Article

Dunkin' Donuts uses LTO strategy to 'talk to customers'

Dunkin' is working on a loyalty program that makes sense with a franchised system.

April 9, 2013 by Alicia Kelso — Editor, QSRWeb.com

Dunkin' Brands' has a product pipeline that seems endless as of late. Just last week, for example, Dunkin' Donuts introduced chicken salad and tuna salad wraps, two new flavors of iced coffee inspired by Baskin-Robbins ice cream and spring-themed donuts. 

At a recent event, chief financial officer Paul Carbone said the company has "perfected a strategy of 12 LTOs a year" and its roster has never been deeper.

Carbone and Weldon Spangler, vice president of Dunkin' Donuts Operations for U.S. and Canada, provided a little more color about that strategy last week at the Morgan Stanley Retail & Restaurant Conference, saying it allows them to better compete in a tight QSR space.

"The thing about LTOs is it gives regular guests something new, something interesting and something exciting to talk about," Spangler said. "When we do it on the food side, it gives us an opportunity to compete with McDonald's and Starbucks at a higher level."

New products also allow Dunkin' to better connect with its consumers, Carbone adds.

"We don't need that LTO, that breakfast sandwich, to drive a huge amount of sales. But the strategy gives us the right to talk to the consumer and say 'there's something new in the store.' It breaks up their routine," he said. "The importance of the LTO is it's given me permission to talk to the consumer, more so than the actual dollars the item gives us."

Dunkin' estimates its food-attachment rate to be about one-third of the average transaction, slightly higher than Starbucks. The company is in the process of adding metrics systems to mine more accurate data.

"Attachment-related selling is Retailing 101, and I think it's one of those last pieces from a data and analysis piece that we haven't yet got to but we're working on," Carbone said.

Other marketing initiatives

In addition to having a robust product pipeline to bolster customer relationships, Dunkin' is also relying on its mobile app and other marketing tools to stimulate sales. The app, launched in August, can push out location-based offers, Carbone said.

Dunkin' is also focused on radio advertising that can be changed quickly if the weather changes, for example, and in-store merchandising for suggestive selling efforts.

One piece that is still missing, however, is a deal-site connection to drive traffic, similar to what Starbucks has offered through LivingSocial and Groupon.

"This is more about our model and their model — company-owned versus franchisee," Carbone said. Dunkin' would get too small of a royalty amount from such an offer to justify the cost.

"We probably don't have that particular weapon available to us and it really brings up the challenge of customer acquisition in a franchise model, which is why you don't see a lot of loyalty programs in franchisee systems," Carbone said.

Still, the company is currently working on a loyalty piece and hopes to have one in place by the end of the year.

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