How Starbucks Could Measure and Drive Customer Satisfaction

Case Study Report

How Starbucks could measure and drive Customer Satisfaction

Group Case Study

01/05/2016

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Author Note

Table of Contents

1. Company Profile        

2. Situational Analysis        

3. Key Issues        

4. SWOT Analysis        

5. Alternatives        

6. Recommendation/Rationale        

1. Company Profile

Starbucks has been defined by not just offering a cup of coffee, but also a lifestyle associated with its iconic cup. Originally named after the coffee-loving first mate in Herman Melville’s Moby Dick, the Starbucks logo—a two-tailed mermaid encircled by the store’s name—became a ubiquitous sight and a cultural symbol. Started as a store that catered to coffee connoisseurs, it has maintained a culture within its corporate ranks devoted to “live coffee." The thought was that this cup of coffee was not just a beverage, but a place and state of mind where people could enjoy their coffee. From a marketing point of view, Starbucks represented the early 1920's “product orientation” where a quality product would sell itself. Starbucks was centered on creating and delivering value, not in communicating that value with less than 1% spent in advertising revenue until 2002 (Principles of Marketing, case study).   

Howard Schultz joined Starbucks as a marketing executive in the early 1980's and acquired the company in 1987. His first efforts were to expand operations, opening new stores that sold coffee and whole beans to a segmented market of primarily affluent, 25-44 year old females. Starbucks went public in 1992 and has done extremely well on its way to becoming a part of the cultural lexicon, despite Wall Street's initial hesitation about whether the US was ready for high-priced coffee or not.

2. Situational Analysis

Starbucks started with a three-part value proposition that was centered on a quality product with an experiential brand. This was achieved with offering: a quality product sourced from various global locations with carefully monitored supply chains and distribution facilities, individualized service with emphasis on remembering repeat customers and their purchases, and an appealing “atmosphere” that sought to capture a variant on the coffee-culture in Italy targeted towards the upscale consumer. This value proposition was achieved with many efforts including the company’s cultural emphasis with treating employees well and making them “partners”. Starbucks employees, termed “partners” no matter what rank were given health insurance and stock options to even entry-level employees. Additionally, they were taken through an extensive on-boarding process that emphasized not only how to mix drinks but also important soft skills such as how to connect with the customer and how to deliver on the “Just Say Yes” policy. As a result, Starbucks’ employee turnover rate was only 70% compared with the fast-food industry average of 300%. Most store managers were former baristas that had come through the ranks, making a workforce that understood what they needed to deliver on the front line. The value proposition was further bolstered by constant innovation, such as the ergonomics of beverage delivery, the advent of verismo machine installation (e.g. automating the espresso process), or the adoption of new payment technology, such as the store value card (SVC).

As Starbucks grew from the original 140 stores in 1992 to 5,689 outlets in 28 countries by 2002, its challenges grew as well. The US market has a strong presence of the experiential brand, with fifty states containing several outlets. However, since eight states are still without a Starbucks outlet, it has potential to grow. Starbucks operates in more 50 countries outside the US. A typical menu from 2003 showed over 56 different beverage choices, which can all be customized. While many other menu offerings existed, 77% of store revenue came from coffee beverages as of 2002. Starbucks sold more than 7 million pounds of packaged coffee at supermarkets and retailers in 2002. Packaged coffees account for about two thirds of the consumer products group's revenue.  However, offering a wide variety of merchandise, particularly within the licensed store, makes personal connection and individual attention for customer satisfaction more difficult. If the partner was unable to connect or feel enthusiastic about serving the beverage, neither would the customer.

In 2002, market research showed that customer satisfaction was dropping, which made the company vulnerable to its competitors. Starbucks was supposed to represent a new and individual experiential brand. However, market research showed that consumer perception of Starbucks shifted from quirky and unique in 1992 to corporate, with an expansion plan to every street corner that seemed more geared towards shareholder profit than customer experience. As it was no longer competing with individual coffee shops, who often attracted their market segment, Starbucks was more susceptible to competitors poaching their customers.

