There are numerous factors that paved the way for Starbucks’ success during the early nineties. I believe that one of their strengths was good knowledge of who their potential customers were and how to please them with their profile, assortment and services. One also has to take notice of their clear vision of becoming America’s third place, this tells me that they’ve had an aggressive vision from the start.
And of course they’ve matched this with their strategy, from 1992-2002 the company opened about 3500 stores all across America.
This gives the company a yearly growth rate of around 350 stores, an impressive number. They also licensed out another 1500 stores. This allowed them to become a household name for the regular American, and the strong brand name was created with all the advantages that comes along with it. They enjoyed plenty of first-mover advantages. All this was financed by boldly taking the company public, despite doubts from most analysts regarding the company concept. And who was the power behind this decision, if not Howard Schulz?
Responsible for much of the success, Howard Schulz and his team have proven that their aggressive strategy’s have been key in the success of the company. In other words the management is a big contributor. I’d also like to bring up the human capital of the company, or as the employees are called, the company “partners”. Since the Starbucks concept of creating an experience for the customer goes hand in hand with partner satisfaction, management have been quite generous to their employees. They’ve for instance provided them with health insurance and stock options.
For Starbucks it is key to create long lasting relationships with customers (these customers have proven to be very profitable for the company), demanding good relationships between baristas and customers. Keeping a low employee turnover rate both with baristas and managers has definitely contributed to the company’s success. The live coffee mantra meant, in short, that the company wants to create life surrounding the coffee drinking experience. To create a space outside of the office and the own home where people could drink coffee and enjoy themselves, was something very appealing to consumers, a refuge from the routine of their day.
They created value around the consumption of coffee. The main brand image that was created was a premium coffee bean and coffee beverage brand but it’s not the total brand image. They also added attributes of the company to this image such as “customer intimacy”, “great ambience” and “highest quality coffee in the world”. These attributes are all derived from the three main components of the branding strategy: coffee, service and atmosphere. Together this was the brand image of Starbucks created during the period. 2.
The reasons because the customer satisfaction scores are down could, in my view, be linked to the fact that the typical Starbucks customer has changed because the customer base has expanded. Their perceptions of the brand are different and because the company really doesn’t know who the typical customer is at the moment, they can’t cater to them as well as they could before. There are examples of this change for instance in the case of stores in southern California where they now have huge numbers of (sometimes lower educated) Hispanic customers instead of the affluent, well-educated white collar 24-44 aged white men and women (mostly women).
In exhibit 10 we see that on the scale of what attributes the customers find most important in order to be satisfied, that places 3-7 all are based on one staff members performance that single time. What I mean by this is that the performance level of this will vary from customer to customer and because of that you need a bigger base for the survey than the “customer snapshot”. This means that it’s not sufficient in correctly measuring the true customer satisfaction.
But seeing as this method, supposedly, has been kept constant all the time we can overlook that for a second and see that there has been a decline using the same system of measurement. I then contribute that change to the changing customer, as I wrote in the paragraph above. 3. Starbucks’ main difference between the periods is its size. With the change in size a lot of different attributes naturally follow, some of which are a bit contradictory to the goals Starbucks set out to achieve back in the day.
The main concept of creating value for the coffee drinker still exists but they now struggle to keep up their customer intimacy. This is even more enhanced by the perception that Starbucks is simply a money hungry company only interested in revenues and further growth. The product sales also vary between the periods, the coffee connoisseur that bought a lot of coffee beans has been somewhat replaced by the on-the-go customer who just wants the beverage. We also mentioned before that the customer has changed in North America, but even more important, Starbucks have grown internationally with over 1300 stores in total.
Both nationally and internationally service innovations have taken place, examples of this are the SVC’s and the wireless internet service. 4. The frequent and loyal customer is the most profitable for Starbucks. Exhibit 8 shows us in quite a clear way that customers with a history of Starbucks purchases that go back 5 years or more, tend to shop 4 more cups of coffee than the average customer that visited Starbucks for the first time last year. In exhibit 9 we’re also shown the clear correlation between customer satisfaction, purchase size and customer life span.
The satisfied customer has more visits/month, spends more money each time and stays as a customer of Starbucks for more years than the unsatisfied. So the highly satisfied customer is vital to the business and is always what management strive to acquire. I strongly think Starbucks have shown this strive in a number of ways to keep customers satisfied. First of all a regular customers likes to recognize the salesperson and if this person recognizes them and remembers their drink this is a quality sign for the company. Starbucks are clearly aware of this since they have a lot of “soft skills” training for new employees.
They teach them how to interact and create a lasting bond with the customer. Something that’s of course also key in keeping up this relationship is a low employee turnover, something I mentioned before that they are excellent in doing. Secondly the customers come for the product, this is an area Starbucks still enjoy a great lead in comparison to competitors and they also add another product every season in order to keep the assortment wide and interesting for customers. And lastly the customers need to enjoy a great ambience while at the store and be served quickly.
This is something that’s always measured and they try to maintain a great ambience and in regards to the quick service this is something we’re considering in the last question on how to improve. 5. The main goals would be to reduce service time and get closer to the customer by allowing each store to add 20 more hours of labor per week. It is also a way for the company to express their commitment to their customers (lose their image of greed) and show them that despite a loss of short term profit they are willing to sacrifice that in order to keep customer satisfaction high.
Would this investment increase customer intimacy, is it even possible for a mega-brand to have customer intimacy? With more time it is obvious that the closeness would improve. A combination of more time for the barista and less waiting time for the customer would result in more time to practice soft skills and build up a rapport with the customer for the barista. The customer would of course build a relationship with the particular barista and a bond would be created that would make the coming visits feel more intimate.
To some extent it is possible, since the intimacy mainly is based on the staff and their rapport with customers as I previously stated. But then again it is a faceless organization, they can’t really see and talk to the leaders and internationally not many customer know of Howard Schulz for instance. It’s also quite easy for the customer to feel less important if they’re just one of 20 million served which is the case here. Would this investment yield long term profits for Starbucks? Would it be worth the $40 million? 0 million unique customers are served every day at Starbucks, 21% of those (4. 2 million) are customers with 8 or more visits every month. A staggering 42 % (8. 4 million) only visit 1-2 times per month. These numbers could be related to those shown in exhibit 9, 21 % of customer show the pattern of highly satisfied customers and 42 % show similarity’s to unsatisfied customers. Exhibit 10 tells us that fast service, friendly staff and being treated as a valuable customer are considered highly important factors for customers to be satisfied.
All of these factors would most likely be directly affected by the investment in a positive way. If we only turned one unsatisfied customer into a highly satisfied customer this would result in an increased turnover of $247,494 ((7,2*4,42*8,3)-(3,9*3,88*1,1)). We would have to convert roughly 160. 000 customers using this calculation and over a course of 8,3 years the investment would pay off financially. But in regards to spillover effects such as brand reputation and new business generated by this I believe the number would be even smaller, so definitely I would suggest that they do this.