Assignment 1 – Case Study

Starbucks: Delivering Customer Service

UNDER SUPERVISION PROF. DR. FARID EL SAHN

PREPARED BY BISHOY SAEED FAYEZ

EMBA – Faculty of Business – Alexandria
University – C 29
Email: bishoysfayez@gmail.com
Mob: +2 012 11 35 1223

EMBA – FACULTY OF BUSINESS – ALEXANDRIA UNIVERSITY

 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

1.Reflection on Starbucks Customer Evolution

and Strategy
1. Introduction
The case studies the challenges in marketing faces Starbucks starting
from the company background and the operations inside the company –
the values and how they seek the customer’s satisfaction. And the case
finally summarized by discussing the 2 questions required for the
assignment

2. Company Background
Howard Schultz’s journey with Starbucks is a remarkable story of
transforming a simple commodity into a cultural phenomenon. Here’s a
brief summary:

Origins: Starbucks was founded in 1971 by Gerald Baldwin, Gordon

Bowker, and Ziev Siegl in Seattle, focusing on selling whole arabica
beans.

Schultz’s Vision: Howard Schultz joined in 1982 and, inspired by Italy’s

coffee culture, envisioned Starbucks as a “third place” for people to
relax, separate from home and work.

Expansion: After buying the company, Schultz rapidly expanded

Starbucks, targeting affluent, well-educated customers.

Public Offering: Despite skepticism, Schultz took Starbucks public in

1992, raising $25 million, which fueled further expansion.

Success: By 2002, Starbucks had become the leading specialty-coffee

brand in North America, with over 5,000 stores globally and impressive
financial growth, all achieved with minimal advertising.

Schultz’s leadership and vision were key to Starbucks’ success, making it

a beloved global brand.

the company had spent almost nothing on advertising to achieve its

success – they were far from the industry average expenses( 3% to 6 %
Marketing budget)

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 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

3. Employees as “partners”
Starbucks’ approach to delivering exceptional service involves a combination of hard and
soft skills training for their partners (employees):
1. Hard Skills Training: Partners learn technical tasks like using the cash register and
making drinks, with specific steps to ensure quality.
2. Soft Skills Training: Partners are taught to connect with customers through eye
contact, smiles, and personalized conversations. The “Just Say Yes” policy empowers
them to go beyond rules to satisfy customers.
3. Employee Retention: Most barista turnover happens within the first 90 days. Those
who stay longer tend to remain for years, indicating a self-selection process.
4. Job Complexity: The job has become more complex with the increase in drink
variations and customer customizations, creating a balanced challenge between
product quality and customer focus.
5. Efficiency Improvements: To manage workload without increasing labor costs,
Starbucks has focused on improving barista efficiency, simplifying processes, and
using automated espresso machines.
This comprehensive training and operational strategy help Starbucks maintain high service
standards and customer satisfaction.

4. Competition
Starbucks faces competition from various specialty coffee chains and other food and
beverage outlets in the U.S.:
1. Specialty Coffee Chains:
o Caribou Coffee: Differentiates with an Alaskan lodge-themed environment.
o Peet’s Coffee & Tea: Focuses on super-premium, fresh coffee by roasting to
order.
2. Independent Coffee Shops: Offer diverse experiences, from a wide range of food
and beverages to personalized service and unique atmospheres.
3. Donut and Bagel Chains:
o Dunkin Donuts: Competes with a significant focus on coffee, offering flavored
options and non-coffee beverages like Dunkaccino and Vanilla Chai.
Each competitor has its unique strategy to attract customers, making the coffee market
diverse and dynamic.

5. Objective and Product Innovation

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 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

Objective: Starbucks aimed to become the “most recognized and respected brand in the
world,” requiring an aggressive growth strategy focused on retail expansion and product
innovation.
Retail Expansion
 Market Share: Starbucks owned nearly one-third of America’s coffee bars,
surpassing its top five competitors combined.
 Expansion Plans: In 2003, Starbucks planned to open 525 company-operated and
225 licensed stores in North America, with a long-term goal of 10,000 stores.
 Growth Factors:
o Rising coffee consumption in the U.S., especially specialty coffee.
o Untapped markets: Eight states without a Starbucks and only 150 out of 300
metropolitan areas covered.
o Low saturation in many existing markets, e.g., Southeast U.S. had fewer
stores per capita compared to the Pacific Northwest.
 Strategy: Open new stores in untapped markets and cluster stores in existing
markets, despite some cannibalization, to boost overall sales.
 Site Selection: Criteria included demographics, local coffee consumption,
competition, and real estate availability. New stores could be opened within 16
weeks, averaging $610,000 in first-year sales.
 International Expansion: Ambitious plans included 15,000 international stores, with
significant presence already in the UK, Australia, Thailand, and Japan.
Product Innovation
 Importance: Key driver of comparable store sales growth, with stable prices.
 New Products: Regular launches, including at least one new hot beverage each
holiday season.
 Development Cycle: 12- to 18-month cycle involving R&D, focus groups, and market
testing.
Starbucks’ strategy combined aggressive retail expansion with continuous product
innovation to drive growth and achieve its global brand recognition goals.

