Tuesday, December 2, 2008

Case study of Hill Holliday client - Dunkin' Donuts

By: Kaitlin Riddle, Steven Flick and Kelsey Kampschror

Meet the Organization

History of the organization

Dunkin’ Donuts was founded in 1950 by William Rosenberg in Quincy, Massachusetts. In 1946, Rosenberg began a company to provide lunches and snacks to areas of outer Providence, Rhode Island. He opened up his first coffee and donut shop soon after and opened the first Dunkin’ Donuts in 1950. The first franchise agreement was signed in 1955 in Worcester, Massachusetts. Dunkin’ Donuts, along with Togo’s and Baskin Robbins were owned by Allied Domecq. Pernod Ricard announced its completed acquisition of Allied Domecq in 2005. Pernod Ricard claims to be the “world’s number two in wine and spirits” and includes brands such as Glenlivet, Jameson’s, Kahlua, and Malibu rum (Pernod Ricard, 2008). Pernod Ricard segregated the three stores to create Dunkin’ brands. Currently, the Dunkin’ brands are owned by three firms, Bain Capital Partners, the Carlyle Group and Thomas H. Lee Partners in a wholly owned subsidiary (Dunkin’ Donuts, 2008).

Dunkin’ began as a quick snack and donut shop. The chain is currently attempting to realign the company with the coffee market and no longer just the donut market, that they had pigeon-holed themselves into.

History of the organization and its advertising agency

In late 2005, Dunkin’ Donuts employed Hill Holliday as their advertising agency. The new slogan “America runs on Dunkin’” has been called "the most significant repositioning effort in the company's 55-year-history" by Dunkin’ officials. “‘When we got together with Dunkin' Donuts, they were looking to say something big, simple, and declarative about what their brand was about,’ says Hill Holiday's senior vice president, Jeff Bonasia, who oversees the Dunkin’ account. ‘We thought about how the brand fits into people's lives and we used that idea to create a catch phrase.’” (Hoy, 2008) The partnership between Hill Holliday and Dunkin’ Donuts has been successful thus far. Dunkin’ Donuts was Hill Holliday’s largest client as of April 2006 (Hill Holliday, 2008). Hill Holliday has developed television, radio, print and out of home advertising for Dunkin’ Donuts.

Ownership

The majority of Dunkin’ Donuts stores, ninety-nine percent, are franchises (Schmidt & Oldfield). Dunkin’ offers franchisee opportunities to companies or individuals who are able to open five stores. In the past, Dunkin’ accepted franchisee’s who were only able to open one store. Now, Dunkin’ is planning to open many more franchises and expand. “Additionally, as a current franchisee told… anonymously, Dunkin’ Donuts allegedly prefers that level of investment because an owner of multiple stores pulls in greater profits per store than a solo store owner” (Bartleby, 2006). Currently, there are over 7,000 Dunkin’ Donuts worldwide with 5,600 of those stores in 36 states. “Dunkin’ Donuts has confirmed reports that it plans to add between 700 and 800 stores a year until it reaches a confidently aggressive goal of 15,000 locations in the United States. That would be sometime around 2016. If they’re successful, they’ll just about triple their presence, leaving few holes in the doughnut map” (Bartleby, 2006).

Franchising the Dunkin’ Donuts stores appears to be the result of an intended strategy since franchising the company began very early in its development. Since Dunkin’ is a wholly owned subsidiary being franchised does not have a big impact on the relationship with the advertising agency. Franchisee’s pay royalties to the companies that own Dunkin’ and these companies are the ones that have the relationship with Hill Holliday. The companies have control over the Dunkin’ name and who is allowed to be a franchisee, these tight reins do not allow for the franchisee’s to really have much input in the advertising.

Mission, Vision and other major goals

Dunkin’s mission statement is “Dunkin’ Donuts will strive to be the dominant retailer of high quality donuts, bakery products and beverages in each metropolitan market in which we choose to compete.”

Dunkin’ is already a leader in its market. Yet, it is not always dominant because other brands receive more respect from landlords and consumers than Dunkin’.

Objective

“The objective of Dunkin’ Brands is to be the Quick Quality leader in its industry, offering a higher evolution of the standard quick dining experience, with innovative product choices at the right price, served fresh, meeting the needs of people who are busy living.

To achieve this objective, the company is focused on three core strategies: 1) expanding the Dunkin’ Donuts brand nationally, 2) transforming Baskin-Robbins, and 3) growing internationally with focus and discipline”

Dunkin’ is undergoing a large expansion and has increased the level of advertising to coincide with their expansion. They have maintained their objective of “meeting the needs of people who are busy” through their advertising and understanding of their target market. Hill Holliday addresses the busy person who is not interested in a ten dollar cup of coffee through various television spots keeping in tune with Dunkin’s objectives.

