Starbucks Case Analysis

Starbucks Case Analysis

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Starbucks Case Analysis


The company started its activity in 1971 as small coffee shop located in Seattle specialized in selling whole arabica coffee beans. After being taken over by Howard Schultz in 1982, following a rapid and impressive growth, by mid 2002 the company was the dominant specialty-coffee brand in North America, running about 4,500 stores, 400 international stores and 930 licenses.

In 2002, unexpected findings of a market research showed problems regarding customer satisfaction and brand meaning for Starbucks customers. The situation was unacceptable for a company whose overall objective is to build the most recognized and respected brand in the world. Starbucks was supposed to represent a new and different place where any man would relax and enjoy quality time, alone or with others. But the market research showed that in the mind of the consumers, Starbucks brand is viewed as corporative, trying to expand endlessly and looking to make lots of money. This huge gap between customers' perception and Starbucks' values and goals called for immediate action.

Christine Day's interpretation of the market research made her think that by shortening the service time for each customer to maximum 3 minutes, all the problems would be solved. However, this solution came with the price of $40 million per year, due to a significant increase in the labor. The proposed solution would most certainly lead to the result desired by Day, but would it be enough to restore Starbucks' damaged brand image? Are 20 seconds of customer service really time worth $40 million per year? This is the question we are trying to answer in this case, while seeking alternative purposes for this expenditure, in order to achieve higher benefits.

How did they get there?

Great quality products, customized, served in clean, convenient placed stores for everyday coffee, friendly and fast serving, everything in a pleasant atmosphere - these were just few factors that lead to the great success of Starbucks during the nineties. Their USP was a place where every American could escape from home or work, for a coffee drinking ritual; high quality coffee, according to each customer's taste, served in a special, intimate ambience. Their image was supposed to appeal to anyone, being based on the idea of community, "exploiting" the need of people to interact with each other, in a "third place", away from home or work.

By looking at the latest market report, we cannot really draw the conclusion that customer satisfaction is really declining, since there is no reference to an earlier similar report.

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What is striking when reading the report isn't customer satisfaction or dissatisfaction, but the fact that the actual perception of the brand, the attitude towards it, has almost nothing to do with the desired positioning of the brand, and the desired differentiation from main competition practically disappeared: "...there was little image or product differentiation between Starbucks and the smaller coffee chains". Therefore, the main problems Starbucks are facing in 2002 are:

Ć no or very little differentiation between them and their main competitors; however, there is a great differentiation between Starbucks and the independent coffee houses, favoring the latter
Ć wrong brand image, inconsistent with the desired one
Ć wrong positioning

We can trace the causes of these problems, by looking at the marketing strategy of Starbucks. Since a strategic marketing group is lacking anyway, maybe that's why we cannot even talk about a "marketing strategy".

Ć Since "the company spent almost nothing on advertising [...], far less than the industry average", one can expect that communicating company's positioning suffered. This was a major flaw in the marketing strategy, and it is believed to be the most important cause for the wrong positioning and brand image.
Ć Other cause of the problems is the fact that no market researches have taken place (or at least they are not mentioned in the case), in order to find out whether Starbucks brand is positioned in the right place in consumers' minds.
Ć Defective measurement of product and service quality, wrongly mistaken with the customer satisfaction, is a third cause. What has been observed and measured was the compliance of partners' actions with procedures, cleanliness and speed of service. For example, talking strictly about the first two key attributes, cleanliness and convenience, they are both fulfilled. "Customer snapshot" scores, customer survey and brand image confirm it. However, these do not represent customer satisfaction, but they hardly measure the level of few services offered. Interestingly enough, Day believes that they "tend to be great at measuring things, at collecting market data", but obviously they have collected wrong or useless information, and, to make matters worse, they were "not very disciplined when it comes to using this data to drive decision making".
Ć Focus more on partner satisfaction than on customer satisfaction. When it comes to collecting and analyzing data regarding employee satisfaction and turnover, Starbucks is doing a great job. But the development of new products focuses on the partner satisfaction rather than on customer satisfaction, and this is clearly a very flawed approach.
Ć Neglecting the market and customer trend. Customer base has changed, probably due to overall market change (but we have no real data about it). Also, since the company image has taken an unwanted turn, there is a possible change in the customer base that it appeals to. Starbucks has become a corporate, accessible and consistent place to drink a good coffee on the way to work - it is not an experience anymore. Therefore, today it appeals to customers with completely different lifestyles, needs and wants. It may satisfy this new customer base up to a point, but they are not the initially targeted sector. Since nothing has been done to stimulate intellectually the sector targeted in 1992, they most probably left for independent coffee shops, whose brands are associated with "diverse, intellectual, artsy, funky, free-spirited", etc. Starbucks is now appealing to younger people, looking for a quick cup of good coffee, spending less time and money in the shops. Also, we can read in the case that the growth plans were based primarily on demographic data, not on psychographic information. Market sectors instead of market segments have been targeted during expansion.

