Analysed By

Mohit Malviya
Kunal Assudani
Aniket Bushal
Starbucks: Delivering Customer
Service

 Howard Schultz’s idea with Starbucks in the mid 1980’s

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.
 Sales were comprised as follows:
Product Mix with % sales Other- 15% Revenue Source

Beverages Food Services

Food Items
Domestic Retail Store
Whole Bean Coffee License
Equipment &
Speciality Revenue
Accessories
 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.
 By 2002, there were over 5,000 stores around the globe.
Background and Problems
 The specialty items included strategic alliances with Pepsi
Cola to sell alternative beverages, Dreyer’s 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.
Background and Problems
 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.
 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.
 Background and Problems
 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 Specialty Coffee
Market
in 6 states, and was operating
Traditional Market
in only 150 of 300 metro
areas.
 In the home segment,
specialty coffee was
estimated to be 3.2 billion.
Starbucks only had 4% of this
market.
 The opposing chart depicts
2002 Estimate - $21.5b
the total coffee market, and
the representative share of Starbucks- 42% share in
specialty coffee. specialty
Alternatives & Evaluations
1. Redefine their marketing strategies starting with a proper
research and evaluation of what the customer wants.
Starbucks has lost track of the customer when their
determination of what is served to the customer is
determined by what makes the barista happy.
2. Analyze the customers, and potential customers through
their specialty sales to see the impact upon current or
potential retail sales in stores. Out of store sales is
obviously helping drive Starbucks retail sales. 40% of the
new customers have tried Starbucks products prior to
coming into the store the first time. How do we increase
these sales? Is it because of the coffee purchased at the
grocery stores? Did they find what they expected when
they tried the Starbucks retail store?
3. Research customers who do not frequent Starbucks, or
who have never been inside a Starbucks store to
determine why. What is their perception of Starbucks? Do
they drink coffee or specialty coffee? What would get
them to try it for the first time?
Alternatives & Evaluations
4. Create a centralized marketing department which can
attempt to coordinate all marketing efforts. There appears to
be a lack of harmony between collecting data and the proper
evaluation of the data. The snapshot methodology they used
may not reflect a universal measure of customer satisfaction.

5. Analyze the innovative sales to determine the effect on labor

costs to determine if the sales support the costs and the
potential decrease in the time available to quickly serve the
customer. Case research indicates that innovative products
are not as important to the customer as quick and pleasant
sales. Are these sales actually impeding the object of quick
and pleasant sales without providing important income? Their
marketing product mix may be inappropriate.

6. Concentrate new store openings in areas that would not

cannibalize existing sales. There are many areas that
Starbucks is not in. Why cannibalize?
Alternatives and Evaluations
7. Advertise more to establish the branding of Starbucks.
Why is Starbucks different? While Starbucks may think
they know what distinguishes Starbucks from others,
they should do more research and develop a real strategy
prior to initiating any major advertising campaign. They
have developed over time, and their customers are
different than before.

8. Quick term fix to add more employee hours to reduce wait

time, although this should be allocated according to an
established need per store. The quick, convenient, and
friendly service are obviously important based on
customer satisfaction surveys. For the short term this
obviously should be addressed and fixed. At some point,
the product mix should be addressed to help reduced wait
time.
Alternatives & Evaluations &
Solutions
9. Separate serving customers with customized orders
from those which will require less time, such as the
customer just wanting coffee. Use the more experienced
baristas to handle the more complicated orders. The
layout of the new stores that are opened could more
utilize this concept.

10. Extend the utility of the cards by embedding RFID tags

to identify the customer and the orders to add to a
database.

11. Introduce more customer operated machines to reduce

wait time.
12. Use additional advertising for sales of coffee in
grocery stores. Their 4% of home specialty coffee
sales appears very small. Nestle exited specialty coffee
in grocery stores during this time frame. There was a
large void of specialty coffee in grocery stores. A
concentrated effort in this type of distribution could
have established more sales and some brand loyalty
for coffee. Peets is a competitor chain in the California
area. They see no difference between grocery store
sales and their retail store sales per an interview with
Patrick O’Dea. They have achieved considerable brand
loyalty for a limited number of coffee lines, and charge
a higher per unit sale price than Starbucks. Peets does
not see innovative sales as a big option.

SOLUTIONS
 Starbucks should pursue all of these alternatives
 Starbucks appears to consider competition as minimal,
and that they are somewhat insulated. Probably,
entertaining either idea is a strategic mistake.