STARBUCKS:

Delivering Customer Service

CASE ANALYSIS

EPGP-10-020 Bhavith Chandradev

EPGP-10-104 Gurjeet Kaur
EPGP-10-119 Naveen Nirmal Kumar

EPGCMM-10-013 Malvika Pradhan

EPGP-10-084 Akshay M R
EPGP-10-101 Dhana Sekar S
EPGP-10-140 Siddhesh Satelkar
1. What factors accounted for the success of Starbucks in the early 1990s?

• The vision of creating ‘Starbucks Coffee’ as the ‘third place’ in the lives of
Americans, apart from home and work.
• Attractive and untapped market
• Target marketing –(focusing on affluent, well-educated, white collar people)
• Decision to go public and attract huge capitalinvestment.
• Core Value Proposition: The experiential branding strategy of ‘Live coffee’ which
includes –Coffee, Service and atmosphere as three major components.
• Strategic location of stores in –high-traffic, high-visibility retail centers, office buildings
and university campuses.
• Company’s broad distribution strategy –third party supply
• Robust training program for all its partners –focusing on both hard skills and soft skills
• Employee friendly work policies like free health insurance, stock options etc which
resulted in low employee turnover
• Culture of deputing the hired senior executives to first train and succeed as baristas
creates the comprehensive understanding of the business at operational level.
• Offering Best service by establishing a connect with customer (knowing their name,
their customized drink etc and ‘just say yes’ policy)
2. Why have customer satisfaction scores declined?

• Starbucks tracked service performance by mystery shopper program called –‘Customer Snapshot’,
they measured different attributes in two different criteria
• Service, Cleanliness, Product quality, Speed of Service –Basic Service
• Partners initiating conversations, recognizing by name or drink, being responsive –Legendary Service

This tracking method is imperfect since it is highly subjective and gives only overall trend over the
course of a quarter. The deep insights and underlying reasons for this behavior cannot be measured /
analyzed. Thus, the results of mystery shopper program cannot stand as a robust mechanism to
measure customer satisfaction.
• The market research indicated that
• Very little image or product differentiation between Starbucks and the smaller coffee chains
• Significant differentiation between Starbucks and the independent specialty coffeehouses
• Respondents strongly agreed with ‘Starbucks cares primarily about making money’, ‘Starbucks cares primarily
about building more stores’ was increasing.
• Starbucks customer base was evolving. Newer customers tend to be younger, less well-educated, lower income
bracket

• These findings from market research provides good insights and it is evident that the company’s
customer satisfaction scores have actually declined, which could be because of
• Same way of addressing the needs of the customers even though the company’s customer base and their
needs are changing
• Decline in service (increase in waiting time) level
• Change in brand perception
3. How does 2002 Starbucks differ from 1992 Starbucks?

Attributes Starbucks in 1992 Starbucks in 2002

Major Revenue Sale of whole-bean coffee Beverages

Affluent, well-educated, white collar younger, less well-educated, lower
Target Customers
corporates income bracket
Norm Customers going to Starbucks Starbucks going to customers
good coffee, meeting people and
Perception Best quality Coffee and lingering
move on
Sophisticated with high focus on
Stores smaller stores
ambience
International expansion little presence growing faster

Partners maintained customer intimacy difficult to connect with customers

4. Should Starbucks make the $40million investment? Is it even possible for a megabrand to deliver
customer intimacy?

• Yes, they should make the $40 million investment in labor as it has direct impact on the
service level.
• At the same time, it is important to effectively invest by
• Further analysis of the customer base and identifying the stores where customers are less
satisfied due to speed of service and thereby investing only in such stores
• Store level strategy to improve the customer satisfaction to brake even the investment
• Reevaluate value proposition
• Identifying ill effects of the expansion strategy and identifying the different ways to satisfy
customer
4. Include a slide listing the concepts/takeaways (that you learnt in the first two sessions) that are
applicable for the Starbucks case

Integrated Marketing Strategy:

Starbucks changed its approach from ‘Customers going to Starbucks’ to ‘Starbucks going to
customers’. This new strategy made Starbucks to target different segment and position itself
differently so as to match the needs of the new target customer segment.
Segmentation:
Starbucks in year 1992 targeted the affluent, white collar, well educated corporates. This
particular segment had the unmet need of a place to linger with good coffee. This type of
segmentation can be called Demographics Segmentation as the consumers are segmented
based on age, gender, income and wealth. In year 2002, Starbucks targeted young, lower
income bracket consumers. This segmentation can be attributed as Psychographic
Segmentation as they consumers are differentiated based on choices and purchase decisions.
Core Value Proposition:
Starbucks value proposition included – good coffee, experience and customer intimacy. The
good coffee offered by Starbucks forms the functional values where as the customer intimacy
offered by Starbucks baristas forms the emotional values.