EXPANSION: SAN FRANCISCO

International Marketing: Prof. Marco Protano - Fillmore Cohort - Mariana Francisco

STRATEGIC ALTERNATIVES: Enter the Financial district market with a best customer relations proposition, enter it with a best cost proposition or opt to enter first in a different neighborhood where Starbucks hasn’t entered yet.

STRATEGIC RECOMMENDATION: Enter the Financial district market with a Best CR proposition, achieving 20% of the market share in 5 years.

STRATEGIC OPPORTUNITY: The possibility to enter the Financial District of San Francisco market by the end of 2015, which has the potential of a 20% market share in 5 years.

• INSIGHT: This is the SF neighborhood with the highest number of Starbucks locations - our company’s main competitor

• IMPLICATION: The opportunity is risky but highly profitable if accomplished

EXECUTIVE SUMMARY

2

MATURE COMMODITY WITH STABLE DEMAND

CATEGORY: Coffee Beverages

(commodity product)

DEMAND: 3,453,556 units/ year

(Growth = 0%)

NEED: Energy and comfort

WANT: Tasty, high quality Arabica

coffee beverage

• Mature, commodity product implies ability to easily “steal” market share by having lower prices and/or production costs

CATEGORY

3

MARKET ATTRACTIVENESS IS MEDIUM-HIGH

4

MITIGATING FACTORS FOR

THREAT OF NEW ENTRANTS:

!→ Lower prices

→ Differentiated products

MARKET ATTRACTIVENESS INDEX = 78.6

CLICK HERE TO SEE THE PORTFOLIO ANALYSIS

Bargaining Power of Suppliers

Low to moderate

Threat of New Entrants

High

WHY? Profitable market,

commodity product, low entry barriers. WHY?

Commodity product, many cafés/coffee chains.

WHY? Energy products/hot

beverages = imperfect substitutes.

Threat of Substitutes

and Technological Obsolescence

Moderate

Bargaining Power of Buyers

Low to moderate

Industry Rivalry

Moderate to high

SUPERIOR CONSUMER SATISFACTION MIGHT BE OFFSET BY LOWER BRAND LOYALTY

5

S

W

Superior innovation and consumer attraction →Competitive advantages to succeed in entry

Top ranked in the American Customer Satisfaction Index (79) → Useful know-how for the launch of the SF store

SWOT REFERS TO THE U.S. MARKET AS A WHOLE UNLESS OTHERWISE STATED

Inferior Brand Loyalty compared with Starbucks (main competitor)

→ An investment in brand equity might result in high growth rates

Highest profit margin in the industry →DD has an advantage in case of price rivalry intensification

COMPETITION

/COMPANY

No access connections - uncertain supply-chain → Inferior access can hinder the expansion’s success

Coffee considered inferior than others’ currently in the market →Hardship in creating loyalty from demanding consumers

✓ ✓

✓

✓

6

CLICK HERE TO SEE THE FULL-SIZED GE/MCKINSEY MATRIX

New$Market$Entry$Improve$Posi5on$

Invest$to$Grow$Improve$Posi5on$Protect$Posi5on$

Invest$to$Grow$Protect$Posi5on$

Improve$Posi5on$Op5mize$Posi5on$

Harvest$

Improve$Posi5on$Op5mize$Posi5on$

Invest$to$Grow$Protect$Posi5on$Op5mize$Posi5on$

Harvest$or$Divest$ Mone5ze,$Harvest,$or$Divest$

Mone5ze,$Harvest,$or$Divest$

100$

80$

60$

40$

20$

0$

Mar

ket

Attr

activ

enes

s

Competitive Position

0$ 20$ 40$ 60$ 100$80$76

78.6

CLICK HERE TO SEE THE PORTFOLIO ANALYSIS

T

OMost competitors in San Francisco have a worse value area

→Getting in the better value is the key to succeed as an entrant

Starbucks already established itself as the California market leader

→ DD won’t succeed if it can’t differentiate itself from Starbucks

Local cafés are preferred in SF → Potentially difficult to have high trial rates in the market share

performance tree

Less than 0.5 Relative Market Share to Starbucks but higher profitability and growth

→ Increasing relative market share would potentially increase more than linearly the profitability and growth

INVESTING IN GROWTH THROUGH A BETTER VALUE PROPOSITION

THERE IS AN UNSATISFIED DEMAND FOR QUALITY SERVICE

7

CONSUMERS

CUSTOMERS

CUSTOMER != !

