COFFEE WARS Brand Management Professor Fisher Zach Golden Alex Glazer March 11th, 2012
Golden.Glazer |2Introduction Just as the coffee pot boils early in the morning, the Coffee War between nationalbeverage chains is heating up as each tries to obtain optimal market share and strengthentheir brand. The McCafe sub-brand of McDonald’s, Dunkin Donuts, and Starbucks allparticipate in the coffee-café segment of the US market, with the latter two emerging as theclear front-runners. For the two leaders, however, drastically different coffee drinkers aretheir targeted consumers. Dunkin attempts to appeal to the consumer on the run or in arush, and is looking for caffeine to get them through the day. Conversely, Starbucks hastraditionally been seen as a destination, a national chain of coffee shops attempting toreplicate quaint cafes where consumers can sit down with their beverage and do work orvisit with friends. While both targets are drastically different, each company has done anadmirable job reaching their selective markets. Going forward, however, it is clear thatwhile Dunkin is sticking to their established branding tools, Starbucks is evolving andlosing parts of their brand.McDonald’s McCafe It is known that the most important thing a strong brand does is portray a sense oftrust to the consumer. For McCafe, the issue of trust is extremely fragile as customers orderfrom the “coffee shop” in the same place they order Quarter Pounder with Cheeses, and sitdown to enjoy their beverage with the smell of French fries in the air. For coffee drinkers,the self-expressive benefits of drinking a coffee that comes from McDonald’s are limited, asit represents getting their caffeine fix from the same place where Happy Meals and BigMacs are amongst the most popular menu items. McCafe revenue was able to grow to over
Golden.Glazer |3$24 billion in 20101, primarily by marketing themselves as offering the same products asStarbucks at a discounted price, as shown in Exhibit 1. However the discounted premiumbeverage does not offer consumers the same self-expressive benefits, and the connectionbetween buying sophisticated beverages from a chain that has Ronald McDonald as itsmascot does not align. While McCafe may be doing well financially, it most likely benefittedfrom the recession forcing consumers to buy at discounted prices, and the lack of trust itconveys weakens the brand in the long term future. For these reasons, McCafe cannot beconsidered as one of the leaders of the Coffee Wars.Brand Identity Representing what the brand stands for in the mind of consumers, brand identity iscrucial for building value and brand equity. For each of the two brands, their brandidentities focus around Aaker’s 4 themes: product, person, organization, and symbol.Starbucks Starbucks has a strong, clear brand identity, though it is different in application ofthe perspectives. As a product, Starbucks is known for its wide variety of flavors and coffeevarieties. With 42 types of coffee available2, the variety and choice Starbucks provides itscustomer, combined with the known quality of its drinks form the product identity of thebrand. Starbucks can also be seen as a person, with the personality traits of being trendy,cool, and sophisticated, and building a reliable, personalized customer relationship. All ofthese traits combine to make Starbucks into a highly self-expressive brand, something thatwill be covered in discussing the CVP, but also something that strengthens its identity as asymbol. The green siren, as shown in Exhibit 2, is powerful enough to generate recognitionand recall by itself, so much that recently Starbucks decided the logo was visually1 Passikoff2 Starbucks Menu
Golden.Glazer |4commanding, enough to remove the text “Starbucks Coffee”. Starbucks CEO Howard Shultznoted that “throughout the last four decades the Siren has been here through it all” and thatthe recent move to remove the text “ensures we remain relevant and poised for futuregrowth”.3 However although the siren is a strong visual image, the dropping of the“Starbucks Coffee” from the logo is indicative of Starbucks possibly evolving parts of itsidentity. In its core, Starbucks includes its café-type environment, personalized service,trendy personality, and high quality coffee. The extended identity of the brand hastraditionally included its Seattle heritage, green color, and trendy consumer base, but isnow beginning to include brand extensions such as the addition of different food productsand beer and wine to its menu. The evolution of its product line, combined with changing ofits