Can Dunkin’ Donuts Be The Next Southwest Airlines?
Southwest Airlines took on the 800lb gorillas of the airline industry by becoming the airline for the masses and the America’s most profitable airline. Similar conditions exist today in another industry that also keeps people flying – the coffee biz – that might give Dunkin’ Donuts the opportunity to mount the most significant challenge ever to the 800lb Starbucks gorilla.
Thirty-five years ago Southwest Airlines debuted their domestic air service in the United States and did something completely unorthodox in doing so: they ignored their competition. The established airlines of the day were all competing for the same small percentage of the traveling population who could afford the high-priced luxury of air travel. Southwest realized that just because people couldn’t afford to fly didn’t mean they didn’t travel. In fact, the market for vacationers and business travelers who used cars or buses as their primary mode of transportation was vastly bigger than those that traveled by air.
By focusing on the opportunity in the marketplace versus what the other airlines were doing, Southwest designed a product around the lifestyle, needs and desires of their target audience: America’s Average Joe. To appeal to this mass-market audience the airline had to find ways to compete against the car and the bus. We all know the results: the airfares had to be cheap, schedules had to be convenient and the whole experience had to be simple and fun. Designing a product around a target audience is certainly not innovative or unique, but, at the time, creating a niche out of the mass-market was.
Starbucks, like the major airlines before them, has a virtual lock on the coffee-drinking market in the United States. They offer a relatively high-priced product to be served in, what they call, the “third space.” Starbucks pioneered the concept of the third space experience: the place between work and home where people can spend time and drink coffee. To date, little serious competition has been mounted against Starbucks on a national level and most of it has come from copy-cat brands attempting recreate their own version of the third space coffee experience. But what of the average Joe who doesn’t want a couch to sit on and longs for the days when a tall was small, a grande was medium and a venti was a large cup of coffee.
In an April 6th, 2006 article in the Wall Street Journal titled, Brewing Battle, Dunkin' Donuts Tries to Go Upscale, But Not Too Far, the journalist revealed that, through market research, Dunkin’ Donuts learned that trying to compete head-on with Starbucks would alienate some of their most loyal customers. More specifically, the article reported that after Dunkin’ testing out a new food offerings with customers, they had to rename a “new hot sandwich a ‘stuffed melt’ after customers complained that calling it a ‘panini’ was too fancy.” Such observations highlight Dunkin’s opportunity to be the cup of joe for the average Joe; however, it also raises a flag of caution. Should Dunkin’ truly be the everyman’s champion, they must do so with an eye to their customers and not their competition.
We contacted Howard Putnam, former CEO of Southwest Airlines and author of the book The Winds of Turbulence: A CEO's Reflections on Surviving and Thriving on the Cutting Edge of Corporate Crisis, to get his thoughts on the similarities between what Southwest Airlines did and what Dunkin’ Donuts can do. Putnam confirmed the opportunity is similar for Dunkin’ as long as they stay focused on who they aim to serve and not on what Starbucks is serving. Based on the things Southwest did to become the most successful airline in history (58 consecutive quarters of profitability even after the September 11th attacks), we’ve extracted three essential pieces of advice for Dunkin’ Donuts in their popular quest.
Don’t serve products, serve people.
When Southwest planned new routes, they didn’t look at where other airlines were flying. By driving down various highways and taking note of the out-of-state license plates, Southwest executives saw first hand the distances people were traveling. They figured that if their potential customers were driving long distances to get from place to place, Southwest could fly them there instead. Dunkin’ Donuts must do all they can to learn about the lives and lifestyles of their customers and develop products accordingly.
- Beware of “Mission Creep.”
One of the major reasons Southwest dominates their industry is not just because of a cheap product, it’s because everything about the airline, from their product to their culture is focused on their vision.
Needing to ensure every product, employee and franchisee is focused on the vision, Dunkin’ Donuts needs to make sure that their culture is by design and not by default. As Putnam implores, “know what business you are in and know what culture you have to develop to support that vision.”
- Average Joes Are Anything But Average
Though the price of Southwest airlines was an important detail of being the airline for the rest of America, it didn’t mean that their product appealed exclusively to those who couldn’t afford to fly the majors. “’Joe six pack’ is not a demographic, it’s a state of mind,” says Putnam (a part of which he proudly declares himself). He goes on to tell a story of a CEO he knew from a large corporation who flew one of the major airlines whenever he flew on business, but for the times he flew with his family on personal trips, he always preferred Southwest.
The same is true for Dunkin’. A cup of Joe for the Average Joe is a cause to be championed. As long as Dunkin’s products, marketing and culture consistently deliver on this, average Joes will show up in all sorts of places.
Dunkin’ Donuts is off to a good start with their new ad campaign “America Runs on Dunkin’.” But only time will tell if their focus will last beyond a marketing campaign. Everything Dunkin’ does from this day forth should work to unite them with their fellow average Joes. In fact, here’s a free tip that may help serve the cause: Dunkin’ coffee on all Southwest Airlines flights.