imd_starbucks delivering on service
DESCRIPTION
Integrated Marketing Decision ClassTRANSCRIPT
Binus Business School,
MM Executive Batch 20
Presented by Group I
Alexander Christian
Dina Sandri Fani
Jenna Widyawati
Ridwan Martawidjaja
Case Study AnalysisStarbucks Coffee
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Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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4
5
Cas
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Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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2
3
4
5
Cas
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Starbucks HistoryTransformed a commodity into an upscale cultural phenomenon
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1st Store in Seattle’s
Pike Place Market
Joining of
Howard Schultz
Tested the
coffeehouse concept
in downtown Seattle.
1st Starbucks Caffè
Latte is served
1984
19821971
Il Giornale founded:
a genesis for a
Starbucks Co.
1985
Acquisition of
Starbucks assets.
Re-branded into
Starbucks Corp
1987
Headquarters
expansion in
Seattle
1990
1st privately
owned U.S.
company
1991
Completes IPO
1992
Open roasting
plant in Kent,
Washington
1993Began
providing
coffee to fine
restaurants &
espresso bars
Offered brewed coffee
Also offered espresso
beverages made from
Starbucks coffee beans
Offer a stock option
program
Opened 1st licensed
airport store
Starbucks HistoryTransformed a commodity into an upscale cultural phenomenon
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1st drive-thru
location
Frappuccino
blended beverages
Serving bottled
Frappuccino coffee
drink through North
American Coffee
Partnership
1995
19951994
Starbucks
Foundation
1997
Starbucks brand
extension
1998
Launched
Starbucks card
2001
Dominant
specialty-coffee
brand in North
America
2002
Began serving Frappe
blended beverages
Opened roasting
facility in York
Goes into
grocery channels
across the U.S.
Launched
Starbucks.com
Starbucks Business EvolutionRenewed Starbucks sharpens its focus
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Starbucks Business EvolutionLicensed-stores grew faster than company-operated stores
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Starbucks Business EvolutionNet Revenues Development
1,0771,375
1,7352,086
2,58426
48
89
143
209
206
263
354
419
496
1998 1999 2000 2001 2002
Starbucks Net Revenues($ in million)
Co-Owned North American Co-Owned Int'l Specialty Operations
Recorded 25.9% of 5-year CAGR for total net revenues
Co-owned International grew much faster compared to the
other revenue streams; had 68.7% of 5-year CAGR
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Starbucks Business EvolutionKey Financial Figures
Double digit CAGR in all key financial figures
Net income recorded the highest 5-year CAGR of 33.2%
compared to the other key financial figures
73
0
61
3
10
9
68
93
9
78
6
15
7
10
2
1,2
16
1,0
24
21
2
95
1,5
36
1,2
84
28
1
18
1
1,9
39
1,6
56
31
0
21
5
Gross Profit Operating Expenses Operating Profit Net Income
Starbucks Key Financial Figures($ in million)
1998 1999 2000 2001 2002
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Average hourly rate with shift supervisor
and hourly partners
Total labor hours per week, average store
Average weekly store volume
Average ticket
Average daily customer count, per store
Starbucks Business EvolutionRetail Sales Mix and Operations-related Data
77%
13%
6%
4%
Product Mix, North American Company-Operated Stores (FY 2002)
Coffee beverages Food items
Whole-bean coffees Equipment & accessories
Starbucks’ Product MixCoffee beverages accounted for 77% of Starbucks’ North American company-operated
stores in 2002
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Coffee beverages
• 77%
Food items
• 13%
Whole-bean coffees
• 6%
Accessories
• 4%
Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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Starbucks’s Business Model in 2002
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Customer Segments
Initial segment: affluent, well-educated, white-collar patrons, skewed to female with the ages of 25 to 44
New segment: younger, less well-educated, & lower income bracket
Customer Relationships
Customized service
Retail experience
Co-partnership, e.g. with Pepsi-Cola to distribute bottled Frappuccino
Value Proposition
“Live coffee” mantra
Customer intimacy: uplifting experience every time the customers walk through Starbucks’ door
Experiential branding
Starbucks’s Business Model in 2002
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Key Resources
High quality coffee bean
Customer satisfaction oriented employee
Large coffee recipes collection
Physical assets of coffeehouses
Starbucks brand
Key Activities
Coffee bean selling
Food and beverage selling
Product and service innovation
Training
Specialty operations
Key Partners
Partners
Coffee bean farmers and suppliers
Retail centers
