Starbucks Case Study

1. 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?

Factors responsible for the early success of Starbucks were the value proposition that the coffee house was offering to its customers. Starbucks offer their customer very valuable experience. Starbucks used “Experiential Branding Strategy” which consisting of the three major components:

• High quality coffee- It monitored roasting process to distribution around the world

• Service- Provide intimate and uplifting experience each time

• Atmosphere- Friendly environment with universal appeal, encouraged lounging and layouts

There are also other factors that contributed the early success includes:

• Attractive Market - Unexploited without strong competitors

• Partner Satisfaction - High satisfaction rate (80-90%) & low turnover rate

• Company’s Distribution strategy and location of stores - high traffic & high visibility

Starbuck has 3 core value proposition:

• Starbucks focused on the intangibles associated with drinking coffee

• It was not only about taste and quality, but the experience of drinking coffee in a Starbucks Store

• It provided emotional benefits and tried to enhance the national coffee culture through its offerings

According to the core value, Starbuck’s brand strategy was best captured by its “live coffee” mantra, a phrase that reflected the importance the company attached to keeping the national coffee culture alive. From a retail perspective, this meant creating an “experience” around the consumption of coffee, an experience that people could weave into the fabric of their everyday lives.

Starbucks brand image was of premium-priced coffee beverage catering primarily to affluent, well-educated, white-collar patrons (skewed female) between the ages of 25 and 44.

1. Why have Starbucks' customer satisfaction scores declined? Has the company's service declined, or is it simply measuring satisfaction the wrong way?

The reason of Starbucks declining customer satisfaction is their way measuring satisfaction was incorrect.

As the imperfect tool for measuring customer satisfaction, Customer Snapshot;

– Mystery shopping program thrice in a quarter

– Rated based on 4 criteria- service, cleanliness, product quality & speed of service

– Legendary services- behavior that created memorable experience for customer

Reasons based on research outcomes:

• Rough brand image of primarily making money & building more stores

• Perceived differentiation between Starbucks and others was very less

• Somehow less trendy as compared to others

• Unsatisfactory service of partners

• Low speed of service- customized drinks slowed down the process of delivering

1. How does the Starbucks of 2002 differ from the Starbucks of 1992?

Changing Landscape

• The Starbucks of 1992 had 140 stores, whereas in 2002, it had more than 5000 stores across the world

• 77% of the sales were from beverages, while in 1992, half of the sales constituted of whole bean coffees

• The Starbucks of 2002 was far more complex with the addition of new products on the menu

• The Partners had to spent more time as beverages became more customized

• The demographics of the customers changed

¬ Earlier only the affluent, well-educated and high income group used to visit

¬ In 2002 another group evolved which was less educated, younger and had low income

1. Describe the ideal Starbucks customer from a profitability standpoint. What would it take to ensure that this customer is highly satisfied? How valuable is a highly-satisfied customer to Starbucks?

1. Ideal Customer & Satisfaction

• The most ideal customer will be the most loyal (frequent) customer with around 18 visits per month [ A Loyal customer will also be a highly-satisfied customer too, so he/she will spend $ 4.42 dollar per visit; From Exhibit 9]