Starbucks:

Delivering
Customer Value
Group 6:

Abhishek | Barnali | Mona

Narendra | Pankhuri

About
STARBUCKS

1971 First Starbucks coffee shop

opens in Seattles Pike Place Market
coffee bean roasting company

1982 Howard Schultz joins

marketing team.

1992 IPO under the trading

symbol SBUX

1995 Introduced bottled

Frappuccino drinks

2001 launches Stored-value card

(SVC)

One of the most

respected brands,
winning awards such
as "Best Business",
"Most Admired
Company", "100
Best Corporate
Citizens" and so on.

Findings of the market research

1.
2.
3.

4.

Very less image or product

differentiation between Starbucks
and smaller coffee chains
Declining brand image
Changing customer behavior

Expanding customer base : From affluent, well

educated, white collar female (24-44 yrs) to
include Hispanics, Cuban Americans

Starbucks

2000

2001

Primarily cares about money

55%

61%

Primarily cares about building more stores

48%

55%

5. Not meeting customer

expectation in the area of
customer satisfaction (increase
in customer gap)

Starbucks success factors:

Value proposition
1.
2.
3.

4.

5.
6.

Atmosphere : third place to relax and enjoy others ;from

buying coffee to experience of enjoying coffee
Quality : opened only company owned stores, avoided
franchising, controlled as much supply chain as possible
Service : partners trained in both hard and soft skills,
created friendly environment to make them feel special
and increase customer satisfaction
Partner Satisfaction: health insurance, stock options as a
result partner satisfaction rate was 80%-90%, ranked 47th
in fortune magazine as best place to work, lowest
employee turnover rate
Customer base : affluent, well educated, white collar
people
First mover advantage : in providing a place other than
home and work

Service

Atmosphere

Starbucks

Coffee

Starbucks 1992 to 2002

Intangibility
Atmosphere

142 to 4500
stores in 42
states

Expansion
plancannibalization
of sales
allowed

Smaller coffee
stores without
lounging area
more focus on
money

Can not be patented

Heterogeneity
Product

Main offering Sale of whole

coffee beans
to beverages

Drink
customization
led to more
time on
process

Whole process
-slow and
more and
complex

Younger, less
educated and
low income
customers

Customer to
Starbucks
changed to
Starbucks to
Customers

Customer perception &

expectation

Simultaneous production
& consumption
Customers affect eachother

Customer

Affluent, mid
to upper class
professionals

Perishability
Difficult to synchronize supply
and demand

Why the Starbucks customer

satisfaction scores declined?

There is not enough data available in the case to say

whether the companys service has declined or is there any
issue with the service.

Possible Reason for Decline in Satisfaction

Growing customer base

Image of the brand has changed
Increase in retail stores
Huge range of customized beverages
on the menus
Competition from small speciality stores

Service Performance Measure Issues

Customer Snapshot, the service measuring
tool is a subjective measure
In the legendary service scores customers giving 4 & 5
stars has increased from 2001 to 2002

From customer snap shot the

declining product quality might be a
reason for declining customer
satisfaction but as we see in the
exhibit we notice that product
quality ranks 6th in terms of
importance for the customers.
Possible customer satisfaction
attributes that Starbucks might be
missing :
Being treated as valued customer
Friendly staff
Appropriate price

Valued
customer
perceptions

Customer perceptions of quality

and customer satisfaction
Providing services as promised and at promised time
Performing services right at the first time
Prompt services to the customers
Readiness & willingness to help customers

Consistently courteous employees

Knowledgeable employees
Giving customers individual attention
Employees who understand the needs of their
customers and care for them

Employees who have a neat, professional appearance

Modern equipment & visually appealing facilities

Ideal Starbucks customer from

profitability perspective
To ensure that the customer is highly satisfied
Emphasis in its partners utilizing their soft skills to treat the customers as
valuable.
Promote its storedvalue card (SVC) more
Deliver on its value proposition
Service is as fast as the customer wants it to be
Greet regulars with their first name
Quality of products should be of the highest level
Adding lounging areas and more
TMobile Hotspot wireless internet service, comfortable chairs larger tables
and power plugs to accommodate laptop will result is greater consumer
satisfaction.

Dilemma

Invest $40million annually in the companys 4,500 stores???

50 Customers to be turned
from satisfied to highly
satisfied( Breakeven 1)
How to invest
If customer satisfaction does
not increase (Breakeven 2)
Elasticity of Demand

8750/172
50 out of 570 or 9% to break-even

Disproportional investment needs of

different stores
Increase speed of serving

Acquire more customers

Increase Spending by Existing customers
Company is unaware of its elasticity of
demand
Ambiguity in setting prices

Break-Even-1

Number of Starbucks visits/ month

Average ticket size/ Visit
Total revenue/ month
Total revenue/ year
Difference between revenue of Satisfied
Customer vs. Highly Satisfied customer

Satisfied Highly Satisfied

Customer Customers
4.3
7.2
4.06
4.42
17
32
209
382
172

Break-Even-2
Current situation
Average hourly rate

Break-even customer count

9

Total labour hours per week, average store

Total labour hours per day, average store
Labour cost/ day, average store
Average ticket
Difference

360
51.42857143
462.8571429
3.85
25.71428571

380
54.28571429
488.5714286
3.85

Additional customer needed to Breakeven

Average daily customer count

6.68
570
Current situation

Average hourly rate

Total labour hours per week, average store
Total labour hours per day, average store
Labour cost/ day, average store
Difference
Average ticket
Average Daily Customer count

9
360
51.42857143
462.8571429
25.71428571
3.85
570

576.68
Break-even ticket size
9
380
54.28571429
488.5714286
3.9
570

Recommendations
Invest $40 million on varied parameters across different stores (eg.training
the partners)
There is assumption that increase in labor force would automatically
increase customer satisfaction, however there is no evidence that a direct
link exists
Involvement in CSR activities
Clear & differentiated value proposition by going back to original (product
innovation non-coffee segment, food segment)
Continue the broad distribution strategy
Expand into promising markets
Adapt to local tastes and preferences in new markets
Have a dedicated strategic marketing group

Key Insights
Use market research to profile personal service philosophies
of customers and use this information in designing and
delivering services
Be aware of competitors offerings and try to match them
Ensure that price premiums can be justified by higher levels of
performance by company on important service attributes
Value proposition
Glocalization of services
Innovate in service offerings

Thank you