Product Failure Report: McDonald’s Pizza

Marketing 365-002 - New Product Development

February 5th 2015
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I ) The McDonald’s Pizza and its Competitive Advantage

Since the inception of the franchise in 1955 (Marketline, 5), McDonald’s has
rocketed to the forefront of the fast food industry, and cemented itself as a truly global
brand. Their success has been fuelled by a keen intuition for their customer’s desires
and numerous product launches that have shaped American food culture. However, not
every menu item has been embraced by the general public with the same affection as
the Big Mac or Egg McMuffin. This brings us to the McDonald’s Pizza. This product
ultimately failed in the market, and even damaged McDonald’s brand for three main
reasons: inconsistent product testing, indecisive implementation, and unrealistic product
retirement. During this paper we will examine all elements that led up to and influenced
this decision, including media perpetuation, social, political, and cultural factors, and
internal versus external economic conditions.
Before this we must first take a look at McDonald’s Pizza, its winning attributes
and why the american public should have flocked to buy this product. At 14” in diameter,
with a variety of toppings and sauces it didn't differ from many existing options
(Shapiro). However McDonald’s sought to rely on their proven efficiency of service, and
expansive distribution chain to legitimize their position as a pizza provider. McDonald’s
knew they may not be able to create the tastiest pizza in the world, instead they chose
to leverage their strengths to offer the most cost-effective and widely-accessible pizza
on the market. With their unsurpassed store presence across the nation, and their ability
to use their impressive economy of scale they were able to offer a pizza at a lower price
point, and at more locations than any other provider. Boasting an order-to-table time of
five and a half minutes during product testing (Shapiro), McDonald’s seemed poised to
take the pizza market by storm, but before we look at their initial launch, lets consider
their target market.

II ) Target Market & Why They Would Adopt McDonald’s Pizza

McDonald’s is always looking for varied channels to boost their bottom line.
Therefore, tapping into the $14 billion restaurant pizza market seemed like a very viable
option in the late ‘80s and early ‘90s, especially considering this sector continued to
grow at a healthy rate of 10 percent a year, in an otherwise saturated fast-food market
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(Shapiro). For example, McDonald’s introduced the Egg McMuffin in 1973 to bolster
their dwindling morning sales, a move that now accounts for over 20 percent of total
revenues (Shapiro). In similar hopes, their Pizza planned to aid McDonald’s in crafting a
“dinner menu” offered after 4pm that would bring in families and adults in the evening
hours. Targeting an adult market was also a conscious decision made by the firm in
order to shift association away from McDonald’s being a children’s restaurant. An
impression left after the historic success of children’s happy meals, introduced in 1979
(Berss, 232). Targeting adults and families was a bold but necessary move in the eyes
of management, especially considering that “The introduction of salads in 1987 and
growth in breakfast sales were important elements in helping the company achieve its
23rd consecutive year of record sales” (Shapiro). With pressure so high to perform, it is
clear that McDonald’s was looking to expand its menu options with the hopes of
attracting a different demographic of customers. The main question remains whether
their newly targeted ‘pizza-lover’ demographic would willingly make the switch to
McDonald’s Pizza. Aiding them in their decision is McDonald’s proven track record in
providing meals at great value, in the shortest time possible, combined with their
unparalleled access across the country. McDonald’s was confident that the combination
of value and ease of access would be more than enough to turn customers away from
their favourite pizza parlours: their competition however, had other ideas.

II ) Main Competition
McDonald’s faced competition on various levels. Firstly, they pitted themselves
against the frozen-pizza take out market, competition that holds both value for money,
and ease of purchase, all while operating within its own $7 billion industry. Secondly,
McDonald’s aims to compete against small independent pizza parlours, although these
establishments may have a lower market share than their franchised counterparts,
convincing these specific customers to switch may prove most difficult. Their last, and
most prevalent competition are the nations’s leading pizza parlours. Pizza Hut heads
this category as the nations largest pizza chain with 6,300 domestic outlets, while
Dominos takes second place with 4,800 (Shapiro). No one seemed to take McDonald’s
move into the pizza business more seriously than these chains, which retaliated with a
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string of aggressive advertising campaigns. This was best encapsulated by Jack Levy,
president of Pizza Hut’s marketing firm, who said “Every place you see a McDonald’s
pizza, you’re going to see a war.” And he was not joking either, as Pizza Hut quickly
released prime time television advertisements ridiculing McDonalds pizza dough as
“McFrozen” and saying things such as “Don’t make a McStake. Come to Pizza Hut for a
real pizza” (Parasuraman, 214). These scathing campaigns highlight just how
concerned the competition was of McDonald’s presence within their market.

