Institutional trust is in serious decline. Sadly, as the surveys show, people around the world no longer trust government, healthcare systems, political systems, educational entities, leaders, experts, social systems, financial communities, news media, religious institutions, and so forth. Increasingly, we trust peers of unknown expertise on rating sites and their reviews. We trust online communities, and online influencers – many of whom we never meet in person.

However, there is good news on the horizon. While we are experiencing a trust deficit, at the same time we are observing a desire for fairness. While we wring our hands over the decline in trust, there are indications that as people we are seeking fairness on a global basis.

Financial Times tells us that corporate brands are facing revolts against only having their AGMs (Annual General Meetings of shareholders) as online meetings. The original rationale for online only AGMs was to make the meeting more global as many shareholders could not always participate due to geography. Many corporations love the idea of online only meetings. Shareholders are face-to-face with the powers that be, asking questions, pressing for answers, and putting CEOs’, CFOs’, with all the other Cs’ feet to the fire in an extremely public manner. However, there is also pushback to online only meetings: many, including some large shareholders, see the lack of in-person annual meetings as unfair. Without the ability to stand up and look a CEO in the eyes, corporations can avoid public embarrassment.

The New York Times writes that Larry Fink, CEO of BlackRock, an investment firm that manages $6 trillion, is telling fund managers, private equity companies, and corporate leaders that it is not enough to make profits; it is imperative to serve a social purpose. There is too much talk and not enough action when it comes to social responsibility; enterprises must be fair and just in what they implement for the common good.

Additionally. The New York Times points out that Jana Partners (the activists that Whole Foods’ CEO John Mackey called “greedy bastards”) is now urging Apple to take a long, deep look at how its products are affecting children. We can overlook the irony of Jana Partners urging Apple to look at the long-term effects of its products on children, as any focus on health, wellness, and fairness to children is desirable.

Finally, a recent American Express Company study indicates that as Millennials age and rise in their companies, their commitments to social justice and fairness will reshape C-Suites around the world. In the US alone, currently 40% of Millennials leaders and managers see fairness as essential for a corporate leader.
They expect to be treated fairly. They expect prices to be fair for the benefits received. Is this brand a fair value? Marketers do not determine fair value: customers determine fair value. What is fair value? Every brand should know what customers perceive as fair value.

Today’s conversations about fairness are no longer merely about the fair relationship between benefits and price. The conversation is about whether or not you are behaving in a fair manner. Of course, pricing is important. People were outraged with Uber’s extreme use of dynamic pricing fluctuations. The fare was not fair.

Brands must be transparent in their behaviors toward employees, communities, customers, countries, stakeholders, and planet. Brands must deal with personal customer data in fair ways, not leveraging the information in ways that violate an individual’s privacy for the sake of brand profits. Brands must not only create the doors of career opportunities, but also open wide those doors so employees can walk through and take advantage of those opportunities. Brand must stand up for what they stand for. Commitment to social responsibility increases the perception of earning fair profits. Be fair to employees, customers, the community, the planet.

Fairness is highly personal. From our playground cries of “that’s not fair” to our current focus on fair-based behaviors towards people and planet, brands have an opportunity to build trust by focusing on fairness.

CAN’T SLEEP AT NIGHT, BUT JUST THE SAME, I NEVER WEEP AT NIGHT, I CALL YOUR NAME CAN WHAT YOU CALL YOUR BRAND CHANGE YOUR BRAND?

Special thanks to The Mamas & Papa’s for the lyric: it leads us t o a prominent, pervasive element of marketing. Brand naming is big business. Brand name creators specialize in finding just the right moniker for your brand. They always provide all sorts of rationalizations as to why the selected brand name is so crucially important. Some people say that the brand name is the most important, decision for effective brand management. When both The Wall Street Journal and The New York Times report on brand naming on the same day, it is either a slow news day or brand naming is suddenly top-of-mind.

Brand names are important. But what the brand stands for is most important. For decades, Americans celebrated occasions special or not, by taking pictures using Kodak film. Kodak moments were emotional glue, captured on celluloid. Kodak’s prize color film became the title to a Simon and Garfunkle song, Kodachrome. Kodak became an iconic American brand: but that brand was a made-up name. Nobody discussed the hidden or special meaning of Kodak. There were no fancy name developers sourcing documents for the perfect name. It was a simple, easy to pronounce, 5-letter, made-up word that could fit on a small box.

