STARBUCKS : Delivering Customer Services

Lokesh Sharma12382

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 bar’s 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 carefully-

conceptualized 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

Their affection towards premium coffee lifestyle promoted the company’s ” LIVE COFFEE"

culture

A strong Brand position above the existing competition

Best Quality Coffee-Maximum control over supply-chain

Customer Intimacy-recognizing customer or his drink just the way he likes it

Atmosphere-encourage to stay

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

Target Customer

Stra

teg

ic P

os

ition

ing

Location of stores at crowdie places & Absence of strong competitors

Satisfied partners

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

Declined Customer

Satisfaction

Bad research methodMystery shopper programme is subjective measure to record results there might be

inconsistency b/w two mystery shoppers how they perceive same service

Actual service declineRetail expansion & product

innovation has affected coffee quality, service & atmosphere

Changing needs of customerGrowing customer base has given rise to new sets of demands & their expectations are high

due to competitors

Rough Brand ImagePeople starts thinking of Starbucks as money making Corporate with its

increasing stores

Decreased Partner SatisfactionWith increasing work load their partner’s

satisfaction level decreased which affected their soft skills during service

delivery

Ideal Starbucks CustomerCustomer > 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

Weakness

-Price-Slow service-Less friendlier staff

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

Threats-Competitors from same industries-Competitors with substitute products

ProblemDecline in customer satisfaction

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

SolutionBreak Even AnalysisInvestment to be made for labor in stores- $40millionTotal no. of stores- 4500Investment on each store- $8888Difference b/w revenue/year from highly satisfied to satisfied customer- $172No. of customers that needs to be converted from satisfied to highly satisfied by each store to break even for this investment- 52Av. Daily customer count per store- 570Nearly 9% increase in no. of highly satisfied customers needs to be made by each store to break even

Assumptions-Speed of service is no. 1 drive for customer satisfactionAdditional labor will provide the increase of speed of serviceAll stores are equal in size, no. of people they serve, location & priceAdditional investment is done equally in all storesSatisfaction is correlated with loyalty