II ) Marketing Macro-Environment of the 1990s

A large factor that put pressure on the launch of the McDonald’s Pizza were the
cultural conditions of that era, and specifically how that affected the marketing
environment. In order to fully explore this we will examine the political, economic, social
and technological states of the early 1990s, also known as a PEST analysis.
The political scene closely reflected the social constructs of this time, which were
in advocacy of environmental rights, youth labour and health risks. All of these
converging public opinions came to light during the 1989 McLibel court case. This case
was brought forth by a group of British Greenpeace activists in response to McDonald’s
aggressive expansion into the UK. The case stressed that McDonald’s global expansion
and quest for profit “Had extended American imperialism into the third world,
encouraging labour exploitation and anti-unionism, devastated the environment and
gulled children into unhealthy lifestyles” (Botterill, 3). This led to the longest court case
in British history, lasting for over 10 years and costing McDonald’s £10,000,000 in legal
fees. While the judge ultimately ruled in favour of McDonald's on several counts, he also
ruled that “It was not libellous to claim that McDonald's suppressed labor markets, made
deceptive claims about is food, posed a health threat to its long-term customers, and
exploited children's incredulity with its promotions.” (Botterill, 3). While McDonald's
technically won the case, they inadvertently proved the activists claims, that this
corporation would use its position of global status and power to silence any who would
dare to challenge its public image. (Botteril, 3).
Economically McDonald’s was under pressure also. On one hand they had to
build on over 20 years of consecutive sales growth, while simultaneously dealing with
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the negative consequences of various public opinions of that time. McDonald’s was
especially struggling in the domestic market, showing a pattern of progressively weaker
sales growth that began in 1988 after peeking at 11.6% in 1987 (AP, 13). These figures
could have potentially caused McDonald’s to rush into securing an additional revenue
stream without fully exploring every consequence of this action.
The social climate of this decade was one of newfound activism. Large
corporations were beginning to feel the negative public backlash in the wake of social
and environmental externalities caused by increased global operations, and McDonald’s
was no different. Environmental groups berated the firm for switching to the styrofoam
‘clamshell’ packaging in 1975 after decades of paper and cardboard packaging all
because it “kept the burger hot, the tomato and lettuce cold, and did not show grease
stains” (Kline, 2). And as links began to emerge between the plastic packaging and a
suspected carcinogenic, a grassroots organization launched the “McToxins” campaign,
which called the public to “Picket, lobby, and boycott McDonald’s to stop their use of
plastic packaging.” (Kline, 2). The social unrest did not stop their however, as parents
and adults began to chastise McDonald’s for coercing children into unhealthy lifestyles
from a young age. McDonald’s was entering a new, consumer-savvy, health conscious
era that would eventually lead to a total re-branding in 2007.
Although the macro-technological climate of the time was expanding
exponentially, the technological advances specific to McDonald’s and their pizza caused
more headaches than breakthroughs. Just creating a fast food pizza was a major
technical obstacle for McDonald’s, “Several years of work by equipment development
engineers at the company's headquarters produced a patented oven that bakes pizza in
just 5 1/2 minutes with superheated air” (Shapiro). The main obstruction was the
infrastructure needed to support a quick service Pizza delivery system. Test stores
reported having to remodel entire kitchens to accommodate pizza ovens while “Some
older drive through windows had to be widened so that's a boxed pizza could fit through
the opening” (Shapiro). These technological advances were not cheap either, excluding
the millions spend on research and development, each individual pizza oven costed up
to $50,000 (Berss, 233). With sunk costs so high, and kitchen efficiency coming into
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question, McDonald’s had a lot of people to prove wrong before their new product
implementation.

