Starbucks coffee case study

Starbucks: Delivering Customer Service What factors accounted for Starbucks extraordinary success in the early 1990’s? What was so compelling about Starbucks value proposition? What brand image did Starbucks develop during this period? Starbucks captured a tremendous amount of success in the early 90’s by opening European-style coffee houses targeted toward affluent, well-educated clientele. Howard Schultz, the CEO that bought the company from the original owners, envisioned creating a ‘third place’ for people to meet.

Rather than just treating the home and office as the primary places people spend their time, the company introduced Starbucks as a ‘third place’; customers were encouraged to linger and socialize at their locations. The company did not rely on a formal marketing strategy, but rather used the atmosphere of their stores to create a ‘coffee experience’ for customers. The company’s value proposition was used as the focal point of their brand strategy. Their goal was to make coffee consumption a part of everyday life.

The proposition had three components: Coffee quality: the company had direct involvement in every aspect of coffee production, from working directly with the farmers growing the beans to the roasting process. This approach emphasized a strong commitment to product quality. Customer intimacy: the company aimed for employees, or “partners”, to provide a high level of personal service. Partners were trained that customer requests are to be encouraged and are to be met with a smile. Partners were encouraged to get to know repeat clients and reach out to new customers to make outstanding service a part of the purchase.

Atmosphere: unlike most retail stores selling food and beverages, Starbucks created an atmosphere where customers could linger. They understood that human nature draws people to each other, so the company provided a casual environment for customers to meet up. As a result of their value proposition, Starbucks’ brand image was associated with high quality coffees (not your average . 50 cent convenience store coffee) served with a high level of customized service (e. g. : a smiling partner serving a tall half-skinny half-1 percent extra hot latte no whip) in an inviting atmosphere (plenty of chairs and relaxing music).

Why have Starbucks’ customer satisfaction scores declined? Has the company’s service declined or is it simply measuring satisfaction the wrong way? Starbucks primarily gathered customer feedback in two ways. One approach was thru the use of secret shoppers that assessed each store’s performance over a variety of areas three time a quarter; the results of were aggregated into Customer Snapshot scores. The other method was thru direct customer surveys. It is difficult to determine how much (or if) customer satisfaction scores really declined.

In order to analyze such trends, survey results should be provided for more than one snapshot in time. From the reading, it appeared the company previously relied heavily on Customer Snapshot scores rather than customer surveys to determine customer satisfaction and store performance. They seemed taken aback that their high Customer Snapshot scores were not in line with the results of the customer survey. But secret shoppers judged individual stores and did not capture the opinions customers had on a store or on the company’s overall image.

It is interesting to note the company remains focused on current customers; it would be helpful to expand the survey to non-customers or former customers. As noted in the article, the company made assumptions regarding its client base and the demands/tastes of their customers. They failed to recognize changes in the demographics of their client base that occurred as they rapidly expanded thru opening stores globally. Although their loyal, long-term client base (e. g. : affluent, highly educated) was still present, a large amount of customers now were younger, less educated, from a lower income bracket and visited less frequently.

The company lost touch with who their client base was, and as a result needed to scramble to get to know their clients again. How does Starbucks of 2002 differ from the Starbucks of 1992? The Starbucks of 1992 was far different from the company in 2002. When the company went public in 1992, the company had 140 stores in the Pacific North West and Chicago; there was no international presence. At that time, the U. S. public and Wall St. investors didn’t seem to understand why anyone would pay so much money for a cup of coffee.

But Howard Schwartz, who is currently the CEO, followed his vision of rapid growth based on Starbucks value proposition (i. e. : coffee quality, service and atmosphere). He also provided a ‘third place’ for customers to gather away from home and the office. At that time, the company intimately knew their clients and what their tastes were; the average customer tended to be white, affluent, between the ages of 25 – 44 and slanted towards women. By 2002 Starbucks was a cultural phenomenon. It operated over 5,000 stores globally and had over 20 million customers.

Unlike the 1992 Starbucks, the company was expanding well beyond its domestic borders and its brand was recognized around the world. The revenue breakdown changed over the ten year period from 1992 to 2002; 77% of revenue was derived from beverage sales in 2002 while over half of revenue came from whole bean sales in the decade prior. The company now offered a wide array of drinks, making the job of the baristas that more complicated. But by 2002 Starbucks’ client base shifted. The company had experienced rapid growth and as the number of customers increased they were now serving a much broader audience.

Customers were younger, less educated and came from a lower income bracket; they also visited less frequently than their traditional client base (i. e. : affluent, well educated). Also, customers weren’t as interested in overly complicated drinks as they were with getting their order in the ideal timeframe (less than three minutes). Although Starbucks saw tremendous growth from 1992 to 2002, it still defined brand image by the same value proposition. Its service quality and buyer experience was its primary marketing tool; unlike most global chains, it didn’t rely on large marketing campaigns to promote brand image.

The company’s intent was to provide an experience for customers focused on serving high-quality coffee in an inviting atmosphere (but later on to much broader audience). Describe the ideal Starbucks customer from a profitability standpoint. What would it take to ensure that this customer is highly satisfied? How valuable is a highly satisfied customer to Starbucks? Customer survey data from 2002 demonstrated that highly satisfied customers visited more often, spent more money and had a longer average customer life than unsatisfied or satisfied customers.

