Starbucks is a major specialty-coffee brand in the North. Recent market research has indicated that the service level of the company is currently not meeting the expectations of customers. Thus, the company is discussing a plan to increase customer satisfaction by increasing the amount of labor in each coffee store and, as a consequence, increase the speed-of-service. However, the plan would result in additional costs of $40 million per annum while the impact on the profitability of the company is unclear.
Youngme Moon; John A. Quelch
Harvard Business Review (504016-PDF-ENG)
July 31, 2003
Case questions answered:
- What factors accounted for the extraordinary success of Starbucks in the early 1990s? What was so compelling about the Starbucks value proposition? What brand image did the company develop during this period?
- Why has Starbucks’ customer satisfaction score declined? Has the company’s service declined, or simply measuring satisfaction the wrong way?
- How does the Starbucks of 2002 differ from the Starbucks of 1992?
- Describe the ideal Starbucks customer from a profitable standpoint. What would it take to ensure that this customer is highly satisfied? How valuable is a highly satisfied customer for the company?
- Should Starbucks make the $40 million investment in labor in the stores? What’s the goal of this investment? Is it profitable for a megabrand to deliver customer intimacy?
- Please summarize the case study “Starbucks – Delivering Customer Service”.
- Please identify the key challenges of the company.
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Case answers for Starbucks: Delivering Customer Service
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Company Background – Starbucks: Love Coffee, Love People
Starbucks was founded in 1971. Later, Howard Shultz took over. Its vision and mission is to “Make America’s third place, Establish as the most recognized brand”. The company specialized in selling whole coffee beans and premium coffee beverages. Its target customers are the affluent, well-educated segment of the market. It has achieved immense success and had spent almost nothing on advertising.
The company’s experiential branding strategy has three components:
This branding strategy is based on the human spirit, a sense of community, and the need for people to come together.
One of the core issues the company is facing is that its services are not meeting customer expectations. It is mainly due to changes in target customers, decreasing age and income groups, and customer’s poor perception of the company. Most people reviewed the company as follows:
- ‘Starbucks care primarily about making money’ –Up from 53% in 2000 to 61% in 2001
- ‘Starbucks care primarily about building more stores’ – Up from 48% to 55%.
There is also the lack of strategic marketing group – no chief marketing officer, as accepted by Day herself that ‘they were good at collecting market data but not disciplined in using this data.’
The company is challenged on how to link customer satisfaction to an increase in sales and profitability. Should the company roll-out a $40 million plan to add 20 hours of labor a week? And how should the company differentiate itself from competitors?
Q1. What factors accounted for the extraordinary success of Starbucks in the early 1990s? What was so compelling about the Starbucks value proposition? What brand image did Starbucks develop during this period?
- To set up an expresso bar, inspired by Milan’s coffee culture.
- The aim is to make America’s “third place.”
- They created an experience around the consumption of coffee.
- Employees were called partners. The company offered benefits, which resulted in the company’s partner satisfaction rate in an 80% -90% range.
- Stable prices and new products were launched regularly. The company also conducted R&D, in-store experiments, and market tests.
Compelling reasons about Starbucks value proposition and the brand image the company has developed
- They offered the highest quality coffee beans sourced from Africa, central and south America, and Asia- Pacific regions.
- The company worked directly with growers.
- The company developed good customer intimacy.
- The ambiance makes customers stay.
- The company’s outlets are located in high traffic and high visibility settings.
- Brand strategy, “live coffee” mantra.
Q2. Why has Starbucks’ customer satisfaction score declined? Has the company’s service declined, or simply measuring satisfaction the wrong way?
- The current way of measurement does not capture the correct consumer profile.
- The decline in service level – trained only to please the affluent customers.
- Diluting value proposition
- The rising perception that the primary motive of making money and building more stores.
- Very little image or product differentiation between Starbucks and smaller coffee chains
- The company has hundreds of combinations of coffee, leading to a larger service time and lower customer satisfaction.