Third-party partnership (e.g. Pepsi-Cola Bottling company)
Starbucks’s Business Model in 2002
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Channels
Retail stores
Starbucks.com
Starbucks card
Cost structure
Store operating cost
Labor cost
Marketing & advertising cost
R&D cost
Revenue Streams
Premium coffees
Premium teas
Whole-bean coffees
Food items
Seasonal novelty items
Accessories & equipment
Music CDs, games
Starbucks’ SWOT AnalysisLeading brand with wide opportunities in the future
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S W
T
Strengths
• Leading brand
• Good relationships with
coffee suppliers
• High reputation of value
employees
• Stores location
• Low employee turnover rate
Opportunities
• The rise of coffee
consumptions
• Distribution agreements,
such as hotels, airlines, &
office coffee suppliers
• Increasing demand for coffee
Threats
• Cost of coffee beans is
expected to rise in the near
future
• High competition with small
product differentiations
• Market saturation in the near
future
O
Weaknesses
• Not always meeting
customers’ expectations
• Market & customer-related
trends could sometimes be
overlooked
• Weak linkage between data
& decision making
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Starbucks’ Porter’s Five ForcesLeading brand with wide opportunities in the future
1. Rivalry among existing
competitors
5. Threats of new
entrants
4. Bargaining power of suppliers
3. Threat of substitutes
2. Bargaining power of buyers
Rivalry among existing
competitors is HIGH within the
industry Starbucks operates in with
major competitors like Costa,
McDonald’s, Caribou Coffee,
Dunkin Donuts, and thousands of
small local coffee shops
1
Threat of substitutes is
substantial. Tea, juices, soft
drinks, water and energy drinks
can substitute Starbucks coffee;
whereas pubs and bars can be
highlighted as substitute places for
customer to meet someone
3
Bargaining power
of buyers is HIGH.
There is no or
minimal switching
cost for customers,
and there is an
abundance of offers
available for them
2
Starbucks suppliers have HIGH
bargaining power due to the fact
that the demand for coffee is high
in global level and coffee beans
can be produced only in certain
geographical areas
4
The threat of new entrants to
industry to compete with Starbucks
is LOW, because the market has
fierce competitions and substantial
amount of financial resources
associated with buildings and
properties are required in order to
enter into the industry
5
Starbucks’ Vision, Mission, & Value Proposition
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The Starbucks Vision
“To create a chain of coffeehouses
that would become America’s ”third
place”, a place where the people could
go to relax and enjoy others, or just be
by themselves”
The Starbucks Mission
“To inspire and nurture the human spirit:
one person, one cup, and one
neighborhood at a time”
Value Proposition
“Live coffee mantra”: the importance to
keeping the national coffee culture alive
Starbucks’ Current CompetitionHad a fierce competition due to huge number of competitors
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Competed against a
variety of small-scale
specialty coffee chains
in the U.S.; most of
which were regionally
concentrated.
Differentiate itself from
Starbucks in a different
way, e.g. Caribou
Coffee offered the look
and feel of an Alaskan
lodge with knotty pine
cabinetry, fireplaces,
and soft seating
Competed against
donut and bagel
chains such as
Dunkin Donuts
Caffeinating the WorldOverall objective was to establish Starbucks as the most recognized and respected brand
in the world. Aggressive growth strategy required
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Product InnovationRetail expansion Service Innovation
Expand
aggressively
Open stores in new
markets while
geographically
clustering stores in
existing markets
Ambitious
international
expansion plans,
i.e. 15,000
international stores
New products were launched on a
regular basis
NPD process generally operated
on a 12- to 18-month cycle
Decision to launch depended on a
number of factors, i.e.
o Consumer acceptance
o Degree of fitness into the
“ergonomic flow” of operations
o The speed with which the
beverage could be handcrafted
o Partner acceptance
Starbucks’ stored-value card
(SVC) had been launched in
November 2001
Prepaid, swipeable smart card
could be used to pay for
transactions in any company-
operated store in North
America
T-Mobile HotSpot wireless
internet service, introduced in
August 2002
Starbucks’ Target MarketStarbucks’ historical customer profile had expanded
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Historical customer
profile
Evolved customer
profile
Affluent segment
Well-educated
White-collar patrons
Skewed to female
Between the ages of
25 to 44
Tended to be
younger with
average age of
customers was 36
Less well-educated
Had a lower income
bracket than
Starbucks’ more
established
customers
Lead to the changing of customer needs!!
