Starbucks' case analysis

1. Case Analysis- Starbucks: Delivering Customer Service
-Group10, SectionH
 Identification of the problem:
Starbucks’ value proposition included three major components:
a) Highest- quality coffee
b) Service/ Customer Intimacy
c) Atmosphere
The market research team recently identified the following problems:
1. Very little image or product differentiation
2. Brand Image
3. Evolving customer base
4. Not meeting expectationsin termsof customer satisfaction
 Analysis of the situation and the problem
o Company: Established in 1971, Starbucks gained immense popularity and success. It
managed to raise $25 million in its public offering. Its sales have witnessed a whooping CAGR
of 40% and CAGR of 50% in net earnings
Serving over 20 million unique customers with over 5000 stores around the globe, Starbucks
is a clear market leader.
Brand Strategy: “Live Coffee”, Three major components of this brand strategy were:
a) Highest- quality coffee: sourced from Africa, Central and South America and Asia-
Pacific regions. It controlled distribution to retail stores around the world.
b) Service/ Customer Intimacy: To create an uplifting experience every time a customer
walks through the door.
c) Atmosphere: The vision was to make Starbucks a third home.
o Competitors:
I. Speciality Coffee: Starbucks competed against a number of small-scale
speciality coffee chains ( Caribou Coffee, Peet’s Coffee& Tea)
II. Dunkin’ Donuts: Half of its sales were from coffee and it had recently ventured
into flavoured coffee and non coffee alternatives
o Context:
Starbucks is a successful and growing organisation but somewhere in its quest to expand, it
was unable to communicate its vision to the customers. The brand image of the organisation
was slowly changing from customer oriented to growth and profit oriented. Its brand
association was decreasing as the number of customers turning into loyal customers was
going down
In the past one year, the overall opinion of the organisation went down by 19%. There was a
decrease of 24% in the value of the product for the customers
This was a big hit to Starbucks’ brand image and Christine Day and her associates had come
up with a plan to invest an additional $40 million annually.
o Collaborators: The major collaborators for Starbucks are:
A. Partners: All Starbucks employees were called partners. They played an
important role in the customer satisfaction. They were trained in both soft skills
and hard skills. The company believed that the “Partners” satisfaction will lead to
customer satisfaction and hence took major steps to ensure partner’s satisfaction
through health insurance and stock options

2. B. Mystery Shopper: These mystery shoppers played an important role in
measuring service performance of every store. They measured each store by
visiting them three times a quarter and on two criterion: Basic service and
Legendary service
C. R&D team: The company’s big driver of growth was product innovation which
was taken care of the R&D team. The company introduced a new beverage
regularly. The R&D team took care of various factors while innovation and
launching a new product.
D. PepsiCo.: PepsiCo had collaborated with Starbucks to sell the bottled version of
the beverage and had now become a $400 million franchise, capturing 90% of
the ready-to- drink coffee market
o Customer: From an affluent, well educated, white collar female, the customer base now
constituted majorly of younger, less well-educated, and lower income bracket customers. The
customer base had expanded. The customer tended to use the stores in a similar way ;
regardless of the market.
Problems:
1. Very little image or product differentiation: Despite of Starbucks’ overwhelming presence and
convenience, customers were unable to differentiate between Starbucks and smaller coffee chains
2. Brand Image: Starbucks’ brand image had taken a toll in its quest to expand its operations. 61% of
its customers agreed that Starbucks primarily cared about making money and 55% agreed that they
primarily cared about building more stores.
This was a hit to both their brand image and their values
3. Evolving customer base: From an affluent, well educated, white collar female, the customer base
now constituted majorly of younger, less well-educated, and lower income bracket customers.
4. Not meeting expectationsin termsof customer satisfaction: The satisfaction scores were
critical as they had a direct link to customer loyalty
5. High labour expenses: Though the labour turnover was low, the resources invested in training a
new employee were immense. It was already the company’s largest expense.
 Recommendations:
The proposed proposal of investing an additional $40 million annually should not be implemented.
Instead the company should install more verismo machines. This will help the Barista save time and
improve his performance. They can invest in keeping a check on other factors like cleanliness and
customer service. Adding labour hours would have a huge impact on the bottom line and there is no
assurance that investing an additional $40 million will lead to reconnecting with the customer.