Understanding Dunkin’ Donuts Market Segmentation and Positioning Strategy

Case Study 1

Dunkin’ Donuts

A few years back, Dunkin’ Donuts paid dozens 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 researchers dubbed the “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.

Most Dunkin’ customers were just looking for a good cup of coffee and didn’t want an upholstered chair to sit in when they drank their coffee. They did not understand the sense of community Starbucks’s was trying to create. Dunkin’ Donuts is rapidly expanding into a national coffee powerhouse, on par with Starbucks, 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. Starbucks is strongly positioned as a sort of highbrow “third place,” with (the first two being the home and office) couches, eclectic music, and art-splashed walls. Dunkin’ has a decidedly more lowbrow, “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 recently, to broaden its appeal and fuel expansion, 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 laptops and smartphones to playing relaxing background music. Dunkin’ franchisees can now redecorate in any of four Starbucksesque 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 lend a soft glow to wall murals printed with words such as ‘break,’ ‘fresh’ and ‘quality’.”

However, as it inches upscale, Dunkin’ Donuts is being careful not to alienate its traditional customer base. There are no couches in the remodeled 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 faithful customers thought it was too messy. “We’re walking [a fine] line,” says the chain’s vice president of consumer insights. “The thing about the Dunkin’ tribe is; they see through the hype.” Dunkin’ Donuts’s research showed that, although loyal customers want nicer stores, they were bewildered and turned off by the atmosphere at Starbucks. They groused that crowds of laptop users made it difficult to find a seat. They didn’t like Starbucks’s “tall,” “grande,” and “venti” lingo for small, medium, and large coffees. And they couldn’t understand why anyone would pay so much for a cup of coffee.

It was clear the Dunkin’ customers not only felt uncomfortable going to a Starbucks’s, but they did not understand the concept. The Starbucks customers that Dunkin’ paid to switch were equally 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 surprising, 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 demographics. By contrast, Starbucks targets a higher income, more professional group. But Dunkin’s researchers concluded that it 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’s tribe want to stand out as individuals.

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 convincing “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 16 percent share—Dunkin’ is currently the nation’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 positioning, Dunkin’ Donuts has stayed true to the needs and preferences of the Dunkin’ tribe. So far so good. For seven years running, 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’ Donuts was the top brand for consistently meeting or exceeding customer expectations with respect to taste, quality, and customer service. Dunkin’ Donuts’s targeting and positioning are pretty well summed up in its popular ad slogan “America Runs on Dunkin’.” No longer just a morning pit stop, Dunkin’ now bills itself as America’s favorite all-day, everyday stop for coffee and baked goods. Nothing too fancy—just meeting the everyday, all-day needs of the Dunkin’ tribe.

Source: Kotler, P., Bowen, J. T., Makens, J. C., & Balogglu, S. (2017). Marketing for Hospitality and Tourism (7th ed.). Harlow, England: Pearson Education Limited.

Question 1

Explain the process of market segmentation in designing a customer-driven marketing strategy for Dunkin’ Donut.           (20 marks)

Question 2

‘To succeed, Dunkin’ must have its own clear vision of just which customers it wants to serve and how’. Elaborate the positioning strategy implemented by Dunkin’ Donut to its target market.                    (15 marks)

Question 3

In January 2019, Dunkin Donuts dropping "Donuts" from its name and sporting some spiffy new branding. However, they are still be offering a variety of doughnuts and plenty of coffee. Discuss THREE (3) reason for Dunkin repositioning its marketing strategy and does its target market affected by the decision.                        

Case Study 2

COVID’s Impact on Malaysia’s e-commerce Market

When the MCO was imposed, many in Malaysia began adapting by working and studying from home. According to the Malay Mail7, many businesses have been equipping their workers with laptops while schools are inquiring about expanding their online capabilities for teaching and delivering virtual classes. For those working in essential services, such as banking, split work arrangements have been adopted. At least half of the banks’ staff would be working from home, with plans in place to shift more people off-site as much as possible to further limit the spread of COVID-19. From discovering new hobbies, finding their work-from-home groove, to ordering more groceries and food deliveries online, Malaysians have been finding ways to keep themselves comfortable, entertained, and busy at home during the MCO. According to the New Straits Times, many have started taking up different habits like reading more, playing more games on various devices, and binge-watching shows on platforms like YouTube and Netflix. Some have even had more time to do gardening or indoor exercises like yoga. Some are even embracing these lifestyle changes by buying yoga mats online. Social media hits are also influencing what Malaysians are spending their MCO time on. Recent hits like Dalgona coffee and their friends sharing posts of their home-cooked meals are inspiring Malaysians to try some of these recipes out for themselves.

In light of the MCO, Malaysians have been spending less. A survey by the Department of Statistics Malaysia found that the average monthly household expenditure has fallen 55 per cent from MYR 6,317 to MYR 2,813. This can likely be attributed to the current environment putting a strain on many businesses, which has created a lot of uncertainty around Malaysians’ job security and incomes. The same survey showed that the product categories that took the largest hits are clothing and footwear, followed by transport, restaurants and hotels. Malaysians are currently more focused on stocking up on essentials, according to a survey about how consumer purchase behaviour has changed. They report that consumers are primarily buying groceries (97%), personal hygiene items (91%) and preventive care items like face masks, hand sanitisers and disinfectants. 69 per cent of respondents say they are only spending on essential food and household items currently, while 27 per cent say they have purchased other items besides food. They mentioned that current ongoing promotions and sales provided them with great savings they didn’t want to miss. This is supported by a survey that we also conducted on a similar topic. Respondents to our survey were also focused more on purchasing items like packaged food and household items while cutting back on non-essential items like fashion.