Starbucks’ Branding StrategyImplemented experiential branding as its brand strategy
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Starbucks’
experiential brand
credo:
“Creating an
experience
around the
consumption of
coffee, an
experience that
people could
weave into the
fabric of their
everyday lives”
The Coffee
Highest-quality coffee
Tight control of the
supply chain
Key experiential brand strategic levers
The Service
Customer intimacy
Uplifting experience
Customized service
The Atmosphere
Layouts were designed
to provide an upscale
yet inviting environment
for those who wanted to
linger
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Starbucks’ Channel StrategyCreated a global hub for its customers
The ultimate
Starbucks’ channel
strategy was to
create an effective
relationships with
third parties that
share Starbucks
values and
commitment to
quality in order to
reach customers
where they work,
travel, shop, and
dine
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Starbucks’ Channel StrategySelect carefully the stores location and its product mixes
Starbucks Product Mixes Stores Location
High-traffic
High-visibility settings
such as retail centers,
office buildings, and
university campuses
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Starbucks’ Partnership StrategyPartner satisfaction leads to customer satisfaction
All Starbucks employees were called
partners (60,000 partners worldwide;
50,000 in North America). Most were
hourly-wage baristas who worked in
Starbucks retail stores
Policy of giving health insurance
and stock options
Partner satisfaction rate
consistently hovered in the 80%
to 90% range, well above the
industry norm of 50% to 60%
Had recently ranked 47th in the
Fortune magazine list of best
places to work
Had one of the lowest
employee turnover rates in the
industry: 70% compared with the
fast-food industry averages as
high as 300%
Manager stability is key: not
only decreases partner turnover
but also enables the store to do a
much better job of recognizing
regular customers and providing
personalized service
Starbucks’ Delivering on ServiceMeasuring Service Performance
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Variety of metrics, including monthly status
reports and self-reported checklists
Mystery shopper program called the
“Customer Snapshot”: every store visited
by an anonymous mystery shopper three
times a quarter
4 “Basic Service” criteria to rate the store,
i.e.:
Service – verbal greetings, eye
contact, and say thank you
Cleanliness – the store? The
counters? The tables? The
restrooms?
Product quality – was the order filled
accurately? Was the temperature of
the drink within the range? Was the
beverage properly presented?
Speed of service – how long did the
customer have to wait?
Starbucks: Delivering on ServiceMeasuring Service Performance
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Stores were also rated on “Legendary
Service”: based on secret shopper
observations of service attributes such as
partners initiating conservations with
customers, partners recognizing
customers by name or drink order, and
partners being responsive to service
problems
Customer Snapshot scores had increased
across all stores. However, recent study
revealed that Starbucks not always
meeting customer expectations
Customer Snapshot deemed
as imperfect tools as failed to
capture the real expectations
of customers
Translating Service for CustomersAimed to reach three-minute standard of serving as its “excellent service”
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Starbucks’ Service Performance MetricsIntegrated BTL Shopper Activation
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Starbucks: Delivering on ServiceEnsuring a consistent service delivery
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Two types of training for a
newly-hired
1. Hard skills training, e.g.
learning how to use the
cash register and
learning how to mix
drinks
2. Soft skills training, e.g.
teach partners to connect
with customers
Implement “Just Say Yes” policy:
empowered partners to provide the
best service possible, even it is
required beyond company rules
Continuous process improvement
1. Increasing barista efficiency
removing all non-value-added tasks
simplifying the beverage production process
tinkering with the facility design to eliminate bottleneck
2. Process automation: invested on automated espresso
machines (the Verismo machines)
Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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Starbucks’ ChallengesComplexity arises due to hundreds of combinations of drinks in its portfolio
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The complexity of the barista’s job had
increased over time
Created a tension between product
quality and customer focus
Every time they customize, they slow
down the service for everyone else
Hire more baristas to share the
workload
Extremely reluctant to do this
due to economic downturn
Labor was already the
company’s largest expense in
North America
Starbucks stores tended to be
located in urban areas with
high wage rates
Starbucks’ ChallengesLacked a strategic marketing group: forced Starbucks’ marketing department worked in silo
mode
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Had no CMO
3 separate functions in marketing
department, i.e.:
Market research group:
gathered and analyzed market
data requested by the various
business units
Category group: developed a
new products and managed the
menu and margins
Marketing group: developed the
quarterly promotional plans
Forced everyone to get involved in a
collaborative marketing effort
Market- and customer-related trends
could sometimes be overlooked
Lack of data-driven decision making
process
Starbucks’ ChallengesExperienced some rough edges on its brand image
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Top Five Attributes Consumers
associate with the Starbucks brand
Known for specialty/gourmet coffee
(54% strongly agree)
Widely available (43% strongly agree)
Corporate (42% strongly agree)
Trendy (41% strongly agree)
Always feel welcome at Starbucks (39%
strongly agree)
Rough brand image primarily making money & building more stores!