Some brand names happen by accident, like Google, which was apparently a spelling error. Some brand names happen because it is a name of the child of the boss, like Mercedes, or a pet (Snickers, named after a horse). Some brand names happen because it is the nickname of a child, like Tootsie Roll. And, there are the family names, these work too: Mars (Mars Bar), Ford Motor Company, W.L. Gore (Gore-Tex), Hearst (newspapers), Wrigley (gum), Dyson (vacuums, hairdryers, etc.), Kellogg’s (cereals), Chanel (fashion, fragrance).

We know, and, hopefully, love these brands. We know and, hopefully, love them because of the relevant, differentiated and trustworthy experience they each deliver. The brand’s promise and essence make the name meaningful, not the other way around. How we communicate the name creates interest in the brand. Delivering what we promise builds brand credibility and loyalty.
Brand naming is serious, and seriously expensive, business. It requires resources and creativity. A name affects the logo and the slogan. But, don’t get carried away. According to many in the naming business, a perfect brand name that conveys everything about the brand and the user is a necessity. Reducing a brand message to a single word is simplistic.

One brand namer interviewed in The New York Times said, “You try to create a language and a name that taps into the psychology and sells the product.” Another said about automotive naming, “ It’s thinking how the brand should be positioned in the marketplace, identify the car’s essence.” And yet another name consultant indicated that when his company develops names, it seeks “sound symbolism and letter structure”. He added, “The brand name is a vessel that carries ideas into the marketplace.”

Mercedes. Google. Amazon. Disney. Apple. L’Oreal. McDonald’s. These are among the top most powerful brands. They became strong because they were made strong. These names were not born out of trying to capture the key brand message in one word. Nor were they created for considerations of sound symbolism or as a vessel structure to carry a brand idea.

Brand names are sometimes changed. Kentucky Fried Chicken moved to KFC to put distance from the word “Fried”. Minnesota Mining and Minerals shortened its name to 3M. Most people do not know what ESPN originally stood for. Nor do viewers care. Sometimes a brand will need to change a name after a disaster, such as ValueJet, which became AirTran after a crash.

Something different is happening in retail. The Wall Street Journal tells us that real estate developers have decided that one way to survive the changes wrought by online shopping is to ditch the word “mall” on their properties. Mall is now a malignancy on the retail landscape. Just in case you are not tuned in to this, “mall” is so 1970. A property re-brander stated, “The mall needed to de-mall.”

Sometimes names do need to change to adapt to changes in the marketplace. So, instead of “mall”, multiple venues retailers are switching to names like The Shoppes, The Promenade, Crossing, or Quarter. Mall is now a negative, retail apocalypse word, as are its cousins, Galleria and Pavilion, which are also being banished from the shopping lexicon. Brand names now need to convey “upscale, multi-purpose, leisure-time consumer destination”.

Mall brand name changes are happening because “Retail, especially in the context of mixed-use projects, is as much about place, experience, entertainment, wellness, and community as it is about shopping, and the word ‘mall’ doesn’t embody those qualities.” However, the Mall of America, which is a place, an experience, has entertainment and shopping is not buying into the fall of the mall mentality. Others are also not making the switch, as it would “undo years of brand recognition and brand value for little return.” And, as one customer said, “When I call my friend Christine, I say let’s go to the mall” regardless of what it is now called.

The promise and delivery of relevant and differentiated expectations is critical. This is the number one priority.

From Marriott to Amazon to Nestlé to Google to Apple to Unilever to LG to Neutrogena to Source-Branded Portfolios are increasing in importance. With a shared common, source of credibility, individual brands can focus on developing and strengthening their specialness. In a highly competitive, highly fractionated, fast-paced environment, resources are better often better spent behind Source-Branded Portfolios than behind a disparate portfolio of unaffiliated brands.

A Source-Brand invests each individual brand with its authority. This allows the individual brands to focus on their relevant differentiation, appealing to particular customer needs for particular situations. A Source-Branded Portfolio enhances the reputation of individual brands. Source-Branding increases marketing productivity encouraging cross-selling and enhancing the efficiency of the individual brand communications.

