Dear Tesla, Please Don't Become A McDonald's
Tesla could become the next McDonald’s, and it would be a shame.
No, Tesla isn’t going to sell dollar menu items...probably? As silly or as irrelevant as it may seem, just bear with me for 60 seconds.
So, let's talk about McDonald's for a minute.
If I were to ask you to state the first phrase that comes to mind when you hear "McDonald's", what would you say?
- Low Quality
- Golden arches
- Pink slime
- Last place I'd eat
A study conducted by investment bank RBC Capital Markets found that McDonald's placed last in consumer polls testing healthiness amongst the largest fast food chains in America. Millennials are shying away from McDonald's, to put it lightly. McDonald's worldwide revenues have been slipping year after year since 2013.
So the question is why are people starting to dislike and avoid McDonald's?
If we rewind the tape and look back at where McDonald's began its course - it reminds me of Tesla.
See, when McDonald's was first born (with its parents/co-founders being Richard and Maurice McDonald), it was a nice sit-down restaurant that served up barbecue slow-cooked for hours in a pit stocked with hickory chips imported from Arkansas. Over time, McDonald's found out where most of its revenue came from - hamburgers. It cut down its menu, it cut down employment for its carhops, and it got rid of its dishwasher in favor of disposable cutlery.
As time progressed, the lean machine kept working and profits had doubled, while still keeping a meat-rich experience for its customers. They introduced 48 blend milkshakes to keep customers happy. There were no corners cut when it came to the actual product served to its customers. And because of this, the customer base was loyal and growing. McDonald's streamlined its processes but avoided reducing the quality of its product.
Let's fast forward to the McDonald's we recognize today - the McDonald's we associate with all those words we listed above (cheap, low quality, and so on). We think of McDonald's in the way that we do for 1 main reason: McDonald's introduced a noticeably lower quality product, priced much lower than its traditional high-quality beef products to cater to a new audience.
So why in the world did I give you a history lesson on the Golden Arches? It's not like Tesla is going to introduce cheap beef burgers.
Well - they might. Sort of.
Tesla started off by selling slowly cooked barbecue (The 2006 Roadster) to a select few customers. It was expensive, but it was an incredibly disruptive product that was coveted.
But surely that was just the start - after all Tesla had bigger plans, and more customers demanded that they get to embrace the popular experience.
So, out came the Model S.
Tesla realized what it's "hamburgers" were (or what its customers really wanted, and what would make the most revenue). They started manufacturing the expensive, yet incredibly high-quality and luxurious, Model S.
Tell me that doesn't make your mouth water.
If history is a good indicator, then there was no way that Tesla's mission had been accomplished. Tesla needed to be bigger. More importantly, customers wanted it to be bigger.
So, out came the Model X.
Still a high-end burger, but more efficiently created, and better tasting.
Now the Model 3 is slowly rolling out, and it's a cheaper (not cheap) Tesla vehicle. More people can afford it, more of the model is being made, and Tesla is raking in more revenue.
This is where Tesla needs to be careful. Tesla cannot afford become a McDonald's.
If Tesla starts offering, what is equivalent to, a value-menu, then troubled waters lie ahead. You see, when McDonald's introduced a dollar menu, a new crowd of people that didn't eat there earlier, were now frequent customers. The old crowd that used to buy costlier meals started associating the restaurant with cheap, quickly made food. And here, the McDonald's brand lost its novelty.
McDonald's shifted from being high-quality and desired, to cheap and avoidable. Customers were confused, and the brand took a nosedive.
Look at General Motors - they produced the Oldsmobile, a car with a strong brand known for its quality. They catered to one type of audience, and eventually, that audience got older and had no need to buy more cars. So GM was in a dilemma. They needed to expand their customer base, but younger people were far from attracted to the Oldsmobile.
So they began to cater to their audience's millennial children, with a revamped car and revamped campaigns. The result - the market share dipped drastically. GMs old and new customers were confused.
The brand died.
As Tesla begins to gradually transition towards cheaper and more affordable products - it needs to tread carefully. If Tesla introduces cars that can be purchased for $20,000 (for example) too quick and too hastily, it will surely attract a new crowd of customers. But the added adoption will come with a heavy cost - confusion.
The Tesla brand will become muddy and more unclear. And Tesla will begin to lose its novelty. And one of the most innovative clean energy companies in the world could face a similar fate as McDonald's or GMs' Oldsmobile.
Honda understood that.
- Think Honda.
- Now think Acura.
- Two completely different pictures were just made in your mind
And that was beautifully orchestrated brand portfolio management by Honda.
The brand prospered.
So, Should it keep its cars incredibly expensive? Definitely not.
Should it only cater to its current audience? Definitely not.
Should it be cautious as it expands its product line into more affordable territory? Without a doubt.