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Executive Summary

At present, Starbucks is in growth stage where number of store has increase

significantly in the past from 120 stores in1992 to 5,000 stores in mid-2002. This was cause
from the change in public trend as Starbucks become more popular among the coffee drinker
and at the same time American people has increase coffee consumption. However, there is
also a shift of customer group as well from white collar patrons (majority female) age 25-44
to younger generation, less educated and lower income. It can be stated that Starbucks has
become broader in term of market therefore the strategy that Starbucks used for customers’
satisfaction in the past is no longer fit with the current customers as new customers’
perception to Starbucks brand is very different from 10 years ago.
I have been asked whether Starbucks should invest 40 million annually in the
company’s 4,500 store in order to improve speed of service in store which leads to increase in
overall customer satisfaction. I hypothesize that Starbucks will receive benefit from invest in
its’ store as from research it show that general public cannot distinguish between Starbucks
service from other independent specialty coffeehouse while Starbucks facing increase number
of unsatisfied customer. Moreover, Starbucks does not have a strategic marketing group
which leads to marketing strategy are base on short term focus rather than broad and long
term focus.
My recommendation is Starbucks should invest 40 million dollar in order to improve
the in-store service as the increase in labor hour will lead to an increase in customers’
satisfaction since many key attribute to customer satisfactions are both direct and indirectly
related to increase in number of staff available at store. For example, the speed of service and
the cleanliness as staff able to clean table quicker as enough people provide service at counter.
In order to maintain a sustain growth, Starbucks need to build a strong brand as it will keep
the customers with Starbucks and able Starbucks to charge premium price. The improvement
in service take a vital role in building successful brand for Starbucks as Starbucks need to
provide what it has promise to customer which good service is one of the promise therefore an
increase in customer satisfaction will generate more income by customers becoming the long
life customer.

Brief Analysis of current situation

The conclusion that reach from analysis in Exhibit1 to Exhibit 3 is Starbucks facing
challenge in term of change in customer behavior due to health trend and the change in
general public’ perception that Starbucks is not different from independent specialty
coffeehouse.

Key Success Factor for Starbucks

In the past, Starbucks came to success as it was first mover in the specialty
coffeehouse and the rate they expand is much faster than other coffeehouse chain. Moreover,
it has pick up the right trend for public consumption of coffee as the coffee consumption in
America has been increase at faster rate than Starbucks growth rate. However, at present
Starbucks has facing competition from both independent specialty coffeehouse and other
chain coffeehouse. Therefore, in order for Starbucks to be successful in the specialty
coffeehouse, it must differentiate itself from the independent specialty coffeehouse by insist
on giving consistent experience for customers. It is not hard to make a good cup of
cappuccino but it is hard to get a customer to come and get a cup of cappuccino every time
they want a cup. There is a need for Starbucks to create its own coffee culture that customers
not coming to Starbucks because a cup of cappuccino but come in to get “Starbucks
cappuccino”. The Starbucks cappuccino is not just a good taste coffee but include the whole

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experience ranging from the image of the store, the decorating, music play inside the store
and most important the service provide during the Starbucks experience. The Starbucks
experience will reflect in the level of customer satisfaction which according to survey, it has
show that the higher the level of satisfied correlate to the higher frequent number of visit,
larger spend per visit and the longer customer life (Exhibit 5). Therefore, Starbucks need to
focus on how to increase number of customers to visit and maintain customer that already
visit Starbucks 8+ per month (Exhibit 4). Moreover, it is a must for Starbucks to ensure that it
number of customer who highly satisfied in Starbucks’ service increase over time.
In order to increase in customer satisfaction which according to the survey customer
rate clean store as it top criteria however when look closer to the survey, we can reach
conclusion that out of top five key attribute four of them are related directly to staff (Exhibit
6). Therefore, Starbucks need to invest more to make sure that the staff will deliver service
that match with the customers’ key attribute.

