Ronald McDonald: A Marketing Conundrum

How often do advocates for children’s health issues find themselves in complete agreement with advertising executives on Madison Avenue?

It certainly didn’t occur during the 1990s, when a coalition of the American Cancer Society, the American Heart Association, and the American Lung Association petitioned Congress to ban RJ Reynolds from using its animated Joe Camel character to sell cigarettes. They bitterly complained that the advertising campaign represented a poorly disguised attempt to “hook” children on smoking.

Nor did it occur in 2007, when the Campaign for a Commercial-Free Childhood asked the Division of Advertising Practices of the Federal Trade Commission to investigate the marketing tie-ins of violent films with television shows, food promotions, and toys. They charged that such advertising campaigns, when linked with PG-13 rated films like The Transformers, exposed children to psychologically harmful levels of violence.

Last week, another coalition of advocates criticized a major American corporation for conducting a marketing campaign that primarily targets children. This time, however, many advertising executives actually echoed their concerns.

You Deserve A Break Today!

The American corporation that was criticized last week was McDonald’s, the icon of fast food. The attack was neither new nor unexpected; in fact, the firm has been the target of attacks by children’s health advocates throughout its history. As recently as last year, for instance, it failed to prevent Santa Clara County in California from outlawing the giveaway of toys with Happy Meals.

Last week, though, the focus of such attacks shifted from the franchiser’s food products to its chief spokesperson. Or, more specifically, to its chief spokes-clown. More than 550 advocates for children’s health concerns jointly issued a public letter that recommended the immediate retirement of the mascot Ronald McDonald. It was accompanied by a shareholder proposal at the McDonald’s annual investor meeting, one presented by a group of nuns, that recommended that the firm issue public reports on its corporate social responsibility regarding the spread of childhood obesity.

CEO Jim Skinner was feisty and combative at the shareholder meeting, declaring that “Ronald McDonald is going nowhere!” And yet a number of marketing executives, individuals who can usually be counted on to praise the advertising campaigns of American multinational corporations, are starting to question the value proposition of Ronald as well.

Yo quiero, Taco Bell!

These skeptical marketing experts may have a point; after all, the fast food industry has long promoted corporate mascots of questionable value. The latest reincarnation of Burger King’s royal mascot, for instance, has recently been called “blatantly offensive” by mental health advocacy groups and other social welfare organizations. And Gidget, the feisty spokes-dog Chihuahua for Taco Bell, was retired after a number of cultural advocacy groups complained about its perpetuation of ethnic stereotypes.

But why retire Ronald McDonald? One ad agency executive notes that, like Gidget, Ronald simply fails to inspire prospective customers to purchase food products. “It’s really remarkable how often I saw the word ‘creepy’ in the survey comments (of focus groups),” explains Ace Metrix Vice President Jack McKee.

Others note that American society may have evolved beyond the stage where a 1960s-era clown and his cronies can appeal to contemporary parents and their children. After all, although Ronald himself still inhabits television commercials, his friends Mayor McCheese, Grimace, and the Hamburglar have all been retired from view, along with their McDonaldland fantasy world.

Product vs. Pitchman

Even though CEO Jim Skinner has chosen to support his clownish mascot, it is indeed self-evident that the images of his retail environment and his corporate pitch man — though once well aligned — are now growing increasingly discordant. The food itself is becoming more healthy and more fashionable, served within restaurants that are rapidly evolving into coffee bars with flat screen televisions, lounge furniture, and complimentary wi-fi service.

But Ronald himself has not changed at all since 1966, when his image was tweaked to remove the “paper cup nose” and “food tray hat” that accompanied Willard Scott’s original version. The contemporary mascot wears a plastic neon-emblazoned clown suit of red and yellow, reminiscent of the original decor of the restaurant signs and benches.

It is understandable, perhaps, that McDonald’s is reluctant to retire a corporate mascot that remains one of the most recognizable characters in the world. Nevertheless, considering the dissonance between the image of the firm’s evolving retail environment and the image of its primary marketing spokesperson, it may be time for the organization to modernize Ronald’s image.

After all, KFC successfully transformed the image of its deceased founder Colonel Harland Sanders into a modern animated figure, and Quaker Oats (and its predecessor firms) transitioned its purportedly stereotypical version of Aunt Jemima into a contemporary spokesperson as well. If these firms were able to modernize the images of their corporate mascots to make them consistent with their contemporary marketing themes, why couldn’t (and shouldn’t) McDonald’s do so?