Disney has a strong Corporate Brand that imbues each of its brands with its heritage of being a magical place for creating happiness. Disney Cruises, Disney Hotels and Resorts, Disney stores are all embraced by the Disney Corporate Brand’s purpose.

Brands do not exist in a vacuum: A Source-Brand represents an authentic heritage of expertise and credibility, contributing common character, values, purpose, and principles to the brands in the portfolio. The Source-Brand also provides a source of trust and confidence across the portfolio. A strong Source-Brand reduces customer-perceived risk.

A Corporate Branded Portfolio increases the opportunities for cross-purchase among the brands within the portfolio. As cross-purchasing within a portfolio increases, so does profitability. Recent research (Kumar and Reinartz, 2016) indicates increased profitability from cross-purchases from a common Source-Brand, in this case a Corporate Brand. People using more brands within a Corporate Branded Portfolio are more loyal than those who limit purchases to just one brand. For example, someone purchasing six (individual) brands one time each is more loyal to the portfolio than someone using a single (individual) brand six times. Using more than one brand in the Corporate Branded Portfolio: 1) increases revenue contribution for the corporation; 2) increases the duration of the relationship with the branded portfolio; and, 3) increases engagement with the Corporate Brand. This multiple-brand behavior increases the importance of the Corporate Brand’s loyalty program, as the program provides trustworthy access to the entire Corporate Branded Portfolio, encouraging easier, more confident, personalized, less risky decision-making.

Given the number of Corporate Brand stakeholders – customers, franchisees, employees, shareholders, the financial community, media, local community, opinion leaders, suppliers, online influencers, bloggers, vloggers, and celebrity personalities – it is more important than ever before to build a consistent, powerful Corporate Brand.

A brand is a promise of a relevant, differentiated experience. However, today there is increased skepticism in society. In more and more situations around the world, credibility is under attack. Trust in institutions… education, medicine, business, religion, politics, marketing… is in decline. Building trust for individual brands is expensive and takes time. Inheriting a strong, authentic, authoritative source with a trustworthy reputation is a competitive advantage.

In many cases the Corporate brand is the Source Brand. This is especially true in Business-to-Business relationships, the trusted authority of a Corporate Brand influences customer preference. The Corporate Brand is a value creation advantage, generating customer value by facilitating productive, profitable relationships, locally and around the globe. The interdependent relationships of a Corporate Brands and its individual products, services and brands are value creating. In Business-to-Business situations, a strong Corporate Brand is a hedge against uncertainty. Even if one of the brands in the Corporate Branded Portfolio is new or less known, the Corporate Brand can deliver the standards and integrity that help customers feel confident.

Marriott shares its corporate source credibility with many of its hotels providing the Marriott imprimatur to Springfield suites, Protea, Courtyard, AC Hotels, Towneplace Suites, Residence Inn, Fairfield Inn, Marriott Vacation Club, JW Marriott, and Delta hotels. Each of these brands focuses on building its own individual relevance and differentiation while each hotel also derives expertise and authority from Marriott. Virgin provides the energy, excitement, dependability, and irreverent humor to Virgin Atlantic, Virgin Mobile, Virgin Earth, and other brands. Unilever’s “U” on all its brands reminds customers of its mission to make sustainable living commonplace. Every purchase is a way to participate in this corporate mission.

As never before, people care about the corporation behind the product or service promise. They care about the source of the promise. Why should a customer trust the claim? On what authority is this claim based? Moving from an assemblage of individual, disconnected brands to a coherent collection of brands sharing a common source of credibility increases the strength of the individual brand promises. A portfolio of relevant and differentiated individual brands supported by a strong source-brand leads to increased customer loyalty and sustainable profitable growth.

Abstract
Marketing is all about creating value for customers. If there is no value for customers, there can be no value for other stakeholders. Our understanding of how customers evaluate value must evolve. Today, an important factor affecting perceived value is the trustworthiness of the brand promise. Being the most trusted brand in a competitive set is a big competitive advantage. Building Trustworthy Brand Value™ is associated with lower price sensitivity. Marketing needs to change its mindset and its metrics.
It is all about value

Marketing is about creating value. Marketing creates value for customers, for employees, for shareholders, and for the community. At its core, marketing begins with creating value for customers. If there is no value for customers, there can be no value for other stakeholders. Customer-perceived value is marketing’s connective tissue crossing geography and time.

