Recipe for success: throw technology into the QSR mix - quick service restaurant

New technologies have always been the lifeblood of the quick-service restaurant, or QSR, business. After all, Ray Kroc sought out the McDonald brothers in 1954 because he was curious to see why one hamburger stand in San Bernadino, Calif., needed eight of his top-of-the-line Prince Castle Multi-Mixers for making milk shakes.

Today a new wave of emerging technologies is rapidly changing QSR. However, unlike Ray Kroc's Multi-Mixer, most of these new technologies are emerging from the realm of software and communications information - its creation, transmission, storage and manipulation. In turn, that information will transform the entire relationship between QSR companies and their customers.

In the past, QSR's top performers have-excelled along two competitive tangents. The first was operational excellence - cutting costs, maintaining quality, running a tight ship. The second was product innovation - creating a stream of great new products, whether they were Egg McMuffins or Bigfoot Pizzas. The information era, however, will demand mastery of a third category - customer intimacy. The next generations of winners in QSR will be distinguished chiefly by how well they know their customers - and how they utilize that knowledge to build customer retention and loyalty.

As computers and telecommunications converge to create the much-heralded information highway, QSR companies will have the potential to know their customers in unprecedented degrees of specificity. Instead of the broad demographic segments that companies now use for their marketing - people aged 18-34, say, or New Yorkers in an affluent zip code - technology will enable a pinpoint approach on a household-by-household, individual-by-individual basis.

The impact of this will have profound effect on the economics of the QSR industry. Relatively small changes in the loyalty and consumption patterns of a customer have a disproportionate impact on profits. Studies suggest that reducing defection by just 5 percent can boost profits by at least 25 percent. Furthermore, there is immense leverage in personalized marketing to loyal customers rather than trying to attract new ones. A study by the Customer Service Institute estimates that it costs five times as much to acquire a new customer than it does to service an existing customer. Marketers have always known that the core of the business is the heavy fast-food users who make six to eight visits a week although they have never been able to identify these customers reliably.

So the new strategies of QSR companies will take shape along three steps: (1) collecting information, (2) turning information into knowledge and (3) turning knowledge into a customer relationship. Here's a look at how some of these technologies will work:

Interactivity will have tremendous impact on product delivery, both in-store and in the home. For example, interactive TV will spark a resurgence in home delivery, as consumers gain the capability to place an order directly by pressing a few buttons on their remote control device. Key data about the customer - including order preferences, such as whether or not they like guacamole on their tacos - can be captured in real-time electronically, unlike the current model of telephone-generated ordering. Furthermore, food companies can transmit messages across the TV screen to particular neighborhoods or even particular households.

Interactivity ushers in an era of targeted marketing in which the customer says, "Market to me!" Instead of the demand-push model of conventional advertising, interactive marketing becomes a two-way conversation between the customers and the company, capturing more and more consumer data along the way. Frequent QSR users can be marketed to as a distinct group. In short, the home interactive frontier explodes the industry's points of access strategy by a quantum leap - from tens of thousands of POAs to more than 60 million. Essentially, every wired American home will become a distribution point.

Another aspect of interactivity is kiosks, located either within the store or off-premises. These are units with simple buttons and screens that allow the customer to place an order; several companies, among them Arby's and Taco Bell, already are experimenting with the machines. However, these experiments have emphasized kiosks as devices for off-loading labor, rather than for the capture of information.

Enter the next critical component - the smart card, which turns the kiosk into an information treasure chest. This card is a cross between an airline's frequent flyer card and a transit system's electronic ticket, except that, instead of a magnetized strip, the smart card contains a microchip.

The smart card can be programmed to have cash value, so that it replaces paper money and coins for transactions, and it can be used either universally or specifically at the outlet of one QSR company. Telephone companies here and in Europe, which have introduced smart cards, are finding that they quickly become valued by collectors. The card can also be a debit card, in which each purchase deducts a sum from a preset amount of money.

With the smart card, each customer transaction can capture critical information. The kiosk, in turn, can present messages to the customer, presenting "upselling" opportunities: "How about an apple pie for dessert? Pie is a special this week at only 49 cents." The smart card will allow QSR companies to segment their market to identify and retain those customers who represent the highest profit opportunities.

To be sure, there has been plenty of hyperbole surrounding emerging technologies, and most QSR executives have taken pains to avoid getting caught up in the hype. But there's a danger, too, in letting too many opportunities pass by; when industries undergo massive shifts because of new technologies, first movers gain immense and sometimes unmatchable advantages.

It is still debatable which of the new technologies will ultimately prevail; access to the home, for example, is still a toss-up among competitors in cable, network TV, phone companies, satellite firms and even electric utilities. But there's no denying hat great rewards await those QSR firms that succeed in getting closer to their customers through interactivity, smart cards and related technologies. The soundest advice, then, is to tread carefully among these new technologies.

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