Part 3: Designing a Customer Value-Driven Strategy and Mix (Chapters 7–17)

7 Customer Value–Driven Marketing Strategy: Creating Value for Target Customers

Chapter Preview

So far, you’ve learned what marketing is and about the importance of understanding consumers and the marketplace. With that as a background, we now delve deeper into marketing strategy and tactics. This chapterlooks further into key customer value–driven marketing strategy decisions—dividing up markets into meaningful customer groups (segmentation), choosing which customer groups to serve (targeting), creating market offerings that best serve targeted customers (differentiation), and positioning the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools—the four Ps—by which marketers bring these strategies to life.

To open our discussion of segmentation, targeting, differentiation, and positioning, let’s look at Dunkin’ Donuts. Dunkin’ has expanded rapidly in recent years into a national powerhouse, on par with Starbucks. But Dunkin’ is no Starbucks. In fact, it doesn’t want to be. It targets a very different kind of customer with a very different value proposition. Grab yourself a cup of coffee and read on.

DUNKIN’ DONUTS: Targeting the Average Joe

A few years back, Dunkin’ Donuts paid dozens of faithful customers in cities around the country $100 a week to buy coffee at Starbucks instead. At the same time, the 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 them “tribes,” each of which 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. “I don’t get it,” one Dunkin’ regular told researchers after visiting Starbucks. “If I want to sit on a couch, I stay at home.”

Dunkin’ Donuts has rapidly expanded 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 prosper, 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 high-brow “third place”—outside the home and office—featuring couches, eclectic music, and art-splashed walls. Dunkin’ has a decidedly more low-brow, “everyman” kind of appeal.

Dunkin’ Donuts’s research showed that its brand fans were largely 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 almost as though they were a group of Martians talking about a group of Earthlings,” says an executive from Dunkin’s advertising agency. 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’ 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 tribe want to stand out as individuals. “You could open a Dunkin’ Donuts right next to Starbucks and get two completely different types of consumers,” says one retailing expert.

Dunkin’ Donuts built its positioning on serving simple fare at reasonable prices 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 in recent years, 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 like a steak wrap and chicken bacon sandwich. 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. And Dunkin’ franchisees can now redecorate their stores in any of four Starbucks-esque 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.’”

Photo shows a Dunkin Donuts cup along with a paper bag. — Dunkin’ Donuts targets everyday Joes who just don’t get what Starbucks is all about. Its targeting and positioning are pretty well summed up in its long-running ad slogan “America Runs on Dunkin’.”

Getty Images News

As it inches upscale, however, 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.”

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 36 percent U.S. market share versus Dunkin’s roughly 24 percent share—Dunkin’ is currently the nation’s fastest-growing snack and coffee chain. It hopes that the continuing repositioning and upgrades will help keep that momentum going. Dunkin’ plans to add at least 4,000 more U.S. stores by 2020.

Again, however, in refreshing its stores and positioning, Dunkin’ Donuts has stayed true to the needs and preferences of the Dunkin’ tribe. Dunkin’ is “not going after the Starbucks coffee snob,” says one analyst, it’s “going after the average Joe.” So far, so good. For the past nine years, Dunkin’ Donuts has topped the coffee category in a leading customer loyalty and engagement survey, ahead of number-two Starbucks. According to the survey, Dunkin’ Donuts has been the top brand for consistently meeting or exceeding customer expectations with respect to taste, quality, and customer service.

Dunkin’ Donuts’ targeting and positioning are pretty well summed up in its long-running 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. “We remain committed to keeping America running with our great coffee, baked goods, and snacks served in a friendly environment at a great value,” says Dunkin’s chief global marketing officer. Nothing too fancy—just meeting the everyday, all-day needs of the Dunkin’ tribe.1

Objectives Outline

COMPANIES TODAY RECOGNIZE THAT they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, companies themselves vary widely in their abilities to serve different market segments. Instead, like Dunkin’ Donuts, companies must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing: identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.

Table of Contents for Part 3: Designing a Customer Value-Driven Strategy and Mix (Chapters 7&#8211;–17)

Create new playlist

Sign In

Sign Up

Table of Contents for
Part 3: Designing a Customer Value-Driven Strategy and Mix (Chapters 7––17)