Values

These are the core values of the Dunkin’ Donuts brand as per the website:
“Our internal compass points toward our Core Values of Honesty, Transparency, Humility, Integrity, Respect, Fairness, and Responsibility.
Honesty– You can always recover from the truth
Transparency– Share your thoughts without hesitation
Humility– It's about the team. Never lose sight of those who helped along the way or those less fortunate in our communities
Integrity– Character shows when no one is looking
Respect– Give people their dignity and earn others' respect
Fairness– Always do the right thing, especially when it is tough to do
Responsibility– Own the outcome whether it's good or bad
Together, our people, values, and decision-making strategy all point in one direction—up!” (Dunkin’ Donuts, 2008)

Dunkin’s values are represented through their charitable contributions and partnerships with teams like the Boston Red Sox. The value of respect resonates through their advertising because they respect their customers and will not condescend to them like some other coffee shops. Dunkin’s values seem to be maintained throughout the organization.

The objective of the company represents the overall business strategy of all three brands under the Dunkin’ name. The first and third goals resonate with the Dunkin’ Donuts section of the corporation and are currently being acted upon. The corporate philosophy is defined by the values held by the organization.

SWOT analysis

Strengths

Dunkin’ Donuts has an established reputation as a reliable quick service restaurant. This history and past has created loyal customers who remember the baker who said “it’s time to make the donuts.” There is a strong culture that has developed with the Dunkin’ brands.

Weaknesses

Dunkin’ donuts is not known as a coffee shop. It is known as a donut shop. It is making changes to reposition itself as a leader in coffee.

Opportunities

Dunkin’ Donuts has developed a strong position in the coffee market. With a name like Dunkin Donuts this could be seen as a threat, but Dunkin’ Donuts’ has the ability to adapt. There was clearly a gap forming in the coffee market and Dunkin’ was able to reposition itself in a way that it is no longer only considered a donut shop, now it is a competitor for Starbuck’s. Dunkin’s plan for expansion is a clear opportunity to get more stores that can service their customers. They are also expanding to regions of the U.S. where they do not currently have any real standing.

Threats

By repositioning itself as a coffee shop instead of a donut shop Dunkin’ has altered its main competition as well. Where its past competition included Krispy Kreme and mom and pop donut shops, it has now chosen to take on Starbucks, a monolith in the coffee market. Also, the expansion plan is taking the Dunkin’ Donuts franchise out of its “comfort zone,” which is the Northeast, Mid-Atlantic and other large metropolitan areas.

Financial Analysis

Dunkin’ Donuts reported Global system wide sales of $5.3 billion for 2007, even though it is a private and not publicly traded company. For the 2007 fiscal year, Starbuck’s reporter profits of $672.6 million (Harris, 2007). About two thirds of Dunkin’ Donuts sales are from coffee. Dunkin’s revenue has been on the rise, with reported revenue in 2003 of $408.5 million and $517 million in 2005. Overall, “US restaurant sales will rise 4.4 percent in 2008 compared to 2007, according to the National Restaurant Association, and is expected to be the 17th consecutive year of sales growth. Sales at full service restaurants are expected to rise 4.3 percent year-over-year; 4.4 percent at quick service” (Bramhall, 2008). This statistic is in line with Dunkin’s desire to open many new locations in the future.

In order to be a franchisee of five Dunkin’ stores a candidate must have a minimum liquidity of $750,000and have a net worth of $1.5 million (Dunkin’ Donuts, 2008).

Dunkin’s revenue comes from in store sales, a partnership with JetBlue airlines, retail coffee sales in supermarkets and franchise royalties. Currently, the expansion plan for Dunkin’ will lead to higher revenues and the company should focus on the sources of revenue it has currently. By overextending itself, or veering from its plan, such as when they tried to remodel stores to look like Starbuck’s, Dunkin’ could end up losing revenue. The current plan is acceptable for the growth and profits of the company at this time.

CEO

The president and Chief Brand Officer of Dunkin’ Donuts is Will Kussell. “Mr. Kussell earned bachelor's degrees in both history and sociology from the University of Pennsylvania before going on to receive his master's degree in business administration from Boston University.” He has worked for companies such as Reebok and Polaroid, but has been with Dunkin’ for the past 13 years. “Jon L. Luther, a 35-year veteran of the food-service industry, was named chief executive officer in January 2003 and chairman in March 2006. Luther is a proven leader at creative brand development and at satisfying consumers who seek quality, convenience, and value in a quick service restaurant (QSR) setting.” Paul Leech is the Chief Administrative Officer, Joe Scafido is the Chief Creative and Innovation Officer, Kate Lavelle is the Chief Financial Officer, Stephen Horn is the Chief Legal Officer and General Counsel, and Stephen J. Caldeira is the Chief Communications and Public Affairs Officer, these people make up the Senior Leadership of the Dunkin’ brand. (Dunkin’ Donuts, 2008)

External Analysis

On the outside looking in, it may seem as if the made-to-order retail coffee industry is one full of opportunities. Upon further inspection though, coffee entrepreneurs may want to look twice before making the decision to jump into the coffee business.

