KRISPY KREME Krispy Kreme makes 2.7 billion donuts a year.

But it took more than fresh, hot donuts to earn Krispy Kreme the title of "hottest brand in America" in 2003. Krispy Kreme's stock price quadrupled in the three years following its IPO in 2000, and the entire chain now generates a billion dollars in annual revenues across more than 300 outlets. How did Krispy Kreme turn donuts into dollars? Careful brand positioning and local marketing tell the story. "We have a humble brand and product," says Krispy Kreme CEO Scott Livengood. "It's not flashy." The company is not new— it was founded in 1937—and part of its brand image is an old-fashioned feel. The plain red, green, and white colors and retro graphics evoke the squeaky-clean Happy Days of the 1950s, as do the Formica-filled, kid-friendly shops. "We want every customer experience to be associated with good times and warm memories," Livengood says. The company's brand image also rests on its fresh, hot donuts—a freshness that's measured in hours. In a world of processed, prepackaged food, nothing beats a fresh, hot donut. The company's marketing is grassroots local. Krispy Kreme has no traditional media advertising budget. Rather, local "community marketing managers" enlist the aid of local groups and charities. For example, the company helps charities raise money by selling them donuts at half price which they can re-sell at full price. Local bake sales become a promotional tool for Krispy Kreme. Another tactic is giving away free donuts to TV, newspapers, and radio stations before entering a market. Krispy Kreme scored a publicity coup in 1996 when it opened its first store in New York City. The company delivered boxes of donuts to the Today Show, garnering millions of dollars worth of national exposure for the price of a few donuts. Even the day of the IPO relied on the buzz from free Krispy Kreme donuts on the floor of the stock exchange. Each local outlet is an emissary for the brand, and Krispy Kreme's signature Doughnut Theater defines the brand image. A multisensory experience, Doughnut Theater occurs several times a day at each shop. When the store flicks on its "Hot Doughnuts Now" sign, the performance is about to begin. A large plate glass wall lets customers watch the whole process.

The Doughnut Theater experience works on three levels. On a direct level, the performance entertains customers and draws them into the donut-making experience. On an indirect level, it shows that the products are freshly made in a clean environment. On a subliminal level, as CEO Livengood describes it, "The movement of the products on the conveyor through our proofbox has this relaxing, almost mesmerizing effect. The only other thing like it is standing on the oceanfront and watching the tide come in. It has that same consistent, relaxing motion that is really positive to people." People flock to the store to see wave after wave of donuts emerge hot and deliciously fresh. They happily stand in long lines around newly opened outlets to get the aroma of the donuts being made, the sight of the vanilla glaze waterfall, and the warmth of the hot donut that "just melts in your mouth and tastes so good," Livengood says. Doughnut Theater is a bit of show business that draws customers into the baking experience and makes them feel like they are a part of the process. Another aspect of show business is product placements on hit shows like The Sopranos and WHI& Grace and movies like Bruce Almighty. Finally, international expansion is fueled by celebrities like Dick Clark, Hank Aaron, and Jimmy Buffet, who clamored for Krispy Kreme franchises of their own. Krispy Kreme doesn't just grant franchise rights to anyone. Krispy Kreme makes 65 percent of its revenue selling donuts directly to the public through its 106 company-owned stores. Another 31 percent comes from selling flour mix, donut-making machines, and donut supplies to its 186 fran-chised stores. The final 4 percent of revenue comes from franchisee licenses and fees. Krispy Kreme is now expanding and selling donuts through convenience stores. Will this hurt the brand? Stan Parker, Krispy Kreme's senior vice president of marketing, says it won't because the company continues to emphasize freshness. It replenishes the packaged donuts daily from the local Krispy Kreme store and removes any unsold packages. The donuts' presence in convenience stores will help remind people of the taste of a fresh, hot Krispy Kreme donut, and that brings them back into a Krispy Kreme shop. The success of Krispy Kreme has been a wake-up call for competitor Dunkin' Donuts, which had become complacent. The onetwo punch of Krispy Kreme in donuts and Starbucks in coffee led Dunkin' Donuts to revamp its menu and its stores, neither of which

had changed in years. Rather than innovate, Dunkin' Donuts looked at what customers were already eating elsewhere. It brought in basic products like bagels, low-fat muffins, and breakfast sandwiches. Dunkin Donuts still dwarfs Krispy Kreme in size, with 2003 revenues of $3 billion, but it must work to find new ways of creating excitement that builds customer pride, because one thing is sure: Krispy Kreme refuses to be dull. Discussion Questions 1. What have been the key success factors for Krispy Kreme? 2. Where is Krispy Kreme vulnerable? What should it watch out for? 3. What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?

