Successful ‘In-N-Out Burger’ Through Market Segmentation

Market segmentation is the way a company analyzes to target a specific market. There are two issues to consider first for market segmentation and target market selection. The first is how to segment and select the target market, and the second is what to do in the target market so that the company can continue growing.

First, there are many specific methods for market segmentation and target market selection. Still, the basic principle of segmentation is to select a market that is most advantageous to a company as a target by considering two market components. The two components of a market are potential customers and competitors. It is necessary to identify the needs of potential customers and select a call that can convert them into actual customers by satisfying them through comparative advantage with competitors as the target market. One thing to keep in mind here is that it is necessary to segment the unmet needs of potential customers and competitors. Through this segmentation, the company secures a target market that can satisfy customers’ needs with a competitive advantage. In this way, even if the market share in the overall market is insignificant, it can enjoy the position of the №1 company in the segmented and selected target market.

The second task is to set the direction for further growth after achieving desired results in the target market. Once you’ve succeeded in your target market, it’s part of how establishing a growth strategy. Even large corporations tend to start with small and medium-sized enterprises (SMEs). Depending on how well you manage your target market and how you set up and execute growth strategies, you may remain a small business or grow into a large company. Or, there are a lot of companies that are being kicked out of the market altogether.

There are many ways to grow, but let’s look at the case of IN-N-OUT BURGER, a famous hamburger company that met the core needs of customers in the existing market and continued to grow based on this. ‘In-N-Out’ started out as a single store 70 years ago and now has 380 stores, 27,000 employees, and annual sales of over $1 billion. How did ‘In-N-Out Burger’ become a legendary hamburger company loved by customers?

Harry Snyder and his wife opened a hamburger joint in Baldwin Park, Southern California, in 1948. The name of this store is ‘In-N-Out Burger.’ At the time, there were many strong competitors in the hamburger industry. The reason why ‘In-N-Out Burger’ continued to grow despite its limited workforce and financial strength was that it had several operational strategies that were different from its competitors.

First, ‘In At, Out’ insisted on the freshness of all hamburger ingredients as the highest standard. Because of this standard, most of the elements were purchased from the area close to the store, and even the hamburger buns were only made on the same day. In addition, beef for patties must be delivered to the store within 48 hours from the distribution center, and the meat is only refrigerated and never frozen. The Snyders recognized that this freshness was an unfulfilled need that customers wanted. No other competing hamburger companies could compare to ‘In-N-Out’ in freshness then and now.

Second, ‘In-N-Out’ was the first company to introduce the Drive-In system due to minimal human and financial resources. This method has been instrumental in opening second and third stores with highly efficient customer service. Also, until now, ‘In-N-Out’ insists on being a privately owned company and rejects the franchise operating system. The reason is that absolute control of the company is necessary for consistent quality control and the best customer service.

Third, the Snyders put a lot of effort into maintaining a smooth relationship with the employees for a stable store operation. It created a family-like labor-management relationship. What is truly remarkable is that three of the employees who worked between 1948 and 1950 remained part of In-N-Out until 2010. The Snyder couple’s philosophy has been inherited as the corporate philosophy of ‘In-N-Out,’ and even now, the average employment period of executives and employees is the longest among hamburger companies.

Fourth, the Snyders believed that the satisfaction of their existing customers was a decisive factor in their success. They practiced thoroughly checking and executing all the elements that could satisfy customers and analyzing the results. In particular, the product manufacturing method, which was written by the founder Snyder by emphasizing the importance of quality, is called the ‘In-N-Out’ Bible and is cherished in the head office cabinet.

‘In-N-Out’ used its unique growth strategy for continued growth. Rather than trying to grow by increasing the number of stores, ‘In-N-Out’ chose to grow slowly but systematically by generating the highest possible sales at existing stores. Absolute love from customers and word of mouth made this growth method possible.

In-N-Out is one of the few fast food companies to be praised for its health and care for its employees. In addition, world-famous chefs such as Julia Child and Anthony Bourdain introduced ‘In-N-Out Hamburger’ through their social media. Therefore, opening the ‘In-N-Out’ store became a local event. For example, when an In-N-Out store opened in Scottsdale, Arizona, customers waited four hours, and TV helicopters filmed it over the store’s parking lot.

The strategy of providing fresh hamburgers with the best service is praised by customers and has the advantage that competitors cannot imitate, but at the same time, it is also a weakness that prevents rapid growth. This is because of the limitation of refrigerated distribution of fresh beef for patties. There are many constraints on supplying beef for cakes to stores within 24 or 48 hours from the distribution center. So, to date, only six states have In-N-Out stores, and 69% of the total 380 stores are still concentrated in California. However, ‘In-N-Out’ can be an excellent example of a teacher, on the other hand, when looking at the cases of many companies failing due to excessive confidence and unrestrained growth strategies.

Choonghwan Park / Former USC Chair Professor