Porter’s Five Forces Model-- A Mixed Response

Buyer Power

Buyers are neutral when it comes to power according to Porter’s Five Forces model. The National Coffee Association reported in 2006 that 82% of Americans were coffee drinkers, and in addition, that 56% of Americans are daily coffee drinkers, up seven percent since 2004 (Wolfe, 2006). This would leave the impression that there is no true coffee connoisseur in America. Blue collar, white collar, poor or rich, people of all types are drinking coffee in America, which lessens the power of the consumer, since there is no true single voice representing them.

To further buyer weakness, it would be extremely difficult for a buyer to purchase a rival, the producer of the product, or a supplier of the company to try to gain a voice in the market. The majority of people do not have the type of capital that is involved to purchase a portion of a business or to start their own business up. Buyers do have some power though, and it is relatively powerful power.

Relatively speaking, coffee and specialty coffee have become relatively standardized products. Although each Starbucks, Dunkin Donuts, and the mom-and-pop shop down the street may have different names for their caramel frappuccino, the product is very similar (milk, ice, coffee, caramel, and whipped cream) (Manweiler, 2008). This gives buyers the ability to take their business elsewhere if prices are too high, customer service is poor, or for any reason that may lead them to try another business.

The standardization of made-to-order retail coffee products tips the balance of power scale back to a neutral status. Although it may have seemed that consumers are weak, the standardization of coffee products has allowed customers to choose cheaper outlets for their coffee products. This is part of the reason why Starbucks has brought back their “glory” time CEO, Howard Shultz. One of his goals as CEO again is to create new and exciting drinks to draw existing and new customers back into Starbucks (Helm, McGregor, & Hindo, 2008).

Supplier Power

Suppliers are relatively weak in the made-to-order retail coffee business. Although there are current attempts by the International Coffee Organization and its most recent agreement to help create a sustainable coffee market for farmers through private and government sectors (International Coffee Organization, 2008) suppliers in the coffee industry tend to have very little power. Many coffee bean farmers tend to be small producers and are poor. Although the fair trade movement of trying to get a fair price for coffee farmers (Fair Trade Federation, 2008) has tried to help fix this, it has not completely caught on yet as many customers are not willing to pay the cost of higher priced coffee down the line. In addition, because coffee farmers tend not to be wealthy, it is impossible for them to take part in vertical integration. This disadvantages the workers from making any cut of the producer’s profit.

Threats to New Entries, Substitutes and Rivalry

If one were to measure the amount of barriers to entry in the made-to-order coffee business using a PH litmus test, it would rank at about 13 out of 14. It is easy to point out that this is because of the rivalry and competition between the major competing coffee shops, but it goes beyond that. Looking at any menu with prices on it at a coffee shop, it is easy to see that the made-to-order coffee business is one that is based volume (even Starbucks). If a company does not have enough startup capital to market itself properly and therefore cannot draw constant traffic, the business will fail. In addition, because many independent individual stores and small chains buy beans and other miscellaneous supplies in smaller quantities compared to the “big guys” they have to pay a higher amount. This right there can shrink profits so much, that it is not even worth getting into the business.

Another barrier to entry is the high rivalry and the amount of substitutes that are currently in the market. Between local mom-and-pop shops to Caribou Coffee, there is duplication of drinks everywhere that range widely in prices. In addition, McDonalds has now announced that they are coming into the specialty coffee industry, which acts as a huge rock of competition to a brand like Dunkin Donuts that concentrates heavily on blue-collar workers. Moreover, as soft drink sales have declined, tea drinking has become the new trend, and tea shops are opening up across America (Chambliss, 2008).

Conclusion of Porter’s Five Forces Model

With the coffee market continually growing and Dunkin Donuts already in the middle of it, Porter’s model would suggest that Dunkin Donuts keep pushing their coffee brand. The market is ready for an inexpensive specialty coffee retailer, which is shown by Starbucks profits falling flat (The Economist, 2008). Although rivalry is high, especially with McDonalds coming into the market, which is sure to be competition, competitive pricing and an IMC plan will beat out McDonalds. Dunkin Donuts does need to be aware though of the high amount of substitutes and standardization of products, which is giving buyers some power as well as it could act as a barrier to entry in some markets that are already oversaturated. To balance any cost issues that may occur with expansion, with suppliers having little power, purchasing supplies at low prices should not be difficult.

