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?

Starbucks extraordinary success in the early 1990s was made possible by the visionary, Howard
Schultz. He was inspired by Milan’s coffee culture and decided that Americans needed a 3rd place of
refuge, with the only other two being their home and their work place. Schultz bought the Starbucks
brand and made coffee, an ordinary beverage, into a status symbol. He took the company public and
opened as many shops as he could. The design of Starbucks stores differentiates the brand from
competitors, since they understand that customers come for coffee but stay for the experience. So,
Starbucks stores have lounge areas for customers to feel welcome to enjoy their brief stay. Also,
Starbucks dominates almost every aspect of its supply chain, such as working directly with coffee
bean growers in remote regions.

2. Why have Starbucks’ customer satisfaction scores declined? Has the company’s service declined,
or is it simply measuring satisfaction the wA company’s service should echo off of the service needed
by customers. Because Starbucks offers a varied selection of drinks, they should be prepared for
customers with special requests. In fact, almost half of Starbucks’ customers customize their drinks
and this has created a conflict between product quality and customer service. The demand is not
being met with the staff members on hand, and Starbucks has been reluctant to hire more baristas
because of the costs. I believe that Starbucks’ customer service has declined because they aren’t
funding gaps where they need to improve, like when it comes to labor, they’re biggest cost.

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

Starbucks of 2002 differs from the Starbucks of 1992 because of the shear, some may say, absurd
amount of Starbucks stores opened now. Starbucks is always a player in the brick and mortar real
estate market, and gobbles up land in order to establish Starbucks communities. There is also a larger
menu selection thanks to product innovation. New product lines undergo heavy research and design
protocols in order to launch at stores. This practice has yielded some of the company’s most revenue
generating drinks.

4. 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?

An ideal Starbucks customer from a profitability standpoint is one that averages 18 visits a month. It
is extremely valuable to have highly satisfied customers because this means they are more willing to
come purchase another good again, recommend the store to friends, leave a good review on social
media, etc. The customers’ response to the product and service is an extension of marketing because
the customer themselves become living advertisements.
5. Should Starbucks make the $40 million investment in labor in the stores? What’s the goal of this
investment?

Yes, Starbucks should make the $40 million investment because it is critical to close the service gap
that the company is experiencing because of their subpar customer service standard right now.
Customers want their personalized drinks to be made at a certain, justifiable time constraint that the
current number of baristas working per store can’t possibly deliver. They need to invest in labor to
improve wait times and increase customer satisfaction, and in turn gain on their investment with
customer retention.

6. Is it possible for a mega-brand to deliver customer intimacy? How important is Howard Schultz to
this?

Yes, I believe that large companies have the necessary grounding and funding to work on customer
service. Their home-name brands rely on customer service, or else word of ill repute will spread like
wildfire. Howard Schultz is important to this, as well as Orin Smith, because they will decide whether
or not to roll out the $40 million plan to invest in increased barista labor hours to improve customer
service.

Q1. What factors accounted for the extraordinary success of Starbucks in the early 1990s?

What was so compelling about its value proposition?

The extraordinary success of the Starbucks in the early 1990 credit to the Schultz who added

value proposition to the company by enhancing its services and added quality to it, he belief that

coffee drinking create an experience to their customer mind ‘the third place’, this is an idea

which differentiate them from other coffee seller, help them to build a brand for their company.

Factors contributing to the extraordinary success of Starbucks in the 1990s:

Quality of their coffee beans: Starbucks directly work with their growers to keep the

quality of its coffee beans superior and all the store of the Starbucks are company-owned

stores, this helps them to maintain control over their products and services.

Services: Starbucks trained their partners in hard and soft skills when they hire them to

build a good relationship with its customers. They taught their partners as how to interact
with the customer by a smile, eye contact and to remember the name and preferences of

77% of people rated convenience is highly necessary, and Starbucks made sure they have

many stores across the states and cities

75% customers rated being treated as a valuable customer highly crucial in creating

customer satisfaction, and Starbucks partners made sure to remember their customers'
name and greet the customers, ask them about their preferences in drink customisation

etc.

So, to say the company’s service has declined would be an overstatement because there are other

factors where customer rate Starbucks highly. However, increasing wait time is a problem of

concern for Starbucks.

Customer snapshot isn’t a perfect tool to measure customer satisfaction moreover Starbucks is

focusing on its brand value and is expanding and making money instead of how people view

their coffee.

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To break even at each store = $6795.8 / 172 = 40 customers

No. of customers at each store per day = 570 customers

40 customers out of 570 customers should be converted from satisfied to highly satisfied, to

break even. Therefore, it is recommended that Starbucks make 40 million investment to improve
the speed of service and prevent satisfied customers from falling into the unsatisfied category.

