Harvard Case - Steak 'n Shake: Long-Term Consequences of Price Discounting
"Steak 'n Shake: Long-Term Consequences of Price Discounting" Harvard business case study is written by Fabrizio Di Muro. It deals with the challenges in the field of Marketing. The case study is 12 page(s) long and it was first published on : Apr 25, 2022
At Fern Fort University, we recommend Steak 'n Shake embark on a comprehensive brand revitalization strategy that prioritizes product innovation, enhanced customer experience, and strategic marketing. This involves redefining the brand's value proposition, leveraging digital marketing and social media to connect with younger audiences, and implementing a pricing strategy that balances profitability with customer value.
2. Background
Steak 'n Shake, a once-iconic American diner chain, faced declining sales and profitability due to a reliance on price discounting and a failure to adapt to changing consumer preferences. The case study highlights the detrimental effects of short-term promotional strategies on long-term brand health, particularly in a competitive fast-food market.
The main protagonists of the case study are the Steak 'n Shake leadership team, grappling with the challenge of reviving the brand's fortunes. They must navigate the complexities of brand management, marketing strategy, and competitive strategy to regain market share and profitability.
3. Analysis of the Case Study
To analyze Steak 'n Shake's situation, we can utilize a SWOT analysis framework:
Strengths:
- Strong brand recognition and nostalgia among older generations.
- Established infrastructure and supply chain.
- Potential for product innovation and differentiation.
Weaknesses:
- Declining brand image and customer loyalty.
- Reliance on price discounting erodes perceived value.
- Limited digital marketing presence and engagement.
Opportunities:
- Growing demand for customized and healthier fast-food options.
- Expanding digital marketing channels and social media engagement.
- Potential for international expansion and franchise growth.
Threats:
- Intense competition from established and emerging fast-food chains.
- Increasing consumer awareness of health and sustainability.
- Economic fluctuations and changing consumer spending patterns.
Additionally, a PESTEL analysis provides further insights:
- Political: Government regulations on food safety and nutrition.
- Economic: Fluctuating fuel prices and consumer spending power.
- Social: Growing demand for healthier and more sustainable food options.
- Technological: Advancements in food preparation and delivery technologies.
- Environmental: Concerns about food waste and environmental sustainability.
- Legal: Food labeling regulations and consumer protection laws.
4. Recommendations
Redefine the Brand Value Proposition: Shift away from price-driven promotions and focus on delivering a unique and differentiated customer experience. Emphasize fresh, quality ingredients, customization options, and a nostalgic yet modern diner atmosphere.
Product Innovation and Differentiation: Introduce new menu items that appeal to younger generations, including healthier and more customizable options. Explore innovative food preparation techniques and explore partnerships with local suppliers to enhance the brand's image.
Strategic Marketing and Brand Revitalization:
- Target Market Segmentation: Identify and target specific customer segments, particularly younger generations and health-conscious consumers.
- Digital Marketing and Social Media: Develop a robust digital marketing strategy that leverages social media platforms, online advertising, and content marketing to reach target audiences.
- Brand Positioning: Reposition Steak 'n Shake as a modern diner experience that offers quality, customization, and nostalgia.
- Marketing Communications: Utilize a mix of traditional and digital marketing channels to communicate the brand's revitalized image and value proposition.
Pricing Strategy: Implement a value-based pricing strategy that balances profitability with customer perception. Offer competitive pricing while emphasizing the quality and value of the products and services.
Customer Experience Enhancement: Focus on improving the customer experience through faster service, improved cleanliness, and a welcoming atmosphere. Implement customer loyalty programs and reward systems to encourage repeat business.
5. Basis of Recommendations
These recommendations are based on the following considerations:
Core Competencies and Consistency with Mission: The recommendations align with Steak 'n Shake's historical core competencies, such as its focus on quality ingredients and diner experience, while adapting to contemporary consumer preferences.
External Customers and Internal Clients: The recommendations address the needs of both external customers and internal clients, including franchise owners, employees, and suppliers.
Competitors: The recommendations consider the competitive landscape and aim to differentiate Steak 'n Shake from its competitors through product innovation, customer experience, and marketing strategies.
Attractiveness: The recommendations are expected to improve profitability by increasing customer loyalty, sales, and brand value.
6. Conclusion
By implementing these recommendations, Steak 'n Shake can successfully revitalize its brand, attract new customers, and regain its position as a leading fast-food chain. The key to success lies in a comprehensive approach that prioritizes product innovation, customer experience, and strategic marketing.
7. Discussion
Alternative options include:
- Aggressive Price Cutting: While this might temporarily boost sales, it risks further eroding brand value and profitability.
- Limited Menu Changes: Introducing only minor menu changes may not be sufficient to attract new customers or differentiate the brand.
- Focusing Solely on Digital Marketing: While digital marketing is crucial, it should be part of a broader marketing strategy that also includes traditional channels.
Key assumptions include:
- The revitalized brand strategy will resonate with target audiences.
- Product innovation and customer experience improvements will be successful.
- The digital marketing strategy will be effective in reaching and engaging target customers.
8. Next Steps
- Develop a detailed implementation plan: This should include specific timelines, budgets, and resource allocation for each recommendation.
- Conduct market research: Gather data on consumer preferences, competitive landscape, and market trends to inform decision-making.
- Pilot test new products and marketing initiatives: Gather feedback from customers and refine strategies based on results.
- Monitor progress and make adjustments: Track key metrics such as sales, customer satisfaction, and brand perception to assess the effectiveness of the revitalization strategy.
By taking these steps, Steak 'n Shake can effectively navigate the challenges of a competitive market and achieve long-term success.
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Case Description
Steak 'n Shake, one of America's oldest and most iconic fast-food chains, was founded in Normal, Illinois, in 1934. When Biglari Holdings assumed control of Steak 'n Shake in August 2008, the company was struggling and incurring losses of approximately US$100,000 per day. To turn the company around, the new owner implemented an aggressive pricing-discount strategy marketed as "4 under $4" that offered any of four different meals for under $4. The strategy worked. Steak 'n Shake went on to post seven consecutive years of same-store sales increases. However, in 2016, sales began to drop, and the company posted five consecutive years of declining store sales. The price-discounting strategy may have been critical in reversing the company's fortunes, but had it also led to Steak 'n Shake's current issues? Should Biglari Holdings consider raising prices of menu items? Would customers accept paying higher prices after being accustomed to Steak 'n Shake's traditionally low pricing strategy?
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