Chipotle believes on the type of grand experiment that makes most brand managers tremble: It's giving up on advertising. Having cycled through four ad agencies in five years, the restaurant chain focus now mostly on word-of-mouth promotions.
Chipotle has been adopting this plan since 2010, and according to numbers it has been working out very well. In fact, not advertising on TV is key to Chipotle's business model. The company spends almost nothing on advertising—just $6 million nationwide last year. (By comparison, Arby's, the smallest of the large fast-food chains, spends about $100 million and McDonald's, the biggest, spends more than $650 million.)
Chipotle has been reducing its above-the-line advertising costs in the last few years.The company did advertise on TV for the first time ever in 2011, buying a single ad during the Grammy Awards that ran only once, for instance. But In its annual report, Chipotle describes why it believes advertising is bad for its business: "Our marketing has always been based on the belief that the best and most recognizable brands aren’t built through advertising or promotional campaigns alone, but rather through all of the ways people experience the brand."
Sales at Chipotle went up 20 percent last few years, so this is a company that already has momentum. The fact that its ad dollars are less effective than they should be suggests it's worth cutting them back -- they're a drag on earnings and they're not contributing efficiently to the company's overall growth.
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