Linking New ProductService Development to the Bottom Line: The Dunkin Donuts Story

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Linking New Product/Service Development to the
Bottom Line The Dunkin Donuts Story

• Regina Lewis Vice President, Consumer/Brand
  Insight Group

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Nearly a billion served annually - cups of coffee
that is!

• The largest coffee and baked goods chain in the
  world, serving 4 million donuts and almost 3
  million cups of coffee daily.
• Nearly 7,000 distribution points worldwide, with
  about 5,000 in the United States and the rest in
  key international markets including Asia-Pacific
  and Latin America.
• Part of the Dunkin Brands Inc. portfolio of
  brands which also includes Baskin-Robbins and
  Togos.
• Annual world-wide system-wide sales of 5
  billion.

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Past, present and future

DUNKIN DONUTS RE-CONCEPT
1981
2001
2010
2006
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Background

• Extremely high levels of brand recognition across
  the country.
• Store development heavily concentrated in the
  Northeast.

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The critical questions

• How does a local hero become a national icon?
• Does the Dunkin Donuts concept work across the
  US, or would changes need to be made in order to
  ensure success nationally?

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How do we make the best go-to-market decision?

• There was no shortage of ideas about what we
  could do.
• We should serve sandwiches.
• Lets offer catering and delivery.
• We should offer cozier seating.
• We should be more sophisticated.
• We should serve soup and sandwiches.
• But at the same time, there wasnt much
  information about what we should do
• What do consumers want/need?
• What will make us the most profitable?

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Solution Dunkin Donuts Re-Concepting

• Phase 1 Marketing Collaboration
• Where are we now? Where do we want to go?
• Understand internal ideas, motivations, wants,
  fears, opinions, etc.
• Obtain a broad understanding of the external
  trends, consumer needs and opinions, etc..

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Solution Dunkin Donuts Re-Concepting

• Phase 1 Marketing Collaboration
• Where are we now? Where do we want to go?
• Understand internal ideas, motivations, wants,
  fears, opinions, etc.
• Obtain a broad understanding of the external
  trends, consumer needs and opinions, etc..
• Phase 2 Retail Concept Engineering
• What is the best route to reach our goals?
• Mechanism for studying millions of store ideas.
• Understand how different characteristics drive
  store use and profitability.
• Provide some science to precede the art of
  developing a new concept.

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What is Concept Engineering?

• A sophisticated research study used to evaluate
  the trade-offs buyers make in determining what
  to purchase.
• Conducted in a realistic contexttherefore,
  findings can be projected to the overall
  marketplace.
• Strong focus on profitability to help build the
  business case for or against specific offerings.
• Applicable to consumer and b-to-b products,
  services, as well as retail concepts.

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Advantages of the Dunkin Donuts methodology
compared to typical concept testing and trade-off
analysis

• Respondents react to product/service/price
  configurations in a competitive context more
  accurately reflects real-world decision-making.
• Respondents react to full-profile descriptions
  of the service features, and price elicits more
  accurate reactions than if respondents saw only
  partial concepts.
• Concepts tested as a fit/replacement for actual
  recent visit occasion.

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The process

• A vast, collaborative effort (like nothing
  before) from key Dunkin Donuts management to
  identify all possibilities to be tested.
• Detailed descriptions of a multitude of possible
  scenarios were developed, from outside
  appearance, inside environment, service
  offerings, menu offerings, etc.
• Estimates of the incremental franchisee/operations
  cost associated with every option examined were
  gathered for use in the profitability analysis.

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The scenarios

• Hundreds of ideas were captured and tested.
• Examples of items included
• Store type
• Exterior Appearance
• Store appearance/mood
• Slogan
• Brand
• Beverage offerings
• Food offerings
• Number of Drive Thru lanes
• Billions of possible combinations.

• Service Experience
• Speed
• Portion Sizes
• Hours of Operation
• Cleanliness
• Music
• And much more!!!

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Concept cards

• Concept cards were prepared using the possible
  restaurant scenarios.
• Respondents saw detailed restaurant descriptions
  along with a menu (including menu prices).
• All items were included in the concept cards
• Store type
• Exterior Appearance
• Store appearance/mood
• Slogan
• Brand
• Beverage offerings
• Food offerings
• Number of Drive Thru lanes

• Service Experience
• Speed
• Portion Sizes
• Hours of Operation
• Cleanliness
• Music
• And much more!!!