From the data it can be concluded that the company can increase sales from increasing the number of highly satisfied customers. So the ideal customer from a profitability standpoint is one that is highly satisfied. The company analyzed the survey data to determine why their clients weren’t in the highly satisfied category. The customer survey indicated that overall satisfaction could be increased if the average wait time was reduced. They decided to set an overall goal that each order should be completed in less than three minutes– from the time a customer joins the end of the line to them having a drink in hand.

But it appears the company was still not trying to really understand the demands of their customers. The newer clients didn’t see that much of a difference between Starbucks and their competition. They were concerned with the convenience of picking up a good cup of coffee made to their liking as quickly as possible. Starbucks was still delivering atmosphere and a coffee house experience but this approach was not resulting in customer loyalty. It doesn’t appear they were attempting to adapt their business to meet the demands of their evolving client base; they were looking for a quick fix based on one snapshot of survey data.

They also weren’t thinking of ways to differentiate themselves from the other coffee retail chains. It is difficult to determine if Starbucks was making the correct business decisions without more detailed information. It would be helpful if data containing regional/global breakdowns were presented. Also, statistics could be provided historically and organized into other categories (e. g. : age groups). Otherwise the story the data tells is very limited. A highly satisfied customer is invaluable to Starbucks.

The company determined that transitioning customers into the highly satisfied category would be a key determinant to customer loyalty and would ultimately increase revenue since there was a clear correlation between increased customer satisfaction and sales. But the company does not seem intent on expanding the current client base. It would be interesting to see the results of a survey of coffee consumers that weren’t Starbucks customers. It is unclear from the reading if the company also attempted to reach out to non-customers. Should Starbucks make the $40 million investment in labor in the stores?

What’s the goal of this investment? Is it possible for a mega-brand to deliver customer intimacy? How much would this work out to be per store? How many satisfied customers would need to be transformed from satisfied to very satisfied for this to be worthwhile? Starbucks should make an investment in order to increase client satisfaction, but not by throwing money at the problem. The $40 million investment is not as much money as it seems when compared to the company’s overall revenues; the investment would account for roughly 1. 22% of global revenues and would increase expense from operations 2. 2%. The investment would account for approximately 2. 36% of operations expenses. At that time, the $40 million investment would amount to $8,000 per store. As mentioned in the article, the money spent should not be viewed not merely as an expense but as a ‘customeroriented investment’. The company seems to be considering only one possible solution to increase customer satisfaction. In the past they looked into purchasing additional equipment in order to increase productivity (e. g. : automated espresso machines). The case study does not mention the company looking into alternative solutions.

If timeliness is important it may be possible for a more streamlined process to be developed. Can a separate line be created for customers who want to purchase non-specialty drinks? Could clients eventually pour their own cup of standard coffee? The company also doesn’t seem to take any steps to improve their brand image and differentiate themselves from the competition. The survey data indicated customers were well aware of the company’s growth plans but not about the company’s values. An increasing amount of customers saw the company as primarily focused on building more stores and making more money.

The company should determine if the $40 million investment would help to improve their image. It seems a bit odd that a company as large as Starbucks would treat all stores the same. The goal of the investment would be to increase labor hours per store, which in turn would decrease waiting times and ultimately increase client satisfaction. But it would make sense that a larger, higher volume store would need additional labor hours than a smaller, lower traffic location. Also, the company would like for all stores to produce $20,000 in weekly sales; that seems like a very one-size-fits all approach to store management.

The company also isn’t analyzing trends by client segment; they are treating them all the same. More than one approach may be necessary to increase satisfaction for different types of clients (e. g. : a customer interested in a quick cup of coffee on the way to the office compared to a college student that will linger for hours). The company could produce a detailed investment strategy based on store revenues and client segments. They should invest the money where it is needed the most in order to receive the most return on their investment. A mega-brand can deliver customer intimacy, but only for clients that want it.

The company will continue to have a high level of customer intimacy with buyers interested in a ‘coffee experience’. But it will be difficult to develop an intimacy level with a customer simply interested in a cup of coffee that doesn’t differentiate your products from those provided by the competition. I suggest the company create various target levels of intimacy by client segment—not as a one size fits all approach. It is difficult to determine exactly how many clients would need to be transformed to highly satisfied customers in order to recoup the $40 million investment with the data provided. However, an estimate can be determined.

Data provided from the customer survey shows that a highly satisfied customer visits approximately 7. 2 times a month and spends $4. 42 on average per visit, or $31. 82 per month. Unsatisfied customers average 3. 9 visits per month and spend an average of $3. 98 per visit, or $15. 51 per month. Satisfied customers average 4. 3 visits per month and spend an average of $4. 06 per visit, or $17. 46 per month. The gap of revenues between unsatisfied and satisfied clients is much smaller than the gap between satisfied and highly satisfied customers; the revenue increase from unsatisfied to satisfied customers is 12. % while the increase between satisfied and highly satisfied customers is 82%. Transitioning unsatisfied customers would require them to spend an additional $195. 62 per year and $172. 39 per year for satisfied customers. The company would have to transition over 200,000 satisfied customers in order to break even from the $40 million investment in one year, or approximately 1% of their 20 million global customers. In conclusion, the paper details the ‘growing pains’ Starbucks experienced following a period of rapid growth.

The company never deviated from its original value proposition. But as the company and its client base grew, it failed to identify the evolving needs of its consumers. It was surprising a company as large as Starbucks did not have a formal marketing department. Someone needed to pull together the customer data provided from multiple sources, determine significant trends to brand image and client satisfaction and work with other teams to determine and execute a necessary course of action (e. g. : new targeted marketing strategy, increased advertising).

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