6. Starbucks’ Market Research: Trouble Brewing?

Objective: Starbucks aimed to become the “most recognized and respected brand in the
world,” requiring an aggressive growth strategy focused on retail expansion and product
innovation.
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 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

Retail Expansion
 Market Share: Starbucks owned nearly one-third of America’s coffee bars,
surpassing its top five competitors combined.
 Expansion Plans: In 2003, Starbucks planned to open 525 company-operated and
225 licensed stores in North America, with a long-term goal of 10,000 stores.
 Growth Factors:
o Rising coffee consumption in the U.S., especially specialty coffee.
o Untapped markets: Eight states without a Starbucks and only 150 out of 300
metropolitan areas covered.
o Low saturation in many existing markets, e.g., Southeast U.S. had fewer
stores per capita compared to the Pacific Northwest.
 Strategy: Open new stores in untapped markets and cluster stores in existing
markets, despite some cannibalization, to boost overall sales.
 Site Selection: Criteria included demographics, local coffee consumption,
competition, and real estate availability. New stores could be opened within 16
weeks, averaging $610,000 in first-year sales.
 International Expansion: Ambitious plans included 15,000 international stores, with
significant presence already in the UK, Australia, Thailand, and Japan.
Product Innovation
 Importance: Key driver of comparable store sales growth, with stable prices.
 New Products: Regular launches, including at least one new hot beverage each
holiday season.
 Development Cycle: 12- to 18-month cycle involving R&D, focus groups, and market
testing.
Starbucks’ strategy combined aggressive retail expansion with continuous product
innovation to drive growth and achieve its global brand recognition goals.

7. Questions
1. Why have Starbucks´ customer satisfaction scores declined? Is it important for the
business to sort out the problem?

The decline in customer satisfaction is due to many reasons, and of course these reasons shall be

studied carefully and work on them to get back the customers’ satisfaction.

1- Changing the Customer segment and demographics: the business from the beginning was

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 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

depending on white collar well-educated customers – especially females – but on the other

hand when Starbucks started to grow the aimed to target other segments with different tastes.

2- The perception that Starbucks seeks “Money first” : this perception was agreed among the

majority o customer. Therefore they have to re-consider value for the customers and how to

seek customer satisfaction first. “Are we clearly communicating our value and values to our

customers, instead of just our growth plans?

3- service gap between Starbucks scores on key attributes and customer expectations. When

Starbucks had polled its customers to determine what it could do to make them feel more like

valued customers, “improvements to service”—in particular, speed-of-service—had been

mentioned most frequently.

2. What will be your recommendation about spending 40M $ to increase customer

satisfaction? Is it worth? What will be your argument for investing/not investing?

The interesting finding of the Company was already not using marketing expenses at
all “What made Starbucks’ success even more impressive was that the company had
spent almost nothing on advertising to achieve it. North American marketing
primarily consisted of point-of-sale materials and local-store marketing and was far
less than the industry average. (Most fast-food chains had marketing budgets in the
3%–6% range.)

So, the planned budget shall be referenced by the industry average in a dimension-
less manner i.e

Expenses in Expected Customer Expected

% satisfaction increase Customer
satisfaction

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 Assignment 1 – Case Study| Strategic Marketing – by: Bishoy Saeed

increase
Industry average xx xx xx
expenses
Starbucks planned xx xx xx
Budget

So, I believe spending this amount of money (40 M USD) , less or even higher
depends on the objective of the plan and the customer satisfaction relation with the
spendings shall be modeled and calculated.
So let’s summarize the steps needed for the plan and budget forecasting:
1. Forecasting the expenses needed for retain the loyalty of customers like “
return to 3 minute service time “, slogans that targeting the desired market
segment and communicate the value for them. Promote “value-first”
products with affordable prices to diminish the perception of “Starbucks
seeks only profit”.
2. Design a “Demo” – I.e Prototype- Experience for the enhancements in one or
two stores to see the impact of these enhancements on customer
satisfaction.
3. Correlate a model that relates the expenses in these enhancements with the
Customer satisfaction.

y = f(x)
as y = Degree of satisfaction x = expenses in these enhancements
4. Reference these expenses with the industry average and make decision upon
the information available.

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