ENTRY CATEGORY:List the category entered among the 11 listed.

Category "A": National Consumer Promotion (Budget over $5 million)

PRODUCT SERVICE CATEGORY: Please describe the characteristics of the product or service entered.

Taco Bell competes in the Quick Service Restaurant (QSR) category, which shares similar business objectives with other retailers, namely, increasing customer traffic, average check and profit per square foot. Like any other industry, Taco Bell’s primary business goal is to continually generate incremental system-wide sales and profits, in order to provide a healthy investment return to corporate shareholders. Taco Bell is one of 3 major, global QSR chains owned by Tricon Global Restaurants, the other two being KFC and Pizza Hut.

This is a highly competitive category, comprised of global (e.g. McDonald's), national, regional, and local chains, plus independents. In addition, consumers are exposed to an endless array of QSR choices, including burgers, chicken, pizza, subs and ethnic foods, all competing for “share of stomach”. Taco Bell competes primarily in the Quick Sandwich Segment (QSS) of the total QSR market.

MARKETING OVERVIEW: Outline the marketing environment in which the product or service competes within the category entered. Include enough background to explain the opportunities or problems addressed.

The key measure of QSR brand health is incremental same store sales growth (which takes out the impact of new store openings). Same store sales growth is accomplished by either driving higher customer traffic counts and/or increasing the average customer transaction size (“check”) per visit.

QSR operators traditionally view increased traffic as a more important contributor to sales growth versus increased check, as check can often artificially inflate sales trends through price increases. Note: Traffic is comprised of 3 variables; household reach, average party size and visit frequency.

The largest competitors typically run 52-week media buys at heavy media weights and constantly execute price and/or value-added consumer promotion offers, in order to maintain and steal "share of visits" from the competition.

In-store tactics in this category commonly include point-of-purchase merchandising materials strategically placed throughout the interior and exterior locations of the store (with specific messaging based on desired purchase behavior and typical “need state”). P.O.P., as well as various promotion tactics (e.g. games and sweepstakes), are utilized to up-sell consumers to higher margin items (e.g. combo meals, larger sized drinks) and/or cross-sell new or existing products.

All chains try to influence and attract the "heavy QSR" user, as this consumer tends to account for the largest share of category visits (3.8 visits per month versus 2.8 per month for average users) and usually spends more per visit (i.e. 80/20 rule applies as in most businesses).

Taco Bell had been experiencing a downtrend in terms of traffic/transactions at a rate faster than the overall category, which had also been soft. This was traced to a loss of heavy QSR category users, primarily males 18-24, who represent the core target for the brand (within the broader media target of adults 18-34). Research indicated that these heavy users were finding the brand less relevant and differentiated.

The new “Think Outside the Bun” advertising campaign, was recently developed to immediately address this issue. It launched in the marketing module preceding the Xbox promotional tie-in, and supported a featured product, Chicken

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Quesadilla. Taco Bell experienced an upturn in traffic counts as a result and Marketing’s goal was/is to maintain this positive momentum.

Additionally, the Taco Bell system has been adjusting over the past three years from a shift from mostly company-owned stores to a Franchisee/Licensee dominant system. Under a Franchisee/Licensee system, getting broad buy-in from owner-operators to participate in marketing programs is key to individual program and total marketing calendar success. This is especially the case with Licensees, who are defined as conglomerate owner-operators (e.g. Marriott, Texaco, Shell) under Taco Bell’s tiered franchise system. Licensees tend to have smaller operating budgets compared to Taco Bell’s larger, free-standing, company-owned and Franchisee stores. Licensee stores tend to be smaller (e.g. located in airport kiosks and gasoline stations) and experience fewer traffic volumes. Licensees therefore are more careful about how they allocate their funds for promotions.

OVERALL PROMOTION OBJECTIVE(S):What were the promotion’s objectives? How do those objectives work within the category entered? Objectives should be specific, achievable and compatible with the category entered.

The Taco Bell/Xbox promotion was structured and executed as a two-phased program over a 5-week time frame. Phase One was an 11-day, on-line sweepstakes (October 18-28/01) and Phase Two was an instant-win game (October 29-November 25/01).

The promotion objectives for the program were as follows:

A. Overall Program (Phase One and Phase Two combined): Business/Financial:

1. Increase per store average (PSA) sales growth during the entire promotion period (10/18-11/25) by 3% versus same period year ago, as measured by Taco Bell’s internal sales reporting system (Mozart).

