Below is a research final paper I wrote for my English class. I research the marketing strategies of Dunkin’ Donuts and Starbucks. My teacher gave me an “A-” on the assignment. At the end of the paper, I have cited my sources!
Cut the Frap
Starbucks and Dunkin’ Donuts are two competing coffee companies with different business models, yet similar amounts of success. Dunkin’ Donuts started as a coffee shop in Boston, MA around the 1950’s, while Starbucks originated, not until the 1980’s, in Seattle, Washington. Both companies seem to attract their own demographic and portray a personal theme. As a coffee drinker myself, I prefer Dunkin’ Donuts coffee – especially when I am on-the-go – but when it comes to going to a coffee shop to sit down and relax, I will go to Starbucks.
How do the two coffee shops differ? Even though both chains serve similar refreshments, how does each work differently when attracting customers? What are the marketing practices of Starbucks, compared to the marketing practices of Dunkin Donuts? How does each chain’s customer demographic differ?
Starbucks began as a coffee shop in Seattle, Washington. In 1982, Howard Shutlz joined Starbucks and contributed to spreading the coffee-frenzy throughout Seattle. In the 1990’s, Starbucks spread across America and eventually around the world. The company operates 10,000 retail stores: 4,200 of these shops are located in malls and airports (Starbucks Marketing Plan, n.pg).
As of 2002, Starbucks employed 60,000 workers – also known as “partners” (as the company refers to them) – worldwide, 50,000 of which were in the United States. The demographic of the company is varied and has changed as the accessibility of technology has improved. Usual customers that go to Starbucks are young, affluent, tech savvy, and moms with strollers. In 1999, 77% of the customers used the internet when enjoying a cup of coffee in the company’s facility. Today, internet use amongst the customers has increased to 90%. In 2002, 45% of the customers were female and 55% were male (Starbucks Marketing Plan).
Coffee-drinkers who are referred to as frequent customers, average roughly eighteen visits per month; while “typical customers” tend to visit five times per month. The average age of established customers is forty years, and the average age of new customers is 36. Recorded in 2002, the average price order was $3.85. The cheapest tall coffee is $1.40 and the most expensive venti coffee is $4.15: each for a regular cup of coffee (Starbucks Marketing Plan).
The profits of Starbucks increased 43.7% since 2003; in 2004, the profits were 610 million. The noted disadvantages of Starbucks is the company’s growth is driven by beverage innovation. Unfortunately, if the number of stores in the U.S decreased, stock will be lowered in value (Starbucks Marketing Plan).
Dunkin’ Donuts has been a popular coffee shop franchise that originated in Boston, MA for fifty-four years. Although the business gained its popularity through selling Boston crème donuts and coffee beans of good quality, today the company makes most of its money from cups and bags of coffee. Dunkin’ Donuts has evolved into its own brand that also franchises Baskin & Robbin’s. As of 2011, there are 6,875 Dunkin’ Donuts in America, 20 in Canada, and 2,600 recorded as international (“Dunkin’ Donuts,” Entrepreneur, n.pg).
In 2010, the company had a profit of $26.9 million on revenue of $577.1 million (Steve Adams, 2011). 57% of Dunkin’ Donuts’ sales consist mostly of beverages and the rest is made up largely of bagels, muffins, and breakfast sandwiches. In comparison, 78% of Starbucks’ sales depends on the beverages. 12% to food and 5% in coffee beans (Linda Tischler, n.pg).
Dunkin’ Donuts’ target consumer is middle-class Americans ranging in age from 18-45 years. Average customers’ annual salaries range from $40,000 to $100,000. Most customers get their coffee to go, specifically families. An ideal Dunkin’ Donuts’ customer is a professional worker who has a family. They tend to stop by to grab a cup of joe or a doughnut before their day at work (Dunkin’ Donuts, The Bright Agency, n.pg). An average medium cup of coffee at Dunkin’ Donuts is $1.60 .
In 2010, the Dunkin’ Brand’s revenue increased by 7% because of its new locations and customers. One of the disadvantages of the Brand is its sales for Baskin & Robins’ fell 5.5%. Dunkin’ Brands’ ended up losing money in the first quarter of 2010, since it paid more in interest payments, administrative expenses and the cost of ice cream (The Saratogian, Christina Rexrode, n.pg).
