Chipotle Case Study – Beyond Free Burritos

This post explores a Chipotle Case Study as Chipotle faces several challenges in the fast-paced and growing fast-food market.

Introduction- Chipotle Case Study

Chipotle has outstanding core competencies. It has competencies of quality control procedures, operations, and fast customer service. Its value proposition for clients is affordable and tasty meals made with natural ingredients. Chipotle offers a selection of burritos, tacos, salads, etc. Most of its customers are looking for a fast-paced food restaurant with unique and tasty options. The selection Chipotle offers are not the cheapest in the market, they based their success in other qualities. Chipotle is a young company, that has experienced a large growth in the last few years. Chipotle invests less than 1% of its revenue in advertising, they are considering to continue the same promotional strategy in the coming years.

Challenges

The strategy can be successful, as it has been the past years, but there are some challenges that they will be facing. Internally, they have to adapt the spaces for more clients, and continuously invest in targeting the right market. Chipotle’s clients are loyal, they bring more clients to the food restaurant. Chipotle has to target new customers to increase revenues. In the case they continue to grow, Chipotle may need more dining spaces. Externally, the firm is also facing some challenges. The number of competitors they have to keep growing. Most of their competitors spend four times more in advertising campaigns and renew products very often. Chipotle has few products and keeps a constant menu.

Recognizing the Problem

Chipotle grows substantially every year with a very limited advertising budget. Chipotle has located several locations across the states and Europe successfully. They want to continue growing with a very limited advertising budget. As their growth increases, managing inventory and logistics will be more difficult. Working with naturally grown products will also be a challenge, as demand increases. Competitors tend to exaggerate products in advertising, even though exaggeration is expected, potential customers get exposure to the brand.

Chipotle gives free samples, encourages the customer to bring friends, and sometimes advertises in billboards or commercials. Continuing to grow is a challenge, especially at such an ambitious rate. Chipotle will face many challenges to achieve its goal, but the main challenge is: Spreading its promotional strategy to a wider range of clients with the same strategy. Chipotle needs to optimize its word of mouth promotion strategy. Clients recognize the quality food they get, with the right motivation they can continue spreading the word. Several groups haven’t been targeted, Chipotle can exploit this opportunity. Not all potential customers will be brought to the store by referral, some of them may have to find out on their own.

Possible Solutions

Chipotle has strong core competencies and loyal clients. To overcome the root problem and continue to grow, Chipotle could follow one of these solutions:
1- Offer a rewards program for clients that are regulars and refer new customers. Clients can receive small prices by recommending the restaurant.
2-Start a social media campaign, but without the typical fast-food chain restaurant ads. Share stories from clients who wish to help Chipotle grow.
3-Free sample companies and give a special focus to opportunities in the corporate world. Give special deals for companies to bring employees for lunches or breaks.

Solution Analysis

Solution 1 takes advantage of the client’s loyalty to the brand. Clients will feel comfortable advertising the brand since they know the quality that comes with it. Even though they may already do it, customers will have extra motivation to recommend the venue. In the downside, offering extra perks can increase Chipotle’s expenses in advertising. There has to be a limit in the reward program, or maybe a nonmonetary reward.

Competitors invest large budgets in advertising, but most of the time exaggerate products and only focus on bringing the client to the business. Chipotle can take advantage of Solution 2, advertise to all the public in social media. The cost will be minimal, and contests between customers could make ads even free. On the other hand, potential customers without social media access will not have any exposure.

Several companies cater lunches for employees and try to maximize productivity. Chipotle can increase profits by making deals and contracts with companies. They will have to be prepared for large orders at lunchtime, and maybe adequate sitting areas for the occasion. Chipotle will have to adapt and make a significant investment, but the returns can be major.

More on Solution 1

After the analysis of each solution, I determine that solution 1 will be one of the best fit. The loyalty program can be added to the App Chipotle already has. The Chipotle app allows the customer to order ahead, skip lines, check promotions, pay quickly, etc. Several users use the Chipotle app to order food and save time in line or to check the menu. It is a convenient and innovative way to do business. The loyalty program will not only be based on purchasing products continuously but in referrals. It will be difficult to track if the new clients are new, but they will have to be tracked by the app.

Chipotle will continue working in its value proposition but focus on clients’ loyalty. Most of their clients are loyal to the benefit, and they can be rewarded. They have very strong logistics competencies. They can use those competencies to create a successful App that clients will be willing to use. Chipotle customer service is also superior to most of its competitors. Staff can be trained to assist with the reward program.

The rewards offered by the loyalty program will have to be limited. Clients may take full advantage of this program and claim large amounts of rewards. Not all rewards have to be money so that the advertising budget will be hurt. Chipotle will have to face some challenges to execute the solution. They will also have to make a significant investment in updating and adapting to the app. The process has to be simple and efficient. If Chipotle is successful they will be benefiting agricultural communities that focus on responsible harvesting. Competitors may try to lower prices and increase quality to try to offer similar products to Chipotle, but Chipotle offers unique products.

Implementation

The first step to implement the solution is to determine the plan an outline for the new app features. Since the app is already built, Chipotle can use the current developers to expand the app. Once the core of the app is developed. They have to decide the rewards they will offer in the loyalty program. Rewards should be based on purchases, referrals, and restaurant locations visited. The rewards can not be very costly so that Chipotle will have to increase its budget. Rewards can start with extra toppings, fountain drinks, extra tortillas, etc.

Each store has to be prepared to handle and promote the loyalty program. To avoid extra expenses Chipotle can advertise the new loyalty program in its store. Customers can sign up while waiting for their order or eating. Chipotle can send a notification for customers that already have a Chipotle app. New customers will have a hard time finding out about the Chipotle app, but old customers will help spread the word
The next step is employee training. Not all employees have to be experts in IT, but they can learn basics to help customers join the loyalty program and solve technical difficulties. Employees have to be familiar with the rewards and keep track of customers taking advantage of this new feature.

Chipotle will offer its value proposition with great service and quality products, but with extra benefits for loyal customers. Competitors will probably try to offer more rewards and promotions, but they won’t be able to change products in a short timeframe. With so many competitors in the fast-food industry, each of them could come up with a new strategy and update their own apps, and menus.

Metrics and Contingency Plan

The optimal outcome will be Chipotle increasing revenue and the number of regular customers they have. Having specific metrics to evaluate the success of the solution, is a key to understanding how close is Chipotle to its goal. Chipotle could measure the Return on Advertising Investments. Dividing revenues by the advertising and marketing expenses. They could also measure the number of loyalty accounts open, and analyze its increase over time. Chipotle should also evaluate their market share, and compare its share over time. They can focus on their market share inside the fast-food industry and specifically in the Mexican style fast-food chains.

In the case solution1 does not resolve the root problem, Chipotle should follow another strategy. Solution 2 can be a contingency plan. The word of mouth advertising technique may not only be effective across friends or colleges. Solution 2 will give Chipotle the opportunity to share videos and experiences from the community with a limited budget.