There is an underlying enduring definition of customer-perceived value: value is what you get and do get for what you pay. This has always been the customer’s mental model when evaluating the worth of a good or service. However, our understanding of the customer’s mental model of perceived value needs to evolve.

In the early years of mass marketing, marketers focused on features for the money. Marketers promoted products by celebrating features. So, for example, a new refrigerator was sold featuring its special compartment for vegetables, or a chocolate bar was promoted as having 20% more nuts. Brand value was represented as features for the price paid.

Over time, we learned that customers sought products services that had the right features, but they asked, “Which brand is best for my individual needs?” Needs-based marketing became a marketing standard.

Customers look for brands that not only delivered the desired functional benefits but also made them feel good about the choices they made. The value equation became functions and emotional benefits for the price paid. Money is not the only cost that people consider when evaluating value. Time is also important. Over the years, customers increasingly view time as precious as money. Is it worth the money and is it worth the time?
Total brand experience vs. total brand cost
Consumers view brands as comprehensive, integrated, multidimensional experiences. The total brand experience is the combination of functional, emotional and social benefits. Social benefits are not just about sharing and belonging but what sort of image the brand conveys about me. Personal, visible social status can be a significant driver of purchase.
Customers say they want more choice. Market segmentation and increased fractionation have led to an over-complicated world of choices. With multiple choices, decision-making becomes a tremendous effort. Using a product or service should be easy. You could have all the time in the world, and yet it may take too much effort to figure out how to choose the right offer for your needs. Choosing how to get service, how to use online ordering, or how to interpret a product label should not take excessive effort. Make it easy to choose and easy to use.
This led to customers assessing a brand’s value based on their perception of the total brand experience – TBE (functional, emotional and social benefits) relative to the total brand costs – TBC (money, time and effort).
Trust is a value multiplier
There is a very important factor that is influencing the brand value equation. That factor is trust. Trust – in institutions such as governments, education, religions, media, businesses, and brands – is in decline. Trust is under attack. We live in an uncertain world. Yet as humans, we seek touchstones of trust. Trusted relationships are at the heart of how we live, how we grow a society, and how we grow a business. For businesses, loss of trust affects market share, brand perception, and profitability. For enduring brand value to exist, trust is a must.
Trust is an increasingly important factor affecting customer-perceived value. The new equation of customer-perceived value is total brand experience (TBE) relative to total experience costs (TBC) all multiplied by trust. We call this the new Trustworthy Brand Value™ equation.
If trust in the brand is high, the perceived brand value is increased. If trust in the brand is low, the perceived brand value is decreased. If there is no trust in the brand, then it does not matter what the brand experience is relative to the costs: anything multiplied by zero is zero.

 

What is trust?
Trust is an Old Norse word traust meaning confidence. Trust is the confidence customers have that a brand will live up to its promises. Trust is the confidence suppliers have in doing business with you. It is the confidence employees have in your leadership. It is the confidence investors have in your business future.
Trust has been at the basis of business since the beginning of business. A trademark, hallmark, maker’s mark was a trusted sign of quality: a sign giving you confidence that the silver was truly sterling; the pewter was the correct mixture of alloys; the cloak was from the expert tailor you preferred; the silks were from China; the dinnerware from Delft; the beer from your favorite brewery.
The trusted mark not only identified and protected the reputation of the maker but protected the purchaser as well. A creator could trust that others would not get a free ride on his or her hard-earned reputation. A buyer could trust the origin and quality of the work. Now, centuries later, this is still the big challenge of brand management: make your brand a mark you can trust.
How do we build Trustworthy Brand ValueTM?
Marketing is about creating value for customers. Yet, marketers are often misguided in how to define value. Marketers tend to assess brand worth by asking customers whether a brand is a “good value for money.” As a brand evaluator, this generic metric is killing perceived brand value understanding.
Our recent research posits a new approach: it shows that asking whether a brand is “good value” does not correlate with price sensitivity. It is too general. It is too vague.

