STARBUCKS

A Case-study On Service Marketing

Presented by:
ANSHUL,
ASWIN, KIRAN, KIRUBHAHARAN
IT IS NOT JUST COFFEE, IT IS STARBUCKS COFFEE

PRODUCT LINE
COFFEE BEVERAGES, WHOLE-BEAN COFFEES, FOOD ITEMS,
COFFEE-RELATED PRODUCTS AND EQUIPMENTS
The product mix in each store varied, depending on the size and location of each
outlet

Larger stores:

Smaller stores:

Variety of whole coffee

beans
Gourmet food items,
teas, coffee mugs,
coffee grinders, coffeemaking equipment,
filters, storage
containers
Other accessories.

* A full line of coffee

beverages
* A limited selection of
whole-bean coffees
* A few hardware items.

PLACE
Located in high traffic, High visibility settings retail settings, office
Buildings, university campuses.
In-store at Barnes & Noble Retailers ; Target Retailers.

PRICE
Priced high perceived upscale image.
The average ticket price is $3.85.

PROMOTION
Word of Mouth for promoting products
Starbucks card referral system.
Appealing to diverse customer base international products.

PHYSICAL EVIDENCE
Custom- made cup of beverage.
Clean, friendly environment , cozy chairs, sofas.
Eye-catching Pastries menu
Beautifully decorated show cases
Tempting coffee pictures.

PEOPLE
Employees are called Partners
Happy customers start with happy staff
Employee turnover rate of 70% compared to the fast food industry
averages of 300%
Friendly Baristas

PROCESS
Stage in Production
Process

Obtain
Seat

Invisible process

Cleaning
of room

Take
Order

Make
Order
Preparation of
Ordering of
supplies

Deliver
Order

Pay for
Order

Accounting
Procedures

EXPLICIT SERVICE
Tasty coffee
Relatively Quicker Customer Service

IMPLICIT SERVICE
Relaxation, Comfort, Diversity

A gathering place for office-goers and friends

Home like experience

FACILITATING GOODS
Foods and Beverages asked by the consumers

ANALYSING THE EXHIBITS

EXHIBITS 1 AND 2: Net income has more than tripled and amount of stores worldwide
almost tripled from 1998 to 2002.

EXHIBITS 3,4 and 5: They show payroll structure and income volume per location in 2002
and product mix for North American company-operated stores.

EXHIBIT 6: It shows changing in Americans coffee drinking style into specialty coffee. It is very important
for Starbucks because companys main market is specialty coffee.

EXHIBIT 7: It shows positive customer snapshot scores for North America stores suggesting about
companys success. The only issue is the product quality that went down during 3rd quarter of 2002.

EXHIBIT 8: It shows that established customers and new customers are quite different in respect of
education, income and attitudes toward Starbucks. Customers who first visited Starbucks 5 years ago
have higher degree of education and higher income level. New Starbucks customers do not see it as a
brand of high value.

EXHIBIT 9: Customers visiting Starbucks stores more than 4 times monthly, are more satisfied than
customers who visit Starbucks less frequently.

EXHIBIT 10: Customers put store cleanliness as the most important attribute of the Starbucks stores. Next
are convenience, treating as valuable customer, friendly staff, coffee taste and fast service and right
prices. Fast customer service is not the most important attribute for Starbucks customers.

EXHIBIT 11: It shows that 34% of responders perceive upon better services as a factor, 19% want to see
friendlier staff and only 10% want to have faster service. From 28% of responders indicating better prices
and incentives as a factor, 19% of them believe free cup after x number of visit as the most important
improvement.

SUMMARY OF THE CASE

Starbucks has enjoyed great success since it was

founded 30 years ago.
The company has being doing very well for last 11 years
with 5% or more store sales increase, even with the rest
economy still reeling from the post-9/11 recession.
However recent research, conducted to Starbucks, have
showed some concerns regarding companys problem
meeting customers expectations.
To increase customer satisfaction level, Christine Day,
the Starbucks senior vice president of administration in
North America, suggested a plan to add additional 40
million annually for extra 20 hours of labor per every
store.
This move should help the company to accomplish lower
time of service to three minutes.