logo could be telling of major transformations to the Starbucks brand, and whether it isable to keep its core identity in-tact will be in question in the future as well.Dunkin Donuts Dunkin focuses on its functional attributes, such as its flavors of coffee and breakfastsandwiches being able to re-fuel the customer in a hurry. This theme of providingrejuvenation for the person on-the-go is also evident when looking at their other identityperspectives such as a person, where Dunkin can be seen as the individual on his way towork or on a break from work, or a busy mom driving her kids to practices and otherevents. Dunkin caters to the busy person, which is also seen in their symbol of the runningman (Exhibit 3). This symbol is memorable and represents the brand, because as anorganization Dunkin also values quick, effective service to keep their customers moving.They are able to serve a variety of different types of customers, from businessmen on the3 Kavilanz
Golden.Glazer |5way to work, to construction workers on a break, to soccer moms, Dunkin as a brand is ableto cater to all of these types of customers because of the common trait of consumers beingbusy and needing a quick pick-me-up. Providing convenient, good-tasting food and drinkmake up Dunkin’s core identity, as they are the timeless essence of what Dunkin Donutsstands for. To complement their core, elements such as their New England heritage, otherfood products, and their orange and pink colors add completeness to a brand that clearlyidentifies itself with consumers who make buying DD coffee habitual. It is this identificationthat can also lead to falling into a brand identity trap, however, namely the brand imagetrap. This trap occurs when consumer perceptions take the primary role in strategicdecisions and the consumer is able to dictate who the company is. For Dunkin, becausetheir customers are mostly busy and on-the-go, their strategy is primarily centered oncatering to their needs, curtailing any other image they may try to present. Despite thisbrand image trap, Dunkin’s identity is still clear in many different perspectives, andprovides a firm foundation for the value proposition and expansion.Customer Value Proposition As Aaker states, “a brand’s value proposition is a statement of functional, emotional,and self-expressive benefits delivered by the brand that provides value to the customer”4.Once again, similar to the brand identity, both brands are able to accomplish this and havea strong CVP, although they achieve it in different ways. Starbucks For Starbucks, the quality as well as the quantity of flavors makes up its functionalbenefits, but it is their emotional and self-expressive benefits that really drive the CVP.Designed to replicate a café or small town coffee shop, Starbucks stores can become the4 Aaker
Golden.Glazer |6neighborhood coffee destination. Unlike Dunkin Donuts stores where customers rushthrough with their orders, Starbucks serves as a meeting place and a setting for customersto sit and talk. As well as the close-knit feeling of the coffee shop is the personalizedexperience consumers get. The relationship with the barista adds to the emotional benefitsof the customer, as they feel important and their individuality is able to be expressed by thetype of drink they choose. This is also why they ask for your name after ordering, toestablish a deeper, more personal and emotional connection with the barista. The strongemotional benefit Starbucks provides is combined with the self-expressiveness of drinkinga cup of coffee with the Starbucks logo. For consumers, having the green siren on their cupdraws attention to themselves, and the “look at me” self-expression contributes tocustomers paying just as much for the logo on the cup as they are the coffee inside. AStarbucks consumer is flaunting their ability to pay premium prices for coffee, and wants toshow their affluence. This is an important factor, because as Professor Kopp argues, CVP isabout “benefits-for-the-money”.5 Not only is the quality of the coffee contributing to thetraditionally higher prices, but also the ways in which Starbucks allows its customers todefine their personality and self-image.Dunkin Donuts Dunkin Donuts is also able to provide their customers with value, starting with itsfunctional benefits of being good tasting and with fast customer service that provides thenecessary wake-up quickly to the consumer. However Dunkin lacks strong emotionalbenefits for individuals, as the quick customer service and lack of atmosphere in its storesdoes not provide the individual with positive emotional feelings. Despite the lack of5 Kopp
