Case analysis

Problem:

Starbucks prided itself on offering what it believed to be the highest quality coffee in the world but recent market research was indicating that the company was not meeting required customer satisfaction in terms of customer service. Should the company invest an additional $40 million annually in the company’s 4,500 stores, which would allow each store to add the equivalent of 20 hours of labor a week with the idea is to improve speed-of-service and thereby increase customer satisfaction?

Problem Analysis:

The market research team discovered that Starbucks’ brand image had some rough edges. The number of respondents who strongly agreed with the statement “Starbucks cares primarily about making money” was up from 53% in 2000 to 61% in 2001, while the number of respondents who strongly agreed with the statement “Starbucks cares primarily about building more stores” was up from 48% to 55%.

Customer snap shot score measures customer satisfaction on four parameters namely Service, cleanliness, product quality and average wait time. While service and cleanliness were improving, product quality [Q2 02 to Q3 03] and average wait time [Q3 01 to Q3 03] were diminishing.

Opinions:

Starbucks lacked a strategic marketing group. Starbucks’ stored-value card (SVC) allowed Starbucks to collect customer-transaction data, data hasn’t been analyzed and used yet. They discovered that Starbucks’ customer base was evolving. Starbucks newer customers tended to be younger, less well-educated, and in a lower income bracket than more established customers. They visited the stores less frequently and had very different perceptions of the brand compared to established customers. There was very little image or product differentiation between Starbucks and the smaller coffee chains in the minds of specialty coffeehouse customers

Christine Day, Starbuck’s senior VP of administration in North America is of the opinion that “We’ve been operating with the assumption that we do customer service well. But the reality is, we’ve started to lose sight of the consumer. For all of our focus on building the brand and introducing new products, we’ve simply stopped talking about the customer. We’ve lost the connection between satisfying our customers and growing the business.”

Plan of Action:

1. Proceed with investing $40 million to increase service efficiency i.e. across Product quality, average wait time and retaining new customers.
2. Implement automation in stores increasing efficiency [Reducing labor cost and increasing average wait time] without decreasing product quality and customer relationship.
3. Use customer data to discover target customer segments requirements and implement customized products, strategies that differentiates Starbucks from smaller coffee chains.
4. Retail expansion i.e. explore geographically unpenetrated markets and introduce more products to attract customers outside key demographic segments.
5. Establish centralized strategic marketing group to coordinate marketing throughout all department, analyze, interpret and implement strategies from accumulated customer data.