On the other hand, Trustworthy Brand Value is more discriminating. It correlates with price sensitivity. As Trustworthy Brand Value increases, customers are less price sensitive and are willing to pay more.

In our most recent book, Six Rules of Brand Revitalization: Second Edition (Light and Kiddon, March 2016), Rule #5 is Rebuild Trust. How can brands create and build Trustworthy Brand Value?

Here are seven common sense marketing actions for building Trustworthy Brand Value. These principles focus on guiding brands to profitability.
Seven Actions for Building Trustworthy Brand Value

1: To be a leader, act like a leader
Be a trustworthy leader. Trust leadership is not about how big you are; it is about how big you act. Leadership is not about the size of the business. It is about the size of the business ideas. The market impact of brand leaders outweighs their market share.
Market leaders have an opportunity and a responsibility to lead. When people attack, they attack the leader. Some call this the penalty of leadership. We call it the prize of leadership. When a leader speaks, the world listens. In today’s climate of uncertainty, the imperative is to stand up for what you stand for.

Leaders innovate, they do not just renovate. Dyson built an amazing brand on a series of consistent, relevant innovations. He began by addressing a common problem in an industry that had not innovated for years. He designed a delivered a superior performing and bagless vacuum cleaner. He followed this by inventing a powerful fan that had no fan blades. He re-invented the hair dryer to make it safer and better. Dyson is a leadership brand.
2: Deliver what you promise
Trust means that a brand will consistently live up to expectations. Promise what you can deliver; deliver what you promise. Be specific. If you promise everything, you promise nothing. Make a trustworthy promise that if you buy this brand you will get this specific experience. A brand is a contract with a customer. Live up to the brand contract.
Starbucks promises a place away from the home or office, a convenient café experience where you could relax alone or sit with friends, work on your laptop or read a newspaper, and you get a choice of personalized great coffees made by trained baristas. When Starbucks lost touch with its promise, sales declined. Howard Schultz, the founder returned to the helm restoring the brand to its original premise. Promise what you intend to deliver, and deliver what you promise.
3: Be a trusted informational and educational resource
Information reduces uncertainty. In a world drowning in data, the challenge is to transform that available data into accessible, valuable, trustworthy customer information.
Amazon enhances its online mall store by offering information personalized for you, suggesting products you might like based on what you have purchased. And, these recommendations are accompanied by customer reviews. People often trust the information from peers more than the advice of experts.
Information not only informs but it educates. Information helps people feel competent through knowledge of how to use the information. Competency breeds comfort. IKEA has an online responsive helper named Anna. Go online and “Ask Anna” for help if you need a new kitchen item or if you need a new kitchen.
An Apple computer is certainly intuitive and easy to use. But, if you are computer challenged, Apple provides 100 hours of free lessons to help make you competent and comfortable. P&G wants to educate consumers on the ecological benefits of washing your clothes in cold water to save energy used when heating water. The #TurnToCold program provides a wealth of information on the virtues of cold water washing.
4: Simplify choice
People want more choices and more personalization. To satisfy this clamor for choice, brands now have many varieties, selections, sizes, flavors, ranges, alternatives and options. Increased choice breeds increased complexity and uncertainty. People want choice but they want choosing to be simple. Marketers and brands must figure out how to provide choice without complexity.
Drugstore.com keeps “Your List” available so shopping for your vitamins, shampoos and analgesics does not mean scrolling through 15 different menus. Just go to Your List and order again. Google remembers the sites that you visited, bringing these to your screen before you finish typing.

Keeping it simple is good. Over-simplification of a brand promise is death wish marketing. Yet, there are still those who strive to reduce a brand to a single word. A brand is a complex, multidimensional idea. Over-simplification is simplistic marketing. Brands are multifaceted experiences.
5: Be open
Being open is very important if we are to be trustworthy brand messengers. If you are seen to be hiding something, the suspicion is that you have something important to hide. And, in today’s world, it is difficult to hide, while easy and shameful to be found out.
People trust their eyes more than their ears: seeing is believing. Subway restaurants prepare your food in front of you. You can see how it is being prepared. You can customize the sandwich to satisfy your desires. Many restaurants now have open kitchens.
So, to be worthy of a consumer’s trust, people need to see the truth, not just hear you claim it. Remember, truth and trust are not the same thing. Truth is a fact. Trust is a feeling. What you communicate must be right and feel right.

