STARBUCKS: DELIVERING CUSTOMER SERVICE
In 1992 Starbucks vision was to become the “Third Place” (home, work and then Starbucks). The value proposition was based on high quality coffee, high service standards and customer intimacy all offered in a relaxed and comfortable atmosphere. The positioning was meant to appeal to a niche market of highly educated affluent customers predominantly female between the ages of 24-44 years. Starbucks did not have a dedicated marketing strategy, but the function was performed by three separate groups with little coordination. In the words of Chistine Day everybody had to perform marketing as part of their job. This meant that they weren’t strategic in their approach and while they were hugely successful over the next decade, by 2002 there were some widening gaps between Starbucks vision and their market survey results. Christine Day realized they had failed in terms of “customer intimacy”; their customer base had changed, yet they hadn’t realized this. Additionally their service level had fallen, with a concurrent increase in the technical and rigorous demands of the barista’s job. The entry strategy into China similarly positioned Starbucks as an elite and ubiquitous brand. In the east and particularly in China, status is an integral part of the culture. Starbucks positioning would therefore appeal to the burgeoning masses of young well educated and affluent class of Chinese society. This market segment had growing purchasing power and an incessant appetite for western brands and status symbols of prosperity and a glorious western lifestyle. They engaged in global market adaptation by customizing their product offerings to cater to local preferences. Additionally they had to demonstrate a greater commitment to Corporate Social Responsibility (CSR), in order to build trust in the new Chinese community, and the menu as well as Starbucks initiatives looked like a blend of east meets west, with use of local teas in partnership with local suppliers, as well as partnering with local organization in CSR initiatives. In China Starbucks has done exceptionally well, in a market that had not been coffee drinkers, Starbucks had created an appetite for coffee and tea beverages in a social setting. It is critical for global brands to adapt their businesses to local markets and in order to succeed in China Starbucks has done just that. They are doing well in China and we don’t think their Operations Management Strategy requires any changes at this time. However in the North American market there is need for Starbucks to realign itself with the changing demographic of its customers. Starbucks was predominantly concerned with expansion and growing the business that they hadn’t realized that they had outgrown their traditional niche market, the growth after all had to come from somewhere. Now also identifying with the brand was younger less educated and lower income bracket aspirants. The market survey overwhelmingly identified that their customers were not as loyal as they had believed and were largely concerned with friendlier faster service, with loyalty rewards and discounted prices. In many ways Starbucks is doing the right things for instance its HR policies and valuing employees as partners is critical to customer satisfaction. This was fundamental to their overwhelming success, and we think that the current demands on the baristas are affecting their ability to interact with the customers in the delivery of the standard of service that has been the hallmark of the Starbucks brand. Christine Day recognized this and was considering a proposal to add half a man-week per store at a cost of $40 million per annum. This would shave an extra 7 pennies of earnings per share at current sales. The hope however was that the additional staff would lead to increased customer satisfaction and greater sales and therefore increases shareholder profitability. However we are not in support of increasing fixed...
Please join StudyMode to read the full document