Goodbye, Newsprint? Not So Fast!

Do you still flip through the inky news-printed sheets of a telephone book to search for the phone numbers of your friends? If you do, you were undoubtedly saddened by the recent news that AT&T will no longer distribute phone books to the residents of Houston, Texas, America’s fourth largest metropolis.

The demise of classic telephone books may seem to be inevitable, considering the growth of information search on the internet and the adoption of mobile telecommunication systems. But it might be premature to write off other sectors of the established “paper and ink” media market just yet.

The weekly magazine Newsweek, for instance, just received a new lease on life from the Daily Beast, an online service that values Newsweek’s ink-stained pedigree. This unique marriage of old media and new media organizations may indeed portend the future of the consolidating publishing industry.

Introducing … the Daily Beast’s Print Edition!

The surprising union of Newsweek and the Daily Beast might actually owe its existence to the unexpected success of the most unusual newspaper in Washington, DC. It’s the paper publication of Politico, the web site for political news junkies that launched a year before the 2008 presidential election, and that has arguably become the most influential political news service in the nation’s capitol.

Many web based readers outside of the capitol region are unaware that Politico publishes a traditional paper edition. And yet the print edition is responsible for helping the organization earn much of its revenue. The owners of Newsweek and the Daily Beast were undoubtedly aware of Politico’s successful hybrid model of paper and electronic distribution systems when they decided to merge their own operations.

Newsweek itself, the venerable news magazine that first launched during the Great Depression, was recently sold by the Washington Post after having fallen upon hard times. Meanwhile, Tina Brown’s web based news organization The Daily Beast was searching for a traditional print publication to help diversify its distribution system. Last week’s joint agreement between the decades-old news weekly and the spunky web based upstart appeared to emulate the Politico business model.

Different Ad Formats, Different Prices

Why are traditional printed newspapers so valuable to web based news organizations? The reason is a simple one: newsprint advertisements can be sold for higher prices than online advertisements. Although the circulation statistics of print newspapers continue to fall as young readers flock to the internet, their remaining readers continue to grow relatively older, relatively more homogenous in their needs and preferences, and thus relatively more attractive to firms that focus on middle aged and elderly consumers. Such consumers tend to be closer to retirement age, and thus tend to have accumulated larger amounts of personal wealth, than their younger counterparts.

In a sense, the evolving market for the printed editions of newspapers and magazines is growing increasingly similar to the aging viewer demographics for the flagship evening news broadcasts of the Big Three television networks. Have you ever noticed how many advertisements for heart medications, urinary disorder drugs, and other pharmaceuticals now run on these evening newscasts? As younger viewers leave Katie Couric, Brian Williams, and Diane Sawyer behind, the demographic profiles of their remaining viewers grow more attractive to organizations that sell services to the middle aged and elderly.

That’s not to say that all Newsweek readers are elderly and wealthy, of course. Nevertheless, they are most certainly different than the readers of the Daily Beast’s online content; furthermore, as readers of printed pages, they draw higher prices for advertisements from organizations that wish to reach them. Interestingly, some experts believe that the tactile nature of news print, and the visual ease of reading ink on paper, lengthens and enriches the reading experience, thereby driving up the value (and thus the price) of newsprint based advertising as well.

New Models

What will the new Daily Beast / Newsweek product actually look like? Tina Brown, the founder of the Beast and the new editor-in-chief of the joint entity, can be expected to draw upon her past experience in resuscitating the classic Vanity Fair publication. She might also take heed of Bloomberg’s recent success with Business Week as well.

Vanity Fair was originally a fashion magazine that prospered during the Roaring 1920s; it was later folded into Vogue during the Great Depression. Brown successfully brought back the title for publisher Conde Nast during the prosperous era of the 1980s. And Business Week, like Newsweek, first developed a stable readership base during the Great Depression; it was recently purchased by the online news organization Bloomberg and repositioned in much the same manner as Brown envisions doing for Newsweek.

So it appears that old and new media models are increasingly converging as news organizations continue to search for incremental advertising dollars.  Is there a future for paper telephone books, though? Those relics, unlike printed newspapers, may indeed be obsolete.

Super Bowl Ads: The Tail That Wags The Dog?

