Perform a SWOT analysis for Starbucks and Dunkin’ Donuts.
GEB 1011 Marketing Case Study The Coffee Wars
In the coffee and breakfast market, Starbucks vigorously competes with the likes of Dunkin’ Donuts and, more recently, McDonald’s. Independent coffeehouses and smaller regional chains, seen by many as more hip and less commercial, also continually nip at Starbucks’ heels. However, the “coffee war” between Starbucks and Dunkin’ Donuts is particularly fierce in the areas in which they compete head to head, even though each chain has its geographic strongholds—Dunkin’ in the East and Starbucks in the West. Part of the reason for this infamous battle might be the dominance of these two brands: Together, Starbucks and Dunkin’ Donuts control well over half of the coffee market in the United States. Moreover, Starbucks can claim some victories over Dunkin’ Donuts, considering that its net revenues and stock prices have risen continuously since 2009. By 2014, its global revenues had reached a record-setting $16.4 billion, and in 2015, its stock surged by more than 50 percent for the year.
Starbucks’ ubiquitous stores—from long-standing locations in U.S. cities and towns to international expansion into a vast range of new nations—are easy to locate and visit. A recent count showed that the chain maintains more than 22,000 stores, spanning 67 countries. By making sure its stores, with their familiar siren logo, are easy to find, Starbucks guarantees that most people can readily find a place to get their coffee fix. For the vast majority of buyers, an addictive Salted Caramel Mocha, or just a great cup of black coffee, is convenient to find and very familiar.
There are plenty of jokes about how Starbucks manages to charge upwards of $5 for a jolt of caffeine, but a quick glance at its marketing methods and strategies helps explain why it can do so. The products it sells are appealing to customers and fulfill their needs: They taste good, are available readily and conveniently, and offer the benefit of helping them wake up to start their day (or stay awake for a long night of studying). Thus the exchange of money for coffee—or tea or juice or yogurt or a nice pastry—is a good value for consumers, despite the relatively high cost.
Starbucks also connects with fans through social marketing channels, including its popular My Starbucks Idea site. The site is an innovative approach to developing new products. Customers share ideas about everything “Starbucks,” from store designs to new drink recipes. They can also join one of the many discussions in the customer forums. The site connects customers to its Twitter and Facebook sites too, and it also links users to its mobile apps. New capabilities available through the apps allow consumers to order their preferred beverage in advance and pay for their drinks or other products, then pop into the store to grab their purchases without ever having to wait in line.
When it comes to Starbucks’ competition with Dunkin’ Donuts, history shows that the two early morning giants actually had coexisted nicely for many years: Dunkin’ Donuts made the donuts, and Starbucks brewed the coffee. Starting in 2000 though, Dunkin’ Donuts slowly started encroaching on the upscale coffee market with the Dunkaccino. It also joined the “espresso revolution” in 2003, before formally declaring in 2006 its explicit intent to enter a head-to-head competition with Starbucks.
Along with expanding its menu to feature specialty espresso drinks, Dunkin’ Donuts launched a smartphone app that competes directly with Starbucks’ widely popular version. In particular, the new Dunkin’ Donuts app aims to extend the battle to the mobile field. It offers not just mobile ordering but also mobile delivery services, called DoorDash. The delivery service began in Dallas, Texas; plans are in place to expand it to other major U.S. cities.
Although Dunkin’ Donuts still trails Starbucks as a global company—with only 3,100 stores in 30 countries—it uses this relatively small size and regional feel strategically, leveraging these attributes to adjust flexibly and integrate itself with local communities. Accordingly, it has ranked tops in the market for customer loyalty since 2007. This focus on loyalty also resonates with the company’s chosen sponsorship efforts. It lends its support to professional sports teams with strong local and national followings, including all the major league Boston-area teams (Red Sox, Patriots, Celtics, and Bruins), the Dallas Cowboys, New York’s Yankees and Mets, and the Tampa Bay Rays. Expanding on the strategy, both abroad and to less famous leagues, Dunkin’ Donuts partners with the Liverpool football club and the National Women’s Hockey League.
Through these partnerships with sports teams, Dunkin’ Donuts encourages consumers to interact more closely with it. For example, New England customers receive inducements to become DD Perks members and use its mobile app. With its “Pats Win, You Win” promotion, DD Perks members who pay through the app receive a free cup of coffee each time the New England Patriots win a game. The popular, vastly successful promotion has continued for several seasons, during which the Patriots continue winning lots of games, thus bringing lots of excited fans into Dunkin’ Donuts stores.
The competition between these two brands is well established and likely to continue, especially as Dunkin’ Donuts continues to move away from being exclusively a donut shop and toward becoming a more coffee-centered business. As big new competitors such as McDonald’s and Taco Bell enter the breakfast, coffee, and espresso markets, both Starbucks and Dunkin’ Donuts are likely to continue coming up with new ways to maintain their existing customer base, then expand it in the United States and abroad.
Questions to answer and include in your case analysis:
1. Perform a SWOT analysis for Starbucks and Dunkin’ Donuts. Based on your analysis, in which company would you invest? Justify your answer.
2. Which growth strategies have been pursued by Starbucks and Dunkin’ Donuts in the past? Which strategies do you believe will be most successful for the two firms in the future? Why?
3. Which marketing metrics would be most helpful for an executive in charge of developing new products for a coffee chain?
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