take a hit on a few of their new drink offerings. In the beginning Burger King needs to be aggressive with their sales promotions. It might hurt their margins at first but it will be worth it if it gets customers to try a drink they otherwise would have passed on. The likely hood these customers come back for that drink is high and in the long term it’s worth the short term hit. Almost simultaneously Burger King needs to address its service strategy. Burger King is known for having fast service but now they need to have knowledgeable service as well. In order for the launch of their coffee line to be successful their cashiers need to be well versed in their coffee offerings and have an understanding of the variety of flavors available. Burger Kings pricing strategy will have to be competitive as well as profitable. They will have to look at operating cost and industry averages for their pricing strategy. To compete with McDonalds, Burger King will have to offer their regular coffee at around a dollar. That is the only way they will be able to compete. As for their other drink offerings they need to look at the cost per unit to make their prices as close to their competitors’ as possible. Conclusion Based on the previously conducted studies and the survey/quadrant analysis that followed there is a direct link between food, communication and happiness. The Kings Quarters brings together those two activities in an attempt to promote happiness. There is a lot that needs to go right in order for this rollout to be a success but as long as people come to the Kings Quarters to socialize over a meal there is no reason why it won’t be a phenomenal success.

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