Lisa Lenell

Marketing 5210 - Starbucks Case

May 7, 2011

BACKGROUND & KEY ISSUES On the surface, it appears Starbucks is firing on all cylinders in mid-2002. By most measures, the company is achieving high levels of success: consistently strong same store sales growth, rapid expansion of retail locations in new and existing markets, and impressive growth in sales and profits. However, these measures may be masking an underlying problem that could impact Starbucks in the future. Data from company research has shown that they may be falling short in delivering against customers expectations. Further, the research provides evidence of a direct link between customer satisfaction, the number of visits to the store, and the amount of money spent. More satisfied customers made more visits per month and spent more money per visit than less satisfied customers. The customer satisfaction findings are symptomatic of several key underlying issues facing Starbucks, including: 1. Failure to keep pace with evolving customer base Starbucks brand, products and service delivery model were developed around a somewhat homogeneous customer segment. The company now has multiple customer segments with different expectations but has not adapted their value proposition to serve the needs of these new customers. 2. Too many products The proliferation of new products over the years has added considerable complexity to the baristas job. The additional time required to prepare beverages has increased wait times and decreased time available for quality customer interactions. 3. Lack of integrated marketing Starbucks decentralized organizational approach to marketing has prevented the company from clearly seeing the forest for the trees. The various marketing units have not worked in a coordinated manner to make actionable, factbased decisions to meet the evolving needs of customers. ANALYSIS & CONCLUSIONS Evolving customer base Starbucks research shows that the companys customer base has expanded beyond their original demographic. Newer customers are younger, less educated, and have lower incomes than more established customers. In addition, as Starbucks entered new geographic markets the composition of their customers became more ethnically diverse to include, for example, larger numbers of Hispanics. Perhaps more importantly, Starbucks research shows that new customers are less satisfied, by a fairly wide margin, than established customers on every dimension measured in their Attitudes toward Starbucks survey. These findings clearly demonstrate that the companys current value proposition is more effective with long-time customers and provide evidence that the company has not effectively met the needs of new customer segments. Too many products Starbucks has attributed their meteoric growth to retail expansion and product innovation. However, the company may have done too much of a good thing with product innovation. Despite attempts to simplify work steps and automate parts of the beverage making process, it now takes thirty-two times longer for a barista to make every variation of beverage on the menu than it used to. This problem was further exacerbated by the fact that about half of customers
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Lisa Lenell

Marketing 5210 - Starbucks Case

May 7, 2011

want a customized drink, creating even more complexity and taking more barista time away from customer service. Many of these products may be unnecessary and not valued by customers. Starbucks research shows that only 13% of customers rate new, innovative beverages as being highly important in creating customer satisfaction, second to last on the list. In addition, only 9% of customers said better quality/variety of products would make them feel more like a valued customer. Lack of integrated marketing Although Starbucks enjoys a strong level of brand recognition and fierce loyalty among many of their established customers, the company operates three distinct marketing units that rely on informal collaboration without a senior executive to oversee the whole of marketing. This approach has likely contributed to the company falling somewhat out of touch with its changing environment and evolving customer base. RECOMMENDATIONS To address the three key issues impacting customer satisfaction, I recommend the following: 1. Conduct additional market research and develop new marketing campaign o Establish an internal strategic marketing team to research the needs of the new Starbucks customer. o Create a detailed customer segmentation profile and a compelling customer value proposition (CVP) targeted to the specific needs of this segment. o Develop and invest in new marketing approaches to communicate the CVP and increase consumer awareness of the quality of the coffee and the Starbucks experience. 2. Rationalize the current product offering o Analyze the current product offering - sales mix, sales trends, product cost, profitability, geographic differences, etc. o Assess barista time required to prepare each product to determine labor cost. o Conduct market research on current product offering to determine customer preferences. o Consider eliminating products that are not valued by customers (or within a geography), sold in low volumes and/or have low profit margins. 3. Revise workflow and resource allocation o Assess the feasibility of creating dual service lines for customers - One a fast lane for drip coffee or standard products, the other for customized products. o Consider shifting employees from stores with low traffic to stores with high traffic during peak hours.