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Presented by:
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Presentation Outline
ð Introduction to problem
ð Questions asked
ð The case ± Summary
ð Boundary limits
ð Assumptions
ð Question 1
ð Question 3
ð Possible solutions
ð Best solution
ð Question 2&4
ð Implementation plan
ð Control/monitoring mechanism
ð Conclusion.
Company background
The problem
ð Starbucks, must respond to recent market research
indicating that the company is not meeting customer
expectations in terms of service.
ð To increase customer satisfaction, the company is
debating a plan that would increase the amount of
labour in the stores and theoretically increase speed-of-
service.
ð However, the impact of the plan (which would cost $40
million annually) on the company's bottom line is
unclear.
Questions to be answered
ð What accounts for starbucks¶ rapid growth between 1992
and 2002? Was this due to luck Vs skill?

ð How has starbucks¶ strategy changed over time?

ð Are the proposed service improvements justified?

ð What threats to their basic business model starbucks is


likely to face in future?
The case ± summary
ð Christine day, starbucks¶ senior vice president of administration
in NA.
ð The whole world thought starbucks was recession proof but day
thought differently.
ð Starbucks¶ market research revealed unexpected findings.
ð ³Starbucks is not always meeting its customers¶ expectation in
the area of customer satisfaction´
ð Plan- Additional 20 hrs of labor a week to improve speed of
service and increase customer satisfaction.
ð Day had two days to make a final recommendation to schultz,
the chairman and Orin smith, the CEO.
Boundary limits

ð Christine day just has two days to give her


final word.

ð There are no financial constraints as long as


the company continues to be profiting.
Assumptions

ð Employees already work the maximum


permissible time.

ð New recruitments (under the plan) are just


temporary staffs and paid $9/hour.(if the plan
is given a green signal)

ð Customers¶ feedbacks are true


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Orowth of starbucks

ð The values
ð Brand strategy

ð Channels of distribution

ð Partners and baristas( the employees)

ð Service

ð Measuring service performance.


› ›

  
V  V

3rd place for Americans Period of diversification


Initial growth boom Established coffee brand
140 stores 5000 stores

Domestic market International market


Customer experience above everything else Partners were above everything
else

Complexity of Barista job had increased


A problem arose

ð Marketing research team.

ð Unexpected findings

ð Brand perceived differently.

ð Money, profit or customers?


Solutions
1. Ä +,'  $    $   .
Merits:
ð educes service time

ð eduction of workload

ð Barista-customer conversation/relation improves

ð Ultimately customer satisfaction, retention and repetition.

Demerits:
ð Based on the assumption , the new employees work the additional
hours. Service quality might weaken.
ð If both together there might be an ego clash.

ð More employees ± less scope for promotions thus higher turnover


rate and dissatisfaction among employees.
Contd«
 Ä $     $     - " $ . 
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Merits:
ð Can save a lot of money

ð Employees become more responsible and engaged

ð Time is still saved

Demerits:
ð Workload would grow

ð There would be still no barista-customer conversations.

ð Service quality goes down with machines (it reduces


customization)
Best solution

The plan of recruiting new employees for


additional hours   $   .
Change in strategy
Product innovation
ð New products launched on regular basis and at least one hot
beverage every holiday season.
ð Products chosen based on customer acceptance , speed to prepare
etc. eg. 1995-frappuccino and bottled version(by pepsico.) which
has captured 90% of ready to drink coffee category.
Service innovation
ð Starbucks¶ store value card(svc) launched in 2001 is a prepaid
swipable which is used to pay in any of its stores.
ð In one yr. it reached $160million through initial activation and
reloads.
ð T-mobile which is a wi-fi service has been introduced recently.
Strengths
ð Starbucks Corporation is a very profitable organization, earning
in excess of $600 million in 2004.The company generated
revenue of more than $5000 million in the same year.
ð It is a global coffee brand built upon a reputation for fine
products and services. It has almost 9000 cafes in almost 40
countries.
ð Starbucks was one of the ´    
     
´  in 2005. The company is a respected employer that values
its workforce.
ð The organization has strong ethical values and an ethical mission
statement as follows, s         
               s
Weakness
ð Starbucks has a reputation for new product development and
creativity. However, they remain vulnerable to the possibility
that their innovation may falter over time.

ð The organization has a strong presence in the United States of


America with more than three quarters of their cafes located in
the home market. It is often argued that they need to look for a
portfolio of countries, in order to spread business risk.

ð The organization is dependant on a main competitive advantage,


the retail of coffee. This could make them slow to diversify into
other sectors should the need arise.
Opportunities
ð Starbucks are very good at taking advantage of opportunities.
In 2004 the company created a CD-burning service in their
cafe with Hewlett Packard(HP), where customers create their
own music CD.
ð New products and services that can be retailed in their cafes,
such as Fair Trade products.
ð The company has the opportunity to expand its global
operations. New markets for coffee such as India and the
Pacific im nations are beginning to emerge.
ð Co-branding with other manufacturers of food and drink, and
brand franchising to manufacturers of other goods and
services both have potential
Threats
ð Who knows if the market for coffee will grow and stay in favour
with customers, or whether another type of beverage or leisure
activity will replace coffee in the future?

ð Starbucks are exposed to rises in the cost of coffee and dairy


products.

ð Starbucks' success has lead to the market entry of many


competitors and copy cat brands that pose potential threats.

ð Lack of ownership of coffee farms can lead to price fluctuations.


Implementation plan
ð The first recommendation of improving the speed of service
to less than 3 minutes by increase labour hours is a better
option
ð Pilot mode ie. Test it in some selected locations
ð Positively after its success it could be implemented at the
remaining stores too.
ð the second recommendation is for improving the
friendliness and attentiveness of staff.
ð Training program to employees.
ð Loyalty programs for customers.
ecommendations For
Improvement
1. evamp the employee reward system

2. Tighten focus on creating the ³Third


Place´ environment

3. Employ a separate marketing team and


perform consistent market researches and
proceed according to them.
Conclusion
Operating profit
ð 2007- $1.1 billion

ð 2008- $504 million

Net earnings
ð 2007- $672.6 million

ð 2008- $315.5 million

EPS
ð 2007-$0.87 cents

ð 2008- $0.43 cents

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