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Fast Food’s Value Dilemma: Losing the Core Customer in the Pricing Battle

Most of our students can relate to the fast food market–and some of the pricing and value issues these businesses are facing. This article from Sherwood NewsMedium Unwell: Fast food is too expensive for its core customer and not expensive enough for the customer it wants” (November 22, 2024) provides some good background on the issue. After a brief summary of the article, we offer some suggestions about how it might be integrated into class discussion. The topic is particularly relevant to topics like value (Chapter 1), inflaction (Chapter 3), segmentation and targeting (Chapter 4), consumer behavior (Chapter 5), market research (Chapter 7) and pricing (Chapters 17 and 18). ChatGPT provided a first draft of this blog post.

The fast food industry faces a critical challenge: balancing affordability for price-sensitive core customers while catering to a more premium-seeking demographic. Taco Bell’s app-based “Name Your Price” tool and the growing prevalence of convoluted value menus highlight a significant shift in the industry’s traditional approach. Rising prices and digital-exclusive deals have driven customers to perceive fast food as a luxury rather than an accessible convenience. Competitors like Chipotle and Chili’s capitalize on this shift, offering higher-quality alternatives at similar price points.

As the industry’s pricing strategies evolve, it risks alienating loyal customers while failing to solidify new ones. The growing complexity of app-based deals, diminishing clarity in value menus, and increasing competition from fast-casual and casual-dining chains expose fast food’s struggle to remain relevant and accessible.

Activity Suggestions

  1. Price Perception Survey: (Chapters 7 and 17)
    Have students create a survey to assess perceptions of fast food value among their peers. Compare results to the trends outlined in the article.
  2. Competitive Strategy Workshop: (Chapters 2 and 19)
    Students act as marketing teams for fast food chains, brainstorming how to regain value-conscious customers without alienating premium-seeking diners.

Discussion Questions and Answer Ideas

  1. How can fast food chains segment their audience to better target value-conscious and premium-seeking customers? (Chapter 4) Answer: Chains can use demographic data (income, age), psychographic insights (convenience vs. experience preference), and behavioral data (frequent vs. occasional diners). For example, apps could offer tiered loyalty programs: budget-friendly deals for value-focused users and premium, exclusive items for higher spenders.
  2. What role does geographic segmentation play in pricing strategies for fast food chains? (Chapter 4) Answer: Regional economic conditions and cost-of-living differences can inform menu pricing. Chains can adjust prices in metropolitan areas versus smaller towns, ensuring perceived affordability aligns with local customer expectations while maintaining profitability.
  3. Why has fast food shifted from being viewed as affordable to being considered a luxury? (Chapter 17) Answer: Rising prices, convoluted value offerings, and competition from fast-casual chains have altered perceptions of affordability.
  4. How do fast-casual and casual-dining chains capitalize on fast food’s pricing struggles? (Chapter 12)
    Answer
    : They highlight superior quality and value-for-money offerings, creating a competitive edge at similar price points.
  5. What are the potential long-term effects of alienating core customers? (Chapter 5) Answer: Loss of brand loyalty, declining foot traffic, and vulnerability to competitors in both the fast food and casual dining segments.
  6. What pricing strategies could fast food chains use to reconnect with value-conscious customers? (Chapter 17) Answer: Simplifying value menus, offering transparent pricing, and reducing reliance on digital-exclusive deals could help restore trust.
  7. How can fast food chains use price bundling to appeal to both value-conscious and premium-seeking customers? (Chapter. 17) Answer: Chains can offer tiered bundles, such as basic meal combos for budget-conscious diners and premium bundles with exclusive items or larger portions for higher-spending customers. This strategy allows for cross-segment appeal while maximizing per-customer revenue. For example, Taco Bell’s Cravings Box targets value-focused customers, while McDonald’s premium meal bundles cater to those seeking an upgraded experience.
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