Christine Day Case

Note: This study has been written in the first person on behalf of Christine Day. We have tried to put ourselves in her shoes and to make a cogent argument on her behalf before the Chairman and CEO for the implementation of the $40 Million plan.

Introduction

Recent consumer market research has thrown up startling statistics regarding public perception of our brand and changing customer demographics, potentially threatening growth going forward. This report has been prepared to propose a solution to these emerging problems and rationalize why this proposed solution is the most effective method to redress these issues.

Start of the Success Story

From inception, we have been successful in understanding the 5C's (customer, competitor, company, collaboration and context) of business and using this understanding to deliver a unique customer value proposition (CVP). Our CVP has inherently expressed points of similarity with our competitors, especially in terms of 3P's of price, promotion and place - its uniqueness however flows from imbibing the fact that the human spirit places immense value on the spirit of community. To unlock the value that customers place on this need, we have differentiated ourselves on the 4th P of 'Product: A cup of coffee with an experience', by creating a 'third place' for people, where they could relax and enjoy others or be by themselves and enjoy an 'experience' rather than consume coffee. Our successful differentiation reflects not only in our annual financial growth, but also in the fact that we have created a global cultural phenomenon of coffee drinking outside the house by recognizing and focusing on the universal human need for community.

Unlocking the Potential - Creating a Value Proposition

To unlock the potential of this need, we have created a unique customer value proposition centered around the consumption of coffee that required control over the supply and distribution channels to ensure quality of our product and consciously appealing to the human need to feel valued and respected by imbibing a strong culture of service and customer intimacy and tying this into the human need for community by creating the right atmosphere, which makes people want to stay and satisfy their need for community. Thus, we are not differentiated from competitors on quality, price or promotion, but by virtue of our 'product' (atmosphere + customer intimacy) which allowed us to provide an experience and defines our brand strategy of 'live coffee'.

The Success of our Value Proposition and Brand Strategy

In large part due to this strategy and emphasis on satisfying the needs of customer by providing the right service and atmosphere, we have grown from a single store in the 1970's to nearly 5,900 stores globally in 2002 and own nearly one-third of America's coffee bars, more than our next 5 biggest competitors combined. Our revenues have reached all time highs of over $2500 million, we now serve over 20 million customers a year and have grown 5% or more over the last 11 years, even in the face of the global economic slowdown. We cannot ask for more evidence on the importance that this core strategy has had for our growth in the past.

Results of Market Research and Identified Problem Areas

Despite our success, our most recent market research on customers has highlighted that our customers perceive us to have moved away from our own brand strategy and core differentiator of service to a more commercial model. Our research shows that:

(a) 61% (up from 53% in 2000) of the polled respondents thought of us as primarily interested in making money while 55% (up from 48% in 2000) thought our primary interest to be opening more stores;

(b) There was a decline in customer satisfaction likely due to a service gap between what we provide at stores and what customers expect from us, especially in speed of service;

(c) customer demographics have expanded from a primarily educated, white collared, affluent population to further include a younger, less educated population, which now comprises a significant proportion of our current customer base and rates us poorly on the quality of our brand and coffee, trust, service, taste and overall opinion (as low as 25%) as compared to our core customer base, leading