Macro environment

Social/Culture

-Movement toward fair-trade coffee, which is increasing costs to the producer and consumer (Weber 2007).
-Unionization of Starbucks’ baristas (Starbucksunion.org, 2008) could down the line lead to a large baristas union, which eventually could lead to more costs for the company as workers ask for higher wages and more benefits.

Environmental

-In Brazil (the largest coffee supplier in the world) it is expected that rain will allow for the 2nd largest harvest on record. (Cordier, Gross, 2008) It is predicted that this will drive prices low, which could lead to cheaper costs for businesses.

Economics

-With consumers in the United States having less disposable income, higher priced specialty coffees may not be purchased as much.
-The higher cost of gas is causing an increase in shipping costs, which is causing higher prices for consumers.

Politics

The International Coffee Organization is trying to help regulate supply and demand of coffee nations to keep a stable coffee market. They are also working with private organizations to help get small farmers better prices on their coffee beans.

Macro environment conclusion

Other than cheaper beans, the macro environment seems to point to a disappointing outlook for the next year for growth of specialty coffees. With prices, looking to increase for consumers due to high gasoline costs it seems that consumers are just not going to be able to afford their typical specialty drinks. The ICO looks like it will also be putting pressure on private organizations to pay coffee farmers more money, which could also lead to higher prices for consumers.

Lifecycle of the product

It seems that the made-to-order coffee industry especially the specialty coffee industry has reached its mature phase. With the Specialty Coffee Association of America calling a conference to discuss its sustainability (2008), and the flattening growth for profits of the king of specialty beverages, Starbucks, it is obvious that the industry for now has reached its peak. The specialty coffee industry though has shown to be a dynamic one over the past 10 years. Starbucks has put not only itself on the map but is also credited for helping smaller businesses in the industry gain growth (Clark, 2007). With the recent excitement about McDonalds entering the market and Starbucks former CEO coming back, something big is bound to happen that will relight the fuse to something huge. Many are viewing the return of Howard Shultz as the same thing as when Steve Jobs returned to Apple and turned that company around.

Globalization

Coffee is becoming very popular in new places around the world such as the Middle East and Asia (Dunkin Donuts, 2008). When Howard Shultz retook over Starbucks, he immediately announced that a large amount of U.S. expansion money was going to be moved to international expansion (Helm, McGregor, & Hindo, 2008). Dunkin Donuts, has been concentrating heavily on international expansion, as it is based in 50 different countries currently (Dunkin Donuts, 2008). In fact, recently Dunkin Donuts opened up its 44th store in the United Arab Emirates (Bawaba, 2008). With an oversaturated and poor looking economy in the U.S. the global market seems the place to go for coffee businesses. Expect competition to heat up quickly as both companies begin to place stores by each other,

Starbucks also has one more thing driving them globally; they are traded publicly. With a stock that has been falling constantly (Helm, McGregor, & Hindo, 2008), Starbucks needs to find a way to please shareholders. Competing globally could be their way to generate more profit, pleasing shareholders.

Internal Analysis

Competitive Advantage

Currently Dunkin’ Donuts has a competitive advantage in its primary field of business, made-to-order retail coffee. Dunkin’ Donuts’ competitive advantage is that they are an efficient and innovative business that offers high quality service and products that fit their customers’ wants and needs.

Dunkin’ Donuts has continued to mange an efficient business; they get work done and are periodically coming out with new products and redesigning old products. One example of this is their new flavors and styles of coffee, including their new espresso and lattes. Another example is that Dunkin’ is known for always having high quality coffee and baked goods available for their customers, and prospective customers, at any point during their office ours. Dunkin’ Donuts also manages to practice an efficient business with the help of the three other generic building blocks of competitive advantage, quality, innovation and customer responsiveness.

Dunkin’ Donuts is known to provide high quality products for their well appreciated customers, especially coffee. For over five decades Dunkin’ Donuts has been known for brewing high quality coffee (Dunkin’ Donuts, 2008). In order to insure their customers that their coffee will always be of the highest quality, Dunkin’ has hired a “…team of experts [to] carefully oversee its coffee to ensure a consistently high quality cup.” (Dunkin’ Donuts, 2008). This team oversees the coffee from the beginning of harvest all the way to the last point, the cup they serve and consumption (Dunkin’ Donuts, 2008). Dunkin’ also explains on their website that through an intense program, entitled Tree-to-Cup, they can ensure the quality of their coffee. Through the Tree-to-Cup process each coffee bean must meet strict qualifications to be processed and become part of the high quality coffee Dunkin’ offers their customers. First Dunkin’ hires experts to pick the coffee cherries, the fruit that “the coffee bean” or seed comes from, making sure only the highest quality cherries are chosen. Next each bean goes through a strict process before it can be roasted; first each bean is cleaned, then each bean is stricken of defects and finally each one is classified on a list of qualities including size and color. After the beans are blended and roasted according to Dunkin’s specific recipe a “full sensory evaluation” takes place where experts taste test each batch of brewed beans, assuring that they meet specific quality standards. However, the process doesn’t stop there; even the brewing that takes place inside the Dunkin’ stores has specific instructions to insure the quality of their coffee. The Dunkin’ website also explains that although there are many steps in making a high quality cup of coffee, “If at any one stop along the journey from tree to cup, the bean doesn’t meet our tough standards, it won’t make it into a Dunkin’ cup,” (Dunkin’ Donuts, 2008).

