Ansoff’s Growth Matrix

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High levels of competition on the market usually work to drive prices down, but since none of the current actors on the market has the obvious price-related advantage of economies of scale, price levels are not the competing factor in this industry. Instead, differentiation on place, promotion or product is what drives the competition in the Danish coffeehouse industry.

When Dunkin’ Donuts enters the Danish market, they will no longer be able to take advantage of the economies of scale, and at the same time, as mentioned in chapter 5, they will have to pay higher taxes and wages than what they have been used to in the United States. Together, this means that they will not be able to compete on price in Denmark. Instead, they will have to focus on differentiation of their product, place and/or promotion aspects. Based on the TOWS matrix analysis, TOWS’ specific recommendations as to how Dunkin’ Donuts can achieve this differentiation strategy will be explored.

As evident in both the ‘weaknesses’ and ‘opportunities’ parts of the TOWS matrix, online sales is an area in which Dunkin’ Donuts has room for improvement. They have not yet opened up for the option of buying either baked goods or coffee and merchandise online in any of their European franchises. Doing so in Denmark would provide both the option of creating loyalty programs to retain customers and encourage customer loyalty but would also provide Dunkin’ Donuts with a strong way of differentiating themselves from the competition (e.g.

Starbucks & the Donut Shop) in Denmark.

Recommendation: Add online purchasing option

As mentioned in chapter 5, donuts have not yet captured the Danish market, which gives Dunkin’ Donuts a point of difference from the competition. However, as coffee has now been moved to the forefront of the Dunkin’ image, the donut selling point has been diminished.

Therefore, a split promotional focus on both coffee and donuts would provide Dunkin’ Donuts with a way to differentiate their offerings from the offerings of the competitors.

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has proved to be a convenient framework when looking at possible strategies to help reduce potential gaps that could have a negative impact on a corporations’ growth (Ansoff, 1957).

By applying the Ansoff matrix to this thesis, it will serve as a business analysis guide,

providing a framework allowing growth opportunities to be identified for a Dunkin’ Donuts franchisee on the Danish market. The matrix will help consider the implications of growing the business through existing or new products and in existing or new markets (Perry, 1987).

Figure 14: Ansoff’s Growth Matrix

Source: Hooley, et al. (2012)

The four sequences of the strategies, and as illustrated in the Ansoff matrix, are:

 Market Penetration – focus should be on selling already existing products or services to existing markets to achieve growth in market share.

 Market Development – focus on developing new markets or market segments for existing products or services.

 Product Development – focus on developing new products or services for existing markets.

 Diversification – focus on the development of new products to sell into new markets.

The matrix is not bulletproof, or an instant gateway to accomplish market growth. It does, however, provide an outline of alternative methods by which the user can achieve a certain mission or growth targets. The four different options in the matrix are not mutually exclusive,

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and to a certain extent, the organization using this tool, might need to combine several different elements.

Recommendation: Focus on both coffee and donuts 8.2.1 Dunkin’ Donuts’ growth strategy

Although just mentioned in the paragraph above, some organizations may need to combine several of the elements in Ansoffs’ matrix, to achieve a certain desired outcome. For a Dunkin’

Donuts expansion to Denmark, only the market development strategy is advised. Therefore, this thesis will not argue or mention any of the other strategies involved in the Ansoff matrix, as it solely will focus on growth strategies through market development.

It is advised, to conduct a SWOT or TOWS analysis and an internal analysis prior to using the Ansoff matrix (McKinsey 7s model). These have already been conducted, internal and external threats and opportunities have been identified, and thus the use of Ansoff’s’ matrix is

supported (Proctor, 1997).

The market development strategy aims at selling existing products on new markets. By potentially expanding their franchise system to Denmark, Dunkin’ Donuts is looking at a new geographical market.

There is a ‘moderate risk’ involved when expanding to foreign ground, as it will depend on whether or not the new franchise can establish sales channels in this new market. The market development strategy is only categorized as a ‘moderate risk’. As described in previous chapters, it is the franchisee that is mostly at risk.

Dunkin’ Donuts being one of the top-leading, fastest growing QSR brands based on unit growth, they continue to strategically expand in contiguous markets across the world. With more than 60 years in the franchise business, they have found and developed a successful operation system that can deliver a significant impact to the communities they serve in, and

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are always on the lookout, actively seeking entrepreneurs to become a new face in the organization.

CFE and vice president of global franchising and business development, Grant Benson, states,

“We are looking for community leaders who may already operate local businesses, such as other restaurants, retail outlets or even convenience stores and gas stations, who have the passion, financial qualifications and experience to operate a Dunkin’ Donuts. Our restaurants are typically owned and operated by small business owners, and our development teams work closely with our franchisees to find the development solutions that meet the needs of individual markets” (DunkinBrands.com, 2014, p.1).

With nearly 18,000 points of distribution in nearly 60 countries worldwide, Dunkin’ Donuts experiences tremendous growth by operating its current business model. This model offers Dunkin’ Donuts strategic and financial growth benefits, as they do not own or operate any of their stores, and therefore, can focus on marketing, menu innovation and other initiatives to drive future growth (Trefis, 2014). Evidently, this concludes a moderate risk for the

organization, whereas the franchisees suffer a greater financial loss if not able to keep the store running.

Joining the Dunkin’ Donuts team, empowers the franchisee, as he/she becomes part of an international, well-established corporation, that has a 95% brand recognition in the U.S. and a multi-million dollar international advertising fund, ongoing support and a world class

franchise training system (DunkinBrands.com, 2014). Despite not being established on Danish ground yet, Dunkin’ Donuts has 73% brand recognition (Appendix 6, Q1).

The franchised business model, with which Dunkin’ Donuts operate, provides a platform for growth, not only for the corporation, but also for the franchisee. Unlike McDonalds and Starbucks, which follows a company operated business model, Dunkin’ Donuts’ franchise model leaves the franchisees with higher margins of income, due to the low investment required by the Dunkin’ Donuts Corporation. Further, both franchisee and corporation experience growth from the well-established supply chain system, cooperating with the organization. As the franchisee is able to purchase supplies through this network, each

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individual franchise becomes competitively stronger on the market, as they inevitably are capable of higher growth and dominance on the market through competitive prices, which smaller individual coffeehouses not are able to achieve.

A decade ago, the Danish coffeehouse market was unsaturated and under-developed; today a more mature market expresses its well-being, with many more players, big and small,

scrapping for market-shares. Battling for customers and market share in a mature market, will undeniably lead to higher rivalry amongst existing and new players in the coffeehouse sector.

Therefore, according to the questionnaire (Q5), 60% of the participants would consider a purchase from a Dunkin’ Donuts, if one were to open. 56% of the applicants stated that

‘quality’ was their number one reason for choosing a coffee purchase (Q11). 63% said that they were not loyal to any given coffee chain and would consider switching (Q12). Finally, 59% would make the change to Dunkin’ Donuts if the price was better than their current provider, and 62% would make the change if the quality was better (Q13).

The final conclusion towards market growth will, therefore, state that despite Dunkin’ Donuts limited Nordic experience, if they can prove their market leadership, by providing customers with the same or higher quality products, at a lower price than their immediate competitors, there will be a possibility for growth and higher market shares. This is possible if they are able to attract some of these ‘indecisive customers’ who are not yet loyal to any chain or

coffeehouse, and potentially convert them to becoming loyal Dunkin’ Donuts customers, and build a long-time customer relationship.

Recommendation: Market development through coffee-to-go locations