Recommendation

As I suggested above that Starbucks need to create it own unique coffee culture and
successfully educated customer to be able to distinguish Starbucks coffee culture with other
specialty coffeehouse. One way to achieve the above mention is through branding. In order to
create successful brand, it need to achieve 5 main attribute which are consisting of consistent
experience, consistent physical brand, consistent brand meaning, access to customer mind and
emotion.
At present, there are two major concerns regarding to Starbucks brand.
1) Difficulty with “consistent brand meaning” as the established customers and new
customers share totally different value.
2) Not clear position as customer fails to differentiate Starbucks and other
coffeehouse.
At present, the branding of Starbucks is unclear as it failed to get customer to
distinguish it with other coffeehouse. This primarily due to the inconsistent in brand meaning
from the fact that Starbucks did not has a centralize strategic marketing team to set a vision
for long term goal on what Starbucks mean therefore I suggest the following things that
Starbucks should consider.
Starbucks should set up a strategic marketing group in order to set clear direction on
how Starbucks should brand and position itself in long term and look after overall marketing.
At present, the marketing department is in supportive role to other departments within the
organization however in order to set a clear direction, such as make decision on how to
communicate to customers correctly on Starbucks value how Starbucks would like to position
itself in customers’ mind.
The reason that Starbucks need to communicate and educate customer in what
Starbucks brand mean because in the current situation, Starbucks customers are from various
background while in the past Starbucks customers are more focus in female with higher
education, the change has lead to mix understanding of what Starbucks brand mean and what
to expect from Starbucks.
Starbucks had conducted a survey regarding to key attributes to customer satisfaction
which they surveyed customers while the customers are still has different expectation.
Therefore, the survey regarding to the key attributes to customer satisfaction is not accurate as
there is no clear understanding among the customers what they should expect so the customer
cannot tell Starbucks accurately. I suggest that Starbucks should identify first what are the
important value that Starbucks emphasis on, for example, the fast and consistent taste of
coffee. The key values that contribute to customer satisfaction should be identified base on

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the current trend of established customers as they are the group that we need to focus on.
After identify key value to customer satisfaction, Starbucks should develop on how to
feedback and grade the value that been set and finally send out the message to customers
about what are key values of Starbucks and how Starbucks deliver it.
Moreover, the mysterious shopper is not an effective way to help Starbucks identify
the key attribute of customer satisfaction as it only use as control mechanism on operation
that can be measure quantitative while the qualitative cannot be measure as the mysterious
shopper do may not be the customers of Starbucks .
Starbucks need to invest into above the line marketing, such as TV advertising, which
can be use as a tool to send clear message to customers about what Starbucks is promising
therefore the customers can set the same expectation across the board. At present, Starbucks
operate in many geographic locations which lead to different expectation from customers and
lead to difficult for Starbucks to justify what the customer really want and expect from
Starbucks. Therefore, Starbucks need to define and set the expectation for customers and
deliver this message.
While doing the above the line marketing, Starbucks need to ensure that it delivering
what it has promise by reinforce the message that communicate through above the line
marketing such as increase satisfaction in service to customer. Therefore, the investment of 40
million is essential in order to ensure that the customer expectation in term of store service
will be meet. The increase in number of staffs not only lead to faster service but it indirectly
lead to improvement in overall service. For example, more staffs available mean the table will
be clean faster as normally the priority is given to fulfill order as fast as possible therefore the
cleaning may be neglect. According to survey, the cleanliness is the most important attribute
that create customer satisfaction. The increase number of staff during peak time will ensure
that the staffs will have more time to talk so customers feel the friendliness of staffs or
provide information such as new drink available that should match the customers preference,
this is very important to improve overall customers’ satisfaction.
The recommendation for marketing mix is as follow;

Product and Promotion: Normally Starbucks sell 4 types of product in store which
are coffee beverages, food items, whole bean coffee and equipment & accessories. The only
main product is coffee beverages, which is low involvement product, while other products are
compliment product to make the store more appealing to customers and maximize sale from
customer such as food product. For Starbucks, the buyer and consumer is same person
therefore the marketing should be directly aim at the consumer.
In general, the physical product of Starbucks which is coffee beverage is not different
to other specialty coffeehouse however the services that surround the physical product is area
that Starbucks focus on as it will be area that help Starbucks to differentiate itself from other
specialty coffeehouse. At present, Starbucks already creates different atmosphere in store
such as the lay out design and furniture that give a warm and cozy feel however it fail to
communicate to customer on it different to other coffeehouse and how the different has create
more benefit for Starbucks customer.
For example, Starbucks can do an advertise to show how it care so much about its
coffee bean by searching around the world to find the best coffee bean for customers. Or
advertise about how Starbucks is your third place to be apart from home and work by showing
the atmosphere, the service and the coffee.
In addition, Starbucks need to do below the line marketing such as in house promotion
and loyalty program especially the loyalty program that make customers feel that they are
value customer of Starbucks. For example, encourage more customers to use stored-value-
card (SVC). This card mean that Starbucks has access to large data pool on behavior of

