SR No Roll No Name

1 EPGCMM-11-003 Ami Sata

2 EPGCMM-11-020 Karan Aggarwal
3 EPGCMM-11-002 Alok Dalvi
4 EPGCMM-11-036 Saikat Sarkar
5 EPGP-10-146 Subhorov Roy
6 EPGP-10-156 Tanay Sil
7 EPGP-10-158 Tushar Shetty

Case: STARBUCKS

Submitted to: Prof.Saravana Jaikumar

Indian Institute of Management Kozhikode

Executive Post Graduate Programme in Management

(Academic Year 2017-19)

Submitted by Group 6
Date of submission: 16th June, 2019
 Starbucks Case Background
In early years Starbucks' Store Growth
7000
• Founded by Gerald Baldwin, Gordon Bowker & Zev Siegel in 1971, in
Seattle 6000 5886
5000
• Early name was Starbucks Coffee Tea and Spice 4709
4000
• Sold only whole-Arabica bean coffee to niche market of coffee pursuit. 3501
3000
2498
In 1980’s 2000 1886
1000
• Howard Schultz became Chairman and Chief global strategist
0
• CEO- Orin Smith who joined company in 1990. FY 1998 FY 1999 FY 2000 FY 2001 FY 2002

• Re-image from only selling beans to be a coffeehouse

Customer Behavior by Satisfaction

+ve Shift of First Timers to Established Customers level
Overall opinion of Starbucks 25% 44%
26% 41% 3.9,
Best-tasting coffee 20% 31% 25% Unsatisfied
31% 45% 7.2,
Known for specialty coffee 44% 60% 47% Customer
8% 32%
For someone like me 15% 40%
30% 50%
High-quality brand 51% 4.3,
34%
0% 10% 20% 30% 40% 50% 60% 70%
28%

Established Customers (first visited 5+ years ago)

New Customers (first visited in past year)

Group 6 Case study: Starbucks 2

 What factors accounted for the success of Starbucks in the
early 1990s?
Starbucks had a defined market strategy. It wanted to give premium
coffee experience to its consumers.
Starbucks identified the segmented which consists of affluent, well-
educated, white collared(mostly female) between the ages of 25
and 44. This means that Starbucks was placing its coffee in the
premium segment for the working class, who can pay for premium
coffee and appreciate its taste. Also, working people can get some
nice place to relax and enjoy their coffee.
Starbucks also created the experience to relax and enjoy their coffee,
while spending time away from home and work.
Affluent Custom
• Segmenting • Positioning
• Targeting
Service, price, Quality
Product Specialization
and Availability strategy
To target them, Starbucks adopted 4Ps (Product, Price, Place,
Promotion)
Product – Starbucks offered highest quality coffee, sourced from
Africa, South & Central America, Asia Pacific region. It also
controlled the quality of the coffee beans by directly working with
the growers, closely monitoring the custom roasting process and
controlling the distributions and retail stores. Starbucks sold whole
bean coffee, rich brew coffee, Italian style expresso drinks, cold
blend beverages and Italian teas. There were variety of sandwiches,
salads, pastries, soda and juices with coffee related accessories,
music CDs and other novelties.
Price – Starbucks priced the coffee at around $1, clearly above
what others priced it at 50 Cents. This could have helped Starbucks
to give a message of serving premium coffee.
Place – Starbucks created an experience for coffee lovers to sit,
relax and enjoy the coffee. Starbucks created lounges and layouts
which were upscale, yet inviting or those who wanted to linger.
Starbucks opened its stores mostly in high traffic, high visibility
areas such as retail centers, office buildings, university campuses.
Promotion – Starbucks almost spent nothing on advertisements.
Starbucks focused ore on creating loyal customers. For this,
Starbucks created customer intimacy by providing great service.
Starbucks partners recognized the customer and remembered their
drink. They also customized the drink as per the customer. This
experience made customers visit Starbucks repeatedly, indirectly
promoting the brand.

Group 6 Case study: Starbucks 3

 Why has customer satisfaction scores declined?
It was pretty evident that he customer satisfaction scores declined. As per a market research, respondents who strongly agreed that

“Starbucks cares primarily about making money”, was up from 53% in 2000 to 61% in 2001. Similarly, respondents who strongly agreed

that “Starbucks cares primarily about building more stores”, was from 48% to 55%.

• Also, a 2002 survey revealed that only 39% of respondents strongly agreed that they always feel welcome at Starbucks.
• As per Exhibit 10, to create customer satisfaction, being treated as a valuable customer was rated by 75% of respondents and friendly
staff by 73%.
• According to Exhibit 11, in a survey, 34% of respondent felt service needs to improve, primarily 29% felt Starbucks should have
friendlier, more attentive staff and faster, more efficient service.
• This clearly indicates that the quality of service of Starbucks has declined. This was due to several factors:
• Baristas were now handling more variations. This engages them more in coffee making process rather than paying more
attention towards the customer intimacy.
• The time required to make the coffee increased due to customization, this lead to longer ques. Hence, stressed baristas were
not able to serve the customers properly resulting in customer dissatisfaction.
• Also, due to changing demography of Starbuck’s consumers, the younger ones might feel the premium prices to be higher and hence
31% feel that Starbucks should offer reasonable prices.
• With changing customer, now mostly younger, less well educated and in lower income bracket, Starbucks noticed that the typical
customer visits only 5 times a month. Hence the target segment was clearly changed for Starbucks now.