Golden.Glazer |7emotional gains by the brand, a customer drinking Dunkin Donuts is able to express theirreadiness to take on the day. Fueling up with Dunkin says that they are important and busy,and do not have a minute to spare. A Dunkin Donuts customer is able to express theirwillingness to attack the day and take on whatever task lies ahead by the brand beingrecognized for quick service and coffee and food products that provide a necessaryrejuvenation at any point in the day. Customers also will not find premium prices like theydo at Starbucks at Dunkin, and although it is not as fancy or stylish, drinking Dunkin Donutsis able to allow consumers to display their self-image.Brand Position According to Aaker’s model, brand position is an accumulation of brand identity,CVP and personality, but even more specifically comprised of target audience, competitiveadvantage, active communication and a subset CVP, (Exhibit 4).Starbucks Starbucks is clearly positioning itself in a much different way than Dunkin Donut’sstrategy to achieve their desired clientele base. The company knows that their coffee isoverpriced for the industry, but does not lower it because their services are allowed todemand a premium. The baristas handle the coffee and people who come through the storewith extra care. The personal connection that people establish with Starbucks, or rather theCVP, can be seen in a variety of ways. For example, when someone goes in to Starbucks, thetarget customer is going to like using a complicated spell of words that can be translatedinto their very own unique and specialized caffeinated beverage. On this same note,Starbucks customers know there is a lot of variety at Starbucks so they can chose to beloyal to a signature drink, or have the freedom to choose otherwise from the wide varietyof products offered, inclusive of a secret menu only known to few. It is important to realize
Golden.Glazer |8that this consumer’s needs are quite the opposite of what one would normally called needsor basic goods. The Starbucks type of customer is going to like frivolous things andspending for luxury as opposed to “need based” decisions.Dunkin Donuts The Dunkin Donuts brand position model is strategically very different from that ofthe Starbucks model, largely because the target market is so different. The customers whocome to Dunkin Donuts are looking for a quick fix for an on-the go experience, whetherthey are on a commute to work, a mom doing errands or have only a short time for a break.Customers do not come to Dunkin Donuts looking for lots of options, but rather a straightforward cup of coffee that gets the job done, meaning it keeps them alert and caffeinated forthe day ahead. In addition, most people who purchase at Dunkin Donuts are also moreinclined to buy a pastry or breakfast, as opposed to Starbucks where the foods are not ashabitual to purchase. Dunkin Donuts has established reliability among the consistentquality it produces, although consumers know they are not expecting much every time theyvisit (which is actively communicated). Their competitive advantage lies in the productsthey produce, The Dunkin Difference as opposed to Starbucks and their focus on service.This CVP is definitely high benefits – low cost which yields a very high value to customers.The company is very different from Starbucks, but they know how there are different andhave been successful in maintaining their separate client base.Brand PersonalityBrand personality is said to be the final component adding up the brand position,comprised of influences from customer value proposition and identity. In addition, brandequity cannot be evaluated without first looking at the brand personality of the company as
Golden.Glazer |9it plays a large role in determining how the company is perceived, and accepted bycustomers.Starbucks Starbucks has a very special brand personality that is unlike the other mainstreamcoffee shops in a very distinct way. Unlike the commercial coffee shops, Starbucks’competitive advantage is their ability to feel like a neighborhood coffee shop despite thefact they may have 12,000 different storefronts across the country. According to Aaker’swheel of human characteristics, Starbucks would be sophistication, because of theirelaborate menu and prestige in coffee, sincerity because of their wholesomeness and fairtrade coffee, and competence, because they are reliable, with consistent quality and havetypically made intelligent strategic moves. The self-expressive model of CVP ties veryclosely