CONSUMER!=!

ANY BUSY PERSON

THE TARGET CONSUMER ISN’T VERY PRICE

SENSITIVE BUT DEMANDS HIGH QUALITY

SERVICE

REL

ATI

VE

PR

ICE

PERCEIVED PERFORMANCE

HIGH

SUPERIORINFERIOR

LOW

SOURCE: YELP SAN FRANCISCO - FINANCIAL DISTRICT

OPPORTUNITY

DUNKIN’ DONUTS HAS A HIGHER RANKING IN THE ACSI THAN THE CURRENT

SF MARKET LEADER (STARBUCKS)

DD = 79 STARBUCKS = 76

CLICK HERE TO SEE THE CUSTOMER SATISFACTION INDEX CHART

HIGH INCOME AND INNOVATION-ORIENTED CULTURE

8

CONTEXT

!

E San Francisco is one of the highest household incomes cities in the

country→ Opportunity for higher margins. !S Local trends for gourmet coffee beverages and organic products→Niche that’s not reached. !S Preference for local establishments instead of chains → Increased difficulty to penetrate the market. !

T High concentration of early adopters of new social

media and mobile apps → Opportunity for promotion that can be a threat in case of dissatisfied customers

VISION: ”DELIVER HIGH QUALITY FOOD AND BEVERAGES QUICKLY, AFFORDABLY AND CONVENIENTLY IN A WELCOMING ENVIRONMENT”

GOALS: BE THE MARKET LEADER

OBJECTIVES: ACHIEVE 25% U.S. MARKET SHARE IN 10 YEARS

STRATEGIC ANALYSIS: DD HAS A HOLISTIC APPROACH TO MARKETING STRATEGY

9

Best Product

Best Customer Relations

Best Total Cost to Customer

High

Medium

Low

MARKETING STRATEGY:

WIERSEMA’S CUSTOMER INTIMACY MODEL

TARGET: BEST CUSTOMER RELATIONS, WHILE ACHIEVE ABOVE-THRESHOLD COST TO CUSTOMER AND PRODUCT QUALITY

10

DECISION TREE

STRATEGIC ALTERNATIVES

WAIT/ OTHER AREA

BEST COST PROPOSITION

BEST CR PROPOSITION

FINANCIAL DISTRICT

+ LESS RISK!!- MISSED OPPORTUNITY

+ STEAL MARKET SHARE!!- LOSE BRAND EQUITY

+ INCREASE BRAND EQUITY!! -“STUCK IN THE MIDDLE”?

11

BEST CUSTOMER

RELATIONS

+ -• Growth in Brand Equity

• Appealing to the service quality-demanding

target market

• Possibility of high gross margins while still being

affordable

ALTERNATIVE 1: ENTER THE FINANCIAL DISTRICT WITH A BEST CUSTOMER RELATIONS PROPOSITION

• Risk of being “stuck in the middle”

• Possibility of being in the worse value area of

the perceptual map

→ESTIMATED NMC OF $1,949,000CLICK HERE TO SEE THE QUANTITATIVE ANALYSIS

12

BEST COST T

O

CUSTOMER

ALTERNATIVE 2: ENTER THE FINANCIAL DISTRICT WITH A BEST COST TO CUSTOMER PROPOSITION

+ -• Ability to be in the

better value area of the perceptual map

• Possibility of stealing market share from many pricier cafés

!