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customers and easily predict trend and habit of the cardholder so the next visit can be more
special such as on spot discount “this is your tenth cup purchase this month, so you entitle to a
50% discount on this order”. This will create a positive feeling from the customer and they
will spread the word to their friends and family and encourage people to join the program.
Moreover, the loyalty program lead to higher switching cost for customers and they will
eventually become life long customers for Starbucks. Starbucks can emphasis on building
good relationship with the cardholder by send a birthday gift voucher. The promotion and gift
voucher will come with cost but it brings in higher benefit both in term of monetary from
increase in revenue and non monetary such as brand.
However, before customers decide to joined SVC or participate in any loyalty
program, the customer must satisfy with Starbucks service in certain level first. Therefore, the
starting point for Starbucks is building a solid foundation by deliver what it has promise that it
has been made through advertising. The investment which Ms. Day is planning to implement
is vital for helping increase number of highly satisfied customers as this group will be the
high potential group join and be part of the loyalty program.
For example, for one life long customer (Mr.A) who visit Starbucks 8 time a month
and will continue to drink for the next 45 years is approximately brings 25,000 dollars in
revenue over the life time while the cost for promotion is very minimal as the cost for giving
50% discount on the tenth cup will cost company 23.10 dollar per year or total of 1,040 dollar
for 45 years while the birthday gift voucher (any beverage in Starbucks store) will cost the
revenue 4.15 dollar at the most or a total of 186 dollars over the life time and it is unlikely
that this gift voucher will decrease level of sale. As Mr. A will think about the gift voucher as
a special gift on my special day so I will have an extra one than my usual routine. The actual
cost for both discount promotion and the gift voucher will be far less than the listing price
while to customer the promotion and gift voucher will make them feel very special. Not only
Mr. A will feel special but he will spread the word to his friends and family about it therefore,
new customers will be introduced and can be a life long customer as well. However, the
opportunity for Starbucks to get a new life long customer will be possible if the service of
Starbucks meet the expectation of the new customers since the new customers will give
Starbucks once or twice chances and if Starbucks did not utilize the chance or gave bad
experience, it is very unlikely that Starbucks can undo the experience for that customer.
Currently there are 6 millions users if Starbucks can maintain all customers and be like Mr. A
that will bring a total revenue 3.2 billion per year or 144 billion for the total customer life
while the total cost are 163 millions per year and 7.3 billion in total.
Apart from the customer group that visit 8+ a month, another potential customer group
for Starbucks to focus on for introduce the use of SVC is the existing customer that visits 3-7
times a month. This group play vital role for continuous growth for Starbucks as we need to
ensure that the customers will eventually increase number of visit to 8+ per months. The SVC
is one way that will increase the switching cost to customers while it is a tool for increase
customer satisfaction. There are currently 37% of customer fall into this category. The
potential size of market is 7.4 million customers while the group that visits more 8+ a month
is 4.2 million. Therefore, we can approximate that around 5 million customers who has
potential to become part of the loyalty program yet to register. This may cause from not
receiving the essential information about the program from the store’s staff which is very
likely as in a peak time the staff barely has time to interact with customer more than say Hello
and Thank you. Therefore, the cost of extra staff during peak hour in particular will help
identify the potential customers through recommend or suggesting the SVC. The total cost of
40 million can be cover by revenue of 17,000 life long customer who registers to SVC
program. Since, this potential group already satisfied with the current service which mean
they are positive bias to Starbucks therefore if we improve services to reach there expectation