6: Act responsibly
Responsible trust means doing the right is the right thing to do. It means being conscientious internally and externally.
Building responsible trust means integrating commitment to causes on a sustainable ongoing basis, as well. Consumers want assurances that your motivation is authentic. Commit to a cause closely tied to your brand; a cause that you will sustain for more than an occasional, opportunistic moment.
Unilever takes a leadership stand on sustainability in all of the countries in which it does business. Unilever’s sustainability promise states, “The Unilever Sustainable Living Plan is our blueprint for achieving our vision to grow our business, whilst decoupling our environmental footprint from our growth and increasing our positive social impact… Our purpose is to make sustainable living commonplace.” (At www.unilever.com/sustainable-living)
7: Collaborate
Collaboration is better than confrontation. Collaborate internally. Collaborate externally.
Nissan used collaborative cross-functional teams as a critical factor in implementing its very successful turnaround plan in 2000.
Collaboration is critical for brands. In our book, New Brand Leadership (Light and Kiddon, June 2015), we discuss The Collaborative Three-Box Model, our recommended approach for managing global brands. The premise is that with the forces of globalization, localization and personalization, collaboration across geography and functions is the only way for brands to succeed.
Colgate-Palmolive, Procter & Gamble and Unilever are partners in The Global Public-Private Partnership for Hand Washing focusing on hygiene as a sanitation key to increasing international health. It educates people around the world on the benefits of washing your hands with soap. The partnership members include organizations such as UNICEF, The London School of Hygiene and Tropical Medicine, USAID, and The Water and Sanitation Program at The World Bank. Ronald McDonald House Charities is an excellent example of sustaining a commitment to a worthy cause.
Trust is the foundation on which strong, sustainable brands are built.
Trust takes time to earn. But, trust can evaporate in an instant. This is a current challenge for Volkswagen and J&J, for example.
In the 1990s, Perrier lost trust when the quality of their water sources was questioned. It took years to rebuild trust; in the meantime others like Evian, Fiji and AquaFina entered the market.

Marketing is about generating value. It is a significant factor in all economies as it allows consumers access to valued, quality goods and services. In the midst of a trust deficit syndrome, being the most trusted brand in your competitive set is a big competitive advantage. Trustworthy Brand Value is a business management mindset. If you want to be perceived externally as a trusted enterprise, you must create a Trustworthy Brand Value culture internally.

It is all about traffic. For all the fanfare about All Day Breakfast, McDonald’s (NYSE: MCD) in the USA has not been able to stem its steady four-year decline in customer traffic. Guest counts have declined for over four years. True, the fast food restaurant category is experiencing decline. But, McDonald’s is declining at a faster rate.

Increased sales on an ever-shrinking customer base is a certain path to brand disaster. Bloomberg obtained an internal email which summarized a September meeting with McDonald’s executives and franchisees. It read, “Growing customer counts is our main challenge.” (Business Insider, October 16, 2016)

When Steve Easterbrook became CEO in 2013, he brought over his favorite slogan from the UK… “To be a modern and progressive burger company.” Yet, the business has experienced steady decline in customer counts over the last four years. The big turnaround initiative reflecting this new vision was providing a customized dining experience called, “Create Your Taste.” allowing customers to build burgers from more than 30 premium ingredients, buns, and sauces, including bacon, caramelized grilled onions, chili lime tortilla strips, guacamole, and jalapenos. While McDonald’s acknowledged that it was necessary to simplify the menu and reduce operational complexity, this customized meal initiative did the opposite. Service times took 8 to 10 minutes, a killer for a fast food brand. Focused on competing with fast casual brands like Panera Bread (NASDAQ:PNRA) and Chipotle (NYSE:CMG), “Create Your Taste” gave direct competitors like Wendy’s (NASDAQ:WEN) and Burger King an opening to increase their share of fast food customers.

All Day Breakfast was the next big effort to reverse transaction decline. It has failed to stem the transactions decline. Instead of bringing in more customers, All Day Breakfast items seem to be merely replacing other menu item options. Again, it is increasing operational complexity, slowing down service and increasing franchisee tensions.