This would lead to long term customer loyalty, as there is a direct link between customer

satisfaction and customer loyalty.

The goal of the Investment:

The purpose behind investing $40 million in labour was to maximise customer satisfaction by

converting satisfied customers into highly satisfied customers and while doing so, generate more

revenue. Exhibit 10 shows the customer survey report conducted by Starbucks in 2002. The

report indicates that 65% of the customers find fast service as a highly valuable attribute in

getting satisfaction from the coffee experience offered by Starbucks

What factors accounted for the extra-ordinary success of Starbucks in the early 1990s?

Many factors accounted for the extra-ordinary success of Starbucks in the early 1990’s. Starbucks
owns nearly one-third of America’s coffee bars, which is more than its next five biggest competitors
combined. Almost all of Starbucks’ locations in North America are company-owned stores located in
high-traffic, high-visibility settings such as retail centers, office buildings, and university campuses.
This made Starbucks a very convenient coffee bar because of the many different locations. Starbucks
also worked to add more depth to their product in the coffee shops. In addition to selling whole-
bean coffees, these stores sold rich-brewed coffees, Italian-style espresso drinks, cold-blended
beverages, and premium teas. Product mixes vary depending on the stores size and location;
however, most stores offer a variety of pastries, sodas, juices, coffee-related accessories and
equipment, CDs, games, and seasonal novelty items.
Starbucks also sold products through non-company-operated retail stores such as hotels, airlines,
and restaurants. Additionally Starbucks formed joint ventures to distribute a bottled frappuccino thru
Pepsi-Cola and an ice cream thru Dreyer’s Grand Ice Cream. This allowed the Starbucks’ brand to be
recognized not only in freestanding Starbucks stores, but also throughout other channels as well
increasing their brand awareness. Starbucks worked very had to expand the number of retail stores
as well as product innovations and service innovations. New products were launched on a regular
basis, such as one new hot beverage every holiday season. The store-value card (SVC) was also
introduced which led to reduced transaction times. Due to the innovations and brand equity
Starbucks had built Starbucks was able to achieve extra-ordinary success.

Why have Starbucks’ customer satisfaction scores declined?

Starbucks customer satisfaction scores began to decline despite the fact of Starbucks’ overwhelming
presence and convenience. There was very little image or product differentiation between Starbucks
and the smaller coffee chains. However, there was a significant differentiation between Starbucks
and the independent specialty coffeehouses. The brand image of Starbucks also had some rough
edges. More customers were beginning to agree with the fact the Starbucks cared primarily about
making money and building more stores. Also, despite the high customer snapshot scores customer
satisfaction scores were declining. It was believed that there was a service gap between Starbucks
scores on key attributes and customer satisfaction. In polls by customers “improvements to service,”
particularly speed of service, was most mentioned for improvement.

Has the company’s service declined or is it simply measuring satisfaction the wrong way?
The overall company service has not necessarily declined. Overall, customers are pleased with the
cleanliness, atmosphere, and product quality. However, wait time is steadily increasing. This is the
main problem. While some people go to Starbucks for the experience, many people get their coffee
and are out the door. Therefore, wait time is exceedingly important. This is where the satisfaction has
begun to decline. While wait time is a part of customer satisfaction it is not the only thing that
determines customer satisfaction. The satisfaction level of customers also varies with the type of
customer. Customers that visit more often, spend more often, and are more loyal tend to be more
highly satisfied. Also, Starbucks is measuring much on how people view the company, as trying to
expand and make more money, rather than how people view the coffee. Generally customers are
satisfied with the coffee. While customer service has declined some, the main issue that should be
addressed is the view itself of the Starbucks organization.

Describe the ideal Starbucks customer from a profitability standpoint.

It is no surprise that lower prices are not one of Starbuck’s values that lead to its success. With
Starbuck’s concentrating mainly on value, customer satisfaction, and atmosphere, there was little
room for low prices. These higher prices were not an issue during the 1990’s,but the customer base
is rapidly evolving. The customer is changing away from the established high-income business-
woman, who has more disposable income for high-quality coffee. The typical Starbuck’s customer
that has grown into existence, in the late 1990’s and early 2000’s, tends to be “younger, less well-
educated, and in a lower income bracket”. The customer base also grew in that a larger number of
Hispanic and Cuban- Americans became a customer of Starbucks.
The ideal Starbuck’s customer would be the customer that visits a Starbuck’s at least eight times a
month. Conducted research shows though that customers in this bracket visit much more than eight
times a month, with the number of visits per month averaging eighteen. These customers make up
62% of all Starbuck’s transactions. If the number of customers who visited this often increased, sales
would increase tremendously. Research shows that customers who visit only one to two times per
month only generate a measly11% of all Starbucks transactions. Overall, Starbucks should put focus
on bringing in the current customer more often. When targeting consumers the geographical
location, in terms or rural and urban areas, would not matter; both of these markets present the
same customer patterns.