Toyota Toyota may have gotten its start in automaking by being a fast follower, but it is now the innovator. In 1936, Toyota admitted following Chrysler's landmark Airflow and patterning its engine after a 1933 Chevrolet engine. But by 2000, when it introduced the first hybrid electric-gasoline car, the Prius, Toyota was the leader. In 2002, when the second-generation Prius hit showrooms, dealers received 10,000 orders before the car was even available; GM followed with an announcement that it would enter the hybrid market with models of its own. Toyota's strategy for the Prius was to build an environmentally friendly car that reduced the footprint on the environment by reducing energy consumption, greenhouse gas emission rates, and smog emission rates. Toyota president Fujio Cho sees environmental performance as essential to the future of cars. Introducing such leading-edge products presents marketing challenges. For example, the marketing messages must educate consumers that the Prius doesn't need to be plugged in, as an electric car does. The marketing messages must also communicate the value of fuel efficiency, not just for fuel savings for customers, but for the environment as well. "Every gallon of gas burned releases 20 pounds of carbon dioxide into the atmosphere. The general public still lags in appreciating the global warming significance of that," said

Dave Hermance, executive engineer for environmental engineering at Toyota's Technical Center in Los Angeles. Toyota offers a full line of cars for the U.S. market, from family sedans to sport utility vehicles to trucks to minivans. Toyota also has products for different price points, from lower-cost Scions to midpriced Camrys to the luxury Lexus. Designing these different products means listening to different customers, building the cars they want, and then crafting the marketing to reinforce each make's image. For example, Toyota spent four years carefully listening to teens before launching the Scion for first-time car buyers. It learned, for instance, that Scion's target age group of 16- to 21 -year-olds wanted personalization. To meet that preference, Toyota will build the car mono-spec at the factory and let customers at dealerships choose from over 40 customization elements, from stereo components to wheels and even floor mats. Toyota markets the Scion at music events and will have showrooms where "young people feel comfortable hanging out and not a place where they just go stare at a car," said Scion vice president Jim Letz. In contrast, Toyota's marketing strategy for the Lexus line focuses on perfection. The tagline for the global strategy is "Passionate Pursuit of Perfection." Dealerships offer white-glove treatment. Toyota markets Lexus globally and understands that each country defines perfection differently. In the United States, for example, perfection and luxury mean comfort, size, and dependability. In Europe, luxury means attention to detail and brand heritage. Therefore, although the core of Lexus marketing is similar (a consistent Lexus visual vocabulary, logo, font, and overall communication), the advertising varies by country. A big reason behind Toyota's success is its manufacturing. Toyota's combination of manufacturing speed and flexibility is world class. Its plants can make as many as eight different models at the same time, which brings Toyota huge increases in productivity and market responsiveness. Toyota is in the midst of integrating its assembly plants around the world into a single giant network. The plants will customize cars for local markets and be able to shift production quickly to satisfy any surges in demand from markets worldwide. With a manufacturing network, Toyota can build a wide variety of models much more inexpensively. That means Toyota will be able to fill

market niches as they emerge without having to build whole new assembly operations. "If there's a market or market segment where they aren't present, they go there," said Tatsuo Yoshida, auto analyst at Deutsche Securities Ltd. And with consumers increasingly fickle about what they want in a car, such market agility gives Toyota a huge competitive edge. Toyota's sales rose in every region of the world in 2003, and the company earned $146 billion. It edged past Ford Motor Co., to become the world's second-largest carmaker, and its market cap of $110 billion is more than that of GM, Ford, and DaimlerChrysler combined. Toyota is now eyeing the top spot, with a goal of surpassing GM as the world's largest carmaker by 2010. Discussion Questions 1. What have been the key success factors for Toyota? 2. Where is Toyota vulnerable? What should it watch out for? 3. What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?