Dunkin’ Donuts is not only efficient and of high quality, they are also great innovators. Within the past year Dunkin’ has decided to expand their business internationally, moving a coffee and donut store to Taipei, Taiwan. In 2007 Dunkin’ stated that they plan to open 100 more shops in Taiwan. What makes this move innovative isn’t that Dunkin’ is expanding internationally; but, they have also adapted the menu to fit Taiwan’s cultural tastes. The new Dunkin’ menu in Taiwan will include “…items that fit local tastes, such as sweet potato, green apple and pineapple doughnuts, and mochi rings – cake doughnuts indigenous to the region,” states an article in Boston Business Journal (Boston Business Journal, 2007). What is innovative about this move is that Dunkin’ has opened a brand new idea that includes a lot of potential, which means that none of Dunkin’s competition has done this yet. An example of how the Competition isn’t following in Dunkin’s footsteps is Starbucks. Right after Dunkin’ announced their plan to develop internationally Starbucks, Dunkin’s leading competitor, also decided to open franchises internationally, in China; but unlike Dunkin’ Starbucks will not be changing their menu. Dunkin’ Donuts has also won awards for their innovation in 2007 Dunkin’ announced that they would be receiving a 2007 MenuMasters Innovation Award for the Best Single Product Rollout category for its Sausage Supreme Omelet Breakfast Sandwich (Dunkin’ Donuts, 2007).

Dunkin’ Donuts is not only a great business because of their efficiency, quality and innovation; they are also very aware of their customers’ wants and needs and respond accordingly. Just less than a year ago Dunkin’ announced that they had developed a new oil to drop trans fat in over 50 items on the menu, including doughnuts. Dunkin’ developed this oil as a response to customers who were looking for the same high quality baked goods and coffee that Dunkin’ offers, but with lower trans fat (USA today, 2007). Another example of Dunkin’s responsiveness toward their customers, and prospective customers, is how they were willing to change the menu for the cultures of the areas in which they are expanding, like the shops they are opening in Taiwan. Willing to change for their customers in order to keep them happy insures that Dunkin’ will always live up to their customers’ expectations, low prices and fast service with high quality products.

Company Competencies

Dunkin’ Donuts’ main competencies are their ability to listen to their customers’ wants and needs, their consistently high quality products and fast service, and their consistency in keeping their prices lower than the competition. Past strategies that Dunkin’ has used to communicate their competencies have included letting customers and prospective customers know that their service is quick and efficient, their coffee and baked goods are of high quality, and their prices are low. These strategies have been consecutively been built on the competencies of the company. Through these strategies Dunkin’ has established a firm relationship with its loyal customers by ensuring them traditional, high quality products, fast service and low prices, but most of all they have ensured their customers that they will always be different, and better than the competition, Starbucks. Dunkin’ Donuts’ current campaign, “America Runs on Dunkin’” is a campaign that they are currently using to help show their loyal and potential consumers their competencies. This campaign is targeted really well toward the specific target market that Dunkin’ is looking for and really shows that their business is efficient, of high quality, and responsive to their customers’ wants and needs. The campaign does this by showing the target market that their coffee is of high quality, is easy to understand, their service is of higher quality than the competition and faster and their prices are lower. Through this campaign Dunkin’ shows their consumers that they are better than the competition by providing an “average joe coffee shop,” a shop that isn’t pretentious and stuck up.

Dunkin’ Donuts’ main competition comes from another coffee shop, Starbucks. Starbucks, a more up-scale coffee shop that “…is the world’s leading retailer, roaster and brand of specialty coffee…” (Starbucks, 2008), is much different than Dunkin’. Starbucks, who may have a hand on specialty coffees and may be Dunkin’s competitor, does not have a hand on the quality and type of coffee and service. As stated in an article by Janet Adamy, according to the research done when Dunkin’ paid Starbucks drinkers to buy Dunkin and vice versa, loyal Dunkin’ Donuts customers say they view Starbucks as “…pretentious and trendy” (Adamy, 2007). This view of the two different stores having very different atmospheres is a very large barrier for Starbucks when they try to imitate Dunkin’ Donuts.