2. Achieve a 6.0% sales mix for Chicken Quesadilla during the entire promotion period. System-Wide Store Participation:

3. Get 6,500 out of a total universe of 7,023 Taco Bell stores (company owned, franchisees and licensees) to participate in this promotion, representing a 3.6% increase in store participation versus Taco Bell’s most recent (summer 2001) national promotion. The prior promotion had secured participation from 6,274 stores.

B. Phase One (On-line Sweepstakes) only: Business/Financial:

1. Increase per store average (PSA) sales growth during the phase one period (10/18-10/28) by 3.2% versus same period year ago, as measured by Taco Bell’s internal sales reporting system (Mozart).

2. Achieve a 6.0% sales mix for Chicken Quesadilla during phase one. Consumer:

3. Capture 250,000 consumer e-mail addresses for future marketing efforts.4. Achieve a 2% sweepstakes participation rate (i.e. the number of entries expressed as a percentage of total

circulated sweepstakes tickets).

C. Phase Two (Instant-Win Game) only:

Business/Financial:1. Increase per store average (PSA) sales growth during the phase two period (10/29-11/25) by 2.9% versus

same period year ago, as measured by Taco Bell’s internal sales reporting system (Mozart).2. Achieve a 6.0% sales mix for Chicken Quesadilla during phase two.

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PROMOTION STRATEGY & TACTICS: How did you achieve your objectives? Please describe your tactics in the order they occurred. What made the promotion different or unique?

Background:

Taco Bell consumer research indicated that their primary, heavy fast food user target (called “HFFU’S”) of males 18-24 were heavily into video games as part of their lifestyle. Further investigation uncovered the fact that the video game industry (a huge, multi-billion dollar business), was in the process of expanding its target audience beyond traditional, hard core 16-24 male gamers (e.g. to appeal to adults 25+)

The industry, previously dominated by Sony and Nintendo, was about to undergo a massive infusion of marketing activity, similar to that of the Coke/Pepsi “cola wars” of recent years. Microsoft had announced that they were entering the category during fall 2001, with a new product called “Xbox,” a state-of-the-art video gaming system with best in class graphics, sound and overall game play. A $500 million global marketing effort was reported by the trade press as the budget that Microsoft planned to support this launch.

Taco Bell was approached by Microsoft Xbox to be the exclusive “launch window” promotional partner. Microsoft felt that Taco Bell’s target demographics and slightly more edgy brand personality (versus other QSR’s) would make for a perfect match.

In assessing the target demographics of Xbox (males 16-24) and its brand equities (“fun,” “passionate,” “fresh” and “innovative”) against Taco Bell’s own primary target (heavy QSR users, males 18-24) and brand image of “fresh and innovative fast food,” Taco Bell agreed this would be a great property to align with. In addition to the appeal of Xbox to Taco Bell’s core target, it was felt that the video industry market expansion to adults 25 + would also enable a broader marketing effort against Taco Bell’s secondary, adult 25+ target. A “win-win” deal between the two parties was therefore consummated.

Promotion Strategy:

The overall promotion strategy was to communicate to consumers that the “FIRST and ONLY place to get an Xbox was at Taco Bell.” Taco Bell negotiated a window of exclusivity, during which time, the Xbox was NOT available at retail stores for sale to the general public. For a period of time (11 days), consumers wanting to be the first on their block to win and own an Xbox had to visit their local Taco Bell. It was expected that given the incredible pent-up demand for Xbox (due in large part, to Microsoft’s fantastic PR machine that achieved tons of media coverage in the months preceding the launch), consumers would be beating down the doors at Taco Bell.

Another key aspect of the promotion strategy was to localize the promotion (i.e. at the individual store level). Tactics were designed to support every single store, so that company-owned store managers, franchisee and licensee owners would all feel ownership of the program.

Given the high tech nature of Xbox, Taco Bell used both traditional “off-line” tactics and newer “on-line” promotion and media components to fully leverage the leading edge image of Xbox.

Finally, in order to gain maximum leverage from the Xbox association, Taco Bell developed a two-phased program, consisting of an a) On-line Random Draw Sweepstakes and b) Instant-Win game, both thematically linked to Xbox.