Our survey also showed that Malaysians are making the shift to online shopping. In response to the question ‘Have you been purchasing more frequently online?’ 60% of respondents mentioned that they have been making more purchases online compared to pre-COVID levels. Vase.ai’s study showed that popular online grocery stores included Tesco Online and Mydin Online. But what about the 27 per cent who are buying more than just groceries? These products have more to do with how people are adapting to their new lifestyles. While hand sanitisers, masks and cleaners represent more reactive health management products, products like health supplements and vitamins represent more proactive health-minded purchases, according to Nielsen. Purchasers of these want to maintain their immune systems and overall health to reduce the likelihood of becoming infected. 40 per cent of our respondents mentioned that they’ve stepped up purchases of health supplements ever since the outbreak began. This is further supported by a spike in searches for health-related topics, including vitamin C during the week the MCO was imposed.

For those who are working from home more, tools such as monitors that can make telecommuting easier are likely to be sought after. In this case, a Google Trends report shows that search traffic for ‘computer monitors’ saw its largest spike in traffic in 5 years around the time of the MCO. Besides monitors, it’s likely that other products that assist in telecommuting such as headphones and other computer accessories may see a spike in demand during the MCO. Another notable activity here is DIY home repair. MR. DIY, a popular store that sells primarily DIY hardware as well as other home and living products such as gardening tools was previously not open during the MCO. On the 31st of March16, Netizens pointed out the importance of having access to DIY hardware to fix any emergency issues their homes could face, such as broken pipes or lighting issues. The government eventually allowed these stores to be open on Mondays and Thursdays each week. With Malaysians still needing DIY items during and after the MCO, this could be a potential opportunity for e-commerce merchants to tap into in Malaysia.

The Socio-Economic Research Centre also posits that Malaysians are likely to continue saving until they feel more secure about their job security and income. Until they feel less anxious about the future, expenditure on big ticket items, such as renovations, housing or vehicles are also likely to be impacted. Travel-related purchases are likely to remain low. Travel restrictions will likely still be in place as the rest of the world comes to grips with how to handle COVID-19. Many are likely to continue to save until the situation and consumer confidence returns. In fact, research by Picodi found that searches for foreign language courses also dropped by 39 per cent during this time, which they attribute to loss of international travel interest. With a heavier reliance on online shopping now, Malaysians are also showing greater expectations on merchants and logistics partners to be more communicative during the e-commerce experience. From our survey, two-thirds of our respondents expect e-commerce players to be more communicative.

Some of the reasons they provided for these expectations include believing that the MCO is a great opportunity for e-commerce merchants to gain loyal customers from the larger market of Malaysians going online during this period. They also believe that fast responses, setting the right expectations from the get go, and keeping customers assured would be good ways to achieve this. Malaysians have also increased their consumption of online content as well. The Malaysian Communications and Multimedia Commission (MCMC) noted that demand for bandwidth increased ever since the MCO was imposed on March 18th. Malaysians appear to be spending more time on social media, playing games on devices, or streaming shows on platforms like YouTube and Netflix. According to the same Picodi study, podcasts, PC games and online games all saw large increases in search traffic. Our earlier point about Malaysians inspiring each other to try different recipes online also shows that they are making more use of social media during this period as well. The broadband usage report by the MCMC and the consumers we surveyed pointed out that the MCO period sees a larger number of people spending more time online. This presents a great opportunity for merchants to focus on online channels for sales and marketing and also to engage audiences in a meaningful way.

With non-essential stores like fashion, consumer electronics and home and living becoming harder to access during the MCO, online advertising is definitely the way to go. We Are Social’s 2020 Malaysia report mentions that the most used social media platforms are YouTube, Facebook, Instagram and Twitter. WhatsApp and Facebook Messenger are Malaysians’ two most used messaging apps. We Are Social’s report also showed that 85.5 per cent of Malaysians only access Facebook via mobile, so you’ll want your ads or your content to be optimised for mobile experiences. Malaysians’ high usage of WhatsApp can also be an opportunity for you to create viral content if you’re able to produce posts that resonate with them.

People are more willing to share posts, stories or videos of things that are useful or relevant to them or even empathise with what they feel like on the inside. For instance, during the earlier stages of the MCO, helpful tips and memes on safety and social distancing were all over the place. Smart copywriting and clever visuals were seen by how brands like Celcom, Telekom Malaysia and INTI International University and Colleges made changes to their logos to remind people to stay home. Brands like Nike pivoted their brand messaging to encourage more people to stay home. Brands started making subtle changes to their logos as a way to remind people to stay home and stay safe. IKEA began posting ‘home-made’ videos about home to encourage the same message. Some e-commerce marketplaces and merchants have also been quick to recognise people’s need to work comfortably from home. Products like computer mice, monitors, printers, chairs, adjustable laptop stands, and portable hard disks among others are now being widely promoted. Companies have also been using this opportunity to conduct themselves in a socially responsible way. Many companies who are able to spare resources to help keep people safe or even assist front-line workers have been doing so. One example here is from Fatimah Mohsin of Propup Store, who is making and distributing reusable masks to frontline workers facing the outbreak head-on. While the outbreak and the recent restrictions have put an initial damper on spending, e-commerce merchants can still take a number of steps to thrive during these uncertain times.

Source: Leong , B. (2020, April 16). COVID-19's Impact on Malaysia's e-commerce Market. Retrieved June 5, 2020, from https://janio.asia/articles/ecommerce-online-shopping-malaysia-covid-19/

Question 1

Based on the current pandemic situation businesses are going to become more reliant than ever on their digital strategy. Discuss the benefits of direct and digital marketing to buyers and sellers aligning with the current situation.

Question 2

Consumer purchases are strongly influenced by cultural, social, personal, and psychological characteristics. Elaborate FIVE (5)<sp