Ability to Adapt to Changes

As society and industry changes occur Dunkin’ has proved that they can change as well. A perfect example of this was mentioned earlier in the paper; in 2007 when Dunkin’ announced they had developed a new oil to make over 50 of their menu items trans fat free (Dunkin’ Donuts, 2007). However, this is one small example, and when faced with other industry and society changes Dunkin’ may or may not have trouble.

Role of Advertising

Currently Dunkin’ is using a slogan of “America Runs on Dunkin’” and has advertisements that accentuate the traditional American aspect of Dunkin’ Donuts. An example of the characteristics that Dunkin’ is viewing as traditionally American, are the words and languages that Dunkin’ and their competition use to name the size of their product. Dunkin’ would use English words like Large and Small, while the competition would use words of European languages like Tall and Dulci. The different advertisements showing these differences between Dunkin’ and Starbucks also accentuate the different competitive advantages that Dunkin’ posses, efficiency, quality, innovation and customer responsiveness.

Business-Level Strategy

Products Offered


Dunkin’ Donuts offers a variety of products to its customers. In the most part Dunkin’ Donuts offers baked goods and coffee, these products include over 50 different types of donuts, over a dozen different flavored coffees and a variety of bagels and breakfast sandwiches. All of these products help to differentiate Dunkin’ Donuts from their competition, however Dunkin’ Donuts’ coffee, above all, is what makes Dunkin’ different. Dunkin’ Donuts is a company known to serve high quality coffee every day all day. Currently Dunkin’ Donuts sells at least 30 cups of coffee a day and, “…is America’s largest retailer of coffee-by-the-cup,” (Dunkin’ Donuts, 2008). This high quality coffee that Dunkin’ offers is the main appeal of Dunkin’ Donuts.

Distinctive Competencies

Dunkin’ Donuts has many competencies; however they tend to focus on just a few; efficiency, quality and making sure they are responsive to customers. They do this through many strategies, which are ensuring high quality products, efficient service, and low prices.

Generic Business-Level Strategy

Dunkin’ Donuts offers high-quality baked goods and coffee and has done so consecutively through the years. Dunkin’ Donuts is also known by their customers to offer high quality food and coffee at a decent price, where other businesses are much more expensive for the same, and lower quality products. But, most of all Dunkin’ Donuts is known for their fast paced and efficient business; they never make their customers wait for hours to get what they came for, like the competition. Dunkin’ works hard to make sure that their products are of high quality, that they don’t make their customers wait too long, and that their prices are low, they do this to make sure that their customers know that Dunkin does not leave heritage behind. By this they mean that, unlike other businesses, their coffee will not change and will always be for the American people (Van der Does, 2007). They work hard to establish trust with their customers by making sure their coffee is made fresh, of the highest quality, and is ready to go quickly at a reasonable price. The advantages of the business-level strategy that Dunkin’ has chosen to use are many. Frequent customers know that they can rely on Dunkin’ for high quality coffee without worry of waiting, spending too much money and not having the ability to pronounce the name of the coffee they want.

Having a business-level strategy like quality, speed and price it offers customers a chance to trust the company and most likely they will become loyal. The disadvantages of this is that prospective customers may not be willing to give Dunkin’ a chance, knowing that the prices are low and the business is fast they may believe that the product isn’t as high quality that everyone seems to believe that it is.

Competitive Strategy

After extensive research Dunkin’ Donuts has developed a new competitive strategy that entails them going directly after the competition, Starbucks. First step that Dunkin’ Donuts took was to pay over a dozen loyal Starbucks customers $100 a week to get their coffee from Dunkin’ Donuts and paid the same amount to loyal Dunkin’ customers to make the same switch and drink Starbucks instead. The conclusion of this experiment found that each of the groups hated the coffee shop they were not loyal to, “Dunkin’ fans viewed Starbucks as pretentious and trendy, while Starbucks loyalists saw Dunkin’ as austere and unoriginal,” (Adamy, 2007). As a conclusion Dunkin’ has decided to add espressos and lattes to their menus and redesign their stores to resemble a Starbucks, but at the same time make the shop feel like a Dunkin’ Donuts.

Dunkin’ is updating the store, adding music, and even considering allowing their customers to text message in their orders, but at the same time they are trying to stay speedier and cheaper than their leading competitor, Starbucks (Adamy, 2007). However, this competitive strategy may not work; the point of a Brand is to differentiate itself from other brands. This means that making Dunkin’ more like the competitors is not making themselves different from Starbucks. Dunkin’ should focus more on the fact that they are faster, cheaper, of higher quality and more efficient than the competitor. Instead of trying to redesign the store to make Dunkin’s image to appear more like the competition. Dunkin’ should also continue to focus on the fact that over the years they have been able to provide the same high quality coffee for cheap prices plus new products. Dunkin should continue to focus on the fact that they are very different from Starbucks and continue to remind their loyal customers of that fact.