Promotion Tactics:

Phase One: On-Line Random Draw Sweepstakes (October 18 – October 28, 2001) Markets: U.S. and Puerto Rico

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Theme: “Win it Before You Can Buy It Xbox Giveaway” Theme Rationale: Communicated the fact that you could get an Xbox FIRST and ONLY at Taco Bell. Mechanics:

Create a program component that is local market based, in order to appeal to franchisees/licensees. With any Taco Bell restaurant food or beverage item purchase, consumers received a free sweepstakes entry

ticket, each pre-printed with a unique alphanumeric code. Consumers would go on-line at www.xbox.com (the official Microsoft Xbox website) in order to enter this code

into a random draw for one of the Xbox prizes. The creative developed for this interactive sweepstakes reinforced both Taco Bell’s and Xbox’s brand image and encouraged consumers to visit Taco Bell more often (in order to enter as often as they wish).

Mechanics Rationale: The “on-line” entry mechanics served to reinforce the high tech, leading edge nature of the Xbox product and

appealed especially to Taco Bell’s internet savvy, 18-24 male core heavy user target. Prizes:

6,755 Xbox prizes were available to be won. Each prize consisted of a Microsoft Xbox Video Game System, one controller, plus one Project Gotham Racing CD-ROM Game with Taco Bell in-game product placement, total value $350 per prize.

What was unique about the prize allocation was that Taco Bell awarded one prize PER STORE. This effectively translated into 6,755 individual prize draws that helped localize the promotion for the individual franchisee and gain their participation in the promotion.

Communication Support:A fully integrated consumer and crew marketing communications campaign leveraging key elements of Xbox branding (including logo design, green and black colors and featured video game titles) was executed across multiple contact points:

P.O.P. A variety of in-store, exterior and drive-thru point-of-sale elements were produced to create awareness and

excitement for the phase one program. On the front exterior (window signage), the key messaging was “Win an Xbox Here,” in order to attract drive-by traffic. Interior elements utilized more reminder (repeat visit) messaging that consumers could get an entry ticket whenever they made any Taco Bell purchase.

Sweepstakes Ticket The Sweepstakes entry ticket was designed to be high tech looking, with educational “how to play” copy. Four versions were produced, each promoting a different Xbox video game title on the back of the ticket.

(Each game title that was promoted featured Taco Bell in-game product placement) Advertising

TV, teaser print, radio, on-line media, interactive presence on www.xbox .com web-site The TV advertising concept developed was that of a “road trip,” whereby a group of young males in their

car were travelling around the country to hit every Taco Bell store, in order to win an Xbox. The creative also reinforced the sense of urgency to get to Taco Bell (i.e. “Well, we’ve only got 10 days, so 438 stores in LA…”).

Teaser print played up the “be the first on your block to own an Xbox” bragging rights message. The interactive creative (Taco Bell Xbox on-line sweepstakes micro-site hosted on www.xbox.com) used

cool, flash animation, also playing up the road trip concept. In addition to “how to play” and “register to win” links, the micro-site featured links to “Find a Taco Bell store” (driving consumers to retail) and reinforced the local market aspect of this promotion (i.e. that every participating store is giving away an Xbox). Additionally, consumers were encouraged to order the Chicken Quesadilla product being featured.

On-line ads consisted of: 10-day countdown teaser campaign leading up to the launch of the sweepstakes (October 8-17 th). One-day launch campaign with highly visible ‘site takeovers’ using flash and eyeblaster (October 18 th). 10-day campaign that continued to countdown through the final days of the sweepstakes (October 18 th-

28th) again using flash creative. All on-line creative lived on highly vertical gaming sites in an effort to build credibility within the gaming

community and amongst hardcore gamers.4

78% of all on-line creative was larger than 468x60 banners, to increase visibility and interactivity with promotional on-line advertising.

Rich-media emails, linking back to the Xbox/Taco Bell co-branded microsite, were also sent to Xbox’s current database on October 18th, announcing the start of the sweepstakes.

Another reminder email, entitled ‘Friends let friends win’, was sent four days prior to the end of the sweepstakes to the database of people who had already entered to win, asking them to remind their friends to enter as time was running out.

Banner ads placed on highly targeted, game player web-sites. Crew Apparel

Taco Bell crew members received t-shirts with Xbox graphics and Taco Bell’s new “Think Outside the Bun” tagline copy and Xbox buttons, in order to gain their full support for the promotion. This also helped further promote awareness of the promotion at store level.

