Starbucks – Delivering Customer Service
1) What factors accounted for the extraordinary success of Starbucks in the early 1990s? What brand image did Starbucks develop during this period?
A: One of the most important sources for Starbucks success was its brand strategy and the elements that composed it.
The brand strategy of Starbucks was best captured by its “live coffee” mantra. This phrase reflected the importance of the company attached to keeping the national coffee culture alive. They wanted to create an “experience” around coffee consumption. The three main components of this brand strategy were:
* The coffee itself.- Starbucks was proud of offering what it ...view middle of the document...
* Retail expansion.- Even though Starbucks owned close to one-third of America’s coffee bars, the company had plans to open 225 licensed and 525 company-operated North American stores in 2003. Expansion was seen as a positive plans given three observed trends:
* Coffee consumption was on the rise in the United States.
* There were eight states in the United States without a company-operated store.
* Starbucks believed itself to be far from reaching saturation levels in many existing markets.
Despite that this strategy often ended up being in significant cannibalization, this was more than offset by the incremental sales derived from increased store concentration.
* Product innovation.-The new product development process generally operated on a 12 to 18-month cycle.
Beverages accounted for the most significant percentage of sales in the stores (77%) in 2002, whereas in 1992 it represented around 50%. Also, the product diversification of the stores has increased since then, which varies depending on the location and size of the store. The general complementary products that Starbucks started to offer are seasonal novelty items, coffee-related accessories, games, music CDs, juices, pasties sodas, and in around 500 some cases, sandwiches and salads.
Also, the Starbucks’ stored-value card (SVC) was introduced with the purpose of paying for transactions in any store in North America, which resulted in cardholders visiting Starbucks twice as often as cash customers and tended to experience reduced transaction times.
Finally, for the first time, Starbucks realized the necessity of having a strategic marketing group because, according to Day, data was not used for driving decision making. Market and costumer related trends could sometimes be overlooked.
3) Calculate the lifetime value of consumers based on their level of satisfaction (unsatisfied, satisfied and highly satisfied). What value does Starbucks get out of these customers?
Exhibit 9 | Starbucks' Customer Behavior, by Satisfaction Level |
| | Unsatisfied Customer | Satisfied Customer | Highly Satisfied Customer |
Number of Starbucks Visits/Month | | 3.9 | 4.3 | 7.2 |
Average Ticket Size/Visit | | $3.88 | $4.06 | $4.42 |
Average Customer Life (Years) | | 1.1 | 4.4 | 8.3 |
Value of Consumers | | $199.7424 | $921.7824 | $3,169.6704 |
A: In order to obtain the lifetime value of consumers based on their satisfaction level, the number of visits per month was multiplied by the average ticket size per visit, and again by the average customer life. However, as the first two rows are monthly numbers and the average customer life is measured in years, the final result was multiplied by 12 months.
This gives a numerical measure of the value that customers are experiencing in Starbucks according to their respective satisfaction levels. The more satisfied the customers are, the bigger the value obtained by Starbucks from...