• Risk of losing brand equity

• Low price-sensitivity of target consumers

makes this option less attractive

→ESTIMATED OPPORTUNITY COST = NMC OF $1,949,000

→ESTIMATED NMC OF $115,000 CLICK HERE TO SEE THE QUANTITATIVE ANALYSIS

13

WAIT / OTHER

NEIGHBORHOOD

ALTERNATIVE 3: WAIT AND/OR ENTER IN A DIFFERENT NEIGHBORHOOD WHERE STARBUCKS HASN’T PENETRATED YET

+ -• Less competition

→ less risk

• Possibility to further understand the market

• Chance to be the market leader in the new neighborhood

• Possibility of missed opportunity

• Difficulty to compete with Starbucks will only

increase with time

→ESTIMATED OPPORTUNITY COST = NMC OF $1,949,000 CLICK HERE TO SEE THE QUANTITATIVE ANALYSIS

STRATEGIC RECOMMENDATION: ENTER THE FINANCIAL DISTRICT WITH A BEST CUSTOMER

RELATIONS PROPOSITION

ENTER THE FINANCIAL DISTRICT MARKET WITH A BEST CR PROPOSITION, ACHIEVING 20% OF THE MARKET SHARE IN 5 YEARS.

ESTIMATED GROSS PROFITS: $2,324,000

“INTENATIONAL” MARKET ATTRACTIVENESS INDEX= 80.8

APPEALING TO THE SERVICE QUALITY-DEMANDING TARGET MARKET

POSSIBILITY OF HIGH GROSS MARGINS WHILE STILL BEING AFFORDABLE

14

CLICK HERE TO SEE THE INTERNATIONAL MARKET ATTRACTIVENESS INDEX

TACTICAL MARKETING PLANSO

LUTI

ON

B

RA

ND

ED

15

INFO

& I

NC

ENTI

VES

Quality coffee beverage that is affordable and served quickly

Social Media Supermarket Coupons

Free Samples → Estimated Marketing Expenses: $375,000

→ Estimated NMC: $1,949,000 Estimated SDI: 4.48% Estimated MSI: 39.4%

CLICK HERE TO SEE THE FULL PRODUCT POSITIONING

16

VA

LUE

REL

ATI

ON

SHIP

Usage Of Reduce-Focus Pricing To Establish The Optimal Price Average Price Per Coffee Beverage: $6

AC

CES

S

TACTICAL MARKETING PLAN

Open 2 stores in the first year, in addition to a food truck, which would have its location announced through the social media

channels

In addition to applying the current programs DD Perks and DD Card, there should be constant activity through social media

networks, most importantly twitter and facebook, where popup-challenges could be easily implemented.

REDUCE-FOCUS PRICING

Chapter Tool(s) Slide(s)

1 Customer Satisfaction Index 2

2 NMC, Relative Market Share/ Profitability 25;24

3 Product Life Cycle, Market Share Performance Tree 3;29

4 Value Map 7

5 Segment Marketing Profitability 25

6 Industry Forces Analysis 4

7 Product Positioning 26

8 Product Life Cycle- Based Pricing 30

9 Marketing channel profitability 31

10 Marketing communications and customer response 29

11 GE/McKinsey Matrix 6/20

IM International Market Attractiveness Index 32

? Porter’s 5 Forces, SWOT, Protano’s 11Cs 4/21;5/6; 5

MARKETING TOOLS CHECKLIST

17

EXHIBITS

18

http://finance.yahoo.com/q/co?s=DNKN

DNKN SBUX YUM INDUSTRYMarket Cap: 5.30B 56.31B 32.43B N/AEmployees: N/A 182 N/A 18.80K

Qtrly Rev Growth (yoy): 0.13 0.12 0.01 0.00Revenue (ttm): 713.84M 15.34B 13.08B N/A

Gross Margin (ttm): 0.78 0.57 0.26 0.31EBITDA (ttm): 336.95M 3.05B 2.72B N/A

Operating Margin (ttm): 0.40 0.15 0.15 0.12Net Income (ttm): 146.90M 116.80M 1.09B N/A

