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STARBUCKS : Delivering Customer Services

Lokesh Sharma
12382

Background

1971 : J.Baldwin , Z.Siegel & G.Bowker founded Starbucks


1982 : Howard Schultz joined Starbucks' marketing team
1983 : Business trip to Milan by H.Schultz where got impressed by an espresso bars warm community
experience
1987 : Howard bought Starbucks after rejection of his proposal to implement that same idea in Starbucks
1992 : Company had a successful market with 140 stores in Northwest & Chicago and almost nothing spent on
advertising

Explaining Starbucks' Success


Highly differentiated and tightly integrated VALUE PROPOSITION perfectly aligning with the needs of carefullyconceptualized TARGET MARKET

VALUE PROPOSITION
TARGET MARKET
Serious Coffee lovers-white collar, affluent, well
-educated, often female, age between 25-44
Ready to pay premium price for premium coffee
experience

Best Quality CoffeeMaximum control over supply-chain

Their affection towards premium coffee lifestyle


promoted the companys LIVE COFFEE" culture
Atmosphere-encourage to stay

A strong Brand position above the existing competition

Customer Intimacy-recognizing customer or his drink


just the way he likes it

Strategic Positioning

Brand Perceptions
-Place for best coffee in market
-Upscale, sophisticated &
classy place
-Third place to escape real
world
- Place to get social
reinforcement if
Baristas knew you by
your name

Consumption Pattern
-Tendency to linger in
coffeehouse & soak up the
ambience while drinking coffee
-Development of rituals around
coffee consumption
-Tendency to seek out
Starbucks when looking for a
sanctuary to escape real world
-Tendency to chat with Baristas

Location of stores at crowdie places &


Absence of strong competitors

Satisfied partners

Target Customer

Starbucks (1992)

Starbucks (2002)

Limited no. of stores around 140

Retail expansion 5000 + stores

Major sale from whole bean

Handcrafted beverages shares 77% of sales

Serious coffee lovers, white collar, high income


and sophisticated customer base

Younger, less educated, lower income and less


sophisticated customer base

Third place to escape

Place full of people

Place to spend leisure time

Absence of lounge in some stores

CUSTOMERS GOING TO STARBUCKS

STARBUCKS GOING TO CUSTOMERS

Actual service decline


Retail expansion & product
innovation has affected coffee
quality, service & atmosphere

Bad research method

Changing needs of customer

Mystery shopper programme is subjective


measure to record results there might be
inconsistency b/w two mystery shoppers how
they perceive same service

Decreased Partner Satisfaction

Growing customer base has given rise to new


sets of demands & their expectations are high
due to competitors

Declined
Customer
Satisfaction

With increasing work load their partners


satisfaction level decreased which
affected their soft skills during service
delivery

Rough Brand Image


People starts thinking of Starbucks
as money making Corporate with its
increasing stores

Ideal Starbucks Customer


Customer >

Unsatisfied

Satisfied

Highly satisfied

Loyal

Visits/month

3.9

4.3

7.2

18

Visits/year

46.8

51.6

86.4

216

Ticket size
/transaction

$3.88

$4.06

$4.42

$4.42

Revs/year

$182

$210

$382

$955

Avg. life

1.1

4.4

8.3

8.3

Revs/life

$200

$922

$3170

$7924

Assuming a high probability of correlation b/w number of visits and satisfaction level,
it is safe to call a loyal customer also a highly satisfied customer. So we can use
company data for loyal customer also.

From the perspective of profitability we can see a loyal customer is an ideal


customer for Starbucks with maximum life-time value

Strengths

-Large market share


-Well known & trusted
brand
-Good coffee on run
-Accessible,
convenient,
consistent

Opportunities

-Global expansion

-Regional market
expansion
-Better customer
satisfaction
-Strategy marketing
group establishment

Weakness
-Price
-Slow service
-Less friendlier staff

Threats

-Competitors from

same industries
-Competitors with
substitute products

Problem
Decline in customer satisfaction
Should they invest $40 million in 4500 stores focusing on improving the speed of customer service

Solution
Break Even Analysis
Investment to be made for labor in stores- $40million
Total no. of stores- 4500
Investment on each store- $8888
Difference b/w revenue/year from highly satisfied to satisfied customer- $172
No. of customers that needs to be converted from satisfied to highly satisfied by each store to break even for this investment- 52
Av. Daily customer count per store- 570
Nearly 9% increase in no. of highly satisfied customers needs to be made by each store to break even
AssumptionsSpeed of service is no. 1 drive for customer satisfaction
Additional labor will provide the increase of speed of service
All stores are equal in size, no. of people they serve, location & price
Additional investment is done equally in all stores
Satisfaction is correlated with loyalty