CHAPTER 7 Customer-Driven Marketing Strategy: Creating Value for Target Customers 227 uneasy in Dunkin' shops. "The Starbucks people couldn't bear that they weren't special anymore," says the ad executive. Such opposing opinions aren't surpris- Ing, given the differences in the two stores' customers. Dunkin's customers include more middle-income blue- and white-collar workers across all age, race, and income demograph- Ics. By contrast, Starbucks targets a higher Income, more professional group. But Dunkin' researchers concluded that I was more the ideal, rather than income, that set the two tribes apart: Dunkin's tribe members want to be part of a crowd, whereas members of the Starbucks tribe want to stand out as individuals. "You could open a Dunkin' Donuts right next to Star- bucks and get two completely different types of consumers," says one retalling expert. Over the past several years, both Dunkin' Donuts and Starbucks have grown rapidly, each targeting its own tribe of customers and riding the wave of America's growing thirst for coffee. Now, both are looking for more growth by con- vincing "grab-and-go" morning customers to visit later in the day and stick around longer. Although still smaller than Starbucks-which captures a 33 percent U.S. market share versus Dunkin's INKIN ONUTS ON DUNK Psychographic segmentation: Dunkin' Donuts successfully targets the "Dunkin' tribe"- not the Starbucks coffee snob but the average Joe, Dunkin' Donuts isn't like Starbucks-it doesn't want to be." Getty Images News Real Marketing 7.1 A few years back, Dunkin' Donuts pald doz- ens of faithful customers in Phoenix, Chicago, and Charlotte, North Carolina, $100 a week to buy coffee at Starbucks Instead. At the same time, the no-frills coffee chain paid Starbucks customers to make the opposite switch. When it later debriefed the two groups, Dunkin' says It found them so polarized that company re- searchers dubbed them "tribes," each of whom loathed the very things that made the other tribe loyal to their coffee shop. Dunkin' fans viewed Starbucks as pretentious and trendy, whereas Starbucks loyalists saw Dunkin' as plain and unoriginal. "I don't get it," one Dunkin' regular told researchers after visiting Starbucks. "If I want to sit on a couch, I stay at home." Dunkin' Donuts is rapidly expanding into a national coffee powerhouse, on par with Star- bucks, the nation's largest coffee chain. But the research confirmed a simple fact: Dunkin' is not Starbucks. In fact, it doesn't want to be. To succeed, Dunkin' must have its own clear vision of just which customers it wants to serve and how. Dunkin' and Starbucks target very different customers, who want very different things from their favorite coffee shops. Star- bucks is strongly positioned as a sort of high- brow "third place"-outside the home and office-featuring couches, eclectic music, and art-splashed walls. Dunkin' has a decidedly.. more low-brow, "everyman" kind of appeal. Dunkin' Donuts built itself on serving simple fare at a reasonable price to working- class customers. It gained a reputation as a morning pit stop where everyday folks could get their daily donut and caffeine fix. But re- cently, to broaden its appeal and fuel' expan- sion, the chain has been moving upscale-a bit, but not too far. It has spiffed up its stores and added new menu Items, such as lattes and non-breakfast items such as breaded chicken sandwiches with barbeque sauce. Dunkin' has also made dozens of store and atmosphere redesign changes, big and small, ranging from adding free Wi-Fi, digital menu boards, and more electrical outlets for lap- tops and smartphones to playing relaxing background music. Dunkin' franchisees can now redecorate in any of four Starbucks- esque color schemes, Including "Dark Roast," "Cappuccino Blend," and "Jazz Brew," which features "dark orange and brown cozy booth seating, as well as hanging light fixtures that Dunkin' Donuts: Targeting the Average Joe lend a soft glow to wall murals printed with words such as 'break,' 'fresh' and 'quality"." However, as It Inches upscale, Dunkin' Do- nuts is being careful not to allenate its traditional customer base. There are no couches in the re- modeled