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that they feel no hesitation to be part of the loyalty program then it is not too difficult for each
store to get a handful of regular customers to join SVC program.
However, Starbucks need to consider and plan for future investment as the company
expect to receive an increase number of customer visit which eventually lead to capacity
problem therefore, Starbucks need to ensure that the value that it has promise to customers is
maintain.
In addition, Starbucks has seen a changing in customer behavior this due to several
reasons. First and most important reason is Starbucks has expanded rapidly throughout
country therefore it bring in various diverse demographic of customers as Starbucks attract
different group customer in different area for example, in California where store has large
Hispanic customer base while in Florida, the store cater primarily Cuban-American.
According to survey, it shown that there is a shift from primarily, well educated, white collar
female age 24-44 toward younger, less educated and equal spread between male and female.
Second, the trend of coffee consumption has increase therefore people drinking coffee change
from a real coffee fan who know a lot about coffee and can distinguish coffee quality to
people who use coffeehouse as a meeting place or take the coffee culture as fashion.
Therefore, it is essential for Starbucks to slowly educate about what they can expect from
Starbucks as they are the group that has different perception from what Starbucks brand stand
for. The education can be done through below the line marketing especially the staffs that has
to be a good and accurate information giver about what Starbucks brand stand for. Starbucks
may need to invest into training on staffs in topic concerning how to be a good information
giver and be a good presenter to Starbucks brand.
For the customer group that visits less than 2 times per months, this group is
customers that according to survey classified as unsatisfied with Starbucks service. I think it
is important for Starbucks to focus on established customer or customer who has the potential
to be a life long customers therefore Starbucks shouldn’t invest to mainly focus on this new
customer group as it is risk losing established customers however it should take more passive
role for this group of customer by focus on how to identify the new customer who has the
potential to become an established customers. It is a possibility that this group visit Starbucks
as a meeting place which it harder to attract them to enjoy and experience Starbucks coffee
culture as what’s they are looking for is not what Starbucks offering since Starbucks position
itself as a third place to be apart from home and work while this group see Starbucks as place
to be meeting point then move on.
Another potential for below the line marketing that Starbucks can introduce is get the
established customers help Starbucks identify potential customers. This can be done through
promotion such as buy1 get 1 free promotion so the established customers cannot drink two
coffee at the same time so he or she need to bring a friend. However, there is a risk that the
friend may be another established customer and the promotion would jeopardize sale
however, in many cases the established customers would bring the people who has no
experience with Starbucks and this can help increase number of customers for Starbucks.
Moreover, Starbucks can try to use promotion such as get the loyal customers from SVC to go
to the coffee bean plantation that supply Starbucks and shot an advertisement so it like friend
telling a story about how Starbucks different from other specialty coffeehouse. It is normal to
customer that they don’t believe what sale person as they rather hear information from friends
or relative.

Place: The current distribution for Starbucks coffee beverage is through Starbucks
owned store and license store. I insist that the distribution channel should be focus in these
channel and the store has to set in the same atmosphere globally as Starbucks need to set it
own coffee culture and atmosphere in order to take less effect from the different in geographic

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location since Starbucks cannot try to localize and compete with local coffeehouse, as it will
likely to damage it brand meaning and the consistency in service. In the current global trend,
people are travel extensively therefore, consistency in service is very important as customers
who travel to another city expect to get the same experience that he or she receive from the
regular store.
However there is a potentially barrier for Starbucks to provide consistent service as
there is an increasing number of Starbucks store are operate by license operators which mean
it harder for Starbucks to fully control the license store especially if it mean increasing cost as
the license operators would care more about profit from there store not Starbucks (Exhibit 7).
Moreover, Starbucks has to be cautious about franchise or partnership to create other
product. The spin-off is double edge sword where there is a risk that customer did not enjoy
the spin off product and turn away from the actual trial at the real Starbucks store. Even
though the first time to walk into the door may be hard but Starbucks can encourage people to
come in as Starbucks can present itself as “open to all”. This also can link to the promotion
that Starbucks can send message to encourage new customers to give a try at Starbucks while
the staff at the store need to be train on how to make the first comer feel comfortable to make
the first order and leave the positive impression on the customers.
Nevertheless, there is an opportunity for Starbucks to explore other market such as
wholesale of coffee bean, which not relate to retail coffee beverage, this market segment the
distribution through distributor is appropriate as the increase in number of places using
Starbucks coffee help increase the awareness of brand.