Group 6 Case study: Starbucks 4

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

It was pretty evident that he customer satisfaction scores declined. As per a market research, respondents who strongly agreed that

“Starbucks cares primarily about making money”, was up from 53% in 2000 to 61% in 2001. Similarly, respondents who strongly agreed

that “Starbucks cares primarily about building more stores”, was from 48% to 55%.

• Also, a 2002 survey revealed that only 39% of respondents strongly agreed that they always feel welcome at Starbucks.
• As per Exhibit 10, to create customer satisfaction, being treated as a valuable customer was rated by 75% of respondents and friendly
staff by 73%.
• According to Exhibit 11, in a survey, 34% of respondent felt service needs to improve, primarily 29% felt Starbucks should have
friendlier, more attentive staff and faster, more efficient service.
• This clearly indicates that the quality of service of Starbucks has declined. This was due to several factors:
• Baristas were now handling more variations. This engages them more in coffee making process rather than paying more
attention towards the customer intimacy.
• The time required to make the coffee increased due to customization, this lead to longer ques. Hence, stressed baristas were
not able to serve the customers properly resulting in customer dissatisfaction.
• Also, due to changing demography of Starbuck’s consumers, the younger ones might feel the premium prices to be higher and hence
31% feel that Starbucks should offer reasonable prices.
• With changing customer, now mostly younger, less well educated and in lower income bracket, Starbucks noticed that the typical
customer visits only 5 times a month. Hence the target segment was clearly changed for Starbucks now.

Group 6 Case study: Starbucks 5

 How does the Startbucks of 2002 differ from the Startbucks
of 1992?
In 1992:
The target customers were affluent, well-
educated, white collared(mostly female) between
the ages of 25 and 44. These were the people who
liked premium coffee and wanted to gain the
experience of a third place to relax.
The consumption pattern was mostly linger, relax
and enjoy the coffee. It was an experience of
indulgence in premium coffee.
Starbucks brand perception was best premium
coffee, upscale and the third place to relax.
Starbucks was able to create this by providing
premium coffee, great service philosophy by best
customer intimacy and creating physical
environment where one can linger and relax, while
feeling in an upscale.
Group 6
In 2002:
The brand became more accessible. Starbucks retail footprint had increased
dramatically as it grew from 142 stores in 1990’s to 5000 in 2002. It was also
experimenting with the new retail formats like drive-throughs. Starbuck also sold
coffee through non-company retail chains, which accounted for 15% of net revenue.
Starbucks also innovate stored-value card(SVC) for non-cash transactions.
The customer base for Starbucks has changed. The present consumers are mostly
younger, less well educated and in lower income bracket and have different criteria
for customer satisfaction. 40% of the present consumers have already tried
Starbucks brand before even visiting the store. Located in supermarkets, airplanes,
and hotels, have become important customer acquisition tools for the company.
The product diversity has increased a lot. There is a lot of variations and complexity in
the present menu. Starbucks always innovated its product. But now the hand crafted
beverages accounts for 77% of its total sales. And only 6% is from whole bean coffee.
Also, the menu now contains a lot of non coffee drinks. This clearly indicates that the
focus target segment of Starbucks is regular consumer rather than a coffee loving
consumers 10 years ago.
Even the baristas are under pressure now. There are more drink variations for baristas
to handle. Also, almost every customer now orders a hand-crafted beverage, putting
tremendous pressure on the baristas to churn out drinks as quickly as possible which
leaves less time for any conversation with the customer.
Case study: Starbucks 6
Should Starbucks make $ 40 million investment in labor in
the stores?

• Yes Starbucks should make the investment.

Here are few reasons for going ahead with investment:

1. With more partners, the customer satisfaction levels should increase. It will also help in serving a customer faster. Further, now a
barista will be able to provide the customer intimacy as there will be more baristas to attend to the customers.
2. It is rather easier for a mega-brand to deliver customer intimacy as not only a well-trained and satisfied employee will always
deliver a better service to its customer, helping in having a loyal and satisfied customer, but also the customer takes pride in
associating itself with the brand. It is a win-win situation, where even an investment in technology can help having better
understanding of the customer’s requirement and mood. This makes a customer feel special prompting it to come back for that
experience.

Group 6 Case study: Starbucks 7

Takeaways from Class - Starbucks case

1. Core Values of the organization are always important which we saw changed in case of Starbucks.
2. Customer friendliness(1990) and low service time(2002) shows shift in core values.
3. Importance of segmentation
 How difference of demographics (Change of focus from females to youth) and psychographics (less educated youths and
hence low foot fall) plays role in consumer satisfaction
4. Customer doesn’t know what they want- too much customization at Starbucks made customer service slow and hence impact on
satisfaction index.
5. Benefits to Organization and to customers should be quality balances to keep customer satisfied and increasing company’s growth.

Group 6 Case study: Starbucks 8

Group 6 Case study: Starbucks 9