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Respondent profile

• 1,000 in-person interviews conducted nationally
  among quick service restaurant users
• Dunkin Donuts customers and non-customers.
• Ages 18-55.
• Interview spread across six US census regions.
• A mix of market types based on internal
  definitions.
• Representative mix of U.S. population.
• 45-minute interview.

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The interview

• Before reacting to specific concepts, respondents
  answered a series of questions about the last
  time they purchased food/beverages during two
  different day parts.
• Morning, before 11 am
• Mid-Day between 11 am and 2 pm
• Afternoon between 2 and 5 pm
• Evening between 5 and 8 pm

Asked about 2 of these
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The interview

• Respondents were shown a restaurant concept with
  the menu and asked to review it.
• If this restaurant had been available during your
  last (insert daypart) trip, how likely is it that
  you would have gone to this restaurant instead of
  the one that you visited?
• Please tell me everything that you would have
  ordered at the restaurant if this were the menu
  this last (insert daypart) trip?

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The interview

• Respondents were shown 8 different restaurant
  concepts and asked about two different dayparts
  for each.
• Yielding a total of 16,000 different data points.

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Analysis

• Developed statistical models to explain
• Likelihood to visit the restaurant.
• Spending.
• Clearly identified what the impact would be of
  each potential restaurant and menu change,
  overall and for different types of customers.
• Estimated by daypart.
• We measured the impact of each individual factor
  and level on likelihood to visit and spending.
• Untangle how much impact each individual item
  has on visits and spending.

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Impact of specific factors
Hypothetical Outcome
Impact of Uniforms on Trips
Impact of Uniforms on Profits
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Isolating the overall impact of each factor
Hypothetical Outcome
Low Impact
High Impact
Moderate Impact
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Analysis

• Once we knew the impact of each individual item,
  we re-assembled all possible restaurant and
  menu combinations to forecast visits and
  spendingultimately sales.
• We overlayed the cost for each individual item
  and calculated the resulting profitability of
  various alternatives.

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Searching for the optimal combinations
Where appeal and profitability intersect
Positive
Profitability ( Sales Less Costs)
Negative
Low
High
New Retail Concept Appeal (Based on Purchase
Intentions)
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Hypothetical comparison of different concepts
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Analysis

• In addition to providing a path to the new
  concept, this approach also identified the most
  valuable short-term improvements if re-invention
  were required.
• As individual steps to improvements.
• In combinations as well.

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Understanding the impact of combinations of
elements
Hypothetical illustration what would happen to
incremental trips as additive changes are made.
4.5
3.9
4
3.5
3.6
3.4
3
of Incremental Trips
2.5
2
1.5
1.5
1
0.5
0
0
Comfortable Seating
Current
Drive Thru Lanes
News
Staff Uniforms
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Where we were at the beginning.

• Strong desire to reach national brand status with
  uniformly positive consumer perceptions across
  the country.
• Lots of ideas, little information on which to
  make a go-to-market decision.

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.Where we ended up

• Better read on national viability of the brand.
• Prescriptive guidance for how to maximize profits
  with the current concept.
• Clear direction on the most profitable approach
  for national expansion.

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.Marketing the Box

• Our new concept test store was designed to
  provide consumers with a true sensory experience.

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The New Concept Store
Lots of colors Unique shape New logo Lots of
windows
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The New Concept Store
Front display bakery case
Pre-packaged fresh items
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The New Concept Store
Menu boards change during the day
Glass carafes
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The New Concept Store
Pick Up Area
Mixing Station
Grab n Go area
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The New Concept Store
Retail Merchandising
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Next steps for us.

• This concept engineering tool will continue to
  provide great value as Dunkin Donuts moves
  forward, and will live long beyond this study.

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Next steps for you.

• Use breakthrough tools like concept engineering
  to build better, more profitable products,
  services, and stores.

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Appendix Customer Perceptions of our brand
increased significantly with the new shop.
In-Shop
N 92
N 84
N 125
N 125
Call Back Q2e / Drive-Thru Q5c / Q5e Now that
you have been to the Dunkin Donuts store on
_____, would you say that your overall perception
of Dunkin Donuts is much worse than, somewhat
worse than, the same as, somewhat better than, or
much better than it was before you visited the
Dunkin Donuts store on _____?
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Appendix The New Concept Store far outscored
competitors on virtually all items.
of In-Store Customers Saying This Dunkin is
Much Better Than My Most Often Competitor
on.. Top Box Ratings
Continued
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Appendix The New Concept Store far outscored
competitors on virtually all items.
of In-Store Customers Saying This Dunkin is
Much Better Than My Most Often Competitor
on.. Top Box Ratings