Dunkin Donuts faces a very competitive environment within the coffee and snack industry. A major threat is other large competitors, including Starbucks Corporation, Peet’s Coffee, and newer entrants like McDonald’s McCafe, with the most significant threat coming from Starbucks. While Dunkin Donuts, as of April 2011, owns 16.1% of the market, Starbucks has 32.6% of market sharexxiii. Although larger competitors and chains pose a bigger threat in terms of total profit loss, local cafe?s are definitely worth mentioning. A small cafe? may be able to steal customers within a given area through cheap local advertising and word of mouth. These small stores may also be able to control quality more efficiently and have more agility in providing a product suited to local markets.
Within the coffee and snack industry, rivals will be able to compete on product quality, service quality, and pricing. Product quality may vary based on the type of beans purchased, the best method of preparing coffee and food products, and the presentation of those products. While a company like Starbucks can more easily standardize processes and product quality, because of Dunkin Donuts’ choice to 21 franchise heavily, they may face a more difficult time presenting a standardized, quality product. This may be due to less adequate training practices or execution of training procedures across stores. Another method in which Starbucks or other rivals may compete on quality is through service and atmosphere. While Dunkin Donuts has historically provided a quick stop purchase experience,
Starbucks provides an atmosphere in which customers are meant to feel comfortable enough to stay and relax or do work. This could lead to a more pleasant customer experience as well as repeat purchases within every visit by a customer, but may also contribute to higher costs and be outside of Dunkin Donuts’ strategy. The higher costs incurred from the creation of service quality and atmosphere may allow Dunkin Donuts to compete with rivals on price. If the target market is not looking for a sit down experience, but rather a bargain price, on-the-go experience, this may be a more successful strategy. Other companies have succeeded in this same way – while Wal-Mart provides lower quality products and less service than some retail competitors, they have succeeded by providing a lower priced alternative to some shoppers.
The costs for a customer to switch from Dunkin Donuts to a rival, or a rival to Dunkin, are relatively low. A coffee or snack is a one time, short-lived purchase, and it requires little to switch brands. There are a few factors that may increase switching costs. Starbucks has a very specific ordering system and set of options, and a customer will need to re-learn the titles for sizes and ingredients. This may also contribute to brand loyalty – if a customer feels attached to ‚his or her drink? with a list of additions. Also, rewards programs, like the Starbucks Gold Card, may be an opportunity cost of switching to a different coffee brand.xxiv The company operates a similar program for Dunkin’ Donuts called ‚DD Perks Rewards.?xxv In general, customer loyalty may be high in this industry.