The continued transaction decline in Q4 is being blamed on the bad weather in the USA. The bad weather cannot be the cause of a steady decline over the last four years. To address the continued transactions decline, McDonald’s primary focus is now an increased emphasis on discounts and special deals. Without a focus on a better quality food and service brand experience McDonald’s is trying bribes. Excessive discounting and deals are brand debasing rather than brand building. McDonald’s must stop the hemorrhaging of its customer base. Using extensive discounting to deliver top-line sales is the wrong medicine to cure this brand disease.

Adding fuel to the fire, information from the recent Nomura franchisee survey (Investor’s Business Daily, October 17, 2016) indicates that the continuous discounting is resulting in increased franchisee concern that McDonald’s only cares about top-line corporate sales and not about running profitable restaurants. “McDonald’s does not care about the operator. It only cares about stockholders.” The financial health of the franchisee is a brand-business imperative. Without franchisees upholding the brand, shareholders will wind up with nothing to hold. McDonald’s is cutting its costs by laying-off corporate staff, cutting back on corporate support and training, cutting back on real new product innovation. McDonald’s income goes up as franchisee profitability goes down.

McDonald’s is relying on financial engineering to prop up its shares, increasing debt to buy back shares and continuing to increase the dividend payout. One thing is certain, none of these actions will turn around the shrinking of the customer base. Financial engineering to enrich loyal shareholders is only a temporary cover up that in no way addresses the consistent declines in guest counts. Growing comparable sales while comparable transactions decline; growing corporate revenues while franchisee profitability declines; growing shareholder returns through financial engineering while failing to grow customer share through effective marketing; increasing revenues on a declining customer base, all lead to a weakened business that extracts value from the brand rather than invests value into the brand.

McDonald’s appears obsessed with becoming something that it is not rather than working to evolve based on its enormous brand strengths. McDonald’s does not seem proud to be the biggest and best fast food brand in the world. Why? Is this what becoming a “modern progressive burger company” is intended to mean? If so, then the brand will continue to experience traffic decline, and the challenge will continue to be to try to increase revenues from a shrinking customer base.

Here are actions McDonald’s should take now to revitalize the brand and increase traffic:

Provide great tasting food
It is great that McDonald’s wants to remove unwanted ingredients from its foods. It is admirable to focus on how animals are treated. However, McDonald’s is not a health food store or the Humane Society. McDonald’s customers will not trade-off taste for socially acceptable, “cleaner” food. Discounts will not make the food taste better. The McDonald’s customer wants delicious food, at a very affordable price, served quickly in a clean environment.

Innovate or die
Where are the new products? New technologies keep the brand up-to-date but we cannot eat a kiosk. Three types of Big Macs are just playing catch-up to Burger King and Wendy’s. Where are the real food innovations? Innovation is news; food news brings customers into the stores.

Improve service speed
Speed of service is still a problem. For fast food, it can be a killer. Consistency and speed are what attracted Ray Kroc to the McDonald’s business. The first word in fast food is “fast.” Complexity needs to be dramatically reduced.

Focus on franchisee profitable revenue growth
McDonald’s is built on the principle that by working together you work better. Ray Kroc said, “None of us are as good as all of us.” And when referring to the franchisees, “You are in business for yourself but not by yourself.” However, today franchisees increasingly feel that corporate support has been cut back. Costs are being transferred from the corporation to the franchisee. Focusing on top-line sales at the cost of franchisee profitability is not only bad management but goes against a core foundation of the brand.

Build real loyalty, not deal loyalty
Real loyalty cannot be bought with bribes. Luring customers with incentives makes people loyal to the deal instead of loyal to the brand. If guests do not prefer the experience, making it cheaper will not be the cure. McPick 2 will not reverse declining transactions.

McDonald’s current value is built on a consistent pattern of increased dividends and share buybacks not packed restaurants delivering delicious tasty food served quickly with a smile. Investing in growing a base of loyal customers must be McDonald’s highest priority. The bottom line must be more customers, more often, more loyal, more sales, more profitable. Fiddling with financial engineering while focusing on increasing sales from a base of fewer, less frequent, less loyal customers is a formula for failure.