Operators are learning that giveaways can carry hefty price tags.
While slashed prices and freebies can help to promote new food items and reignite brand awareness, they also can lead to operational nightmares that compromise a company’s good will as millions of cash-strapped consumers seek fulfillment on the offers.
Stories of freebie snafus are becoming as ubiquitous as the offers. Earlier this month, KFC launched its new line of grilled chicken with a giveaway promotion touted on the hugely popular “Oprah Winfrey Show” that caused operational havoc for the quick-service brand.
In February, Denny’s gave away some 2 million free Grand Slam breakfasts in a campaign deemed largely successful by the chain, although some make-good coupons were tendered. The same month, Quiznos offered 1 million coupons for a free sub, but instead ended up frustrating franchisees and customers alike.
Nonetheless, observers say, giveaways remain a highly effective tactic for building traffic—they just need to be carefully managed.
“Giveaways are generally one of the best ways to create a shock-and-awe campaign and introduce a new product line,” said Dennis Lombardi, executive vice president of WD Partners, a foodservice consultant based in Columbus, Ohio. “Is it worth doing? Yes, but if it goes wrong, it will have a damaging effect on the campaign itself and may linger a bit in consumers’ minds.”
KFC drew national attention when it teamed up with mega-celebrity Oprah Winfrey to promote the long-awaited launch of its Kentucky Grilled Chicken line, but failed to anticipate the huge customer response it would garner.
As a result, the quick-service chicken chain, a division of Louisville, Ky.-based Yum! Brands Inc., had to apologize to its customers for being unable to honor millions of coupons for a free, two-piece grilled-chicken dinner offered May 5 on Winfrey’s show.
In total, 10.5 million coupons were downloaded from Winfrey’s website, but only 4.5 million were redeemed because of a combination of supply issues and technical problems. As a result, 6 million customers were left unserved.
The promotion caused such intense restaurant traffic, “the lines of customers wanting to redeem their coupons” were “out the door and around the block,” said Roger Eaton, the chain’s chief executive.
KFC spokesman Rick Maynard echoed Eaton’s sentiments, saying, “The downloading of 10.5 million coupons for the free grilled-chicken meal in a matter of hours far exceeded our most optimistic expectations as well as the projections of the ‘Oprah Winfrey Show’ staff, and it did present operational challenges.”
But, he continued, “overall we are thrilled with America’s response to Kentucky Grilled Chicken. It has been the biggest launch in KFC history, and sampling the product has played a huge part in that success.”
Following KFC’s apology, the chain offered staggered rain checks and a free soft drink to those customers who had not yet retrieved their free grilled-chicken meals. Dissatisfied customers had until May 19 to redeem the coupons.
“Going to the Oprah show was a very smart marketing move, but the devil is in the details,” said Dr. Chekitan S. Dev, a professor at Cornell University’s School of Hospitality. “Now, however, 6 million people are mad at them. Research tells us that if you take a multiple of 10—if those 6 million who are mad at KFC tell 10 people each—my question is, would you rather have 4 million people who will be [brand] users or 60 million who will say, ‘Hey, these guys don’t have their acts together.’”
According to data compiled for Nation’s Restaurant News by BrandIndex, a New York-based marketing firm, from Jan. 1-May 15, value perceptions of the KFC brand rose from a base score of 11.0 to 28.1 on the fourth day after the Oprah giveaway, but dropped off sharply on the seventh day, to 10.6, following reports of the promotion’s poor execution.
In addition to tracking KFC, BrandIndex also measured customer response for Quiznos’ and Denny’s promotions. The research firm found that in the case of Quiznos, there was an increase in value perception in the short term, but it fell off after the promotion proved unsuccessful.
“The question is were [KFC and Quiznos] ready for it when it happened?” asked Mark Chmiel, chief marketing officer for Denny’s. “We really preplanned everything before it happened. We were very diligent in planning with our operations people, financial forecasters, and our marketing and franchise partners. We didn’t want a negative PR disaster to happen to us.”
The Denny’s giveaway, which was advertised during this year’s Super Bowl telecast, was aimed at luring back customers who had strayed from the brand. To pull off the promotion, Chmiel said, Denny’s looked at the traffic, staffing and food costs for a typical Christmas day, which is its busiest day of the year, and then pared those statistics down to what would be needed for eight hours. The Feb. 3 giveaway was held between 6 a.m. and 2 p.m.
Trey Hall, chief marketing officer for Quiznos, said the Denver-based chain learned an important lesson after its February Million Free Subs promotion backfired and franchisees said they wouldn’t honor coupons because they couldn’t afford to participate.
“You need at every level—no matter what you do whether it be a simple or more complex promotion—every ‘t’ crossed and every ‘i’ dotted,” Hall said. “You need a well-thought out plan, and then you need to look at it in every way possible, making sure everyone is thoroughly communicated with. Plan for the worst and hope for the best.”
To be sure, giveaway promotions are not new, and when they don’t work they often are used by professors like Dev as a lesson to students about what not to do.
“An example I use in class is Red Lobster’s all-you-can-eat crab promotion from a few years ago that basically lost a lot of money and got people fired,” Dev said. “Red Lobster found that people ate a lot more crab than they thought they would, and they were overwhelmed by the amount of money they spent over the amount of money they made.”
The 2003 promotion, which allowed guests to refill their plates for an “endless” helping of crab entrée for just $20 ended up causing president Edna Morris to lose her job and former Darden chairman Joe Lee to say, “It wasn’t the second helping on all-you-can-eat, but the third.”
Still, Denny’s Chmiel said the giveaway promotion, when done properly, is a good way to get people in the door, particularly during the slow economy when more customers are choosing to dine out less.
“It really is a sign of the times,” he said. “We’ve seen data that [tell us] people who dine out are dining out 50 percent less often. So in that type of economy, you have to find ways to steal share and provide a great experience. The high reward is the significant traffic, and the risk is that if you don’t have the cooperation at the restaurant level, you’ll disappoint and, perhaps, negatively affect consumers.”— [email protected]