A Case Study by

Guy Minton Jasveen Samra Mukund Narasimhan Noppawun Sopee Raiju Neelamkavil Wei Zou

Starbucks: Delivering Customer Service

Howard Schultzs idea with Starbucks in the mid 1980s was to create a chain of coffeehouses with a product differentiation of specialty live coffee, service or customer intimacy with an experience, and an atmosphere of a third place to add to their work and home alternatives. The original stores sold whole beans and premium-priced coffee beverages by the cup and catered primarily to affluent, well educated, white-collar patrons (skewed female) between the ages of 25 and 44. By 2002, there were over 5,000 stores around the globe. The company spent minimal dollars on advertising to promote a brand concept. Enforced exacting coffee standards by controlling the supply chain as much as possible, and maintain control over the operations at the retail level. Starbucks research indicated that customers did perceive many independent coffee houses as a third place, but Starbucks was seen more as a convenient, quick, and consistently good coffee provider. This is in contrast to the way Starbucks management viewed the company. Sales were comprised as follows:

Other- 15% Revenue Source

Product Mix with % sales

Background and Problems

The specialty items included strategic alliances with Pepsi Cola to sell alternative beverages, Dreyers to develop and distribute a line of ice cream, Kraft Foods handled sales of coffee and alternative products to warehouse clubs, and various grocery store chains for their coffee. Baristas (employees) were encouraged to interact with customers in a friendly and prompt manner, and were paid higher than average wages and benefits. Employees were considered partners and promotions were usually from within the company. Recent indications were that customer satisfaction was declining due to the time required to be served and employee attitude. Starbucks had a system set up to track customer satisfaction While Starbucks was the largest specialty coffee chain, many other chains competed directly with Starbucks, and many other chains could at any time enter retail specialty coffee sales (e.g. Dunkin Donuts, convenience stores, and many similar retail food stores. New innovation was based upon partner acceptance. Customers rated the new innovations as being much lower in importance than customer service, yet Starbucks was placing a high importance on developing them. Many new products were introduced which greatly expanded the menu items available. Baristas jobs were complicated by the fact that many products required numerous steps to complete the order. They had installed automated espresso machines in some stores for the customers use to reduce wait time. Introduced a prepaid card that could be used to pay for products in the stores.

Background and Problems

Starbucks had no centralized marketing program. Sales data was accumulated, and it was the responsibility of management to request that specific data be analyzed. The goal of Starbucks was to expand store openings as rapidly as possible. They were opening almost 3 new stores a day. New stores cannibalized existing store sales, but Starbucks did not see that as an important issue. There was very little image or product differentiation between Starbucks and competing chains. The newer customers were younger, less educated, in lower income brackets, had less frequent visits, and had a different perception of Starbucks. Concern had been expressed that Starbucks had lost the connection between satisfying our customers and growing the business, Starbucks wanted to serve the customer within 3 minute time window. Is that going to add customer loyalty? Starbucks wanted more handcrafted time consuming choices for consumers. Is that going to add to customer loyalty Starbucks sees themselves as selling innovative products, do the customers see them this way or as a specialty coffee commodity store?

Background and Problems

Rise of coffee consumption in the US with the largest growth being that of specialty coffee. Starbucks had no operations in 6 states, and was operating in only 150 of 300 metro Specialty areas. Coffee Market In the home segment, Traditional Market specialty coffee was estimated to be 3.2 billion. Starbucks only had 4% of this market. The opposing chart depicts the total coffee market, and 2002 Estimate - $21.5b the representative share of Starbucks- 42% share in specialty coffee. specialty