to Starbuck’s brand personality. Starbucks’ brand historically, has revolved aroundthe fact that people who come to Starbucks are willing to take their time, have a leisurelyexperience and get what is perceived as higher quality coffee for a steeper price. Thepeople who come to Starbucks like to portray that they have the time and money to spendon a coffee cup that comes with a green straw and mermaid logo. Brand personality is saidto reflect the owner and creators of the company. Howard Schultz was the son of a blue-collar worker who instilled the mindset “treat people like family and they will be loyal andgive their all” (Fiscal Report 2003). This is the attitude he has toward his employees, and inturn the employees act the same way to the customers. Kopp’s Brand Personality Model looks at thinking and feeling based thoughts, andcombines them together for one overall “Gestalt” that is the brand personality. This is oneway of making sure the company has a solid vision that is seen throughout all aspects of the
G o l d e n . G l a z e r | 10company. The thinking based thoughts for Starbucks are generally mature, coffee with ahigher quality, pricey, reliability, and successful. Recently however, the feeling basedthoughts of Starbucks have started to shift away from appreciation for the exclusivity tofeeling one of many in a diluted, mass brand. Typically the Starbucks experience wouldyield feeling based thoughts like I feel special and privileged to drink Starbucks. Not yet hasthe Starbucks name completely lost its integrity, however the gestalt model is beginning toshow signs of unbalance.Dunkin Donuts Bill Rosenberg founded the first Dunkin Donuts with the vision to "make and servethe freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores” (About Us). As mentioned before, companies will develop apersonality reflective of the characteristics from the internal part of the company. ClearlyDunkin Donuts incorporates this mission statement in to the business even 60 years latertoday as it can be seen in the company’s core identity. Nowadays, chief global customer andmarketing officer John Costello shortens this motto to “fast, friendly, helpful” (How DunkinDonuts Keeps Its Customers) and that is exactly what the company produces. Dunkin Donutsmay not be a homey environment, but that is not what it is intended to be. Superfansappreciate the business because of the low maintenance experience and transparency ofthe company, thus primarily serving to meet a functional needs model. Using Aaker’shuman characteristics wheel, Dunkin Donuts possesses traits such as sincerity, competenceand excitement.
G o l d e n . G l a z e r | 11Brand Equity There are several different approaches to looking at Brand Equity, to be specificthere are 7 different models available in our brand management toolbox. In looking toassess the brand equity of both companies combating the coffee wars, we will use Aaker’s 5part model. The model broken down clearly in exhibit 5 for both companies is comprised ofassociations, awareness, quality, loyalty and other proprietary assets. Loyalty is thesummation of the first three elements and brand assets covers everything else of value.Starbucks The brand equity model for Starbucks showcases where the company’s strengths lieand how their customers play a crucial role in dictating the success of this brand. Despitethe fact that Starbucks began as a brand with a very niche market, they have expandedglobally and have high recognition and recall. This is also particularly interesting becauseaccording to the Share of Voice = Share of Market model, with Starbucks using little to noadvertising and relying on a worth of mouth architecture, the company should not have avery large share in the market. In further analysis of the brand equity, we will see ifperhaps Shroer was right after all. As mentioned, word of mouth is important to Starbucksand thus so is the associations with the brand. Starbucks has historically been perceived asthe coffee choice of luxury, and associated with prestige, status, and relaxation. Recently,Starbucks has begun to dilute their brand so much that it is losing its title as people outsideof this niche have begun drinking and are seen with the product, resulting in a decrease ofthe self-expressive benefits for the user. For many, the quality seems to be better, but canonly be supported by individuals preference. Paying a premium for this coffee andexperience was justified when the experience still felt personalized. Now with the brandbecoming commercialized, the individuality of the brand is fading and the service isn’t as“VIP”, morphing the idea of quality. There are many people who are loyal to Starbucks