Publicity Taco Bell’s PR team partnered with Microsoft PR and took full advantage of press opportunities starting

with the partnership announcement and continued throughout both phases of the promotion. In order to sustain traffic counts into the phase two portion of the promotion, which began on October 19th,

Taco Bell publicized early phase one, Xbox prize winners in their top 16 markets. The objective was to showcase these early winners to help convince skeptical consumers that, “yes, people do win these prizes” and to encourage consumers to keep visiting Taco Bell in order to have a chance to win too.

A continually updated winners list was posted on the www.xbox .com website, in order to provide a reason for consumers to keep visiting the site (to see whether they had won) and to keep visiting Taco Bell in order to try to win Xboxes and other great prizes.

Publicity efforts included press release distribution of pre-Christmas holiday stories, satellite video news release, Broll distribution and featured quotes such as “I can’t believe I’m the only person in my town to own an Xbox.” This also set the stage for the Phase Two program, in terms of maintaining visit frequency.

Product Placement Taco Bell received in-game product placement in each of the Xbox game titles featured in the promotion.

Phase Two: Instant-Win Game (October 29 – November 25, 2001) Markets: U.S. and Puerto Rico Theme: “Xbox Scratch ‘Til You Win!” Instant-Win Game Theme Rationale: Consumer focus group research (concept pre-testing) elicited a lot of interest in the scratch off

theme and mechanic, due to its universal recognition and ease-of-use appeal. Instant win appeal ranked high among heavy QSR users.

Mechanics: With the purchase of a medium or large drink, Taco Bell consumers received an instant- win game piece,

affixed to their cups. With the purchase of a Chicken Quesadilla they received a handout game piece and with a Chicken Quesadilla combo meal purchase, consumers received two game pieces (one handout and one cup affixed).

The Instant Win Game Piece was unique in its design, giving consumers the perception of greater odds of winning, since they had to scratch off several prize boxes to determine whether they had won one of several possible prizes printed on the game card.

Mechanics Rationale: The scratch and win format was chosen based on focus group input. Focus groups indicated that they wanted

a simple game to play, with immediate gratification (i.e. instant win). The core target was less inclined to save game pieces to win prizes, hence, we purposely stayed away from continuity overlay tactics like collect and win games and second chance sweepstakes.

Game pieces were affixed directly to medium and large beverage cups, in order to maximize upsizing (especially critical for sit-down consumers, as Taco Bell offers free refills).

While free game pieces are available by mail (by law to provide an AMOE), consumers are more likely to order drinks to get their game piece if these are on the cup.

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Offering two game pieces with the featured combo meal provided an extra incentive to purchase this higher margin item.

Prizes: A wide variety of prizes and prize levels were offered, including consumer electronics, cash, a car, shopping

sprees, snowboarding equipment, and skateboarding equipment. The prize pool was designed to appeal to both the core target audience (males 18-24, heavy QSR) as well as the secondary Taco Bell target of adults 25+. Prizes were also selected which tied thematically to Xbox’s various video games (e.g. Tony Hawk Skateboarding) and were based on input from focus group respondents.

The Xbox itself remained the center piece prize for phase two, but this time, consumers would win four game titles with their Xbox prize.

Taco Bell food prizes were also included in order to provide favorable overall odds of winning (1:9), plus provide opportunities for repeat visits and attachment purchases from consumers redeeming.

Another part of our prize strategy was to avoid featuring a single “grand prize,” instead, all prizes were given fairly equal visual prominence, so that consumers would identify with the prize(s) that most interested them.

Communication Support:As per phase one, a fully integrated consumer and crew marketing communications campaign (fully leveraging Xbox graphics, logo and green and black colors/brand equities) was executed across multiple contact points for phase two:

P.O.P. Point-of-sale material was utilized to convince consumers to order medium or large (Cruiser Cup) drinks as

well as Chicken Quesadilla combo meals, in order to participate in the game (and to achieve Taco Bell’s promotion objectives). Messaging also played up the “millions of prizes” angle to create further excitement.

