Xu Han (Hannah)

The widening income gap pushes Red Lobster to either go upscale or go downscale (Chen,

2013). The top 10 percent richest people earned 12 times what the lowest ten percent earned,

according to 2012 Census Bureau data. Although an unexpected high percentage (23%) of

experientials patronized the restaurant in 2008 (Red Lobster Case, 2010), the shrinking

middle class makes it embarrassing to serve both experientials who expect the best service

and price sensitive customers at the same time. Neither the rich nor the poor will choose Red

Lobster since rich people will directly go to fine dining restaurants because they expect top

notch service, and the low income people tend to spend more time eating at home (Gustafson,

2012). For a chain restaurant as large as Red Lobster, it should not go premium and change

its customer base to experientials because of potential market opportunities and its own

operating features.

Segmentation

The revenue brought by more profitable experientials will be offset by the loss of other 70%

price sensitive customers because they can not afford the costly upscale service. It is true that

experientials account for 23% of total customers and contribute more to profits. Indeed, the

three phase plan has attracted many experientials that the company has not expected.

However, they could not represent the company’s new customer base since 23% of them are

far from enough when compared to 70% of price sensitive customers that include indulgents,

traditionals, and frugals. Moreover, the tragic story of K-mart tells a truth that turning too
abruptly to another customer base may cause a company to lose its core brand value. Sticking

to the original customers is a better choice for now.

Promotion and Pricing

Promotion activities and renovations should be scaled back because the company already

had fairly high advertisement costs. Although the company spent a lot of money on

promotion activities, those policies may not be as effective as they seemed. Statistics from

Market Realist 2013 annual filings shows that not only the dollar amount of advertisement

expense increased by $100 million, but also the percentage of advertisement expense in

proportion to sales grew by 0.3% in two years. In spite of such aggressive promotion policies,

year 2013 has witnessed 2.8% decrease in guest account, and even worse, a 5.9% drop was

just reported in the latest quarter. Chen (2013) concludes that the unclear brand value led to

the loss of guests. As I mentioned above, the company needs to focus on price sensitive

customers and rebuild the brand. Instead of offering promotional discounts, the company

could consider using the money on activities such as updating the menu and providing higher

quality food, which help build customer loyalty.

Pricing strategy should be in line with the segmentation strategy so prices should not be

raised. Admittedly, Red Lobster remodeled itself by offering higher quality cuisine seafood

and had seen positive results. But Bell (2010) revealed that there were some critiques about

the “sophisticated dining experience” (p. 11). Although promotion activities make the guest

loss less obvious, the declining guest account is still an alarming sign that Red Lobster has to

do more than just special deals to win customers back.

 Positioning, Product and Place

Minor changes in positioning are preferred for the company under current market

condition. The recent eating behavior of average American families gives the company a

more suitable positioning strategy: fast and healthy affordable seafood. Gustasfson (2012)

reports that while more people are eating at home, less produce is consumed, indicating that

people make quick meals from pre-prepared food to save their time while enjoying the time

of eating with families or friends. That is to say, American people do eat at home, but that

does not mean that they eat healthier food. Providing fast yet healthy food is something that

Red Lobster can do in order to fill this gap. Reflecting on the company history, we can see

that in the 50s when the company was headed by Howard Johnson, it already obtained the

tradition of serving food quickly with low cost. According to Gallup strengths analyzing

expert Rath (2007), strengths deserve more time to work on because working on what you are

already good at will take less time and effort yet achieving bigger improvement. “Fast and

healthy affordable seafood” tend to be a wiser positioning than “approachable, fresh seafood”

at this point.

To avoid too much loss of experiencials customers, higher price wine selections could be

added if not much costs are incurred and the wines are welcome in the selected locations.

Apart from that, new flavor of sauces and even dessert can be added to increase the

variability of menus, since experiencials are interested in new flavor. Another product

strategy may be adding a new menu emphasizing on fast delivery and balanced diet.

The remaining remodeling work should not be done in haste. The decoration work could
continue but the wood-fire grilling that complicated the dining experience could be discarded.

Although the highly profitable experientials customers are tempting, it will be better if the

renovation work goes on with a steady pace, for complains from original customers has

emerged (Bell, 2010).

Action Plan

Goal: reduce promotional discounts while increasing advertising efficiency, change

positioning slightly to make customers believe that Red Lobster care much about their health

and time, and increase profits through brand loyalty

Short-Term Steps

 The first and the easiest easy step starts with cutting advertising expenses. Reduce

television advertisement by half since more people tend to spend time online than

watching TV. For July to December, 2014, the advertising budget can be $85000, half of

which is allocated to online advertising, a quarter to TV ads, and another quarter to

billboards, posters and magazines. If $85000 will work, then carry on this budget to year

2015.

 Add “Fast Servicehealthy diet” menu andadd a line of produce and vegetables choices to

the menu. This practice will only be implemented in 50 selected locations first. For this

particular category, Red Lobster can estimate hourly demand and prepare produceand
 seafood in advance and make sure that every customer can get theirheated food within 5

minutes without paying more.

 Add Sauces from traditional Asian countries to add flavor to the new menu.

 Limited choices of dessert can be added to create a warm family dining atmosphere.

Long-Term Steps

 Except some adjustments mentioned above, continue with the three phase remodeling

work steadily and hopefully finish these steps by 2015. Winning customers back is

essential to Red Lobster’s success. If the new “fast and healthy” menu does not live up to

expectation, the company still can turn to Gallup formore intensive market research.

Risks and Countermeasures

There is a possibility that experientials will go away from Red Lobster if their demands

are not met. They might find Red Lobster’s food boring with little variation. To alleviate the

revenue loss associated with potential decrease in experientials, Red Lobster can buy in ideas

from other culture to increase variety of food. For example, the restaurant may combine

vegetables and seafood together and cook them in a new sauce. Pilot study can be taken in

selected locations to gain experiencials’ feedback towards the new flavor. Moreover, wine

selection will be adapted according to their preference. Attract them by advocating a warm

and family-like caring eating environment.

 References

Bell, D. E., & Riis, J. (2010). Red Lobster. Harvard Business School Cases, 511-052.

Retrieved from http://www.hbs.edu/faculty/Pages/item.aspx?num=39298

Chen, X. (2013, October 29). Darden analysis: Darden must increase or decrease average

check. Market Realist. Retrieved July 27, 2014, from

http://marketrealist.com/2013/10/darden-analysis-darden-must-increase-decrease-ave

rage-check/#tab-research

Gustafson, T. (2012, February 19). Americans Prefer Eating at Home But Still Don’t Cook

and Don’t Eat More Healthily. seattlepi. Retrieved July 27, 2014, from

http://blog.seattlepi.com/timigustafsonrd/2012/02/19/americans-prefer-eating-at-hom

e-but-still-don%E2%80%99t-cook-and-don%E2%80%99t-eat-more-healthily/

Lynch, D. (2013, December 5). Obama Decries U.S. Income Gap That Has Widened Under

His Watch. Bloomberg.com. Retrieved July 27, 2014, from

http://www.bloomberg.com/news/2013-12-05/obama-decries-u-s-income-gap-that-ha

s-widened-under-his-watch.html

Rath, T., & Buckingham, M. (2007). StrengthsFinder 2.0 (New & upgraded ed.). New York:

Gallup Press.