G o l d e n . G l a z e r | 12coffee but still will go to a Dunkin Donuts if they are in need of a quick fix. The loyalty ofStarbucks can be measured by the fact that they do not advertise and still maintain aconsistent customer base. However, Starbucks should be warned that the loyal consumersare typically the ones with more disposable income, who are also the ones who are morelikely to be bothered by brand dilution and loss of value in their green straw. Other brandassets for Starbucks include the green siren and the tagline “It’s Not Just a Coffee, It’sStarbucks.”Dunkin Donuts Through this 5 part model, Dunkin Donuts brand equity appears to be extremelyhigh. First, awareness which takes in to account the familiarity of the brand is very highwith Dunkin Donuts. Recent surveys gathered that 97 % of all Americans are able torecognize the Dunkin Donuts brand name and logo (About Us). In additional to highrecognition, Dunkin Donuts is definitely if not the first-to-mind, the second company thatcustomers will think of when asked about the coffee industry. There are definitely not injeopardy or anywhere near becoming a graveyard brand because they have accuratelybalanced their CVP. In terms of associations, the perception of the brand is extremelyaccurate. DD customers seek coffee in a quick and convenient manor for a pick me up.Quality of the Dunkin Donuts brand has become very reputable, marketed through their“Truth is Out Campaign” from 2008, (Exhibit 6). Despite previously perceived value becauseof a lower price point, survey results from a taste test conducted by A&G Research Inc.,concluded that 54.3% of the sample preferred DD coffee over Starbucks with only 39.3%(Awards). In addition, in 2011 alone, Dunkin Donuts came away with 5 very reputableindustry recognition awards including: #1 in iced regular/decaf/flavored coffee, #1 in
G o l d e n . G l a z e r | 13hot/regular/decaf/flavored coffee, #1 in donut category, #1 in bagel and muffin categoryand #2 in breakfast sandwich servings (About Us). In terms of loyalty, Dunkin Donutssweeps the category again with the #1 loyalty rating for the past 6 years determined byBrand Keys (The World Leader in Customer Loyalty and Engagement Metrics) (About Us).Ifaddition, Dunkin Donuts maintains loyalty by still brewing the same recipe blend of coffeethat they did 60 years ago when the first store opened in Quincy. The company also activelyencourages participation and feedback from the clientele with compensated surveys,contests and rewards programs. The brand assets that Dunkin Donuts obtains are also verypowerful, including the orange & pink colors that are easily distinguishable, and the tagline“American Runs on Dunkin”.Brand Architecture-Brand ExtensionsExpanded Menus Recently, both brands have begun to expand their menus beyond the coffee thatthey have grown their reputation on. In select areas across the country Starbucks hasbegun to introduce menu items such as “beer, wine and premium food” to provide choicesfor customers in the afternoon, generally a slower time for the coffee provider. 6 Similarly,Dunkin Donuts has expanded their menu to include items such as iced tea, flatbreads, anddeli-type sandwiches such as tuna and ham and cheese. While both brands are extendingtheir image outside the realm of just coffee, Dunkin has already been known for this withtheir breakfast sandwiches and their namesake, donuts. High quality coffee, included in their name, is more of a part of Starbuck’s coreidentity, as it is a timeless part of their brand, and extending into areas such as alcoholic6 Dow Jones
G o l d e n . G l a z e r | 14beverages does not seem to match their identity. It will be up to the consumer to allowStarbucks to expand into alcohol distribution, but after Starbucks announced their brandextension shares of their stock fell 2%.7Meanwhile Dunkin has added the sandwiches toprovide options for busy customers at any time of the day, with Chief Global MarketingOfficer John Costello saying the move “reflects our commitment to meeting our guestschanging eating habits and expectations for more fast and satisfying menu items that canbe enjoyed any time of day”.8 Since the most recent menu additions in early February,Dunkin stock prices have risen 10%, a sign that customers have allowed the brand toextend to afternoon time snacks.Instant Coffee As well as in-store menu additions, both brands have also begun to provide instantcoffee solutions to their customers who cannot