EPS (ttm): 1.36 0.15 2.36 1.51P/E (ttm): 36.14 483.77 31.02 N/A

PEG (5 yr expected): 1.74 1.45 1.62 N/AP/S (ttm): 7.53 3.69 2.46 N/A

Direct Competitor Comparison

19

Market Forces (30%)Relative

ImportanceAttractiveness

RatingAttractiveness

Score Differentiation Advantage (40%)Relative

ImportanceAttractiveness

RatingAttractiveness

Score- Market Size 40% 80 32 - Product Quality 40% 80 32- Growth Rate 30% 80 24 - Service Quality 30% 100 30- Buyer Power 30% 100 30 - Brand Image/Reputation 30% 80 24- Total 100% 86 - Total 100% 86Competitive Environment (40%) Cost Advantage (40%)- Price Rivalry 50% 80 40 - Cost of Goods Sold 70% 80 56- Ease of Competitor Entry 30% 80 24 - Market and Sales Expenses 20% 80 16- Number of Competitors 20% 40 8 - Overhead Expenses 10% 80 8- Total 100% 72 - Total 100% 80Market Access (30%) Marketing Advantage (20%)- Customer Familiarity 40% 100 40 - Market Share 40% 0 0- Channel Access 40% 60 24 - Brand Awareness 30% 100 30- Sales/Service Requirements 20% 80 16 - Distribution 30% 60 18- Total 100% 80 - Total 100% 48

Market Attractiveness Index 78.6 Competitive Position Index 76

Portfolio AnalysisMARKET ATTRACTIVENESS COMPETITIVE POSITION

Portfolio Analysis

GE/MCKINSEY MATRIX

20

New$Market$Entry$Improve$Posi5on$

Invest$to$Grow$Improve$Posi5on$Protect$Posi5on$

Invest$to$Grow$Protect$Posi5on$

Improve$Posi5on$Op5mize$Posi5on$

Harvest$

Improve$Posi5on$Op5mize$Posi5on$

Invest$to$Grow$Protect$Posi5on$Op5mize$Posi5on$

Harvest$or$Divest$ Mone5ze,$Harvest,$or$Divest$

Mone5ze,$Harvest,$or$Divest$

100$

80$

60$

40$

20$

0$

Mar

ket

Attr

activ

enes

s

Competitive Position

0$ 20$ 40$ 60$ 100$80$76

78.6

21

Bargaining Power !of Buyers

Low to moderate

Target consumers are price sensitive, but don’t have

bargaining power individually

Bargaining Power of Suppliers

Low to moderate

Huge scale operations give Dunkin Donuts a high

bargaining power against its suppliers

Threat of New Entrants

High

Profitable market, commodity product and low

entry barriers make the market attractive to enter

Industry Rivalry

Moderate to high

Commodity product and huge amount of cafés and coffee chains intensify the

rivalry

Threat of Substitutes and Technological

Obsolescence

Moderate

There are energy products and hot beverages might be

imperfect substitutes for some consumers

Porter’s 5 Forces of Competitive Rivalry

22

AM

ERIC

AN

CU

STO

MER

SA

TISF

AC

TIO

N I

ND

EX

100

0

SOURCE: ACSI - 2012

79

DUNKIN DONUTS

76

STARBUCKS

Customer Satisfaction Index

23

http://www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/

24

NET

INCO

ME

(GLO

BAL)

IN M

ILLI

ON U

SD

RELATIVE MARKET SHARE

116.8

146.9

0.494 2.025

Relative Market Share/ Profitability

25

BEST OPTION!

26

27

Name Price)x)2.5 Customer)Rating63x5Specialty's)Cafe)&)Bakery 2,50 1,88

The)Coffee)Bean)&)Tea)Leaf 2,50 2,92The)Posh)Bagel 2,50 1,25

Working)Girls')Cafe 2,50 2,50Peet's)Coffee)&)Tea 2,71 2,40

Starbucks 3,25 1,41Cafe)Madeleine 4,17 2,50

La)Boulange 4,38 1,88

Value Map Source Table

28

Market Share Performance Tree

29

! Marketing Communications and Customer Response

30

REDUCE-FOCUS PRICING

31

Marketing Channel Profitability

32

!International Market Attractiveness Index !

(TAKING CALIFORNIA AS A DIFFERENT COUNTRY)