STARBUCKS:

DELIVERING CUSTOMER
SERVICE

BIBHUTESH NAYAK
RSB1501008

Case write up on

CASE ANALYSIS:
Starbucks one of the fastest growing companies in the US and in the world. it was
founded in 1971at Seattle, Washington by it was founded with the three coffee fanatics- Gerald
Baldwin Gordon Bowker & Ziev Siegl. In 1982 Schultz has joined in Starbucks Marketing team,
after sometime he left the Starbucks and traveled to Italy, and he became fascinated to the Milan
coffee culture, Schultz main target is to keep the coffee as a third place for American life style.
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.
Starbucks senior vice president of administration Christine Day in North America was
in a dilemma after the analysis of the research on customer satisfaction that they dont always
meet their customers expectation. The idea of VP to improve speed-of- service and that might
lead to increase customer satisfaction. To increase the speed-of-service she thought of investing
additional $40 Million in 3496 company owned stores in North America. This move should help
the company to accomplish lower time of service to three minutes.
Starbucks main brand strategy or Value proposition was live coffee mantra. And the 3
ways to capture it the sourcing of Coffee which is being delivered has the highest-quality coffee
in the world because they source the coffee beans from Africa, Central & South America, and
Asia-Pacific regions. They source the green coffee beans directly from the farmers and
distributed to the retail stores around the world. Service provide a different type of service where
the barista remembers the customer and their customized coffee which makes loyal customers to
visit on average 18 times a month. They call it as customer intimacy. Their main goal is to create
a new experience every time when they enter into the Starbucks. Atmosphere created designs
with good ambience & better environment.
Starbucks has a good channel of distribution with good product mix but it was the
Beverages made largest percentage of sales i.e. 77% and that would be core of Starbucks.
Starbuck also have just 70% of employee turnover compared to 300% in fast-food industry and
they call their Barista and Manager as Partners. This maintains a good relation among the
employee. Starbucks ensure that employee and customer so that value of service is delivered.

Customer pattern also changed in Starbucks as years passed on, presently the walk-in are
younger, less well educated and in lower income bracket compared to affluent, well educated,
white collar female between 24 and 44 years. The satisfaction scores were considered critical
because the team also had evidence of a direct link satisfaction level and customer loyalty.
Solutions and Suggestions
Investing 40 million per year to increase labor hours per store. This can be only known
after critically analyzing the exhibits. I feel speeding up service could help increasing market
share, but it is not the most important issue faced by Starbucks.
No of stores operated in North America = 3496
Investment on per store = $40M/3496 = $11441.64 = $11442 approx
From the exhibit:
Variables

Satisfied
Customer

Highly Satisfied Loyal customer

Customer

4.3

7.2

18

4.06

4.42

4.42

=4.3*12*4.06

=7.2*12*4.42

=18*12*4.42

=209.49

=$381.88

=$954.72

=$182

=209

=$382

=$955

Average
Customer
life

1.1

4.4

8.3

8.3

Customer
lifetime
value

=3.9*12*3.88*1.1 =4.3*12*4.06*4.4 =7.2*12*4.42*8.3 =18*12*4.42*8.3

Number
Starbuck
visits
Month.
Avg.
Size

Unsatisfied
Customer
of 3.9
/

Ticket 3.88

Annual
=3.9*12*3.88
Income @
Customer
=$181.58

=$199.74

=$921.78

=$3169.67

=$7924.17

=$200

=$922

=$3170

=$7924

Let us assume that the average customer per store is 570. (From exhibit 5)
Unsatisfied to Satisfied Customers = 11442 / (209-182) => 11442 / 27
= 424 Customers
Satisfied to highly Satisfied Customers = 11442 / (382-209) => 11442 / 173
= 66 Customers
Highly Satisfied to Loyal Customers = 11442 / (955-382) => 11442 / 573
= 20 Customers
Alternatives:
The company can lower prices for its products. This solution should bring more new
customers to Starbucks, but with profitability around 6% in 2002 (according to exhibit 1) every
change of lowering the price will implement more variable costs and fixed costs to reach similar
revenue, so it means the net profit will be lower even with similar amount of revenue. This move
would also lead to loose Starbucks customers, who have been willing to pay more for coffee
because of its premium kind.
Starbucks should set up an internal strategic marketing team. This will allow Starbucks to
have a proactive feedback of customer satisfaction and hence faster improvement. I also
recommend, Starbucks should not make keep customizing the coffee consistency will might
improve productivity
Conclusion
I recommend that Starbucks should spend on changing the unsatisfied customer into
satisfied customer by investing $40 Million to improve customer satisfaction. Starbucks will
accomplish the improvement in customer service, speeding up service time and making
Starbucks more customers friendly.