Products and Target Markets. Marketing issues and Business-level Strategy

In a story by Stephen Rodrick in New York Magazine (2005), John Gilbert, Vice-President of Marketing for Dunkin Donuts, talked about how Dunkin Donuts segments their customers. According to the story, Dunkin Donuts segments their consumers based on what type of “occasion” they are in when going to get coffee. Gilbert says,

“Coffee drinkers have occasion and non-occasion coffee stops. Let’s say there’s a professor on the way to the gym. He pops in for a quick cup of coffee: That’s a Dunkin’ occasion. He might not be able to get in and out of a Starbucks quick enough. Now there might be another time where he has an hour before a meeting and he might end up at a Starbucks.”(Rodrick, 2005)

This psychographic (behavioral) type of segmentation is where Dunkin stands out with their strategy over competitors such as Starbucks. Dunkin is looking for markets where consumers just want that quick and consistent type of coffee.

By 2020, Dunkin Donuts is looking to open 15,000 stores, almost three times more than the current amount of stores they have in the United States. A large amount of this push is happening in medium to large cities such as Birmingham, Jacksonville, and Buffalo (Cooper, 2007). Internationally, according to Michael Correletti, international business manager for Dunkin Donuts, Dunkin’s target audience is 18-30 (Mathieson, 2007). Specifically in the United States, based on its current and prior advertising campaigns, Dunkin’s target audience is people aged 24 to 36. Although Dunkin has tried to target a secondary younger audience with an MTV campaign in 2003 (Dunkin Donuts, 2003), Dunkin since then has heavily concentrated on people who are 24 to 36 years of age.

Dunkin’s target audience after age can then be divided into two types of workers blue-collar and white-collar. In the commercial “Lefty Loosy” blue-collar workers are seen humming along to a song while drinking their simply made black coffee. Other commercials such as “Alarm Clock Catastrophe” and “Fritalian” are aimed at the “run-of-the-mill” white-collar worker. These people are middle-income office workers who probably are low-level managers or just regular workers. Dunkin pushes the idea of targeting your “average joe” by having its coffee in the commercials being served in the traditional Styrofoam cup. Race wise, these commercials have actors or actresses that represent every major race, African-American, Asian, Caucasian, and Hispanic.

The race card has important significance within the Dunkin Donuts commercials in relation to their target audience. Cities typically have high diversity numbers, so when people are all shown in what can be assumed as the same relative geographic area, having people of different races shows that Dunkin is targeting the city market. Moreover, the race card helps Dunkin’s message stick to its target audience. With Dunkin having such a large target audience, it may be hard for their message to stick. By using people of different races, viewers of the commercials may have an easier time having a personal connection with the brand or product.

As mentioned in the previous section, Dunkin paid Starbucks users $100 a week to purchase coffee from Dunkin and vice versa for Dunkin users. The responses that came from this study as well as comments from around the internet tell a simple picture, a person is either a loyal Starbucks user or a loyal “other” (Dunkin Donuts, Seattle Best, etc.) user. What is extremely interesting is the loyalty in some cases for Starbucks is beyond reason and education. For example, users on a Yahoo message board (Yahoo Answers, 2008) have posted comments asking why a person would choose anything but the “good stuff.” However, if these users had done their research they would have realized that Dunkin Donuts sells more cups of coffee than any other company in the world (Hoy, 2006).

The same loyalty beyond reason can be extended in some instances toward Dunkin Donuts as well. In the previously mentioned study, Dunkin Donut users were adamant about the fact that they felt Starbucks was about being pretentious and upper class. Dunkin users liked the fact that when they walked into a Dunkin Donuts they knew they were going to get a fast coffee product that they could depend on having the same consistent taste they enjoyed.

Dunkin Donuts is doing exactly what Starbucks did to try to make people aware and interested in its brand. Depending on the market, consumers are across the board on whether or not they are aware, interested, evaluating, in a trial period, or have adopted the brand. Because of this, Dunkin has adopted the marketing strategy of saturation. The idea behind this is that a person will eventually move up each level of adoption because Dunkin Donuts will be in front of them daily. According to the Rodrick article, Dunkin Donuts in New York City wants one store for every 6,000 people (2005). With New York City having a population around eight million that means Dunkin Donuts is shooting for approximately 1,333 stores in the New York metropolitan area. According to John Moore, a former Starbucks marketing executive and now the president of Brand Autopsy (marketing consulting firm), Dunkin realizes it does not have a product with a lot of pizzazz and therefore the only way people will go to it is if it is convenient (Rodrick, 2005). He believes that Dunkin is making the right move to saturate itself to attract people to its business.

