Peter Drucker wasn't one to eat much in fast-food joints, usually stopping but once a year for a quick meal at McDonald's (MCD) on the way to his family's summer sojourn in Colorado. Still, he would have had a very clear idea of what Burger King (BKC) needs to do to turn itself around, beginning with paying far more attention to its "noncustomers."
"Even the biggest enterprise (other than a government monopoly) has many more noncustomers than it has customers," Drucker wrote in Management Challenges for the 21st Century, noting that hardly any companies supply even 30 percent of a given market. "And yet very few institutions know anything about the noncustomers—very few of them even know that they exist, let alone know who they are. And even fewer know why they are not customers."
Burger King, which sealed a deal last week to sell itself to private equity firm 3G Capital for $3.26 billion, has seemed to do just about everything it can to ignore its noncustomers. The Miami company has focused almost exclusively on what it calls "super fans:" males, 18 to 34 years old, who've tended to frequent its restaurants.
Certainly, Burger King knows what this testosterone-fueled group likes. It has geared its advertising accordingly (to the point, in fact, that some women have found the company's spots creepy and offensive). Product innovations, such as fire-grilled ribs, have also been aimed at the same carnivorous demographic.
But after a period of success for Burger King, the nation's economic woes have hit the company disproportionately hard. Sales and profits have flagged, as the unemployment line has apparently replaced the line queuing up at a BK counter for many an erstwhile super fan. Some analysts also suspect that a longer-term trend is at play: As people become more health conscious, scarfing down bacon double cheeseburgers isn't quite so appealing.
It is a trap that Drucker watched others tumble into. In his 1964 book, Managing for Results, Drucker told of a maker of do-it-yourself home-repair equipment that was happy with its base of customers: newly married couples who had just purchased a house. But after about five years, they'd invariably stop buying. "This seemed perfectly logical to the manufacturer," Drucker wrote. It was only when they were a bit younger, the company figured, that these people "had the energy to do manual work. And, having small children, they normally spent most of their evenings and weekends at home."
But when the company finally bothered to examine its noncustomers, it discovered it was overlooking a potentially vast market: people married longer than five years. "They were noncustomers primarily because the company had chosen a distributive channel, especially the neighborhood hardware store, which was not easily accessible to them except Saturday morning," Drucker wrote. And "Saturday morning is not a good shopping time for men" once their children get a little older and have various activities to get to. By moving its products into shopping centers, which stayed open into the evening, and adding mail-order sales directly to the home, the manufacturer doubled its revenue.
Ignoring 70 Percent of the Market
Another, later example: At their peak in the 1970s, Drucker pointed out, department stores accounted for more than a quarter of nonfood retail sales in the U.S. And, just like at Burger King, the managers of these businesses had a very sharp sense of who their dedicated shoppers were.
"They questioned their customers constantly, studied them, surveyed them," Drucker wrote. "But they paid no attention to the 70 percent of the market who were not their customers. They saw no reason why they should." After all, their assumption—which was then totally valid—was that "most people who could afford to shop in department stores did."
But eventually, behavior shifted. "For the dominant group among baby boomers—women in educated two-income families—it was not money that determined where to shop," Drucker explained. "Time was the primary factor, and this generation's women could not afford to spend their time shopping in department stores." Executives in the department store world failed to recognized this, however, because they had been concentrating solely on their customers, not their noncustomers. "After a time," Drucker said, "they knew more and more about less and less."
Examining the "Satisfaction Areas"
To prevent this from happening, Drucker advised managers to pose a series of questions regularly "that are not asked in the ordinary market survey or customer study." Among them: What do customers—and noncustomers—buy from others? What value do these purchases have for them? What satisfactions do they offer? Do they compete with the satisfactions presented by our products or services? Do they give satisfactions that our products or services could possibly fulfill, perhaps even better? Are there new products or services we could introduce to meet these satisfaction areas?
In sharp contrast to Burger King, rival McDonald's has in recent years addressed these very issues—and as a result, it has thrived during the recession. Specifically, McDonald's started serving fancy coffee drinks and smoothies, as well as providing free wireless Internet connections, with the intent of luring noncustomers through its doors.
At the same time, the company has been careful not to alienate existing customers by shaking things up too drastically. "We've learned not to mess with the core menu items—I personally would not change a single sesame seed," McDonald's executive chef and director of culinary innovation, Dan Coudreaut, has said. Yet "we're also excited about pushing the envelope … to stay relevant."
Burger King has a lot of hard work to do, including sprucing up its restaurants and improving its technology. But if it really hopes to get its sizzle back, it needs to remember that, as Drucker put it, "it is with the noncustomers that changes always start."