stores. Dunkin' even renamed a new hot sandwich a "stuffed melt" after customers complained that calling it a "panini" was too fancy; it then dropped it altogether when faith- ful customers thought it was too messy. "We're walking [a fine] line," says the chain's vice presi- dent of consumer insights. "The thing about the Dunkin' tribe is, they see through the hype." Dunkin' Donuts' research showed that, although loyal customers want nicer stores, they were bewildered and turned off by the atmosphere at Starbucks. They groused that crowd of laptop users t difficult to find a seat. They didn't like Starbucks' "tall," "grande," and "venti" lingo for small, medium, and large coffees. And they couldn't under- stand why anyone would pay so much for a cup of coffee. "It was almost as though they were a group of Martians talking about a group of Earthlings," says an executive from Dunkin's advertising agency. The Starbucks custom- ers that Dunkin' paid to switch were equally 228 PART 3 Designing a Customer Value-Driven Strategy and Mix 16 percent share-Dunkin' is currently the na- tion's fastest-growing snack and coffee chain. It hopes that the recent repositioning and upgrades will help keep that momentum going. Dunkin' plans to double its number of U.S. stores by 2020. However, in refreshing its stores and posl- tioning, Dunkin' Donuts has stayed true to the needs and preferences of the Dunkin' tribe. Dunkin' is "not going after the Starbucks coffee snob," says one analyst, It's "going after the ay- erage Joe." So far so good. For seven years run ning, Dunkin' Donuts has ranked number one in the coffee category in a leading customer loyalty and engagement survey, ahead of number-two Starbucks. According to the survey, Dunkin' Do- nuts was the top brand for consistently meeting QUESTIONS 1) How would you describe Dunkin' Donuts' approach to market segmentation? What bases of segmentation do you think they used? (25 points) 2) Describe the target markets for Dunkin' Donuts and Starbucks respectively. Try to portray both target groups by picturing a typical member of the "Dunkin' Tribe" and the "Starbucks Tribe". How does he/she dress? In what type of neighborhood does he/she live? What kind of job might he/she have? What kind of vehicle does he/she drive? What might be his/her attitude toward spending money? What key differences can you find, and how are they important to Dunkin' Donuts? (25 points) 3) What are the key points of differentiation for Dunkin' Donuts and Starbucks respectively. Write a positioning statement for both Starbucks and Dunkin' Donuts. (25 points) 4) If Dunkin Donuts used the same segmentation, targeting, positioning approaches in Turkey, do you think they would be successful? Why? Why not? (25 points) or exceeding customer expectations with re- spect to taste, quality, and customer service. Dunkin' Donuts' targeting and positioning are pretty well summed up in its popular ad slogan "America Runs on Dunkin'." No longer Just a moming pit stop, Dunkin now bills itself as America's favorite all-day, everyday stop for coffee and baked goods. "We remain commit- ted to keeping America running with our great coffee, baked goods, and snacks served in a friendly environment at a great value," says Dunkin's chief global marketing officer. Noth- ing too fancy-Just meeting the everyday, all- day needs of the Dunkin' tribe. Sources: Quotes and other Information from Leslle Patton, "Dunkin' Donuts Adds Jazz to Get Less Pit and More Stop, Bloomberg Bustriessweek, June 7, 2013, www.bloomberg.comews/2013-06-07/dunkh-donuts-adds-jazz- to-get-lese-pilt-and-more-stop.html; Lesile Patton, "Starbucks Tums to Happy Hour to Bring in More Trafflo," Bloomberg Businessweek, February 1, 2012, www.businessweek.comews/2012-02-01/starbucks-turns-to-happy-hour-to- bring-in-more-treffo-retail.html; Janet Adamy, "Battle Brewing: Dunkin' Donuts Thes to Go Upscale, But Not Too Far;" Wall Street Joumal, Apill 8, 2008, p. A1; "Brand Keys Ranks Dunkin' Donuts Number One In Coffee Customer Loyalty and Packaged Coffee Customer Loyalty February 19, 2013, http:/ews.dunkindonuta.com; and www.dunkindonuts .com, and www.dunkinbrands.com, accessed September 2014