III ) Marketing Mix

Let us now take a closer look at the marketing strategy deployed by McDonald’s
to provide their Pizza with top of mind awareness over their competition.
The product, as discussed extensively above, is the McDonald’s pizza, offered in
14” family sizes, with a range of toppings from basic cheese and pepperoni to deluxe all
dressed pizzas. However most consumers associated the chain with burger and fries,
and felt that pizza didn't fit in line with the rest of the menu. (Notman, 19). And while
consumers generally enjoyed the taste of McDonald’s pizza, shifting their perception of
the food chain may prove harder.
The place in which they plan to sell their Pizzas are in any of their industry
leading 8,014 stores circa 1989 (New York Times). This is perhaps McDonald’s biggest
asset within the marketing mix, that they posses a supply and distribution chain far more
extensive than any competitor, and they can exploit this to distribute as many pizzas as
their customers are willing to purchase. Another benefit of having so many outlets is that
McDonald’s can easily enact test markets across the country, getting regionally specific
feedback of their product candidates. They certainly exercised this through testing their
Pizza, which was brought to many controlled markets before considering a nationwide
launch. The biggest obstacle in the place marketing segment was how to fit the pizza
oven and warmer in the stores, without diminishing the overall efficiency of the
restaurant.
The price of McDonald’s Pizzas was very competitive, starting at $5.80 and
moving up to $9.00 for deluxe offerings (Shapiro). At the lower end of the margin this
price compares to a burger, fries, and drink combo, and is very competitive in
comparison to similar sized Pizzas at other chains. With the infrastructure in place, and
pizzas priced for value, McDonald’s was hoping to recuperate their incredibly high up
front costs “within a few years of the products introduction” (Notman, 19), however this
task may prove too large to accomplish.
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McDonald’s promotion mix included advertising, sales promotion, and publicity.

Due to the sheer size of the company, and the importance of additional menu items
“Business magazines, television news reports, and newspaper articles provided and
free media coverage of the product launch” (Notman, 19). McDonald’s seized this
opportunity for free advertising, and quickly got franchise owners and corporate execs in
the public eye to increase desire for the product, while re-assuring the consumer that
they still offer the same balance of value and efficient service. One example of the
McDonald’s Pizza advertising campaign can be seen in the appendix, and uses the
golden arches of the McDonald’s brand as cursive “zz’s”, creating an aesthetic link
between their brand, and their new product. Television advertisements also explained
the new ovens in the stores while free samples, launch parties, and store banners were
all implemented to generate excitement surrounding the product launch. (Notman, 19)

IV ) How Did The Product Fail?

We have seen many contributing factors, and cultural conditions that have left up
to and influenced the failed launch of McDonald’s pizza, and soon we will dissect
exactly why the decisions they made were incorrect and provide recommendations as
how the situation could have been handled to minimize damage to the McDonald’s
brand. But for now lets look at how it all went wrong, from the perspective of the
company, the consumer, the media, and McDonald’s research and development team.
This failed product launch resulted from a culmination of factors, and is partially a
consequence of poor timing. Firstly management was under tremendous pressure to
continue record sales, which may have forced them to rush into product decision
without fully evaluating the alternatives. They were also under heavy fiscal pressure,
with yearly growth margins coming into question, and exorbitantly high start up costs of
pizza oven infrastructure. Management were hopeful that another menu item such as
the Egg McMuffin or Chicken McNuggets would save the day, however it did not. In
equal parts because the firm neglected to take time to appreciate their customers wants
in line with the rest of their brand, and because they were incredibly inefficient in how
they planned on bringing their product to market. Also logistically their ovens just could
not cook pizza in their ‘under 5 minute wait time’ promise. So in the end all McDonald’s
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could do was watch their customers become frustrated by long wait times and confused
by inconsistent menu items, all while silently destroying the brand McDonald’s spent
decades, and billions on building: a fast-service burger restaurant chain.
The consumer was equally underwhelmed by the product launch. They were
being asked to do things they just were not accustomed to in a fast service food
restaurant, such as parking their car and waiting for 10 mins when going through a
drive-thru, or getting cold burgers and fries while waiting for their pizza, or having your
children finish all their food before yours even arrives (Notman, 20). Clearly all of these
situations would be frustrating for any consumer, and with so many alternative, more
reliable options available patrons did not stay for long.
Media attention surrounding the launch was electric. Building up to the event,
there was a lot of talk about whether McDonald’s would be able to weather the domestic
slump faced in the late 1980s and early 1990s, so by the time of product launch news
outlets were tripping over each other to give free airtime in order to get the story. The
media are instrumental in shaping public opinion, and will generally always propagate
the views of the majority. For this reason they can either greatly help or hinder firms,
purely by intensifying public opinion, for good or worse. Once they felt that the product
may not fair well, they greatly increased the negative impact against the McDonald’s
brand by magnifying the public’s discontent regarding wait times and menu confusion.
The Research and Development portion of the McDonald’s value chain was
probably the department who worked most closely with launching McDonald’s pizza.
They worked in headquarters to create special patented pizza ovens that could cook a
pizza perfectly in 5 minutes, while conducting extensive test marketing. The McDonald’s
pizza had been tested extensively since the early 1980s, with a drive thru pizza market
test dating as far back as 1975. McDonald’s has clearly been mindful of this option for
over a decade, yet they take so long to bring it to market. And still insist on investing
heavily in start up technology far before a national distribution plan has even been
considered. After examining the factors that attributed to the troubled launch, then
seeing how it failed from varying perspectives, finally we can look why it failed and what
could have been done to manage the situation better.
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V ) What Happened & Recommendations