Concluding, the lack of a clear and sound marketing strategy led to the major problems presented.

Possible Solutions

Investing money only in labor in order to reduce with 20 second the waiting time could be a myopic perspective. Tend to be presented as a customer oriented measure, but this attribute ("Fast service") is only on the seventh place (65% of responders) on the ranking attributes in creating customer satisfaction. We are not agreeing with this proposal. This is a strictly personnel oriented action and are not linked with all customer real needs as are reflected by market research. Therefore, we do not consider it as being an appropriate solution.

However, more than one solution can be taken into account:

1. Re-position Starbucks as originally intended, address to its original segment, properly communicate the positioning. This solution would consume considerable resources, and it is risky, since we don't know whether the originally intended customers would be the most profitable ones too. The customers could become loyal to the brand, therefore help grow it.
2. Keep the current customer base, since it has already proved that it is valuable and can help the company grow anyway. However, the brand image should be altered to appeal more to them. The necessary resources are lower in this case. But the customers are less likely to become loyal to the brand.

We should also take a look at who the most profitable customer is. The ideal customer, from a profitability standpoint, would visit the shop on a regular basis, more than 8 times a month, and consume higher priced products, not customized, so that partner's effort is kept to a minimum (more than 20 cups of coffee a week). The customer should use a stored-value card, spend longer times in the shops and eventually use T-Mobile HotSpot. He would also consider giving value cards as presents, and also meet friends in Starbucks, introduce new people to this experience, therefore bring in new customers, also through word-of-mouth. These customers are valuable because they spend more money in the shops but also because they value Starbucks brand more, and they can help spread their positive attitude towards it. They should be attached to Starbucks brand, identify themselves with its values. Certainly, a psychographic research should be carried out, in order to be able to target this segment.

Recommended solution

We believe that returning to original core values and original target sector would be the appropriate solution, and maybe the only capable of building a strong brand, having also in mind Starbucks' core competencies.

Any brand could offer intimacy. If the stores' atmosphere, architecture, furniture, and arrangement are properly oriented to this, a mega brand could offer intimacy. Intimacy could be offered also by the company staff. If it is possible to offer a personal approach to the returned customer (remember name, or other things), then an intimacy atmosphere could be built. Especially when the turnover of baristas is low. In order to do this, the initiative to install automatic espresso machines and to increase barista efficiency should be encouraged, while constantly measuring customer satisfaction. The bias should be anyway moved towards customer satisfaction, from the partner satisfaction. Partner training would be a key issue here: instead of just following the manual, and the instructions presented there (make eye contact, say "thank you"), a more evolved training should be carried out, in order to achieve a more customer-oriented service. Two key attributes - treated as a valuable customer (75%), friendly staff (73%) and highest quality coffee (67%) - should also be permanently measured and taken into account permanently.

Just as important is to invest in the image, in order to achieve differentiation from competition, by promoting Starbucks brand value "live coffee" and taking in consideration the customer perspective. Re-positioning must be well communicated by all media means, not just by selling cds and giving brochures in the shops. A media campaign should be started, with the focus on core values, just as stated initially by Howard Schultz.

Starbucks must focus on the customer, especially on the most profitable ones, and, of course, on its brand image.
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