WENDY'S INTERNATIONAL, INC
Case Perspective:
R. David Thomas, the founder of Wendy's, in an attempt to strengthen and expand Wendy's
position in the fast-food market, commissioned a team of researchers from the Ohio State
University to conduct a market survey. The goal of the survey was to gather information to better
understand Wendy's customers and prospects.
The information was to be used as a guide to identify target markets upon which Wendy's
should focus and to suggest marketing actions to reach those groups. Student focus should center
on outlining relevant segments that Wendy's might try to reach to remain competitive in the
fast-food industry.
The case also provides an opportunity to involve students in the statistical analysis of data
using one of the standard statistical packages like SAS, SPSS, or SYSTAT. The exercises, for
example, present some questions that can be addressed using regression analysis, discriminant
analysis, factor analysis, and cluster analysis. Instructors might wish to require students to do the
suggested analyses on the full data set, rather than the subset of observations used in the exercises.
The data are included in a file named WENDYS.DAT on the data disk.
Case Questions:
1.
Prior to the analysis of the market survey data, what characteristics (see Figure 1)
would you recommend as potential bases for a segmentation strategy for Wendy's?
Why?
2.
Using the market survey data identify:
a.
b.
c.
d.
Which segments are strong and weak in providing sales for Wendy's.
Which segments Wendy's is strong and weak in when compared to its competitors.
Which segments you would select as target markets for Wendy's. Why?
Which segments you would reject as target markets for Wendy's. Why?
Case Analysis:
1.
Prior to the analysis of the market survey data, what characteristics (see Figure 1) would
you recommend as potential bases for a segmentation strategy for Wendy's? Why?
The purpose of market segmentation is to divide the market into meaningful groups
which allow specific marketing programs to be applied to one or more of the resulting segments. It
is based on the assumption that differences in consumers are related to differences in market
behavior and that the approach can provide a number of benefits. These benefits include: (a)
identification of the needs of specific groups, (b) identification of competitive strengths and
weaknesses, and (c) more efficient allocation of resources.
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The problem is to select useful segmentation variables. Several conditions must exist for
market segmentation to be effective:
a.
b.
c.
d.
e.
heterogeneous needs (market)
identifiable and divisible segments
ability to compare segments on the basis of costs, profits, etc.
profit potential
must be able to reach the segment
In general, markets can be segmented along several dimensions. These include geography,
demographics, usage rate or awareness level, type of use, psychographics, and product attributes.
The most appropriate segments, in this case, would be based on level of consumption of fast
food. By cross-tabulating usage rate with demographic, importance, or familiarity variables,
significant relationships can be identified.
Thus, segmentation analysis would identify
distinguishing characteristics of light, medium and heavy users of fast-food restaurants.
For example, we might hypothesize that the most frequent users of fast-food restaurants are
single (usage rate vs. marital status) or that they are better educated (usage rate vs. education).
Similarly, we might hypothesize that persons with low income are likely to use fast-food restaurants
(usage rate vs. income). Other demographic variables which could be investigated include sex,
number of children, ownership of residence, occupation, and age.
Identification of segments based on usage rates and demographics offers the greatest potential
for a number of reasons. Usage rates are appropriate since use is the action we are trying to
promote among the consumers, and demographics are appropriate because they best meet the
conditions of segmentation.
That is, although there may be a relationship between use and attitudes, for example,
identification of and communication with that segment of the market is difficult.
2.
Using the market survey data identify:
a.
b.
Which segments are strong and weak in providing sales for Wendy's.
Which segments Wendy's is strong and weak in when compared to its competitors.
One way to provide insight on this matter is to delineate the largest and smallest groups
of Wendy's customers (where customers are defined as those responding yes to question 57, record
2) by demographic characteristics (questions 1-3 and 8-13, record 3). The data provided in Table 1
suggest that the largest groups of Wendy's customers tend to be married, female, have no children,
own their place of residency (a house) and work as housewives or professionals and are between 40
and 49 years of age with incomes exceeding $21,000. They also tend to be high school graduates.
This profile compares favorably to the customers attracted by the competition. Defining
non-Wendy's as those who have eaten at fast-food restaurants (i.e., responded yes to question 1,
record 1), but not at Wendy's (i.e., responded no to question 57, record 2), the largest group tended
to be married, female, have no children, own their place of residency (a house), work as housewives
or are retired, have a high
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school degree, and earn between $9,000-$11,999 annually. The degree to which the respective
group size was comparable across Wendy's and non-Wendy's customers was very high. The only
factor for which there was a great deal of departure was for the age of the customers. Wendy's
tended to be much more successful at attracting 25-29 year olds (18.6%) compared to the
competition (2.7%), which seemed to be relatively more successful at luring older customers.
