Industry Watch:The Battle Over a Hill of Beans

Industry Watch: The Battle Over a Hill of BeansCoffee chains roast one another

It's going to take more than a recession to get people to skip their daily jolt of java. Starbucks, the grand dame of designer coffee, and Dunkin' Donuts, the regular joe, are taking radically different marketing approaches to keep caffeine cravers addicted to their brands.

Throughout 2008 Starbucks struggled with the lousy economy, announcing in July it was closing about 600 of its U.S. outlets. In response Dunkin', which earns 65 percent of its revenue from coffee and other drinks, fattened its marketing budget, turned up the folksy factor and is adding more online media, especially Twitter, to get the word out and learn what to do next. Dunkin' also opened 500 new stores in the United States last year. Consumers, it turned out, thought changing their daily coffee habits was an easy way to save a few dollars when they felt broke. A January study by Lightspeed Research confirmed it: 56 percent of Americans said they are cutting back on expensive takeout coffee to save money.

With its retro name and logo that conjures up '60s-era prices, Dunkin' started the new year by unveiling a $100 million ad campaign with the upbeat theme "You Kin' Do It," using parts of its name - dunkin' DOnuts. Ads by Interpublic Group's Hill Holliday set up the brand as an encouraging friend helping ordinary people get through everyday challenges. "The campaign cheers on the hardworking people who keep America running by reminding them they can take on any task: You kin' make it through the workday and you kin' finish that paperwork," says Frances Allen, Dunkin's (perhaps over-caffeinated) brand marketing officer. The year-long campaign started with three television spots, followed by radio, print, and outdoor ads, plus special events and sports marketing.

On the online front, the company lowered prices (99 cents for coffee and a sandwich) and hyped its national and regional discounts via Twitter content by "Dunkin' Dave." Tweets from Dave, staff and customers weave marketing info about store openings, promotions and product giveaways with comments about weather, road trips and driving music. By early February the Dunkin' Twitter feed had about 5,700 followers.

In January, the company also launched a brand channel on YouTube and invited people to share videos that answer the question, "How Do You Keep America Running?" promising a year's supply of Dunkin' coffee for the top 50 videos, rated by judges and visitors to the site. Online ads on YouTube channels, Google, and social networks support the contest.

On Facebook, Dunkin' also maintains a page that has more than 380,000 fans, says David Tryder, interactive and relationship marketing manager. For two days in January, Dunkin' held its first Facebook "event" to support its new "better-for-you" products. Culinary, communications and brand teams answered myriad questions from users about egg-white flatbread sandwiches, Berry Smoothies and multigrain bagels.

The current campaign builds on last year's tv ads, which established Dunkin's position against Starbucks. In October a taste-test ad took on Starbucks directly by citing a survey and using the line, "More hardworking Americans preferred the taste of Dunkin' Donuts over Starbucks." A dedicated microsite,, offers users a chance to "Spread the Truth," by sending an e-card to "your less fortunate Starbucks friends." In its first week the site attracted about 98,000 visits, says Tryder.

"Our interactions vary because on any given day, we never know what we may see or hear online," he says. "We started [social media] without any expectations."

Starbucks clearly is feeling the pressure. The company sustained a 3 percent decline in same-store sales and a 53 percent profit drop in fiscal 2008. During a December interview with cbs anchor Katie Couric, Starbucks chief Howard Schultz said, "I think the way we deal with [attacks from competitors] is not to respond. Are you going to say to your friend, 'Let's go meet at Dunkin' Donuts'? Are you going to say that?" A month later came Starbucks' announcement that among its remaining 6,600 u.s. stores, another 200 will have to be shuttered in 2009 and it would be slashing 6,700 jobs.

While Dunkin' is navigating the recession with an assertive hard-sell stance, Starbucks is depending on a softer, cause-oriented, celebrity-endorsed approach. On Election Day it gave away free coffee, and backed the promotion with a strong pr push that generated heavy national press. With newly hired advertising agency bbdo New York, Starbucks also advertised the giveaway with a tv spot during Saturday Night Live four days before the election.

In January the coffee chain joined with the nonprofit HandsOn Network to launch the "I'm In!" campaign, tied to President Obama's call for national service. Consumers who pledged five hours or more of volunteer service with a community group got a free cup of coffee. A YouTube video titled "Starbucks asks Are you in?" featuring rapper MC Yogi helped get the word out. Posted in mid-January, it snagged more than 990,000 views in the first two weeks.

The effort also got a huge boost from Oprah Winfrey. Starbucks ran online ads about the initiative on as well as,, CNN, Facebook and other sites. Winfrey then talked up the campaign on her day-after-inauguration talk show and included film of customers at a Washington, D.C., Starbucks.

The HandsOn campaign generated pledges of more than 1.25 million hours of service, says Lisa Passé, Starbucks global communications manager.

Starbucks also runs an ongoing social media effort around its V2V partnership, launched in April 2008. V2V offers a social network that encourages volunteers to collaborate online with information about community events. The network is the "fourth place that extends beyond the four walls of our stores" to help partners and customers share the things they are doing in their communities. The goal is 1 million hours of community service per year by 2015, says Passé. By early February, it numbered about 14,600 registered members.

Starbucks' annual ad budget for paid media has been in the $30-55 million range for the last two years, per Nielsen Monitor-Plus, but future spending could change as the economy struggles. "There isn't necessarily a blueprint for how we communicate with our customers," says Passé. But using digital channels to "extend the dialogue" about community programs is "definitely on the right path," she says. Dunkin' would likely agree.

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