Be Good Enough Every Time: MIT Proves McDonald’s Formula for Success

A new paper from the MIT Sloan Research center demonstrates the advantages for businesses of having lower, consistent quality over higher, variable quality or early market share. 

For retailers, this means you should understand what are the most basic things that your customers consider a good experience and a good product and make sure those qualities are there every time. Don’t try to succeed by growing quickly, doing a lot of advertising, or trying a lot of gimmicks, even if some of the gimmicks are really good. Work on being good enough, but be good enough every time. 

You see this strategy in most of the major retailers. McDonald’s, Starbucks and Wal-mart all have had high-growth phases, but they didn’t start with high growth like the Internet companies of the 90s or a lot of high-profile fashion brands. Instead, they learned to do something very well and do it every time, in every store across the country. Then they grew. None of them have the highest quality products, but you can go to any of their stores at any time and know exactly what you will get. 

OK, you already knew this. This principle has been known in the business world for decades, and we didn’t need MIT to tell us again. The neat part of the paper is that they show the math behind the principle, and they show how the principle stacks up again other strategies. 

The paper, naturally, is not as accessible at the press release, talking about “strategic levers” and “positive feedbacks.” The gist of the paper is that  a lot of markets have positive feedbacks, where the successful companies gain advantages that allow them to get more successful more quickly than less successful companies. You know the principle as “the rich get richer.” 

This paper looks at the three ways companies can try to compete in these kinds of markets: 

1. Get a lot of market share really quickly. In the late 90s this was the popular Internet strategy called “first mover advantage.”  A company might do this through deep discounts, a lot of advertising, or opening a lot of stores. Lesson from the 90s: it doesn’t work.
2. Try to make the reasons that the rich get richer work more powerfully, for instance by using economies of scale to improve product quality, so the successful company can build a much better product than less successful companies. 
3. Work on making the products of more consistent quality rather than aiming for the highest quality. This is how McDonald’s became so successful. 

The paper’s conclusions are:

• In the very short run, increasing market share is the most successful strategy.
• In the long run, product quality overpowers the advantages of early market share. 
• In the long run, it is better to have a lower, consistent quality than an inconsistent quality that is, on average, higher.

So a lot of companies should look first at having a consistent, basically good customer experience rather than trying to grow quickly or trying a lot of wild ideas. 

There is one important caveat with the results from this paper: it is based on computer simulation and mathematics, not studying real people. It could be a lot of BS, but it does make a lot of sense when you look at the real world.