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Starbucks Strategy Management
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- 2. SUMMARY • 1971 –Gerald Baidwin , Gordon Bowker & Ziev siegl opened a small coffee shop in Seatle’s pike place market selling whole arabica beans to a niche market of coffee purists. • 1982 Schultz joined the Starbucks marketing team , later he introduced the idea of selling coffee in espresso bars as an experimental setup. Later Schultz acquired the company. • Schultz began opening new stores focusing on expresso bars, by 1992 there were 140 stores. • By 2002 Schultz had established Starbucks as the dominant speciality coffee brand in North America with CAGR of 40 %, 20 million customers in well over 5000 stores. • Value Proposition – Coffee, Customer intimacy & Atmosphere • Channels of Distribution - Company operated stores, Non company operated retail channels -specialty operations • Starbucks partners- All employees were called partners – 60000 partners. • Delivering on Service – Partners learns two types of skills - Hard skills & Soft skills. “ JUST SAY YES “ policy .
- 3. • Measuring ServicePerformance – Service , Cleanliness , Product Quality Speed of Service & Legendary service. Tool – Mystery shopper program called Customer snapshot. • Competition – small scale specialty coffee chains. • Company objective – to reach most recognized and respected brand in the world • Retail expansion – increased coffee consumption , 8 states still left & far from reaching saturation levels. • Product innovation - new product were launched on regular basis • Service innovation – Stored value card • Starbucks Market research – Trouble in brewing • Starbucks brand meaning – The difference in identity between Starbucks & its competitors • The changing Customer – 27 % of customer are new belonging to age group of 24-44 and lower income levels. • Customer behaviour – most frequent customers averaged 18 visits a month. • Measuring and driving the customer satisfaction – not meeting expectations- service gap • Rediscovering the Starbucks Customer – to invest $40 million annually in the company’s 4500 stores, which increases additional 20 hours of labour a week.
- 4. Reasons for extraordinarysuccess for Starbucks Quality Coffee & Control over supply chain • Sourced coffee from Africa, Central & South America and Asia Pacific regions • Worked directly with the growers and oversaw the roasting process Service- ‘Customer Intimacy’ • Making a connect with the customer • ‘Just Say Yes’ strategy • Partner satisfaction played a vital role Atmosphere • ‘Third place for Americans’
- 5. Contd. Channels ofDistribution • All stores located in high traffic and high visibility areas • Stores also offered variety of pastries, sodas, ice-creams and music CDs along with coffee accessories Service performance measurement • Mystery shopper program called Customer Snapshot • Reported on Service, Cleanliness, Product Quality, Speed of Service
- 6. Value Proposition Customersare the priority No compromise in the service provided to them Not only about coffee but about the memorable experience Impact- Loyal customers visited the store 18 times in a month
- 7. Customer satisfaction declined: Imperfect tool for measuring customer satisfaction: 1. Mystery shoppers program 2. Rated based on 4 criteria : service, cleanliness, product quality, speed of service 3. Legendary services : behaviour that created memorable experience for customer Perceived differentiation between Starbucks and others was very less Rough brand image of making money primarily and building more stores. Low speed of service- customized drinks slowed down the process of delivering. The new customer base had different perception and expectation from brand.
- 8. Difference between theStarbucks of 2002 and Starbucks of 1992 In 1992, began to Establish as a brand and started offering IPO’s. In 2002, Established as a brand, sales gone up by 40%, net earnings raised at 50% . In 1992, had 140 stores in Northwest and Chicago. In 2002, had 5000 stores across US and Internationally, serving 20 million unique customers. In 1992, sales of whole-bean coffees generated max revenue. In 2002, 77% sales from Beverages. In 1992, ‘ambience’ was a major component of value proposition. In 2002, with retail expansion strategy, establishment of Small coffee stores took away the environment component .
- 9. Contd. In 2002,beverage menu expanded along with drink customization lead to more complex process and slow delivery process. Not prevalent in 1992. In 1992, customer base was affluent, mid to upper class professionals. In 2002, the customer base was changed to younger, less-educated and lower-income profile. In 1992, renowned as third place after home and work place. In 2002, image changed to a convenient place to meet and drink coffee.
- 10. Ideal Starbucks customerfrom a profitable standpoint HIGHLY SATISFIED CUSTOMER NUMBER OF VISITS-7.2 PER MONTH AVERAGE TICKET SIZE-4.42 PER VISIT AVERAGE CUSTOMER LIFE-8.3 YEARS AVERAGE REVENUE PER YEAR: • 7.2*4.42*12=$381.88 AVERAGE REVENUE DURING ITS LIFETIME: • 381.88*8.3=$3168.67 AVERAGE REVENUE PER YEAR OF SATISFIED CUSTOMER: • 4.3*4.06*12=$209.49
- 11. To ensure thatthe customer is highly satisfied: CUSTOMER SATISFACTION FASTER SERVICE MORE EMPHASIS ON “SOFT SKILLS” PROMOTION OF STORED-VALUE CARD
- 12. $40 million investmentin labor? Goal- Increase customer satisfaction Money should be allocated based on size of the stores, location and customer base. Eliminate problems associated with fast service. Establish strategic marketing group for faster feedback. Re-evaluate the value proposition and reasons for deterioration of brand image.
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