The Domino Effect

McDonald’s recently announced that the $5 Meal Deal will be extended past its initial 4-week period. According to Bloomberg, McDonald’s hopes the $5 Meal Deal will “lure” in customers. This seems to be happening. McDonald’s believes that this $5 Meal Deal is an opening to “bolster its (McDonald’s) affordability plans through the rest of the year… including the potential to extend the current meal deal for an even longer period of time.” Offering a McDouble cheeseburger, small fries, four chicken nuggets and a small soft drink “is meeting the objective of driving guests back to our restaurants,” according to McDonald’s CMO.

But, what sort of customers? Deal loyal or real loyal customers? What happens when the deal dies? Do the customers who were “lured” into McDonald’s go elsewhere? Do these deal-focused customers go to another restaurant with a similar deal? If the $5 Meal Deal is a value signifier why is it a limited time offer? Why not put it on the menu? Why isn’t McDonald’s whole menu considered to be a value?

Deal loyalty is not real loyalty. Deal loyal customers see price as the deciding factor. Real loyal customers see trustworthy brand value as the deciding factor.

Domino’s, the pizza chain, seems to understand that value is more than price. And, Domino’s current earnings report indicates the benefits of knowing that value and price are two different ideas.

At the Domino’s recent (7/23/2024) earnings call, when an analyst asked about Domino’s value strategy, Domino’s CEO, Russell Weiner said, “ Our value strategy focuses on providing consistent value across all our platforms, not just low prices. This trusted value proposition drives order counts and integrates customers into our loyalty program, creating a sustainable growth model.”

Mr. Weiner also said, “I think what we’re doing in value is very special, and, it is very different than what you are seeing in the industry right now, which I think folks, it is clear that there’s been price taken. And, folks are dealing back kind of individual items, telling customer, hey, this is what you can get on value.”

It seems apparent that Mr. Weiner knows price and value are two different things. Mr. Weiner’s statements indicate, correctly, that value is what you receive relative to costs multiplied by trust.  The customer’s trustworthy brand value equation is created by looking at the total brand experience relative to total brand costs which include price, time and effort, all multiplied by trust. As Mr. Weiner pointed out, trust is imperative.

In other words, unlike the many fast food operations, Domino’s grasps the facts of the customer trustworthy value equation. And, this means, that Domino’s grasps and operationalizes the fact that price and value are not the same. And, that price alone drives a short-term, in-the-year-for-the-year profitability. We have two words – price and value – for a reason.

Here is more of what Mr. Weiner told analysts during the earnings call: 

“… value is two things. Value is price but it’s the price for what you want. If the price for what you want is high and the price for something you don’t want is not high, that doesn’t really do much. And, so, when you think about all of our platforms, you think about pizza, you think about pasta, sandwiches, desserts, salads, breads, chickens, all of those things consistently have been part of our promotional value play since the end of 2009. 

“And, having that consistency when people wake up in the morning and decide where they want to order, they know that they can trust Domino’s. That trusted value is leading to the order count you’re seeing. And, then, they become part of the loyalty flywheel.

“And so, I just … I think it’s important to make sure we explain our approach to value is not just price. It’s about price for what people actually want to order. And that’s, as you’ve seen over this time period, a very sustainable way to grow.”

Mr. Weiner focuses on the overall trustworthy brand value of Domino’s. Mr. Weiner tells us that superior value perception applies to Domino’s entire portfolio of offerings.

Compared to the deal-making fast food establishments, Domino’s recognizes that value is not just a menu invoice. Making a brand affordable does not mean marketers should cheapen the brand’s perceptions. Brand loyalty cannot be bought by bribes. Domino’s tells us that its entire menu is a value menu.

Domino’s has four pillars that drive its business. The acronym is MORE; the internal rallying cry is Hungry for MORE. M stands for Most delicious food. O stands for Operational excellence. R stands for Renowned value. E stands for Enhanced by our best-in-class franchisees.

According to Domino’s Mr. Weiner, Renowned value 

“… is not just about having the lowest price in the market. It’s (Renowned value) about providing value that is innovative and memorable. Renowned value breaks through the sea of sameness discounts you see in the marketplace. So, as Americans continue to look for value, Domino’s is providing renowned value and doing it profitably for our franchisees. Our results who that our strategy is resonating with customers and our system. All of this gives me great confidence that we can continue to drive significant long-term value creation for our shareholders.”

As far as shareholders are concerned, to actually increase shareholder value, the brand must be the most efficient and productive provider of a branded offer that customers value. There is no shareholder value without brand value. Brand value requires managing the relationship of what-customers-receive-for-what-customers-pay in the customer-perceived trustworthy brand value equation.

When customers think about a brand purchase, customers calculate the brand’s value based on the total brand experience (functional, emotional social benefits, brand character) relative to total brand costs (money, time, effort) multiplied by trust. The total brand experience is the numerator of this equation and the brand’s total costs are the denominator of the equation. Then, customers consider trust. Do I trust this brand to deliver these benefits relative to the costs consistently time after time? In other words, customers create the mental construct which is a trustworthy brand value equation. 

Occasionally reminding customers that a brand is affordable is important. But excessive emphasis on price alone destroys brand loyalty, which in turn affects revenues and profits. Instead of the dominant message being about price, communications should emphasize brand relevance. Instead of communicating “great price,” brands, like Domino’s does, should be communicating “great brand at a great price.” When marketers over-promote on price, marketers demote the brand. Demoting the brand short-term degrades the brand’s customer-perceived value long-term.  And, there goes shareholder value.

What are the lessons?

A brand is more than a deal price

Domino’s believes that its portfolio of offerings includes a range of prices, all of which must be perceived as fair value. It is okay to remind customers that your brand offers a range of prices.

Focus on the whole trustworthy brand value equation

Focusing on the denominator (the costs: price, time effort) of the trustworthy brand value equation is death-wish marketing. A focus on the denominator cheapens the brand. A focus on just one part of the trustworthy brand value equation will not help increase customer value perceptions. Domino’s wants customers to know that the brand offers value which is not just price. Domino’s goal: to have every customer perceive that every item on Domino’s menu is a great value.

The customer determines trustworthy brand value, not the marketer

Base your brand’s price decisions on the customer’s perceived value rather than on cost. Fully understand and correctly judge the effects of price manipulations. Domino’s focuses on trustworthy brand value that CEO Weiner says is “a very sustainable way to grow.”

Create communications thar promote rather than demote the brand

Every communication must enhance the brand, raising the brand to a higher level of affinity with and appeal to the customer. Domino’s communicates that it will not rely on “good enough,” instead, Domino’s adds value to offerings.

Focus on building customer-perceived brand value

Shareholders who sat by applauding yearly price hikes are now seeing that those price hikes eroded value, eroding shareholder returns. There is no shareholder value without customer-perceived brand value. The entire brand business must be driven by growing more customers who buy more frequently who become more loyal, generating more revenue and profits. Domino’s states that “there is truly a Domino effect of connectivity among all the programs we have going on right now.” Growing loyal customers is not a one-off. “Loyalty is multi-year.”