PROBLEM STATEMENT
Customer Dissatisfaction has been found out as the problem
even after being a high-quality brand.
Increasing Complexity Of the Job( Customization demands)
Long waiting time and Service time leading to slow service
delivery. Need to restrict the service time within 3 minutes per
customer
Losing Customer Focus and Product Differentiation
Dilemma over strategy: Product Quality or Customer Interaction??

GOAL
To move each store closer to the $20000 level in terms of weekly sales

PROPOSAL BY
STARBUCKS MANAGEMENT
Relaxing the labour-hour controls in the stores
Add an additional 20 hours of labour, per week, per store at a cost of an extra $40
million per year

Break-Even Analysis

The Company Should Roll-Out

$40million Plan in October
2002 or Not ?

Annual Customer Value

Equation Used:
Annual Value equation is no of visits per month (VPM) X average ticket size (ATS)/visit *12
months
1. Unsatisfied Customer: 3.9VPM x $3.88 ATS x 12= $181.58

(Customer life= 1.1)

2. Satisfied Customer: 4.3 VPM x $4.06 ATS x 12= $209.50

(Customer Life= 4.4)

3. Highly Satisfied Customer: 7.2 VPM x $4.42 ATS x 12= $381.89

(Customer Life= 8.3)

[ Exibit-9]

Differences between Unsatisfied-Satisfied-Highly Satisfied

1.

Unsatisfied vs. Satisfied:

$209.50-181.50

$28.00(15.38%)

2.

Satisfied vs. Highly Satisfied:

$381.89-$209.50

$172.39(82.23%)

3.

Highly Satisfied vs. Unsatisfied:

$381.89-$181.58

$200.31(110.32%)

Investment BreakEven Analysis:

1. Calculate increase in labor cost for each North America, Company Operated Stores:
$40mil/3496 = $11,441.65
[Exhibit 2].
2. Calculate breakeven point for customers switching from satisfied to highly satisfied:
$11,441.65/$172.39 = 66.67 customers.

The investment of $40 mil requires a conversion of 67 customers from satisfied to highly
satisfied to break even on the additional investment in labor.

To find the amount of unique customers per store:

1. 15,400 X 52 weeks- 800800/3.85= 208,000 ( No. of Transaction )
[Exibit 3]
2. 3.9+4.3+7.2= 15.4 ; 15.4/3= 5.13 Average visits/month
[Exibit 9]
3. 5.13 X 12= 61.6 Average visits per customer/year.
4. 208,000/61.6 = 3,376 unique customers per store.

5. The above figure gives a perspective on the scope of capitalization the company could
achieve on the number of customers conversation.

Conclusion
The differences between both satisfied and unsatisfied customers and highly
satisfied customers were $172.39 (82.23%) and $200.31 (110.82%).
The data suggests that Starbucks strategy should focus on improving customer
service to increase the amount of highly-satisfied customers among its client.
67 conversions per store to have a store break-even point.
1126 unique customers per store conversion of 2% of customers from satisfied
to highly satisfied would allow Starbucks to break-even.
Based on the calculations mentioned in previous slides, we have arrived to a
conclusion that the company should invest $40million in investment of labour.

Also, the company should restructure the marketing strategy by forming a

centralized strategy group for using market research data to take decision.

ALTERNATIVE PROPOSAL

Recently, customers perception about its brand image was getting

poorer. It can communicate the people with posters in crowd streets.
Creating an internal strategic marketing team will help Starbucks to keep
customer focus and fast responding to the customers demands.
Also strategic team can help in understanding the required investment
of 40 million for the individual stores.
Starbucks should invest in new espresso machines. This investment will
help company to speed the service time.
Bring down the expansion plans in North America and compensate with
more labour in these areas.
Smart Cards must be distributed and made available to more customers.
Phone ordering facility for customers with smart cards.
Focused Training: Update job knowledge to baristas. Providing solutions
of customer-handling in unplanned situations.
Reward coupons: Tracks customer purchases and will provide more
value to customers
Design of the Starbucks-counters could be modified so that more
number of customers could be attended by a single barista.