Starbucks’ ChallengesHad a very little image or product differentiation to the smaller coffee chains; however,
significant differentiation with the independent specialty coffeehouses
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Independents Starbucks
Social and inclusive
Diverse and intellectual
Artsy and funky
Liberal and free-spirited
Lingering encouraged
Particularly appealing to younger
coffeehouse customers
Somewhat intimidating to older, more
mainstream coffeehouse customers
Everywhere – the trend
Good coffee on the run
Place to meet and move on
Convenience oriented; on the way to
work
Accessible and consistent
More respondents perceived Starbucks as a brand primarily cares about making
money (53% in 2000 to 61% in 2001)
More respondents perceived Starbucks as a brand primarily cares about building
more stores (from 48% to 55%)
Starbucks’ ChallengesThe Changing Customer
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Starbucks’ customer base
was evolving
47% were new customers*
Visited the stores less
frequently and had very
different perceptions of the
Starbucks brand compared to
more established customers
Starbucks’ historical customer profile – the
affluent, well-educated, white-collar female
between the ages of 24 and 44 – had expanded:
forced Starbucks to adapt the changes
With respect to customer behavior, regardless
the market, customers tended to use the stores
the same way
Lead to the changing of its behavior, perceptions, and expectations toward brand!
* 27% visited Starbucks in the past years; whilst
20% visited Starbucks in 1-2 years ago
Problem Statements & Challenges
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Problem Statements
Not always meeting customer expectations in
the area of customer satisfaction
Potential to lose loyal customer in the near
future due to the increased of number of
unsatisfied customers
Proposed wayout
To improve speed-of-service by investing an
additional of $40 million annually in the
company’s 4,500 stores; mostly used for getting
an additional of 20 hours of labor a week
Dilemma
The investment is the EPS equivalent of almost
seven cents a share
Whether our customers are telling about what
constitutes ‘excellent’ customer service
Whether it will bring a positive impact on sales
and profitability
Rough brand image of
primarily making money
and building more stores
Insignificant perceived
differentiation between
Starbucks and others
The changing customer
leads to the changing of its
behavior, perceptions, and
expectations toward brand
Complexity arises due to
hundreds of combinations
of drinks in its portfolio:
resulted to low speed-of-
service and satisfactory
service of Partners
Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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Recent Research FindingsStarbucks’ Customer Behavior, by Satisfaction Level
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Unsatisfied customers Satisfied customers Highly satisfied customers
3.9 visits/month
Spends $3.88 per visit
Short customer lifecycle,
i.e. 1.1 years
Lifetime Value per
customer: $199.74
4.3 visits/month
Spends $4.06 per visit
Medium customer
lifecycle, i.e. 4.4 years
Lifetime value per
customer: $921.88
7.2 visits/month
Spends $4.42 per visit
Long customer lifecycle,
i.e. 8.3 years
Lifetime value per
customer: $3,169.67
Highly satisfied customers are the most profitable customers for Starbucks!
