Brand Winners... And Losers: Dunkin' Donuts and Starbucks
The Marketing Doctor says:
Winner: Dunkin’ Donuts
Earlier this year, I spent some time talking about Starbucks and their struggle to return to their brand essentials and become competitive again. Full disclosure: I own some Starbucks stock. From a stock perspective, I’d rather not be criticizing the company since its share prices are swooning, but I must tell the marketing truth (and besides, if they start making the right marketing moves there will brighter days for this company).
So without further ado, this week’s brand winner and loser:
Dunkin’ Donuts is this week’s clear winner. In a fearful economic time, they are expanding and using marketing as a tool for growth.
On Tuesday, they launched an ad campaign based around taste test results.
Already, Dunkin’ had been hammering at Starbucks’ customer base with 99-cent lattes. But now they are claiming that people like the taste of their coffee over Starbucks’.
Dunkin’ is using those old marketing essentials —price and value— to build business. My guess is that it will work.
It’s possible that Dunkin’ won’t cannibalize Starbucks’ Target Market, but given these dollar-sensitive times, I think it is inevitable that Starbucks will lose some of its coffee drinkers to Dunkin’.
Starbucks created high-end coffee drinking for the masses, but the challenge for them in the last year has been preventing others from offering the same thing.
Once the market is established, competitors enter in, and the smart ones take over.
Starbucks expanded willy-nilly, often building stores that took away business from other Starbucks locations.
Dunkin’ seems to be doing what I’ll call the “reverse Burger King.”
Remember, apparently Burger King rode on McDonald’s coattails by letting McDonald’s do the exhaustive store location research and then just setting up shop nearby. This wasn’t always a good idea, because the most effective market research is customized to a particular brand and business.
In other words, what worked for McDonald’s wasn’t necessarily going to work for Burger King.
Dunkin’ might be muscling in on Starbucks turf (the upscale coffee market), but they’re doing their research and following their own business model.
They’re not trying to be Starbucks —a Dunkin’ Donuts store is never going to be big on “atmosphere”— but they will offer Starbucks-competitive products at a much lower price.
And its Target Market is calling out for more Dunkin’. According to this article in the Seattle Post-Intelligencer, there are consumers petitioning for more Dunkin’ Donuts locations in California.
That’s the kind of consumer enthusiasm that anyone would be happy about.
Starbucks is a brand at risk, and the problem is that there is no easy way out of this one.
They’re this week’s loser simply because when you’re not winning in marketing, you are losing; and Dunkin’ Donuts is doing everything right.
There are a number of big marketing hurdles. Number one, Starbucks is late getting into the marketing game. For years they built their business through what I’ll call “site marketing.”
In other words, their stores have been their marketing.
This is great while it works, because there’s no marketing overhead, but when you run into problems, you’re unprepared.
McDonald’s, for example, spends roughly seven times more on their marketing (on only double the revenue). Yet, look how McDonald’s is doing compared to Starbucks. (Hint, even the Parisians are jumping from bistros to McDonald’s to make their lunch money go further.)
But perhaps the biggest marketing problem Starbucks has is that the kind of campaign they need to run now is about price and value… and since they haven’t been doing marketing, discounting, customer loyalty programs and so forth all along, anything they do now risks appearing desperate, hurting their brand further.
General rule of thumb is this: If you don’t use sales techniques when you start up and only use them later, then it looks like you’re panicking. This problem dilutes the brand and alienates your Target Market.
Fact is, I don’t think Starbucks should go down the head-to-head marketing road. McDonald’s has a website, www.unsnobbycoffee.com. Here’s a taste of the ad copy:
McDonald's has made it simple and easy to get the delicious espresso drinks you crave. No crazy names or sizes. No second language required. So hang out and have some fun.
Starbucks can’t fight this directly. What they have to do is regroup, figure out exactly who their Target Market is (my guess is that it is anyone who won’t be caught dead in a McDonald’s or a Dunkin’ Donuts) and then cultivate the hell out of this sliver of the consumer pie.
Starbucks also has hope in the packaged goods market (ice cream and beverages), which can take advantage of the more upscale, connoisseur-quality of the brand to distinguish its products from competitors’.
If Starbucks can build on its strengths and market well, then it will prove that it’s not just an “elongated fad” but a brand that will be around for years to come.
And remember, it’s always easier when you keep marketing and branding in mind.
TODAY'S TANTILLO TAKEAWAY -
“Site Marketing” is a great, low-cost way to reach your Target Market, but it can’t be your only strategy.