come to the actual store to get their coffee.Dunkin has introduced K-Cups to match with customers who have a Keurig Instant CoffeeMachine, while Starbucks has begun selling their own instant coffee under the sub brandStarbucks Via. The move into the big instant coffee market aligns perfectly with the DunkinDonuts identity of convenience and supporting the busy customer who is in a rush.Starbucks, however, bases their identity on the coffee-shop experience and enjoying thecoffee leisurely in a café setting with personalized service. The instant coffee available toconsumers in their home does not align with their core identity, and Starbucks has riskedstraying away from their quaint café type coffee shop identity with their brand extensions.Whether consumers will allow Starbucks to evolve their identity remains to be seen, but7 Dow Jones8 Dunkin’ Donuts
G o l d e n . G l a z e r | 15the brand is at risk of eroding its timeless essence with the extensions to alcohol andinstant brew-it-yourself coffee solutions.Conclusion In looking at the industry, it is clear that McCafe does not relate to the coffee drinkeras they provide nothing unique and little self-expressive benefits. While McCafe can beruled out, the battle between Dunkin Donuts and Starbucks is highly competitive. Eachbrand has its distinguished market segment, and originally, our group believed Starbuckswould prevail over the perceived ”cheap” value offering of Dunkin. However as the brandaudit transpired, the effectiveness of Dunkin’s trusting relationship with its customerbecame clearer with its strong brand equity and ability to maintain its core identity. Withthis said, the overall loyalty and trust that Dunkin has with its customers gives it the abilityto be crowned as winner of the coffee wars. Dunkin’s victory is not only a testament to theirstrength, but also some of Starbucks’ questionable decisions such as brand extensions thatdo not align with their identity (instant coffee) and dilution of their brand equity throughexpansion and customers losing the exclusive, personal feeling they once had inside aStarbucks store. The moves that Starbucks has elected to take, could however turn intotremendous successes for the brand. The coffee wars are an on-going battle that are stillfiercely competitive, and if the customers decide to allow Starbucks to evolve their brand,then they could soon be declared the winner over Dunkin. For now though, America isrunning with Dunkin’, the current winner of the Coffee Wars.
G o l d e n . G l a z e r | 16Exhibit 1: McCafe AdvertisementsExhibit 2: New Starbucks LogoExhibit 3: Dunkin Donuts Logo
G o l d e n . G l a z e r | 17Exhibit 4: Brand Position Model (Aaker) Target Audience:Searching for luxurious coffee with choices and personal experience Actively Sbucks Create Advantage: Communicate: Varieties illustrate personal choices for Brand Personalized relationship with product and barista consumer Position Subset CVP: High cost but high emotional and self-expressive benefits
G o l d e n . G l a z e r | 18 Exhibit 5: The Truth is Out Campaign (Dunkin Donuts, 2008) Exhibit 6: Brand Equity Model (Aaker) Awareness AwarenessOther Associations Other Assets AssociationsAssets Brand Brand Equity: Equity: Sbucks DD Loyalty Quality Loyalty Quality
G o l d e n . G l a z e r | 19 Works Cited"About Us." Dunkin Brands. Web. 13 Mar. 2012. <http://news.dunkindonuts.com/dunkin+donuts/dunkin+donuts+about/>."Awards." Dunkin Brands. Web. 13 Mar. 2012. <http://www.dunkinfranchising.com/aboutus/franchise/franchise-awards.html>."DunkinDonuts Introduces New Bakery Sandwiches.". The Wall Street Journal Market Watch, 2/1/2012. Web. 11 Mar 2012. <http://www.marketwatch.com/story/dunkin-donuts- introduces-new-bakery-sandwiches-2012-02-01>."Fiscal Report 2003." Living Our Values: Corporate Social Responsibility. Starbucks, 2003. Web. <http://www.starbucks.com/assets/csr-fy03-ar.pdf>."How Dunkin Donuts Keeps Its Customers Happy | Superhype." Superhype. Web. 13 Mar. 2012. <http://superhypeblog.com/marketing/how-dunkin-donuts-keeps-its-customers-happy>. Dow Jones. ".“Starbucks To Expand Evening-Menu Concept To More Markets ." The Wall Street Journal. N.p., 1/23/2012. Web. 11 Mar 2012. <http://online.wsj.com/article/BT-CO-20120123- 709369.html>.Kavilanz, Parija . "Starbucks unveils a new logo." . CNN Money. N,p., 1/5/2011. Web. 11 Mar 2012. <http://money.cnn.com/2011/01/05/news/companies/starbucks_new_logo/index.htm>.Passikoff, Robert. "Adult Branding." Forbes. N.p., 3/29/2011. Web. 11 Mar 2012. <http://www.forbes.com/sites/marketshare/2011/03/29/adult-branding/>.