NBAB6220-MBQC932

Marketing Strategy

Professor Peter Drummond

Individual Written Case Analysis

June 14, 2019

Qiao Wei

Order of files:
Filename Pages Comments and/or Instructions
MS-IndividualCase- 4 Cover letter excluded in page count
RedLobster.pdf

Additional Comments:
1) What is the Red Lobster's value proposition?

Red Lobster was initially built on the value proposition of bringing affordable seafood to

mainstream America. Customers “hired” Red Lobster for affordable seafood that could be enjoyed with

family members in a casual dining environment. To achieve this, Red Lobster provided low cost seafood

by streamlining its operations through the development of a national distribution system and

computerized point of sale system. The self-expressive benefit for the customer is the indulgent seafood

lover. The emotional benefit would be relaxed, smart and traditional. Functional benefits would include

quality seafood, variety of menu items and a casual environment.

In the last few years, however, Reb Lobster has been trying to change their value proposition to

providing more fresh seafood. In other words, customers “hired” Red Lobster for fresh seafood that could

be enjoyed with family members, business partners and friends in a more upscale, but still approachable

environment. Red Lobster achieves this proposition by repositioning itself through not only operational

efficiency, but also adding culinary expertise and remodeling of existing restaurants. This allowed them

to broaden their appeal to special occasions, business dinners and date nights. The self-expressive benefit

is a professional experiential who loves to try and experience new dining choices such as seafood.

Emotional benefits include successful, venturous and social. The functional benefits include fresh seafood,

a culinary experience with ‘catch of the day’ menu items and a modern seaside-like environment.

2) Does this value proposition relate to its customers' value priorities, Why or why not?

Red Lobster’s earlier value proposition of bringing affordable seafood with a casual dining

environment to mainstream America relates its customers’ value priorities in the early days. In the 1970s,

Red Lobster’s customer value priority lies mainly in the price value segment. At the time, seafood was

very expensive, difficult to find and hard to cook at home. This caused mainstream Americans, particularly

those living in the non-coastal regions to eat very little seafood. Customers, therefore, was mainly

concerned about getting the best price for quality seafood. The majority of Red Lobster’s customers were
categorized as frugals, traditionalists and indulgents. Both frugals and traditionalists are price sensitive

customers. While indulgents are not as price sensitive, they are motivated by large and generous portions.

To target these demographics, Red Lobster targeted seafood affordability and a casual dining

environment as its key value propositions.

In more recent years, the seafood dining industry has shifted. The price of seafood has been on

the decline due to increased aquaculture production. For example, the price of salmon and shrimp

dropped from $4/lb and $5/lb in 1980 to $1/lb and $2/lb in 2008, respectively. This transformed salmon

and shrimp from luxury food items into mainstream middle-class food item. Many casual dining chains

such as Chili’s, Applebee’s and Outback had salmon and shrimp on their menus. This resulted in

consumers in the seafood market being divided into two categories: (1) high end restaurants that offered

top quality, fresh seafood prepared with culinary expertise and (2) low end restaurants that served mass-

produced and frozen seafood. Many consumers saw Red Lobster as being in the latter category despite

the fact that Red Lobster was actually buying top quality ingredients. This meant that Red Lobster’s value

proposition was no longer relating to its customer’s value priorities and a repositioning was needed.

Due to the above changes, the customers priorities have changed from price value segment to

performance value segment. Customers are no longer limited by cost barriers, but are more limited by

access, time and skill required to prepare fresh seafood with culinary expertise. The customers are now

looking for perceived quality, new menu items, style and design. By repositioning Red Lobster to provide

fresh seafood and a more up-scale dining environment, Reb Lobster’s new value proposition is more

relating to its customer’s value priorities once again.

3) How does Red Lobster strive to achieve its value leadership?

In Red Lobster’s early phase of growth, it strived to achieve its value leadership by developing the

first national seafood distribution system in the 1970s. The distribution system became one of Red

Lobster’s core competitive assets. Red Lobster sourced fish from fisheries and made deals directly with
fishermen and seafood processors. This allowed the company to cut seven days from the sea-to-store

time by buying direct rather than through wholesalers. Red Lobster set up 16 distributors with 26

locations to deliver fresh seafood to individual restaurants daily through overnight express delivery and

delivery trucks. As the largest buyer of seafood in the United States, its scale and experience in the

seafood business provided a substantial advantage over its competition. The company also had an

obsessive attention over quality and held an industry-leading role in setting this high standard. In addition

to the distribution system, Red Lobster was also the first chain to use a computerized point of sale system.

These leading innovations streamlined its operations and efficiencies allowing Red Lobster to achieve its

value leadership from 1970s to early 2000s.

By 2004, Red Lobster became mature and stagnant. There was stronger competition in the

seafood category caused by the rapid decline of seafood cost due to the rise of aquaculture. To increase

its competitiveness and maintain its value leadership, Red Lobster underwent a major change in

positioning. Red Lobster commissioned an extensive consumer survey by interviewing 857 people on 11

restaurant attributes. The resulting survey indicated that Red Lobster needed to improve its quality of

seafood and taste/preparation of seafood. The improvement and repositioning were then carried out in

three phases. In the first phase, Red Lobster made improvements to its operational efficacy. The first

task for Red Lobster was to simplify its operations so that less could go wrong. This reduced costs and

increased the quality of the product. The second task was to excel at the basics of seafood restaurant,

such as providing fresh food, clean environment, friendly staff and full service. The second phase involved

in repositioning Red Lobster’s value proposition from providing affordable seafood to providing fresh

seafood with culinary expertise. This was achieved through hiring a new culinary team and developing a

new set of menus around the freshness concept. In addition, Reb Lobster changed its cooking platform

from deep frying to grilling by installing new grills in each restaurant. The last phase of repositioning

involved remodeling the restaurants. All Red Lobster restaurants underwent extensive remodeling
focusing on providing a comfortable seaside atmosphere. The remodeling transformed Red Lobster’s

casual dining environment into a more special restaurant that would appeal to multiple occasions

including family dinners, date night and business lunches. By 2010, the three phased repositioning had

re-vitalized Red Lobster’s value leadership. Internal research found that guest satisfaction was up 14% to

78% and the American Customer Satisfaction Index ranked Red Lobster above the industry average.

4) What are the top 2 customer segments for Red Lobster to focus on for growth, and why?

Given the shift in the seafood industry and current Reb Lobster’s positioning, Red Lobster should

focus on the experientials and eclectics customer segments for growth. The experiential segment

represents one of the largest customer segments for Red Lobster currently at 23%. They are a key

customer segment for growth since they have the highest annual meals per customer and the highest

average spend per meal. They enjoy culinary expertise, love fresh seafood and enjoys sophisticated and

upscale atmosphere. They also like new food menu items and are motivated by spending time and

connecting with people that they care about. All these attributes relate directly to Red Lobster’s new

positioning with the focus on freshness, new culinary expertise and providing a more upscale environment.

The experientials also tend to order more dessert, appetizers and wine. Their high income makes them

less sensitive to price, which opens up room for price increases at Red Lobster.

Another important customer segment for potential growth is the eclectics who currently

represent a small percentage of customers at 7%. They are also an important segment since they have

the second highest spend per meal and spend more money enjoy unique dishes and appreciate new or

recently renovated restaurants. They like fresh fish and shellfish and want unique dishes that they don’t

make at home. These attributes align well with Red Lobster’s recent repositioning. Eclectics are also

health-conscious making seafood at Red Lobster a natural choice. In addition, they are the least price

sensitive and spend more on alcohol than any other customer segment. At only 7% of current customers,

this segment has lots of potential for growth for Red Lobster.