Starbucks Case Study

Introduction

Starbuck’s strategy focused on three components; high-quality coffee, intimate service, and ambient atmosphere. Starbucks worked closely with growers in Africa, South and Central America, and Asia-Pacific regions to insure the quality of its product. Starbucks called all employees' "partners" and worked hard to train them with the skills necessary to best serve the customer. The atmosphere at Starbucks was crafted after the European-style espresso bar. The company goal was to create ambience through the Starbucks "experience" and by making the area comfortable, yet upscale.

Its primary objective was, simply put, to become the “most recognized and respected brand in the world.” This objective required most of the company’s strategic goals to be based on company growth and product innovation. There were many opportunities that made expansion plausible, such as a rise in coffee consumption and untapped metropolitan areas. Starbucks had reached all of its success without spending a large amount of money on advertising. Point-of-sale materials were primarily used and their local-store marketing was far less than the industry average.

Background

Starbucks originally opened in 1971. The Seattle based store began by selling whole Arabic coffee beans to consumers. In 1987 it was purchased by Howard Schultz and he made the company what it is today. The company started selling coffee by the cup and opened new stores in various locations. There were 140 stores in the Northwest and Chicago by 1992, and it was at that time that Schultz decided to take the company public. This allowed him to raise $25 million and open stores across the nation. Starbucks was the dominant specialty-coffee chain in North America by 2002. There were over 5,000 stores which served over 20 million customers world wide.

Problem Description

Starbucks faced various challenges in moving forward. Their marketing research shed light on the fact that their focus had shifted from the consumer towards store growth and product expansion. The research also highlighted the fact that they were lacking in customer service. Through these studies, Starbucks was able to identify what their customers wanted in terms of satisfaction. Consumers wanted Starbucks to make improvements to their service and also start offering better prices and incentive programs. The company wanted to add an additional 20 hours of labor to all of its stores in order to bring service time down to less than three minutes. Their goal was to enhance the bottom line by achieving sales of $20,000 a week per store. They needed to tie customer service to the bottom line in order to justify their plan to add the additional labor. We will address this issue in our alternate solutions. Other problems identified from this case include the following:

Brand Image and Differentiation

Starbucks faced various challenges in moving forward. The first of which was brand image and a lack of product differentiation. Customers often saw little or no difference between Starbucks and smaller coffee chains. Also, in a market research study it was found that more that half of customers felt, at an increasing rate from previous years, that Starbucks only cared about profit and expansion.

Changes in the Customer Profile

At one time Starbucks had established a customer profile, which could be described as an “affluent, well-educated, white-collar female between the ages of 24 and 44.” Most new customers did not fit into this description. They were often less educated, younger, and in a lower income bracket. In certain parts of the country the Starbucks chain often catered to specific minority groups. This new customer base was unfamiliar to the company.

Meeting/Exceeding Customer Expectation

When paying a premium price for a product, customers expect to receive superior quality and service. In terms of customer satisfaction, Starbucks was not meeting the expectations of its consumers. With the change in the company's customer profile and a need to establish itself from those in the industry, it had become increasingly important to establish standards for measuring and driving customer service.

Industry Assessment

In 2002, Starbucks owned close to one-third of the coffee bars in America. This was greater than its five greatest competitors combined. Starbucks primarily competed against regionally concentrated, small-scale chains, independently owned shops, and donut and bagel chains. Small-scale chains usually tried to differentiate themselves from Starbucks; an example of this is using unique or themed store environments. Independently owned coffee shops often served a more eclectic clientele and delivered highly personalized service. Competition from donut and bagel chains had grown in recent years since many of them began offering a larger variety of coffee drinks.

Strengths

This company had obvious strengths to build on. They had more stores and more capital than any of their other competitors. They also had good brand recognition with a solid name and logo. Their employees gave the company a solid foundation and had satisfaction ratings in the 80 to 90 percent range. Another important strength to exploit was they had the knowledge that can only be obtained through experience, with over thirty years in the business. Starbucks was also successful at gathering a significant amount of research. This research helped the company realize that they needed to start focusing more on their consumers.

Weaknesses

Like all companies Starbucks also had its weaknesses. One of the most pertinent weaknesses was the lack of a strategic marketing group and chief marketing officer. Its lack of unity in the marketing department caused consumer trends to be overlooked and it created a problem in the decision making process. Many customers had a negative view of the company because of its strong emphasis on growth and profit. Customers felt that Starbucks lacked the customized attention and comfort they received from smaller, more unique coffee shops. Therefore, Starbucks felt too trendy and much like a generic retail chain to some coffee drinkers.

Customer Service: Does it link to the bottom line?

Starbucks has research that identifies an unsatisfied customer will