What would it take to ensure that this customer is highly satisfied?

To ensure that the customer is highly satisfied with every element of the their Starbucks experience,
there are a few key factors, aside from the coffee itself that the Starbuck’s stores and its employees
must exhibit. From a Starbuck’s survey in 2002, a clean store was the number one factor leading to
customer satisfaction, with 83%. If a store appears clean and has a high sanitation grade, customers
will be assured that what they are consuming has been made from and kept in a clean environment.
Convenience is the next factor leading to customer satisfaction, with 77%. Starbuck’s has done an
excellent job with saturating the market. Customers love having a Starbuck’s location on their normal
traffic route, therefore not having to drive out of their way for a cup of coffee. Having the drive-thru
service has also made a positive impact for the convenience factor. Other factors that ranked highly
for customer satisfaction were being treated as a valuable customer (75%) and friendly staff (73%).

How valuable is a highly satisfied customer to Starbucks?

Creating customer loyalty has proved to be the reason behind the bulk of Starbuck’s transactions
because the highly satisfied customer is the loyal customer. It is crucial that Starbuck’s maintain
customer satisfaction to keep these loyal customers coming back. Without the 21% of customers,
averaging eighteen visits a month, Starbuck’s would loose 62% of all its transactions. Starbuck’s has
also found that highly satisfied customers have an average ticket price of $4.42, as opposed to a
satisfied customer who only spends on average $4.06. Therefore, having a satisfied customer is very
valuable to Starbuck’s and its sales.

Should Starbucks make the $40 million investment in labor in the stores?

Whether or not Starbucks should invest $40 million into labor in their stores has a more complicated
answer than a simple yes or no. Starbucks needs to examine how much they are willing to spend to
reach their goal of customer intimacy. As stated in the case study, the biggest decision Howard
Schultz and Orin Smith have to make is how much they want to impact their bottom line. Going the
whole way with the labor is very risky. I would recommend another option. This option would
propose implementing more labor, but testing out the effects in certain urban stores worldwide. If
the increased labor has the desired affect, then Starbucks can slowly add the extra labor to every
store. However, if the cost is the exceeding the profit, then it would easier to cut back.

What is the goal of this investment?

The goal of this potential investment is to increase customer satisfaction while attempting to
generate more profit. This is from a survey Starbucks conducted in 2002 that stated 65% of
customers wanted faster service (exhibit 10 in the case study). Starbucks found customers would
leave the store if they had to wait for the coffee, and if they can cut service time then more
customers would be served.

Is it possible for a mega brand to deliver customer intimacy?

Starbucks trains their employees in two different directions. One direction is learning the procedures
to making all the different drinks, learning and working the register, and so far. The other training is
in customer satisfaction and creating customer intimacy. Starbucks wants their employees to
remember the loyal or frequent customers’ names and orders, have conversations with customers,
etc. They want those customers to feel special and welcome when they enter the store. Starbucks
believes if they are able to create customer intimacy then they can keep those customers and
increase their sales. However, in today’s time creating customer intimacy is harder than ever,

especially in Starbucks. I believe a mega brand can create it, but it would have to be in the right
atmosphere. The atmosphere that would probably work best for customer intimacy is stores that
cater to the upper class. They have a more consistent customer base, they have the ability to have
personal interaction or relationships, and just by percentages in one city or town there is only going
to be so many from the elite circle that can shop in that category. It is still difficult to create it, but
those upper crust stores would have more of a shot than a store like Belk’s where there are all sorts
of customers.
Q1) What factors accounted for the extraordinary success of Starbucks in the early 1990s? What
was socompelling about the Starbucks value proposition? What brand image Starbucks develop
doing thisperiod?ANS:

There were various factors which contributed to the extraordinary success of Starbucks:

Change the experience:

As in 1990, people used to drink coffee once a day. So, to add a value proposition and anexperience
of drinking coffee, Starbucks came out with the idea of having coffee as experience.It moved away
from the tangible benefits that the coffee offered, such as taste to intangiblebenefits of experiencing
a Starbucks coffee.