By the year 2000, barely a decade on from launch, all McDonald’s pizzas we’re
called off the menus for good. (At the heart of the issue, the firm simply failed to
consider the true desires of their consumer, tantalized by a large, un-tapped market,
and blinded by the fear of regressive sales growth for the first time in over two decades.
This resulted in a poor product fit within their menu, and led customers to be
unconfident in the new item because it strayed too far from their core competency.
McDonald’s first mistake was placing unnecessary pressure on management by
incurring such high start up costs before the Pizza ever made it out of testing. By
investing so much in the ovens and warmers before they were sure of market viability
they placed the burden of success on all those further down the value chain, a task
insurmountable even for the world’s most talented marketers and distributers.
McDonald’s was also inconsistent with how they tested their pizza. With over a dozen
test markets, over 4 or 5 years, the general public were subjected to underwhelming
test after underwhelming test. After years of these subdued test markets McDonald’s
diluted any potential impact they could have with a nationwide launch because the idea
of McDonald’s Pizza is no longer new or exciting, instead the public is reminded of a
series of deplorable product tests.
Recommendation #1. I would have first kept start-up costs at an absolute minimum
before concrete evidence was brought forward that suggested the product would
succeed nationally. This could have been achieved by either testing using existing
ovens, or by only producing one. Not only would this keep costs lower and reduce extra
pressure on management, but It would facilitate smaller-private testing sessions, where
useful feedback could still be gathered. These smaller sessions would also help in
keeping the product as secret as possible, in order to have maximum effect once a wide
scale implementation was planned.
Similar to how poorly coordinated the research and development team were,
McDonald’s distribution sector seemed equally indecisive. At the time of launch
McDonald’s were reluctant to implement a fully nation-wide campaign, preferring to
slowly move out from the test markets into the surrounding cities and states. One of the
main reasons peopled were so dejected was because perhaps McDonald’s greatest
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asset is its distribution network, and it was going completely under-utilized. They also
grossly underused the press attention surrounding the launch. The media were literally
giving out free interviews on the matter and still McDonald’s fails to adequately promote
their product.
Recommendation #2. Rather than slowly introducing the pizza through a network of
various test markets, I would be sure to have fully tested the product (as privately as
possible) and then utilize McDonald’s presence by implementing a nation-wide
distribution chain. After investing so much in research and development funds need to
also be allocated to distribution and marketing, otherwise it doesn't matter how good the
product is, the consumer will never see it. Most reviews of the pizza were positive in
regards to taste, it was just logistical issues and a lack of national presence that
stopped McDonald’s Pizza solidifying its position on their menu. I would also advocate
for more thorough media presence, as touched on earlier, the media takes the public
opinion and amplifies it, either in favour of the firm or not. This potential marketing
channel could be instrumental in turing good news into great news, while easily and
accessibly being able to update your customers on any new developments, with a main
goal of creating excitement surrounding the product launch.
Perhaps even more disastrous than the launch itself, was that McDonald’s
allowed the unsuccessful item to struggle on for another 10 years before it was finally
stamped out in 2000. This stubbornness to cut their losses shows nearsightedness on
the part of management. Not only were the public subjected to a slow and arduous
testing phase, once the public rejected the product, it remained on some menus for
almost a decade! This constant reminder of a failed product is unacceptable to show to
your customers, and will have far more negative affect on your brand than any potential
loss on start-up investment.
Recommendation #3. Even after McDonald’s ruined testing and distribution, it should
have at least had the common sense to try and limit the brand damage. Continuing to
keep McDonald’s Pizza after a failed launch only with hopes of recuperating a portion of
your loss on investment is madness. The damage you are dealing to your brand each
day customers remain unsure of your core competency is far greater than any loss on
investment. I would have removed every sign and trace of this mistake as soon as I
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could after it was apparent the product launch was a failure. Next I would shift focus
heavily on main core-functions of the business and improve on these until your
customer places trust in you again. The sooner the product is off the menu, the sooner it
is gone from the public’s mind, and the sooner you can get working on re-building your
brand.
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VI ) Executive Summary

