JANUARY 2003 IN
RICK ASTER’S WORLD

Say Cheese! Kodak, McDonald’s Not Smiling

Kodak and McDonald’s are losing money. This news has come as a surprise to many investors who didn’t expect these two cash cows to turn into white elephants. How is it possible that two of the best-known consumer brand names, still dominating their respective industries, could fail to be profitable?

American consumer culture in the last half century was known for the kind of colorful superfluities that Kodak and McDonald’s provided as well as anyone. If these two companies now have trouble finding a profit in panoramic photo prints and McGrilled Chicken sandwiches, it is because the world around them is changing and they are slow to respond.

Technology changes the way people live, and it changes markets as consumers discover alternatives to products. Kodak and McDonald’s both seem to have underestimated the other choices available to consumers.

Kodak, perhaps, looked at the high price of digital cameras and the low resolution of digital images and concluded that its film products were obviously superior. If so, they failed to notice how much easier it is to take good pictures when you can review them instantly and discard them and try again if something goes wrong. They might be too close to film technology to notice the the inconvenience, risk, and cost involved in developing film. The consumer experience of film photography must change quickly to keep the film industry alive as its price advantages rapidly vanish, and Kodak seems somehow not ready to face that challenge.

To say that McDonald’s fast-food marketing accomplishments are impressive would be an understatement. In barely three decades, they brought the principle of conspicuous consumption down to the lowest level possible. But as the quality of food generally has improved dramatically since 1980, McDonald’s has made little effort to improve its offerings. Consider, for example, bread, the most basic component of fast food. McDonald’s bread has always been among the worst anywhere, but in 1980, people didn’t pay much attention to the bread they ate. As better bread becomes commonplace, McDonald’s bread, only slightly improved since 1980, is conspicuously inferior. As McDonald’s lags behind the rest of the world, 4-year-olds can no longer brag about their trip to McDonald’s — and those flashy McDonald’s food wrappers no longer have any status.

Long waits in line, a complicated menu, concerns about nutrition, and menu boredom are other factors taking their toll on sales. McDonald’s responded to its recent slump by closing many of its locations, increasing its television advertising, promoting a new dollar menu, and upgrading its free toys. These gimmicks have had little effect, and this is a sign of how much people’s expectations have changed. McDonald’s potential customers have a world of alternatives, including supermarkets, convenience stores, buffets — even candy bars and going hungry. When you consider that all of these alternatives are potentially healthier and more convenient than a lunch at McDonald’s — and when you consider the current economic slump, a situation that in the past has been favorable for fast food — McDonald’s long-term prospects don’t look any brighter than Kodak’s.

Instead of trying so hard to improve the details of what they do, companies like Kodak and McDonald’s need to find out what customers want today. Ultimately, the only way to stay in business and make a profit is by giving people what they want.


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