Third place:

There were only two places for people to have coffee, first is the house and the other is theoffice.
The company came out with the idea of having a third place for the people to havecoffee. As they
targeted primarily towards the affluent, well-educated, white-collar people (agegroup: 25-
44).Starbucks was a place where people can enjoy their social interactions, relax, or just spend
sometime by themselves.

First Mover Advantage:

This concept was new, because no one came out with this type of service provision to thepeople
earlier, also there was no competition in the market.The following were the three pillars for
the Starbucks

value proposition:


Customer Service:

Customer Intimacy:As they

say, “

Our goal is to create an uplifting experience every time you walk through the

door.”

Speed of Service:They serve the customer within 3 minutes.

Just say Yes Policy:Provide the best service possible, even it required going beyond company rules.
This policyplaces the customer and the service delivered to the customer above everything else.

Ambience

The seating area Starbucks had was to encourage lounging. It had universal appeal.

Coffee Quality

Starbucks offered highest quality coffee in the world, sourced from Africa, Central & SouthAmerica
etc.

The Brand Image:

Starbucks was known for being widely available. As till 1992 it had 140 stores in the Northwestand
Chicago which was successfully competing against other small-scale coffee chains such as

Gloria Jean’s Coffee Bean and Barnie’s Coffee & Tea.

Starbucks was also known for its varieties and specialties of coffee.

Customers also thought that the stores looked attractive and were satisfied with the product.

AD

Q2)

Why have Starbucks customer satisfaction scores declined? Has the company’s service declined or

is it measuring satisfaction the wrong way?ANS:

There are various possibilities that the customer satisfaction of Starbucks declined over the time.
Thiscan be inferred by taking a close look at

Exhibit 11

, which clearly states that

34%

of the customerwanted an improvement in service when asked about what can make them feel

valued customers.

This decline in customer satisfaction can also be termed as outcome of

Service Gap

As quotedin

Exhibit 11

, the customers said that they needed a more of personal treatment which was lowon the part of
Starbucks as compared to friendlier and faster service.

From
Exhibit 8

, it can be also inferred that overall opinion of existing customers were

44%

andthat of new was

25%

which clearly stated that may be changing

customer demographical andexpectations

were another reason for declining customer satisfaction.

Another reason can be change of outlook of customers as Starbucks was initially a

“Third Place”

which now turned into place which focused more on

“money making”

And since the company now focuses more on

building brand and product innovation

, it leads to

declining customer satisfaction as the recent focus went contrary to the company’s initial

customer oriented approach

which can be also termed as losing sight of core preposition.

Talking about whether company was measuring satisfaction in right manner or not, theconclusion
will be that the company was measuring the satisfaction in the manner as

Day

saidthat:

The snapshot is not a perfect measurement tool, but we believe it does a good
measuring trends

4) Describe the ideal Starbucks customer from a profitability standpoint. What would it
take toensure that this customer is highly satisfied? How valuable is a highly satisfied customer to
Starbucks?ANS:

With Starbucks’ focusing for the most p

art on esteem, consumer loyalty and environment, there was noplace for low costs. These higher
costs were not an issue amid the 1990's, but the client base is quicklydeveloping. The client is
changing far from the built up high-wage representative, who has more extra

cash for top notch espresso. The average Starbucks’ clien

t that has developed, in the late 1990's and mid2000's tends to be more youthful, less accomplished
and in a lower level of pay.

The typical Starbucks’ client would be the type of client that visits Starbucks no less than eight times

each month. These clients make up to 62% of every one of Starbuck's revenues. If the quantity
of clientswho went by this regularly expanded, deals would increase massively. Research
demonstrates thatclients who visit just one to two times each month create merely 11% of all
Starbucks revenues. Ingeneral, Starbucks should concentrate on acquiring the present client even
more frequently.To guarantee that the client is profoundly happy with each component of their
Starbucks encounter,there are a couple of key variables, beside the espresso itself that the Starbucks
stores and its

employees must show. From a Starbucks’ overview in 2002, a spotless store was the main factor

prompting consumer loyalty, with 83%. Considering the face that a store seems clean and has a
highsanitation review, clients will be guaranteed that what they are devouring has been produced in
aspotless situation.Accommodation is the following element prompting consumer loyalty, with 77%.
Clients adore having aStarbucks area on their ordinary movement course. Making client dedication
has ended up being thepurpose for the heft of Starbuck's exchanges since the exceedingly fulfilled
client is the dependableclient.It is vital that Starbuck's keep up consumer loyalty to keep these
dedicated clients returning. Withoutthe 21% of clients, averaging eighteen visits every month,
Starbuck's would free 62% of every one of itsrevenues. Starbuck's has additionally discovered that
exceptionally fulfilled clients have a normal ticketcost of $4.42, instead of a fulfilled client who
just spends by and large $4.06. Subsequently, having afulfilled client is extremely significant to
Starbucks and its deals