In sum, Wendy's ability to attract certain groups of customers is very competitive with respect
to the fast-food market. Its largest and smallest segments of customers are very much in line with
those of the industry as a whole.
2.
Using the market survey data identify:
c.
d.
Which segments you would select as target markets for Wendy's. Why?
Which segments you would reject as target markets for Wendy's. Why?
When delineating market segments to target, it becomes important to ascertain those
segments likely to contribute most to Wendy's sales. One criterion is to identify segments based on
usage rates. Those who are heavy users of the service are likely to contribute most to company
sales. The heavy user group was defined as those people who eat at fast food restaurants at least 2
or 3 times a month (question 2, record 1). A second criterion, is to separate patrons based on the
amount spent per meal. The heavy spender group spends $3.00 or more per meal (question 55,
record 2). Naturally, those who spend heavily would be desirable contributors to company
revenues. Approximately 77% of all those respondents whoever ate at fast food restaurants can be
classified as heavy users, and 42% can be classified as heavy spenders.
To maximize Wendy's returns to marketing efforts, the two criteria--usage and spending
levels--should not be viewed as mutually exclusive. Instead, Wendy's goal to enhance their
competitive position by raising sales, may best be served by focusing marketing plans on reaching
the heavy user-heavy spender category of the population. Targeting this group (n=61) as the central
segment of Wendy's promotions would on the face of it seem to be productive if the campaign
proves at all successful. Developing a strategy to reach small usage groups that spend little is
unlikely to result in Wendy's being a leader in the fast-food industry.
The heavy user-heavy spender group was defined as those who eat at fast-food restaurants at
least 2 or 3 times a month (question 2, record 1) and spend more than $3.00 per meal (question 55,
record 2). Identification of this segment by demographic characteristics in Table 2 shows heavy
users-spenders to be largely comprised of consumers who are married, female, have no children,
own a house, work as a housewife or a professional, are high school graduates, who are 30-34 years
of age, and have an income in excess of $21,000.
From a strategy standpoint, it might be most worthwhile to target married couples, people
who own their place of residency, and people living in homes. These groups represent a large
portion of the row percentage for the respective demographic characteristics, and each group
individually accounts for over 20 percent of the population of fast food patrons (those responding
yes to question 1, record 1). They are also segments which currently frequent Wendy's (see Table
1). Targeting these markets thus serve to simultaneously retain Wendy's current patrons besides
expanding its customers base.
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Table 1
Demographic Profile of Wendy's and Non-Wendy's Customers by Group Size
Wendy's Customers
Demographic
Characteristics
Non-Wendy's Customers
Largest Group
Smallest Group
Largest Group
Smallest Group
Marital
status
Married (72.9%)
Other (11.5%)
Married (75.7%)
Other (8.1%)
Sex
Female (63.4%)
Male (36.6%)
Female (81.3%)
Male (18.8%)
Children
No Children
(41.3%)
Four or more
children (5.8%)
No Children
(65.6%)
Four or more
children (6.2%)
Own/Rent
Own (74.6%)
Rent (25.4%)
Own (65.7%)
Rent (34.3%)
Dwelling
House (78.5%)
Duplex (1.6%)
House (66.7%)
Duplex (0%)
Occupation
Housewife
(29.9%)
Retired (3.3%)
Housewife
(44.1%)
Technical (0%)
Education
High School
Graduate (31.3%)
Less than 8 years
(0.5%)
High school
graduate (33.3%)
Less than 8 years
(0%)
Age
40-49 (21.1%)
70 or over
(2.6%)
50-59 (21.6%)
35-39 (0%)
Income
Over $21,000
(22.3%)
Less than $3,000
(1.1%)
From $9,00011,999 (20%)
Under $3,000
(2.9%)
*Percentages are the adjusted relative frequencies with missing values excluded from the percentage base.
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Table 2
Demographic Profile of the Heavy User-Heavy Spender Segment of the
Fast-Food Patron Population by Group Size
Largest
Group
Smallest
Group
Demographic
Characteristics
Row Percent
Marital Status
Married (85.2%)*
52
Single (3.3%)
2
Sex
Female (58.9%)
33
Male (41.1%)
23
Number of
Children
No Children (27.9%)
17
4 or more children (8.1%)
5
Own/Rent
Own (86.9%)
53
Rent (13.1%)
8
Dwelling
House (88.3%)
53
Duplex (1.7%)
1
Occupation
Housewife (30.5%)
18
Student (0%)
0
Education
High School Graduate
(34.4%)
21
Less than 8 years (0%)
0
Age
30-34 (22.6%)
14
15-19 (0%)
0
Income
$21,000 or over
(28.3%)
17
Under $3,000 (0)
0
Row Percent
Frequency
Frequency
*Percentages are the adjusted weighted frequencies with missing values excluded from the percentage
base (n=61).
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