Ameritest recently validated McDonald’s same-store sales changes using just a few advertising quality variables. While this is a significant finding, one of the limitations to such a construct becomes clear: only McDonald’s advertising was considered. McDonald’s does not advertise in a vacuum. It is on-air every day against competitors ranging anywhere from direct category, like Wendy’s or Sonic, to tangential category (sit-down restaurants like Applebee’s and Panera) to those brands that would prefer you spend your time on money using their products to eat at home, like Campbell’s or McCormick.
Victor Kiam once said, “In business, the competition will bite you if you keep running; if you stand still, they will swallow you.” So how does a company like McDonald’s know if the competition is merely biting or is in a position to take a big chunk out of its market share? One such method is obvious: be aware of the relative quality of your competition’s advertising!
Fortunately, Ameritest has a rich dataset with which to work to test out such a concept. During the same time period for which McDonald’s sales work was validated (January 2007 – May 2013), Ameritest collected quality metrics on not only 441 McDonald’s ads that aired, but also on over 1,500 competitive ads within the quick-service restaurant (QSR) category, providing over 180,000 consumer interviews from which to work.
We know that relative ad quality in any category can shift from year to year, with varying levels of strong performers vs. weak performers, depending on the strength of executions produced. We also know that within the category, each brand puts on varying levels of strong and weak performers, indicating that it is just as important to understand what competition is doing as it is to understand a brand’s own executional strengths.
To illustrate this point even more clearly, Ameritest conducted some proprietary work that unveiled a significant learning: the breakthrough power of an ad can vary greatly depending on how strong the competitive environment is around it. As shown below, an ad gains a breakthrough score of 33 when in proximity of an average competitive spot (the competitive spot scoring a 40). However, the same ad that scored a 33 in the first scenario scores a 26 on breakthrough when placed in proximity to a strong competitive spot. In essence, the stronger competitive spot compresses or even erases memories of your spot!
This can have a direct impact on your bottom line. In fact, this phenomenon (among other market factors) led to some sales impact for McDonald’s during this same time frame. From October 2009 to March 2010, McDonald’s endured a particularly volatile stretch of minimal to even negative growth. This lull in sales took six months to recover. So from an advertising perspective, what happened?
In October, McDonald’s limited its advertising to only eight ads, all focused on its highly-popular Monopoly promotion. None of the ads was particularly strong on an executional basis and none communicated a relevant brand message at particularly high levels.
Conversely, competitors like Sonic, Wendy’s and Taco Bell all came out with much more product-focused advertising that performed much better and conveyed strong, relevant messaging. The result? McDonald’s sales growth dipped into the negative realm (-0.1% growth for October 2009, vs. a +3.6% average growth for McDonald’s during the full 77 month time period in question).
McDonald’s soon moved past the Monopoly game and began a strong push on its value message. One particularly strong ad for the Dollar Menu during this period had a significant push in terms of media weight, which led to a temporary upswing in McDonald’s sales performance.
However, the competition took notice and while McDonald’s made the choice to roll out more product-focused advertising at the beginning of 2010 (focusing on products like McWraps), other QSR players like Wendy’s, Sonic and Arby’s put out their own versions of the value message. Unfortunately for McDonald’s, these ads performed at similar levels to its own ads, or in the case of Wendy’s, significantly better. Using its own significant media push, Wendy’s was able to actively work to erase consumers’ memories of the McDonald’s value message with its own stronger version of the same core idea. The result was another period of decline for McDonald’s sales, dipping back into negative sales growth.
After an underwhelming month in January 2010, McDonald’s decided to go back to its roots in February, running a very engaging brand spot featuring a couple bringing home a Happy Meal for their son. Coupled with a few solid “supporting actor” ads, McDonald’s finally re-gained some traction back into positive sales growth, and was able to push back into its stronger sales cycle in March 2010.
However, if McDonald’s was only looking at its own ad effectiveness to forecast sales growth, it may have ended up having as many questions as answers. The competitive context enlightens us to a compelling message: knowing how your ad quality stacks up against your competition’s ad quality really matters! In fact, during this entire 77-month period, McDonald’s ads saw an average of +0.5% more sales growth in months where it had an ad performing in the top 3 ads of the month relative to its competition, as opposed to months where McDonald’s did not run a top 3 performer. That half-a-percent amounts to millions of dollars for McDonald’s bottom line.
Simon Sinek once said, “Believing that your competition is stronger and better than you pushes you to better yourselves.” We now know, however, that you no longer have to believe that about your competition, but can know it for certain. As Confucius once said, “To know what you know and what you do not know, that is true knowledge.”
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