Analysis of Starbucks Delivering Customer Service

Analysis of Starbucks Delivering Customer Service

Problem statement:

* In 2002, market research has shown that Starbucks has a gap in meeting its customer's expectations in terms of customer satisfaction.

* On interpretation the marketing research data, Christine Day, Senior Vice President concluded that the speed of service was the main reason for this decline in customer satisfaction. So she proposed to improve the service time such that each order is served within 3 minutes.

* However, this solution would cost Starbucks 20 additional labor hours per week thereby $40 million per year. Is 20 seconds increase in speed of service really worth $40 million per year?

Situation Analysis:

Customers: The demographics of a typical Starbucks customer have changed drastically in the recent years.

* From Exhibit 8 in Starbucks case document newer customers of Starbucks are younger, less well-educated, low income, less frequent visited to the coffeehouse and had very different perceptions.

* The overall attitude of Starbucks is very low on 25% by new customers whereas the regular customers stood in 44%.

* While many factors influenced customer satisfaction, overall service and speed of service were identified as the most influential; a quick glance at Starbucks's recent customer satisfaction (Exhibit 10 and Exhibit 11 in Starbucks case document) reveals that customers did in fact express dissatisfaction with the efficiency and speed of service.

* From Exhibit 9 in the Starbucks case document we can learn that greater customer satisfaction directly results in higher potential sales.

* Since there was a strong and positive relationship between customer satisfaction and future potential sales, achieving high customer satisfaction is a key factor to Starbucks's sales growth. In fact, it can be made known that by transforming unhappy customers to satisfied ones, or moving the satisfied and unhappy customer to a highly satisfied customer the Starbucks's revenues can be increased between 361% and 1478%, respectively. Please refer the Appendix Exhibit A.

Competition: Starbucks is clearly ahead of its competitors in terms of size of operations and profitability.

* In the US, its main competitors are small-scale specialty coffee chains like Caribou Coffee, other independent specialty coffee shops and donut and bagel chains like Dunkin Donuts.

* From Exhibit 6 of Starbucks case document we can observe that despite of the fact that there are many specialty coffee shops on the raising, Starbucks still holds a leading edge.

Company: Starbucks pursued its overall objective to establish itself as the most recognizable and respected brand in the world by focusing on retail expansion and product innovation.

* Starbucks had 20 million customers and 5000 stores and still growing.

* From Exhibit 2 and 6 in Starbucks case document it is clear that Starbucks was constantly expanding and growing its market share in the specialty coffee market.

* The Starbucks market share in the specialty coffee market grew by 29.92% between 2000 and 2002 and it's expected to grow by an additional 61.11% by 2005. Please refer appendix Exhibit B.

* Historically, Starbucks invested minimal on advertising. Starbucks was also an employee friendly organization. Starbucks has approximately 60000 partners/employee, of which most are hourly wage employees called baristas. Employees were highly valued and well taken care of by providing insurance coverage, stock options, and internal promotions.

Context: Starbucks was constantly investing in new product innovation to drive sales and growth. The financial numbers reflect this growth (Exhibit 1 from Starbucks case document). But recent market research showed that customer service, on which Starbucks prided itself, was perceived as unsatisfactory. Customers viewed Starbucks as a corporate giant focused on making money and growing in size. It showed that Starbucks's strategy of using customer snapshot scores to measure service performance was proving ineffective.

Analysis of Alternatives

Strengths: Some of the key strength are its large market share, well known brand name and generally trusted, reasonably well accepted for having a good quality, Good coffee on the run - associated with speed of service, Accessible and convenient and Consistency. Speed of service is one of the main strength of Starbucks is now found to be declining.

Weaknesses: Starbucks' "Valued Customer" Perceptions Survey is key in helping to determine what areas customers are most disappointed with or where they feel Starbucks need to improve. This survey essentially identifies that gaps that exist between customers' expectations and what Starbucks delivers. "Importance ranking of key attributes in creating customer satisfaction" survey points to what customers consider most important in creating customer satisfaction. As shown Appendix Exhibit C, Starbucks weaknesses and their importance can be highlighted by finding the gaps between customers' expectation and where they express dissatisfaction. The categories in the Appendix Exhibit C, with the exception of general price reduction, comprise the alternatives that were subsequently considered as part of this case. Price reduction is eliminated to be considered as an alternative because it conflicts with Starbucks' pricing and generic marketing strategies. That is, Starbucks has a Premium Pricing Strategy and does not compete within Porter's overall cost leadership.

Opportunities: Starbucks is very well positioned for global expansion, given its success thus far in the markets outside of North America. There are also many opportunities in the regional markets throughout North America where it can continue to expand. The most relevant and important opportunity however, is in achieving better customer satisfaction since this will directly result in increased revenues and profit. This also gives Starbucks an opportunity to establish a strategy marketing group.

Threats: Threats to Starbucks include competitors operating within the same industry as well as the treat from substitutes. While this threat within the specialty coffee market does not seem to be serious since Starbucks has a large share of the current market and is expected to grow, but it must be wary of aggressive competitors that could take advantage of Starbucks's weaknesses or degrading