Beyond convenience, Dunkin Donuts is hoping people will come over to their stores based on two other things: consistency and anti-conformity. The previously mentioned “Fritalian” commercial points out the anti-conformity perfectly. The cool thing to do for many years has been to go to Starbucks because of the idea that speaking “foreign” words makes a user sound more intellectual. Dunkin Donuts in the “Fritalian” commercial takes a jab at Starbucks, by saying that Dunkin Donuts has what those upper class coffee shops have but Dunkin is less pretentious. When it comes to consistency, Dunkin Donuts lives on automated machines. The idea of each store is to give each consumer the same quick and consistent drink no matter when and where it’s ordered.

Brand and Positioning! Marketing Issues and Business-Level Strategy

Brand Image and Slogan

The brand image of Dunkin’ has been going through repositioning. With the help of Hill Holliday, Dunkin’ has repositioned itself from a place to solely get donuts, and it has now become a leader in American coffee sales. Dunkin’ Donuts new and current slogan is “America runs on Dunkin.’” The touch points range from television ads and sponsorships to print ads and billboards. The touch points remain consistent through the message that Dunkin’ is the coffee antithesis of Starbuck’s. At one point Dunkin’ tried to position itself as a direct competitor to Starbuck’s and even went as far as to redesign their stores with couches and fireplaces. The backlash was clear. Dunkin’ customers were not the Starbuck’s type. Now Dunkin’ is established as a place to get good, inexpensive coffee quickly. They have done away with the couches and are now trying to install more drive-thrus for customer convenience.

Brand Personality

Dunkin’ has adopted a personality of sincerity. In one television spot consumers are standing in a coffee shop, clearly meant to represent Starbuck’s, and the consumers are struggling to pronounce the drink names and sizes. They begin to sing in unison about whether or not the words are French or Italian, finally deciding that it must be "Fritalian." These consumers do not want false promises or arrogance from their coffee; they just want a cup of coffee on the way to wherever they have to be. They do not want to be chided for not being able to order a venti mocha chai tea concoction. Dunkin’ does offer options other than plain coffee, but they do it with sincerity. They do not talk down to their consumers, they know that they are busy and respect their time. Dunkin’ is sincere in their desire to provide great coffee to consumers, on the consumers’ terms.

Positioning Statement

Dunkin’ Donuts is an unpretentious, quick place to get good, inexpensive coffee for people on the go who realize coffee is a drink, not a lifestyle.

What communication tools

Dunkin’ Donuts is a sponsor of “Randy Jackson’s America’s Best Dance Crew,” on MTV. The dance crews and judges regularly imbibe Dunkin’ coffee to keep them going. This touch point is clearly aimed at younger consumers, who are on the brink of becoming heavy coffee drinkers. They may be junior high or high school students, or even college kids. Soon they will be drinking coffee daily, on their way to class or to their new careers and Dunkin’ is trying to reach them, before they can be pulled in a different direction.

Dunkin’ Donuts has aimed their television spots at an older crowd. These are the harried mothers, or office workers who want to stop for a quick, good cup of coffee and to continue about their day. The “Fritalian” spot speaks to these consumers, but still expresses the same brand message and positioning.

Dunkin has also partnered with JetBlue airlines, to serve Dunkin’ brand coffees and teas on all flights. The partnership maintains Dunkin’s values and objectives because JetBlue is an airline focused on “value, service and style” (Dunkin Donuts, 2008).

Recap

The goal of Dunkin’ Donuts is to be the “Quick Quality leader in the industry.” It is in the midst of a repositioning effort, in which it wants to expand beyond the donut market and become a leader in the coffee industry. Dunkin’s strategy is to change the perspective of consumers to view it as the leader of coffee per cup sales that it actually is. Along with this strategy it wants to develop a stronger hold in the specialty coffee market without alienating its current customers.

Dunkin’ is developing many opportunities as a brand. It has grown into a worldwide organization that is expanding to countries such as China and the United Arab Emirates. It has also begun to retail its coffee in supermarkets to keep up with the coffee competition. Dunkin’ is currently faced with new competition as it enters the coffee market and tries to expand its market share. It must face the restriction of its name and the perception of consumers that it is just a place for donuts, even though it is a leader in coffee sales.

Dunkin’ is a growing organization that is trying to increase its brand awareness through saturation of the market. Its growth rate is on par to put it in line with its new competition, Starbuck’s. Dunkin’ wants to become the only coffee stop to compete with Starbuck’s, with the overall goal of being the number one non-occasion coffee stop. If Dunkin’ continues its profitability and growth rate as projected it will become the leader in its market.


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