Starbucks’ In 1971, when Starbucks first opened, coffee beans

Starbucks’ customer
base has been changing significantly over time. In 1971, when Starbucks first
opened, coffee beans were the products they sold to “a niche market of coffee
purists” (pg. 2). When Starbucks just started to expand and open new stores,
they “catered primarily to affluent, well-educated, white-collar patrons
(skewed female) between the ages of 25 and 44” (pg. 2). Starbucks targeted this
specific segment because this group would be able to spend more on coffee since
they made more money and hence, Starbucks could price their beverages at a
higher cost. Now, in 2002, the newer customers compared to the established
customers are younger, not as well-educated, lower average incomes, visited
less often, and have very attitudes toward Starbucks. Starbucks to them is more
of a convenient, fast, trendy coffee shop rather than a high quality, relaxing
coffee shop.

There are many smaller
coffee chains that try to differentiate themselves to compete with Starbucks.
For example, Caribous Coffee that offers more of an Alaskan lodge atmosphere
and Dunkin Donuts that offers donuts as well as coffee. These smaller
coffeehouses provide more unique qualities such as atmosphere, coffee quality,
and different product lines that Starbucks does not offer. However, they are
much smaller companies with less stores and are not as well established as
Starbucks. Starbucks has also built a very strong customer base since over 50%
of customers have been visiting from over two years ago (Exhibit 8). Starbucks
is also the leading coffee shop in North America with over 5,000 stores
globally as of 2002. Since coffee consumption is increasing, they have lots of
opportunity for geographic and product expansion.

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Starbucks’ value
proposition consists of three parts. The first is the coffee itself – they want
to offer the highest-quality coffee in the world. The second is service or
“customer intimacy”; they want each customer to have an “uplifting experience”
every time they visit. The last part is atmosphere – an ambience that makes the
customer want to stay.

Over time, there are
more segments opening for Starbucks even though Starbucks is not targeting them
directly. Because different segments consist of different age groups, the
definition of value is also different among different segments. Since the newer
customers visit less frequently, Starbucks can launch a rewards program where,
for example, customers can get a free beverage for every five beverages purchased.
Promotions and incentives tend to draw in customers who do not usually visit as
frequently, and they feel that their orders are more valuable. On the other
hand, to target more established customers, Starbucks can provide a small gift
to customers that they know are more loyal. For example, Starbucks can give a
specially designed tumbler to customers that they see on a regular basis for
the past few years just as a simple “Thank You” gift. The tumbler not only
makes the established customers feel more special and valuable, but it
encourages the customer to keep bringing the tumbler back to buy more coffee.
Tumblers also reduce the amount of paper waste from paper cups which makes
Starbucks more environmentally friendly.

Day suggests that the
“three-minute level” will “increase customer satisfaction and build stronger
long-term relationships” (pg. 12). Over the past few quarters in 2002, the
average wait time has been slightly over three minutes. However, based on
exhibits 10 and 11, the speed of the service is not the most important. The
highest ranked factors in creating customer satisfaction were clean store
(83%), convenient (77%), and treated as a valuable customer (75%). These
factors are important because they make customers want to stay and keep coming
back. Speed may be important for those who are in a rush, but for those who are
in no rush, they want their beverages to be handcrafted with care. Customers
may feel that since a drink is made so quickly compared to before, it may not
have been done as well or may feel that Starbucks want them to leave quicker,
so they can serve other customers. This contradicts Starbucks’ branding
strategy of creating an ambience of making customers stay and relax.

Keeping transaction times
low is important, but there can be many side effects also. Baristas may feel
rushed to complete each transaction; hence, the beverage may not be the most
ideal. Even if Starbucks hires more labour, it may not reduce the speed of the
service because there is a set amount of machinery and utensils in the shop. Trying
to target the service time to three minutes also makes Starbucks seem more like
a fast food chain than a high quality and service coffee shop. Rather than
trying to keep the actual transaction times at three minutes, Starbucks should
focus on creating that “customer intimacy” and inviting environment to
reinforce their brand values. If baristas do not talk to the customers while
the beverage is being made, customers feel that it is talking much longer
because they are focusing on the time. Once they are in a conversation, time
passes very quickly. Not only will customers feel like the service is quicker,
but also feel more valuable because the employees want to get to know them
better.

To cater to the
customers who would like fast service, Starbucks can open a designated lane for
simple beverages, such as coffee, only. This way, those in a rush can get their
drinks quickly, but for those who are not in a rush, they could get their
drinks handcrafted and the baristas can get to know the customers when doing
so. Also, to boost sales in the evenings, Starbucks can launch some drinks that
can allow some people to relax, such as coffee with alcohol. This targets
people who want to relax after a long day of work or to have a drink with their
friends. 

Customers are the most
valuable assets Starbucks has because if there were no customers, Starbucks
would not have been as successful as it is today. As shown in Exhibit 9, the
more satisfied a customer is, the greater the number of visits per month,
average expenditure, and average customer life in years. If Starbucks invests
$40 million into improving customer satisfaction, the customers would become
more valuable because they would visit more often, spend more per visit, and
visit for a greater number of years. If one million customers become highly
satisfied from unsatisfied, there will be over $200 million of increase in
revenue, which more than offsets $40 million (see Appendix A). If Starbucks’
customer satisfaction plan achieves the desired results, it will lead to great
increases in profits.

The net income for
fiscal year 2002 is $215.1 million. $40 million of that is approximately 18.6%
of the net income (see Appendix B). Although $40 million is not a huge portion
of Starbucks’ net income, it is a great amount to invest on customer
satisfaction at once. If the strategy does not work, it would be a large amount
of loss for the company. Rather than spending $40 million at once, Starbucks
can test market their new customer service strategy in an area where customer
satisfaction is lowest. If it is successful in that area, Starbucks can expand
their strategy across the nation and globally.

Another possible
solution may be to target three minutes only during peak hours. The customers
who visit during these hours are likely in a rush to get to work and would
prefer speed over “customer intimacy”. During hours that are less busy,
employees can handcraft beverages carefully and create conversations with
customers because they are likely not in any rush and would like to feel
valuable. Also, this saves money for Starbucks because they would only have to
hire more labour during peak hours.

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