Starbucks

Recommendations:

1. Starbucks should invest $40 million annually in the company's 4574 stores to increase labor hour per week by another 20 hours. This investment will help eliminate the problems of service time and customer satisfaction by reducing the bottleneck of labor time and increase customer satisfaction at all levels which will in turn generate a stream of additional revenues for the lifetime value of each customers with respect to him/her shifting from unsatisfied to satisfied and satisfied to highly satisfied.

2. Starbucks should set up an internal strategic marketing team. This will allow Starbucks to have a proactive feedback of customer satisfaction and hence faster improvement.

3. Starbucks should conduct a survey on about 50,000 Starbuck drinkers to determine the product non-Starbucks customers in order to understand why they don't choose Starbucks. This will allow Starbucks to deploy a suitable strategy (if at all) to capture new customers in existing and new markets.

4. Starbucks' products have not only attracted well-educated and affluent customers, but have also attracted customers who are younger and less well educated with lower income range. Therefore, Starbucks should see this as a marketing opportunity and deploy a strategy to capture this new customer base to be their 2nd permanent loyal segment via means of advertisements and promotional campaigns that emphasize on Starbucks' premium coffee and 'in trend' brand image. Using the 'In trend' emphasis will not only increase awareness of Starbuck superior service and quality to all its customers but also capture the 'new customers' segment appropriately as this is the 'key' reason they chose Starbucks.

Alternative recommendation:

Should Starbucks decide not to invest in labor, there are alternatives to the $40million investment that Starbucks can consider. These alternative recommendations would increase % utilization of labor per store as well as increase customer satisfaction ? higher revenues without the need to spend additional money.

- Starbucks should outsource their employees during peak hours in order to reduce the service time. Hiring part-time employees to help during peak hours would be an outsourcing solution. It is oblivious though that this strategy would require a careful analysis of day-to-day activity for each and every store to determine which ones needs part-time workers and during which time of the day. If they chose to deploy this strategy, store managers must keep in the mind the need to constantly monitor peak hours and reschedule part-time worker hours accordingly to stay upbeat with the market.

- In addition, Starbucks could consider shifting their employees from stores with low traffic to stores with high traffic during peak hours so that the service time can be reduced at high-traffic stores.

Critical Issues

* Customer satisfaction has declined over period of time

* Quality of the service has decreased due to the increasing number of customers within the target market as well as non-target customers as well as customers who prefer customized drinks.

* Strong brand image was on a decline due to the bad responses from the research such as "The number of respondents who strongly agree with the statement 'Starbucks cares primarily about making money' was up from 53% in 2000 to 61% in 2001"

Situation Analysis

1. Market Summary

1.1 Target Market:

* White collar, especially females

* Coffee connoisseurs

* Ones who search for a "third place" to relax

1.2 Market Demographics:

The current Starbucks' customers are in the following demographics; and the stores are usually located in the following geographics:

* Demographics:

The demographics of the customers have expanded from 1992, which is white-collar female between the age of 24 and 44. The newer customers tended to be younger, lower educated and smaller income worker.

* Geographics:

- High traffic area

- High visibility area such as retail center, office building and university campus

* Behavior Factors:

- Convenience location

- "In the trend" image

- Good quality specialty coffee

1.3 Market needs:

* Good quality coffee

* Excellent customer service

* Convenience location

* Relax atmosphere

1.4 Market Trends:

According to research conducted by Starbuck, it was considered to be one of the specialty coffee chains instead of the specialty coffee house because of Starbuck's rapid expansion and focus on convenience. Instead, its image is positioned as being "the trend" as well as accessible and convenient coffee 'on the run'.

1.5 Market growth:

There have been an increasing number of coffee drinkers in 2002 with direct impact on increase in demand for specialty coffee. The number of daily coffee drinkers was 109 million, which was 50% of the U.S. population, and occasional drinkers were 52 million.

2. SWOT Analysis

Strength:

Strong brand value as its core competency

Successful brand establishment without heavy advertising cost as compared to industry usage of 3-6% of sales

Starbucks has created a third segment of a 'place to relax' by emphasizing not only the core product quality and variety offerings but also on store ambience to make people 'want to stay'

Flexibility on customer service using the "Just say yes" policy differentiates Starbucks from its competitors and contributes to higher customer satisfaction

11 years consecutive sales growth of 5% or more per year with its continued retail, service and product expansion

Broad distribution