Congratulations to the Pittsburgh Steelers for defeating the Phoenix Cardinals and becoming the champions of the world of American football! With President Barack Obama proudly backing the Steelers, and with Senator John McCain of Arizona undoubtedly supporting his hometown Cardinals, one might be tempted to declare a “repeat” victory for the Democrats.

The real victors, though, might be the folks at the NBC television network for managing to sell “a large number” of its advertising spots for $3 million per ad. With longtime sponsors like General Motors declining to purchase air time in the current economic environment, NBC’s accomplishment might have been the most impressive one of the day.

The contest for Best Super Bowl Ad, of course, has long challenged the game itself for the attention of television viewers. From a business perspective, one might ask the following question: is the Super Bowl primarily a sporting event that happens to be televised … or is it primarily a sequence of advertisements that happens to surround a sporting event?

The Role of Flexible Budgeting

Every professional sports league, of course, has its own unique approach to generating and sharing marketing revenues. Some, like Major League Baseball, allow each team to form its own cable television network, thereby allowing organizations like the New York Yankees to become revenue powerhouses.

Others, like the National Football League, prohibit individual teams from signing their own television deals. Instead, the NFL signs league-wide contracts with national networks like NBC and ESPN. Teams in major media markets like New York and Chicago are thus unable to gain a disproportionate revenue advantage over their smaller market rivals.

There is an additional complicating factor as well; namely, teams never know in advance how far they will advance in their league’s postseason playoff series. In other words, they have no way of knowing how much of their product will be available for sale, thereby making it extremely difficult to anticipate how much of their total revenue might be generated by ticket sales and ancillary game-day purchases.

Teams must therefore adopt very flexible approaches to developing their fiscal operating budgets. Fortunately, flexible budgeting techniques can be very useful in ascertaining the impact of advertising revenue on a team’s overall financial structure.

A Minor League Example

Let’s consider an example of a minor league sports team that plays 16 regular season games. If it advances into the league’s playoff round but fails to advance to the championship series, it will play 4 additional games. And if it advances to the championship series, it will (once again) play 4 additional games.

What about game revenues and expenses? Well, let’s assume that the team averages $420,000 per game from ticket sales and another $420,000 per game in food and souvenir sales. It spends $5,000 per game on athletic supplies. And, on an annual basis, it receives $8.4 million from the league as its share of television contract revenues. In addition, on an annual basis, it spends $12 million on player salaries, $10 million on stadium or arena rent, and $4 million on league adminstration and support services.

Now let’s assume that the league permits its teams to sign their own local advertising deals as long as they do not infringe on the league’s national television contract. So let’s say that our team launches two radio and billboard advertising campaigns during the regular season in its local market, and adds two more sharply focused campaigns if it advances into the postseason. Each ad campaign costs $1 million for production and placement services, and each generates earnings of $2.1 million from local businessmen who contract for the product placement of their brand names and logos in the ads.

At the beginning of the year, before the team knows how far it will advance during the playoff series, it creates the following flexible budget ($s in thousands):

At first glance, it appears that the key to financial success is a successful run into the postseason. But what about the role of the radio and billboard advertising campaigns?

The Ad Campaign Is The Game

Stop for a moment. Take a deep breath … and think. You just read my previous sentence and instinctively glanced at the Ad Production Expense line, didn’t you?

That was a mistake. If you did that, then you’re still thinking “inside the box.” An “outside the box” thinker would realize that the ad campaign isn’t just a part of the game. From a business perspective, it is the game.

Let’s go back to the budget and divide it into two sections. Let’s call one section our Marketing Division, consisting of the ad production expense and the product placement revenue that is generated by it. And let’s call the other section the Games Division, consisting of everything else.

Using this approach to bifurcate our financial structure, we can collapse our flexible budget into the following ($s in thousands):

This gives you a completely different image of the team’s financial profile, doesn’t it? Apparently, the marketing activities earn millions of dollars in profits regardless of the team’s success on the field or court. And the games themselves generally lose money, even for playoff teams, unless a team is lucky enough to advance to the championship round. And yet, even for the championship teams, the marketing profits far exceed the profits that are earned by staging the games.

Thus, if you decide to purchase a professional sports franchise, how would you define your business investment? No team advances to the championship round each year; even perennial favorites like the Yankees go through extended droughts. Thus, your only pragmatic business decision would be to focus on generating marketing revenue, and to use the sporting events as a platform for selling ads.