To rediscover the Starbucks customer, particularly those that visited 8 or more times per month and accounted for 62% of transactions, the company had to revisit its attention to the customer. While reconnecting with the 24-44 well-educated affluent white-collar female segment of the market was important, they could reach out to a much wider demographic. Some of them included unique cultural pockets such as Cuban-Americans in Florida. In any case, whether trying to reach the occasional or frequent customer, Starbucks had to make some change to regain the “Legendary Service” that was going to drive word-of-mouth sales and referrals.

3. Key Issues

There are quite a few key external and internal issues. The following part analyzes six core issues Starbucks has to handle:

a) Exhibit 8 shows the customer retention information. It clearly shows that the established customers and the new customer are quite different in education, income and their attitudes towards Starbucks. Customers who visited first time five years ago are with higher degree of education and higher income have more loyalty whereas the new customers who buy coffee from the company average four visits per month and do not see it as a brand of high value as compared to the established customers.

b) Change in market and customer trend, probably due to overall market change for which we have no real data. Starbucks has become a big corporate, accessible and consistent place to drink a coffee on the way to work or home – but it is not an original 1992 experience anymore. Therefore it may appeal to the new customers mainly younger people who are looking for quick cup of good coffee, spending less time and money but they are not initially targeted sector or USP. Probably due to lack of effort in simulating the sector targeted in 1992, they most probably left for independent local coffee shops, whose brand are more like über-local feel that allows customers in every culture to feel at home in their neighborhood.   Also, we can read in the case that growth plans were based primarily on demographic data, not on psychographic information. They target market sectors instead of market segments.

c) Day thinks that the faster customer service is most important issue to address the customer satisfaction, however according to the Exhibit 10 data, customers put store cleanness as the most important attribute followed by convenience, treating as valuable customer, friendly staff, coffee taste and the right prices and then faster services which is on seventh place. Clearly faster customer service is not the most important attribute for Starbuck customers compare to McDonalds customers. Another exhibit “valued customer perception” shows that 34% responders indicating for better service, 19% want to see friendlier staff and only 10% want to have faster service. Therefore, we can clearly see that adding more staff is not a solution to drive the customer satisfaction higher for Starbucks.

d) Lack of real Marketing strategy. They spent almost negligible on advertising (less than 1%), far less than industry average of 3%-6%. Day herself recognized this issue that they don’t have Marketing strategy team to communicate company’s position and brand image. This was the major flaw in the marketing strategy.

4. SWOT Analysis

Strengths:

• Market Share:  Starbucks owns one-third of America’s coffee bars, more than its next five biggest competitors combined.  (ref-Moon and Quelch, 2006)
• Established company with long history:  Starbucks was originated in 1971and has been competing in the retail coffee market ever since.  With over a 45 year track record, Starbucks has the experience and positioning to regain customer support.  (ref-Moon and Quelch, 2006)
• Product & Service Innovation:  Starbucks dedicates a lot of its resources towards developing their product lineup and offering unique service methods.  On the product side, there are hundreds of drink combinations for customers to choose from which helps them cater to a diverse customer base.  From a service aspect, Starbucks offers a store value card which can be used to pay for transactions in any North American store.  (ref-Moon and Quelch, 2006)
• Strong Financials:  Starbucks has very strong financial foundation.  Based on their income statements and financial records, the company has the ability to dedicate resources that are necessary to decreasing the average wait time for a customer.
• Unique Customer Experience:  Starbucks has developed a business model where people go to Starbucks for the surroundings as well as the products.  Employees are expected to treat the customer with a high level of care, stores offer free wireless internet access, and there is comfortable seating for customers to enjoy.
• High Employee Satisfaction:  Starbucks’ “partner” satisfaction rate consistently hovered in the 80% to 90% range, well above the industry norm.  (ref-Moon and Quelch, 2006)
• Recession Proof Product: Coffee has consumer demand that is not seasonal or dependent upon the strength of the economy.  After the post 9/11 recession, Starbucks was enjoying its 11th consecutive year of 5% or higher comparable store sales growth. (ref-Moon and Quelch, 2006)

Starbucks’ greatest strength is their current entrenchment in the retail coffee market.  With over 45 years in the industry, Starbucks has built itself to be the top player in the retail coffee industry.  With their current foothold in the market, allocating resources to increase the efficiency in their stores should be a profitable proposition for the company.