Price: At present, Starbucks cannot charge more than other specialty coffeehouse due
to the physical product of Starbucks, a coffee beverage, can be consider as basic products that
has price sensitivity. For example, Starbucks did not see a sale drop even in an economic
downturn however it likely to see sale drop if it has increase price while other specialty
coffeehouse keep price unchanged. However, if Starbucks able to increase the perceive value
by customers, it will lead to ability to charge higher price as customers are willing to pay
more for the Starbucks experience which branding is one tool that can help Starbucks increase
perceived value in customers feeling. As it has indicate in the survey that the establish
customer are more likely to accept the increase in price change. Currently, the average
spending per customer is 3.85 dollar while the menu is ranging from 1.40 to 4.15 dollar
however it is likely that customer also purchase whole bean product to consume at home or
work place as well since the price for whole bean ranging from 5.20 to 11.65 dollar.
Therefore, the pricing for the coffee beverage in store and the whole bean coffee need to be
monitor closely as Starbucks has to find the right price for customers to feel that the extra
money they pay from buying coffee beverage in store is reasonable and at the same time the
price for whole bean coffee has to be attractive so customers who enjoy the coffee beverage in
store will buy the product. Once, the customers use Starbucks coffee at work and at home
then pick coffee beverage in store or they feel need for relax then Starbucks will be
automatically in their mind.

Conclusion
In conclusion, I would recommend an investment of 40 million dollar into increase
number of staff available per store as the increase of staff availability lead to higher customer
satisfaction. However, I also suggest several things that Starbucks should consider in order to
make the investment of 40 millions deliver more effective result. Starbucks has an urgent
need to build stronger brand and the investment will be part of the building brand strategy.

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Exhibit1:
PEST ANALYSIS
Political:
- The food and beverage is high regulated in term of safety.
Economical:
- Basic food and beverage product do not take much effect in economic trend as it
depend more on social trend.
Social:
- People live in a fast pace so care more on time saving and convenience
- People go out more than used to be.
Technology:
- Internet become part of everyday life

Exhibit 2:
PORTER 5 FORCES: Specialty coffeehouse
Threat from new entrants: High
- the cost of set up a café is low
- no specific expertise require to make a good coffee
- hard to differentiate and protect from being imitate
Threat from substitution : Moderate
- the current trend of health conscious lead to substitution such as fruit juice bar
Supplier bargaining power : Low
- As coffee bean and other ingredient can be easily find replacement
- The switching cost for coffeehouse from each suppliers are low
Buyer bargaining power : High
- The buyer in this case is the final customer which the switching cost for them is
low as the product is very much the same, the major different is the service that
each café provide however the consistency in service is very hard as perception of
good service can be vary from each group of consumer.
Rival competition : Moderate
- The market for café is growing at rapid rate but number of café also growing at
fast pace as well however there are several café chain in the market such as
Starbucks or Dierich coffee but majority of café are independent brand which
more locally adapt to specific area.
Exhibit 3
Starbucks’s SWOT analysis
Strength: Largest café chain, brand loyalty, variety of product
Weakness: become standardize café in eyes of many customers
Opportunity: increase in number of coffee drinker
Threat: the growing trend healthy food and beverage

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Exhibit 4

Average income per store for each customer group per month

Visited
per No.of customer
month per month* Income Per Month**
3,528.0
8+ 0 40,920.00
6,216.0
3-7 0 17,820.00
7,056.0
1-2 0 7,260.00

* Average daily customer count per store* 30*percentage of customer in the group
** (Average weekly store/7)*30 *percentage of transaction generate by the group

Exhibit 5
Starbucks’ Customer Behavior by Satisfaction level
Highly
Unsatisfied Satisfied Satisfied
Customer Customer Customer
No. Starbucks
visit per
month 3.9 4.3 7.2
Avg.
spending 3.88 4.06 4.42
Avg.
customer life 1.1 4.4 8.3

Exhibit 6

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Key attribute rated by Starbucks’ customers

Attribute
Clean Store 83%
Convenient 77%
Treat as value customer 75%
Friendly Staff 73%
Coffee taste/Flavour 72%
Highest Quality coffee 67%
Fast service 65%
Appropriate prices 65%
Freshest coffee 60%
Best espresso drink 60%
Pleasant atmosphere 50%
Knowledeable staff 39%
place to relax 37%
Best ice-blend drink 34%
Involve in community 30%
Highest Quality tea 20%
Highest Quality pastry 17%
Selection of non coffee
beverage 17%
Selection of whole bean 16%
new innovative beverage 13%
Selection of merchandise 5%

Exhibit 7
Number store operate by company and franchise
Store 1998 1999 2000 2001 2002
Total North
America
Company operate 92.42% 91.93% 82.19% 78.60% 76.43%
Licensed Store 7.58% 8.07% 17.81% 21.40% 23.57%

Total International
Company operate 50.38% 34.52% 32.95% 31.75% 29.27%
Licensed Store 49.62% 65.48% 67.05% 68.25% 70.73%