I. Introducing the McDonald’s Pizza

- cost effective, 14” diameter, varying flavours from basic to deluxe.

II. What was the target market?

- families, adults, anytime after 4pm, want to bolster dinner sales and
distance themselves from kids meals

II. What/who was the competition?

- Pizza Hut, Dominos, Frozen Pizzas, Independent pizza parlours

II. What was the marketing macro-environment at the time of launch?

Political- McLibel, reflects social unrest, youth health, environment
Economic- tough late ‘80s & early ‘90s, put pressure on firm
Social- activism, environment, youth labour, youth health
Technological- pizza ovens very costly and inefficient, high sunk costs

III. Describe the marketing mix/strategy applied by the company?

Product - pizza
Place- any of McDonld’s over 8000 stores

IV. How did the product fail? What went wrong?

a). the Company’s perspective
b). Customer’s perspective
c). Media’s perspective
d). Other’s perspective (value delivery network?)
V. What did the company do in the end? What could they have done
differently? Be specific in your recommendation. (5 marks)
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Appendix
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Works Cited

MacArthur, Kate. "McD's Aims to Get Happy with Pizza." Crain's Chicago Business.
Crain's Chicago Business, 04 Mar. 2000. Web. 01 Feb. 2015.

Notman, David, and Jack Wilson. The World of Marketing: A Canadian Perspective.
Toronto: Thomson Nelson, 2003. 18-21. Print.

Mourdoukoutas, Panos. "Starbucks And McDonald's Winning Strategy." Forbes

Magazine 25 Apr. 2013: n. pag. Print.

Botterill, Jaqueline, and Steven Kline. "Re-branding: The McDonald’s Strategy."

Emerald: Management First (2007): 1-4. Web. 01 Feb. 2015.

P., Nicholas. "Why You Don't Have Pizza Anymore?" McDonalds, Our Food. Your
Questions. McDonald's.com, 28 Sept. 2012. Web. 01 Feb. 2015.
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Bradley, Nigel. Marketing Research: Tools and Techniques. Oxford: Oxford UP, 2006.
33-34. Print.

Cossette Communication-marketing. Billboard Advertisement [Toronto] Nov. 1992:

Advertisement.

Associated Press. "COMPANY NEWS; McDonald's Begins Testing of Pizza." New York
Times 15 July 1989: n. pag. Print.

Shapiro, Eben. "McDonald's Hopes Pizza Will Be the Next McHit" New York Times 20
Sept. 1989: n. pag. Print.

Associated Press. "Sales Slump Eats Away at McDonald's." Pittsburgh Post-Gazzette

16 Apr. 1990: 13. Print.

Parasuraman, A., Dhruv Grewal, and R. Krishnan. Marketing Research. 2nd ed. N.p.:
Houghton Mifflin, 2007. Print.

Berss, Marcia. "Empty Tables." Forbes Magazine 6 Dec. 1993, 152nd ed., sec. 13:
232-35. Print.