Posted on Sunday, July 30, 2006 - 6:03 pm:

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Quote:

from Wall Street Journal -
Dunkin' Donuts last year paid dozens of faithful customers in Phoenix, Chicago and Charlotte, N.C., $100 a week to buy coffee at Starbucks instead. At the same time, the no-frills 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 whom loathed the very things that made the other tribe loyal to their coffee shop. Dunkin' fans viewed Starbucks as pretentious and trendy, while Starbucks loyalists saw Dunkin' as austere and unoriginal.

Early research showed consumers wanted nicer stores, but revealed a potential problem: the loyal Dunkin' tribe was bewildered and turned off by the atmosphere at Starbucks. They groused that crowds of laptop users made it difficult to find a seat, Dunkin' says. They didn't like Starbucks' "tall," "grande" and "venti" lingo for small, medium and large coffees. And, Dunkin' says, they couldn't understand why anyone would pay as much as $4 for a cup of coffee.

"It was almost as though they were a group of Martians talking about a group of Earthlings," says Justin Holloway, an executive vice president at Hill, Holliday, Connors, Cosmopulos Inc., the advertising agency that helped Dunkin' with its research. One customer told researchers that lingering in a Starbucks felt like "celebrating Christmas with people you don't know." The Starbucks customers Dunkin' paid to switch were equally uneasy in Dunkin' shops. They bristled when workers dumped standard amounts of cream and sugar in their coffee, instead of letting them do it for themselves, choosing their own amounts. "The Starbucks people couldn't bear that they weren't special anymore," Mr. Holloway says.

Dunkin' researchers concluded that it wasn't income that set the two tribes apart, as much as an ideal: Dunkin' tribe members wanted to be part of a crowd, while members of the Starbucks tribe had a desire to stand out as individuals. "The Starbucks tribe, they seek out things to make them feel more important," Ms. Lewis says. Members of the Dunkin' Donuts tribe "don't need to be any more important than they are."

Coffee makes up 62% of sales. Dunkin' says it is continuing to improve its coffee. Last year, it created a special advisory council to travel across Central America in search of higher-quality beans.

Dunkin', which has about 6,800 stores world-wide, says operating profit grew 35% in the two years that ended in 2005.

Dunkin' says it sells 2.7 million cups of coffee a day in the U.S. A Starbucks spokeswoman says it sells about four million.

Starbucks, with roughly 11,000 stores world-wide, had revenue exceeding $6 billion last year. The Seattle-based chain created what it calls a "third place" — outside the home and office — featuring couches, eclectic music and art-splashed walls. It's part of the reason customers are willing to pay more for Starbucks coffee. A 10-ounce cup at Dunkin' Donuts costs $1.19 on average, while a 12-ounce cup at Starbucks costs $1.40 to $1.65, depending on the location.

Other chains mimicked Starbucks while Dunkin' stores remained essentially the same. Four years ago, McDonald's began a major redesign in areas where there was a high concentration of office workers, adding earth-tone colors and replacing fluorescent lights with single lamps that dangle over tables at restaurants. The fast-food chain is testing espresso beverages and last month rolled out a stronger coffee blend. In some stores it sells a blend made by Seattle's Best Coffee, a Starbucks brand.

Dunkin' executives made dozens of decisions, big and small, ranging from where to put the espresso machines to how much of its signature pink and orange color scheme to retain to where to display its fresh-baked goods.

They decided early on that Dunkin' would keep its goal of moving customers through its cash register line in two minutes; Starbucks, by comparison, has a goal of three minutes. Dunkin' customers said they didn't want any changes in store design to result in longer waiting times.

Out went the square laminate tables, to be replaced by round imitation-granite tabletops and sleek chairs. Dunkin' covered store walls in espresso brown and dialed down the pink and orange tones. Executives considered but held off on installing wireless Internet access because customers "just don't feel it's Dunkin' Donuts," says Joe Scafido, chief creative and innovation officer. Executives continue to discuss dropping the word "donut" from its signs to convey that its menu is now broader.

Dunkin' sought to add hearty snacks to appeal to meal-skipping customers. Focus groups liked hot flatbreads and smoothies, but balked at tiny pinwheels of dough stuffed with various fillings. Customers said "they felt like something at a fancy cocktail hour," Ms. Lewis says, and weren't substantial enough. Dunkin' increased the size and will market them as "bites" filled with pork and other ingredients.

Dunkin' stores have never had piped-in music. The company hired Muzak LLC to "architecture" a sound that was upbeat but "won't annoy people," Mr. Scafido says. The result is a soundtrack including pop-star Jessica Simpson, classic-rock group Queen and hip-hop singer Beyoncé Knowles — as well as artists that are familiar at Starbucks, such as Stevie Wonder. "It's not the Starbucks sound," Mr. Scafido says.

Most customers say they like the increased natural light from larger windows, the expanded menu and the new coffee bar that includes stainless steel pitchers of cream and skim milk that customers use on their own — a first for Dunkin' Donuts. Franchisees are footing the $150,000 bill for remodeling each store.

Dunkin' Donuts plans to expand in the East, adding stores in Charlotte, Pittsburgh, Indianapolis, Jacksonville, Fla., Nashville and Cincinnati. It doesn't plan to start building out on the West Coast for about five years. Mr. Luther says there's one city it has no plans to enter: Seattle.

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