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New Customers Established
Customers
Percent female
Average age
Percent with College Degree +
Average income
Average # cups of coffee/week
Attitudes toward Starbucks:
High-quality brand
Brand I trust
For someone like me
Worth paying more for
Known for specialty coffee
Known as the coffee expert
Best-tasting coffee
Highest-quality coffee
Overall opinion of Starbucks
45%
36
37%
$65,000
15
34%
30%
15%
8%
44%
31%
20%
26%
25%
49%
40
63%
$81,000
19
51%
50%
40%
32%
60%
45%
31%
41%
44%
Recent Research FindingsNew customers vs. established customers: significant gap on perceiving brand image
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13%
16%
17%
17%
20%
30%
34%
37%
39%
50%
60%
60%
65%
65%
67%
72%
73%
75%
77%
83%
0% 20% 40% 60% 80% 100%
Selection of merchandise
New, innovative beverages
Selection of whole beans
Highest-quality pastry, desserts
Selection of noncoffee beverages
Highest-quality tea
Involved in the community
Best ice-blended drinks
Place to relax, meet friends
Knowledgeable staff
Pleasant atmosphere/ambience
Freshest coffee
Best espresso drinks
Fast service
Appropriate prices
Highest-quality coffee
Coffee taste/flavor
Friendly staff
Treated as a valuable customer
Convenient
Clean Store
Recent Research FindingsKey Attributes in Creating Customer Satisfaction
Customer Snapshot
scores indicated a
satisfactory
performance in stores’
cleanliness and
convenient
However, recent
study revealed a
declining number of
satisfied customers
due to low speed-of-
service
Recent Research FindingsImprovement to Service as a factors driving “Valued Customer” perceptions:
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How could Starbucks make you feel more like a valued customer? % responses
Improvement to Service (total)
Friendlier, more attentive staff
Faster, more efficient service
Personal treatment (remember my name, remember my order)
More knowledgeable staff
Better service
34%
19%
10%
4%
4%
2%
Offer better prices/incentive programs (total)
Free cup after x number of visits
Reduce prices
Offer promotions, specials
31%
19%
11%
3%
Other (total)
Better quality/variety of products
Improve atmosphere
Community outreach/charity
More stores/more convenient locations
21%
9%
8%
2%
2%
Don’t know/Already Satisfied 28%
Reasons of Declining Customer Satisfaction
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Insignificant image or product
differentiation between Starbucks
and the smaller coffee chains
Expectations could have increased
It sets the standard very high
for its customers
Hard to always meet the
standard due to fast expansion
and product innovation
Customized drinks might have
had harmful effect
Increasing lead time
Satisfaction level of customers
varies as the demographics of its
customers are changing
Reasons of Declining Customer Satisfaction
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44“Despite the overwhelming presence and convenience, the scores declined”
Starbucks is measuring much on
how people view the company
Customers generally are
satisfied with the coffee;
however,
Lack of insights on customer
expectations toward brand
Ideal Starbucks Customer from a Profitability Standpoint
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Loyal customers who visits
the store 18 times per
month
Improve customer
throughput by reducing
non-value added services
in preparing the order and
delivering on service
Customer service lead time
per customer not exceeds
3 minutes
Average ticket size must be
higher than $4.42 per visit
Table of Contents
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Starbucks History
Starbucks’ Challenges
Detailed Analysis
Starbucks Business Model
Conclusion and Recommendation
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Moving Forward: Ensuring the Customer to be Highly Satisfied
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Cater to their needs and
match/exceed their
expectations
Add lounging areas and
more comfortable chairs
and tables so that
customers feel relaxed
Ensure service as fast as
customer wants it to be
More highly-satisfied
customers: more often they
visit us, more money to
spend, good WoM
higher profit!
Decision in $40 million investment in labor
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Recommend the Management to
make investment; however
suggest to have a pilot project
instead of massive investment in
labor
Allocate the money based on size
of store, number of customers,
location, and need for additional
labor instead of apportioning the
$40 million equally to all the stores
Apart from making the investment,
Starbucks need to look more into
their customer base and improve
their brand image and value
proposition
Other Recommendations
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Redefine their marketing strategies
starting with a proper research and
evaluation of what the customer wants
Conduct regular customer analysis
including its behavior and needs
analysis toward brand
Revamp the existing Customer
Satisfaction survey
Proper C-Sat survey in addition to
mystery shopping
Expand the respondent profile
(infrequent consumer and non-
consumer to be included)
Add more detailed questions that
can highlight customer paint points
Other Recommendations
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Establish a centralized marketing
department to steer all marketing
efforts
Reduce product mixes at store as
recent study revealed innovative
products are not as important to the
customers
Concentrate new store openings in
areas that would not cannibalize
existing sales
Advertise more to establish the
branding of Starbucks. They have
developed over time, and their
customers are different than before
Other Recommendations
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Consider to add more baristas as
quick term fix; however this should be
allocated according to an establish
need per store
Modify job allocation of baristas: the
more experienced baristas to handle
the more complicated orders
Introduce more customer operated
machines to reduce wait time
Develop an integrated customer
loyalty program, e.g. free order if
exceed the three-minutes order;
special discounts in special days
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