These two companies – developed during different generations – are known for serving the same beverage: coffee. Each company attracts a different demographic. Starbucks’ average customer seems to be tech-savvy and Dunkin’ Donut’s average customer is part of the working class and supporting a family. A customer of Starbucks tends to sit down and enjoy their beverage, while Dunkin’ Donuts’ customers have been observed as being “on-the-go.”
Dunkin’ Donuts has a cheaper recorded price for a regular cup of coffee than Starbucks does. After Howard Shultz visited Italy, he decided to add a more Italian vibe to Starbucks, specifically to the cup sizes (tall, grande, venti). While Dunkin’ Donuts has advertised the well-known English cup sizes (small, medium, large).
Although Dunkin’ Donuts rate of growth grew by 2% in 2010, Starbucks is currently growing their store rate by seven to eight percent. In comparison, Dunkin’ Donuts has expanded more in American while Starbucks is hoping to reach 1,000 of their companies in Brazil: 100 are already functioning there. As for Dunkin’ Donuts, it has less than 100 stores in China and merely 3,000 just outside of the U.S. Dunkin’ Donuts is planning to add 500 more stores per year in the U.S, while Starbucks is planning to open 200 or more stores in the next year (International Business Times, David Magee, n.pg).
As for the organizational strength of Starbucks, Howard Shultz leadership skills has compared to those of Steve Jobs. Compared to Dunkin’ Donuts, which is a franchise, Starbucks has more control over all of their branches of business. Even though Dunkin’ Brands has included Baskin-Robbins, which keeps the diversity of this menu impressive, Starbucks is constantly changing their menu and redeeming themselves (Magee).
Both companies have set themselves strategic goals in order to sustain their wealth and popularity.
Starbucks not only markets itself to the casual coffee-drinker but to those who do not drink coffee on a regular basis. They have done so by introducing a new line of products targeted for these type of potential customers. To keep their market growth consistent, they have repositioned their current Frappuccino line and has added three more flavors for the product: double chocolate chip crème, vanilla bean crème, and strawberries & crème. While doing so, Starbucks must keep customers interested in their usual line of drinks and pastries while advertising their new selection (Starbucks: “The Non-Coffee Treat, A5 Consulting Group, n.pg).
Dunkin’ Donuts’ marketing strategies is focused on updating their restaurant design. In 2005, the company presented a new restaurant design for all future establishments. Inspired by the original Dunkin’ Donuts from the 1950’s, the new look has a contemporary design with retro elements. This updated facility is intended to provide customers with an enhanced in-restaurant experience with advanced equipment. The new layout also includes an updated menu that provides dozens of various donuts, baked goods, coffee and other beverages (Dunkin’ Donuts, n.pg).
The models and marketing strategies show how the two businesses differ, it also has an impact on how customers react towards the coffee shops. Because Dunkin’ Donuts has been around longer and made such a difference when it first started out, as of now, its concern when keeping customers interested is presenting the stores in a manner that reflects the original franchise. Like how the symbolism of Dunkin’ Donuts attracts its customers, Starbucks variety of drinks keeps their popularity growing.
With the way that these businesses are structured, it seems like if Starbucks lacks in creativity when it comes to drinks or circulation of popularity amongst the beverages, the business could suffer. As for Dunkin’ Donuts, its always been known for its good quality coffee beans and splendid pastries, so the chances of the business going under after merely 60 years of success, seems small. As for us customers, its our decision on whether or not we want to be referred to as “average joe” or “tech savvy.”
Tewell, Kelly; Odom, Bethany; Snider, Kelly “Starbucks Marketing Plan” (2006) http://www.franklincollege.edu/pwp/BOdom/SampleWorkStarbucks.pdf
Magee, David “Dunkin’ Donuts vs. Starbucks: Starbucks Leads the Scorecard” The International Business Times (2009) http://www.ibtimes.com/articles/189133/20110729/starbucks-dunkin-donuts-comparison-scorecard.htm
The Bright Agency “Dunkin’ Donuts” (2006) http://racompton.asp.radford.edu/Dunkin_Donuts_Plan.pdf
Dunkin’ Donuts “Strategic Growth Plan / Vision for the Future” (2010)
Entrepreneur, “Dunkin’ Donuts” (2011)
Rexrode, Christina “Dunkin’ Donuts share price soars 47 percent on first full day of trading; Dunkin’ Brands Group Inc. shares selling for $27.85” The Saratogian (2011) http://www.saratogian.com/articles/2011/07/27/news/doc4e309f0b0201a962390903.txt?viewmode=default
A5 Consulting Group “Starbucks: ‘The Non-coffee Treat’”