Packaging Promotional Cups featured “Scratch ‘Til You Win” theme name, “how to play” copy and had the instant-win

game piece attached to the sidewall. Promotional take-out bags also featured the game and listed prizes, in order to encourage repeat visits. Promotional trayliners communicated how to play information, plus what prizes consumers could win, to

enhance the in-restaurant eating/entertainment experience. Advertising

TV, print, radio, on-line media and interactive presence on www.xbox .com web site continued. The TV advertising concept developed featured “the hot new handheld” (i.e. Chicken Quesadilla) and

communicated the “Scratch ‘Til You Win” game, in order to drive consumers to Taco Bell. The interactive creative (Taco Bell Xbox on-line sweepstakes micro-site hosted on www.xbox.com) was

refreshed with phase two messaging also promoting the game and Chicken Quesadilla product. The Xbox web site continued to communicate winner status from phase one. Rich media emails, linking directly to the phase two Xbox/Taco Bell co-branded microsite, were sent on

October 30th to the database of names from phase one announcing the “Scratch ‘Til You Win” promotion. The broad audience appeal for “Scratch ‘Til You Win” was promoted on-line at CBS Sportsline with

superstitials, banners, pop-ups, and a HTML homepage unit to draw attention and clicks to the campaign.

RESULTS: To what degree were your objectives met for the category entered?

The promotion significantly exceeded all objectives:

Program Phase/Objective Goal Results Results vs. Goal IndexA. Phase One and Phase Two combined

Business/Financial

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1. PSA sales growth vs. YAG2. Chicken Quesadilla sales mix

Store participation vs. prior promotion

+ 3.0%6.0%

+ 3.6%

+ 7.4%10.5%

+ 7.7%

247175214

B. Phase One (On-line Sweepstakes) only Business/Financial

1. PSA sales growth vs. YAG2. Chicken Quesadilla sales mix

Consumer1. New e-mail addresses 2. Sweepstakes participation

+ 3.2%6.0%

250,0002.0%

+ 6.7%11.1%

575,4574.6%

209185

230230

C. Phase Two (Instant-Win Game) only Business/Financial

1. PSA sales growth vs. YAG2. Chicken Quesadilla sales mix

+ 2.9%6.0%

+ 7.7%10.2%

266170

Source: CREST Fast Trac, Taco Bell Mozart Internal Sales Reporting

SUMMARY: How did your promotion build the brand? Briefly sum up how your promotion meets the criteria of Originality, Execution, Results, and Building the Brand.

Originality: The tie-in with the launch of Xbox was original in that it deviated significantly from the QSR category norm of

aligning with major film properties. Allocating one Xbox per store in the prize pool was very original strategic thinking, in that it brought the promotion

down to the local store level, which is where a promotion either succeeds or fails. The utilization of both on-line and offline tactics were also unique in the QSR category and drove traffic to both the

promotional partner (Microsoft) and to Taco Bell. The on-line component also gave the consumer an opportunity to interact with Taco Bell in an exciting and relevant manner, demonstrating Taco Bell’s “Think Outside the Bun” philosophy. It also enabled the collection of consumer data, for possible use in future marketing efforts.

The early publicity winner(s) tactic designed to build upon traffic momentum achieved during phase one of this two-phased program was a very unique approach to keep them coming back while phase two of the program was running.

The multiple “never been done before” site takeovers to launch the campaign helped build credibility for the promotion and qualified leads to the web site.

Execution: All consumer, crew and franchisee communication materials leveraged the key equities of the Xbox brand,

including the signature green and black colors, Xbox logo (and in some cases, featured game titles), as a unifying umbrella for the total promotion effort.

The “road trip concept” creatively communicated the local market aspect of this promotion (i.e. that consumers could win an Xbox prize in every Taco Bell store). This secured participation among franchisees (who felt that their individual interests were being addressed by

the corporation) and provided a great consumer hook to encourage consumers to visit as many Taco Bells as often as possible.

The allocation of the prize budget for phase one to a high quantity of Xbox prizes versus offering a smaller number of higher value prizes enabled more consumers to win and hence increased participation.

The design of the instant win game ticket for the phase two, “Scratch ‘Til You Win” Instant-Win Game was instrumental in maintaining consumer interest, due to its high playability and teaser nature (i.e. several boxes to “keep scratching” before consumers find out whether they have won).

Results: The promotion exceeded its objectives on all measures as indicated above, and was judged a huge success by

both Taco Bell and Microsoft Xbox.

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Brand Building: Association with Microsoft Xbox launch provided a halo benefit reinforcing Taco Bell’s brand image as fresh,

relevant and innovative to their core target. The association also provided a natural means to further reinforce Taco Bell’s new campaign "Think Outside the Bun.” The video game tie-in promotion with Microsoft Xbox also provided a natural creative extension of Taco Bell’s “get the hot new hand held” messaging used in the preceding marketing module for Chicken Quesadilla.

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