Q.5) Should Starbucks make the $40 million investment in labour in the stores? What is the goal of
thisinvestment? Is it possible for the mega brand to deliver customer intimacy?ANS:

In today’s competitive marketplace, the buying experience is often detached and impersonal.
Businesses

have resorted to staff sparsely to reduce overall costs. Customers can now walk into stores and not
askfor assistance and it is completely feasible to make a purchase with no human interaction. We
areunfortunately used to this, which is sad because the art of personal selling has become lost.
Part of Starbucks’ success was driven

by its customer service. They are not the only place that consumerscan buy a cup of coffee, but they
are one of the few that can get away with charging 8 bucks for it.Starbucks manages this by creating
an atmosphere and an experience worth paying for. One of the crucialelements of this is how their
partners interact with their customers. The level of service partially justifiesthe price of their product,
and helps reinforce the experience. Coming to the question of whether $40million in additional
labour would be beneficial to the company has a more complex answer than a mereyes or no.There
are certain major assumptions that are being made in this case. The first assumption isthat the speed
of service is the number one influencer of satisfaction and that the additional labour willresult in an
increase of speed of service. However, this is not true since the rankings of the key attributesby
Starbucks customers suggest that fast service ranks number 6 in importance. A second assumption
isthat all stores are equal in size, number of customers they attend, prices, and that all the stores
need thisadditional investment. A final assumption is that satisfaction is correlated with loyalty and
that if asatisfied customer becomes highly satisfied, the number of visits per month to the store will
increasesubstantially, thereby augmenting the sales revenue for the company.

Based on the company’s research, it is evident that only 10% of Starbucks’ customers have asked for
a

faster, more efficient service. Even if the $40 million investment is made and customers get a
fasterservice, there is a big risk in losing value in some of the other perceptions. Having more
partners in aspecified work area might lead to the risk of less friendly, less attentive staff and might
also risk the lossof the personal treatment. It even appears impractical and inefficient to allocate the
$40 millioninvestment equally to all the stores. It would make sense to allocate the money based on
size of store,number of customers, location and need for additional labour. Hence, Starbucks could
invest in additionallabour but only after conducting further research about the actual necessity of
such an investment. Inaddition, there would be no need to invest in a store where all customers are
highly satisfied and therewould be higher need to invest in a store where there is a high percentage
of less satisfied customers. The
goal of this investment would be to increase customer satisfaction and in turn generate profits for
thecompany.It is important for any company to realise the importance of customer intimacy.
Personal interaction is apowerful selling tool. The associate on site is the human face of the company
and important in humanizingan otherwise faceless cooperation. A mega-brand can deliver customer
intimacy, and while it is harderthan a local operation but it is possible. It is done the same way by
personal selling skills, but the companymust enable its associates to achieve this goal by giving them
the time and training to do it. Increasing thelabour would certainly give more room to serve more
customers, but the quality of service and theintimacy can only be developed when employees make
the required effort in making consumers feel not just welcome, but uniquely valued

Q1. 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?

 To set up an expresso bar inspired by Milan’s coffee culture.

 The aim is to make it to America’s “third place.”

 They created an experience around the consumption of coffee.

 Employees were called partners. The company offered benefits, which resulted in the
company’s partner satisfaction rate in the 80% -90% range.

 Stable prices and new products were launched regularly. The company also conducted R&D,
in-store experiments, and market tests.

Compelling reasons for Starbucks’ value proposition and the brand image the company has
developed

 They offered the highest quality coffee beans sourced from Africa, Central and South
America, and Asia-Pacific regions.

 The company worked directly with growers.

 The company developed good customer intimacy.

 The ambiance makes customers stay.

 The company’s outlets are located in high-traffic and high-visibility settings.

 Brand strategy, “live coffee” mantra.

Q2. Why has Starbucks’ customer satisfaction score declined? Has the company’s service declined,
or is it simply measuring satisfaction the wrong way?

 The current way of measurement does not capture the correct consumer profile.

 The decline in service level – trained only to please the affluent customers.

 Diluting value proposition

 The rising perception is that the primary motive is making money and building more stores.

 Very little image or product differentiation between Starbucks and smaller coffee chains

 The company has hundreds of combinations of coffee, leading to a larger service time and
lower customer satisfaction.
Q3. How does the Starbucks of 2002 differ from the Starbucks of 1992?