The Value Equation
Price
Surely no discussion of value can be considered without assuming that price is a factor. Value menus of chains typically hug the $1 threshold: Taco Bell’s Why Pay More! menu includes 10 items for 99 cents or less, McDonald’s Dollar Menu has eight for $1, and Burger King’s BK Value Menu—with the latest addition of its Double Cheeseburger—has 10 for $1.
Signs point to the fact that the recession forced many consumers to look solely at cost when considering dine-out options. A fall 2009 study by global business advisory firm AlixPartners showed that consumers in Q4 of 2009 expected to pay on average $11.49 when dining out, which was down 20 percent from the same study conducted in March of that year.
“It starts with the price point,” says Adam Werner, co-author of the study on customers’ perception of value.
If our data would suggest anything, people are going to expect lower prices certainly in the next six to nine months going forward.”
“If our data would suggest anything, people are going to expect lower prices certainly in the next six to nine months going forward,” he says.
According to Brad Haley, executive vice president of marketing at CKE Restaurants, two groups of customers existed in the pre-recession world: those who wanted the lowest price they could get, and those who wanted bang for their buck.
“In the post-recession world, I think we’ve lost some of the latter group and gained in some of the former group,” he says.
Even though this is the case, Haley says that CKE chose to stay away from value menus even during the recession and instead offer more premium items.
“We’ve promoted what I’ll call mid-tier priced products that fall into maybe the $2.50 range,” he says. “At that price point we can deliver a high-quality burger, which I think seems to fit well with the new price-value threshold for people. Pre-recession, customers might have easily spent more than $3, in some cases more than $4, for what they consider a great burger. But in today’s world that’s kind of taken a step down.”
Of course, too low of a price can hurt the bottom line, and in turn upset those who stand to profit from the value’s public interest: franchisees. Burger King found this out the hard way when it added its Double Cheeseburger to the value menu in October. The $1 price for the burger turned out to be cheaper than what it cost for franchisees to make and market it, and the National Franchisee Association, which represents more than 80 percent of U.S. Burger King franchisees, filed a lawsuit against the chain.
“I think any time you’re speaking for 85 percent of your system with a price point but not addressing the profit factor, you have to be sensitive,” says Lane Cardwell, CEO of Boston Market.
Cardwell’s chain is also a player in the value-menu market, but at a price point that Subway and others are finding is a magic number in the recession: $5. Boston Market has 11 menu items on its $5 value menu.
Werner says that especially in the wake of the $5 footlong deal from Subway, brands have been flocking to the $5 price point. Domino’s released its $4.99 Oven Roasted Subs, Arby’s added $5.01 Combos for five of its sandwiches, and KFC rolled out $5 Fill-Up and Madden NFL box LTO options. Quiznos even challenged the $5 price point with its own $4 Torpedo sandwiches.
But the $5 price point, says Subway’s Pace, is nothing without chains putting their money where their mouth is.
“One of the keys to our success is that everybody else, after we launched $5 footlongs, basically said, ‘We have stuff for $5, too,’” he says. “And I don’t think consumers reacted all that well to that, because it wasn’t presented in a way where they talked about how their stuff was high quality.”
