Integrated core Finance, management , marketing and operating management

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INTEGRATED SEMESTER ASSIGNMENT

(FINC 300, INFO 300, MGMT 300, MKTG 300)

INSTRUCTIONS:

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The objective of the integrated semester is to help you extend your knowledge of how the

finance, operations, management, and marketing disciplines work and how they integrate

their functioning in the real world of business.

This assignment is an assessment of how well

you understand this integration. It is worth 10% of your course grade.

YOUR ASSIGNMENT IS TO ANSWER ALL OF THE QUESTIONS, IN A SEPARATE

DOCUMENT FOR EACH OF THE 300 COURSES.

• The assignment should be prepared as a Word document, 3-4 pages in length for each

discipline’s questions.

• The document should be double-spaced, using Arial font #12.

• Add any Appendices at the end of the Word document.

• Upload the appropriate Word file through the link on Canvas to each of your Integrated

Semester courses separately by the due date (i.e. the Marketing assignment should be

uploaded to the Marketing class only).

• Your reference sources, in addition to the base case and question sets, should be online

sites and articles, Bloomberg terminals, your Integrated Semester textbooks, PowerPoint

slides, and other sources you professor assigns.

• Turnitin, a software tool that improves writing and prevents plagiarism, will be used to

assess your sourcing of information. Do your own work.

Please read the instructions carefully before beginning to answer the questions. Contact

your instructor if you don’t understand the assignment’s directions or requirements. The

assignment must be submitted as instructed. You will lose points if you fail to follow the

instructions or if the submission is formatted incorrectly.

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FINANCE ASSIGNMENT

Please answer the questions below. Use either the Bloomberg terminals located at the

Feliciano School of Business or other reputable sources such as finance.yahoo.com,

morningstar.com or Wall Street Journal etc. for the financial data you use in your answers.

You need to provide the references regarding the financial data you use to support your

answers at the end of the finance portion of the term paper.

Questions:

1. Expanding the number of stores in a foreign market, such as the expansion plan

launched by Starbucks in China (announced in 2018), is a major capital budgeting

project. A project of this scale requires coordinated planning across all functions of a

business that you are studying in your Integrated Core classes. Choose and discuss

three items on the income statement that you think will be impacted by this new

undertaking. Explain why you chose those particular items, and how those items are

impacted by the marketing, management and operations decisions of the

company.

2. Choose and calculate three ratios for Starbucks for the last two years. Make sure to

select ratios that you think would be impacted by expanding in a new market, and

explain your reasoning. Identify a competitor of SBUX and contrast the ratios. Explain

why you selected this competitor. Describe how the decisions made by management,

marketing and operations functions of the company can impact, and hopefully

improve, these financial ratios.

3. Explain how the financial decisions regarding opening a new store are related to

management, marketing or operations decisions that the company must make (or has

made)?

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OPERATIONS ASSIGNMENT

Starbucks has developed a new coffee which uses some standard and some new

ingredients. It believes this coffee could become wildly popular with its younger customers

but wants to test market it in a few stores in key locations around the country to assess

customer reaction.

You are the manager of a Starbucks store that has been selected for this test marketing.

a. You have full responsibility for the success of the test market at your store. Write a

memo outlining the preparations that you will have to make at your store before the start of

the test marketing. Your memo should focus on at least four of the following issues: staffing,

training, equipment, supplies, store layout, quality, customer service, etc. (750 words)

b. Describe any interactions you would have with managers at Starbucks Finance,

Marketing, and HR as you get ready for the start of the test-marketing in your store. For what

issues would you need their help and support? (250 words).

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MANAGEMENT ASSIGNMENT

1. Starbucks has been identified as one of the best places to work according to

employee rankings and job posting websites. It has also earned a number of top

customer service accolades and many of these recognitions result from Starbucks’

human resource management practices. Describe how Starbucks’ human resource

management practices enabled them to build their culture and become a successful

company.

2. Starbucks’ strategy often enabled the company to successfully compete in a heavily

saturated market of coffee shops and eateries. Describe Starbucks’ strategy. What are

some key elements of their strategy that enabled them to maintain a competitive

advantage and keep customers?

3. As Starbucks’ business expands, it continually faces issues on how to keep customer

satisfaction high and maintain and attract business. How has innovation and change

specifically contributed to the success of the company? As the company grows larger,

what types of changes are being made to the structure, technology, and people in the

organization?

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MARKETING ASSIGNMENT

INSTRUCTIONS:
The objective of the integrated semester is to help you extend your knowledge of how the
finance, operations, management, and marketing disciplines work and how they integrate

their functioning in the real world of business. This assignment is an assessment of how well

you understand this integration. This assignment will be dealing with STARBUCKS and has 2

parts.

Listed below you will find some WEAKNESSES and THREATS for Starbucks, read them

carefully then proceed to answer the questions that follow:

Starbuck Weakness:

1) Customers not willing to wait in long lines at stores during morning rush hour and

lunch hour.

2) Coffee dominant business with a poor reputation for creativity around new product and

companion product development.

3) Too dependent on word of mouth to create brand awareness.

Starbucks Threats:

1) Better value offered by local coffee house shops and national companies like Dunkin

Donuts and McDonalds McCafe.

2) Downturn in the economy can decrease customer traffic and spending.

• • • • •

PART I : MARKETING ASSIGNMENT QUESTIONS

1). Assume you are the Vice President of Marketing for Starbucks. Select 1 Weakness and 1

Threat from the list provided above, and explain how you would recommend taking that

selected weakness and turning it into a strength and the selected threat and turning it into an

opportunity.

Part 2:

Provide 2 explanations as follows:

2a) Explain how the weakness turned into a new strength would impact the

disciplines of Marketing, Finance, Management and Operations.

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2b) Explain how the threat turned into a new opportunity would impact the

disciplines of Marketing, Finance, Management and Operations.

9 – 5 0 4 – 0 1 6

R E V : O C T O B E R 5 , 2 0 1 8

Professors Youngme Moon and John Quelch prepared this case. It was reviewed and approved before publication by a company designate.
Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.

Copyright © 2003, 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-
7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

Y O U N G M E M O O N

J O H N Q U E L C H

  • Starbucks: Delivering Customer Service
  • In late 2002, Christine Day, Starbucks’ senior vice president of administration in North America, sat
    in the seventh-floor conference room of Starbucks’ Seattle headquarters and reached for her second
    cup of toffee-nut latte. The handcrafted beverage—a buttery, toffee-nut flavored espresso concoction
    topped with whipped cream and toffee sprinkles—had become a regular afternoon indulgence for Day
    ever since its introduction earlier that year.

    As she waited for her colleagues to join her, Day reflected on the company’s recent performance.
    While other retailers were still reeling from the post-9/11 recession, Starbucks was enjoying its 11th
    consecutive year of 5% or higher comparable store sales growth, prompting its founder and chairman,
    Howard Schultz, to declare: “I think we’ve demonstrated that we are close to a recession-proof
    product.” 1

    Day, however, was not feeling nearly as sanguine, in part because Starbucks’ most recent market
    research had revealed some unexpected findings. “We’ve always taken great pride in our retail
    service,” said Day, “but according to the data, we’re not always meeting our customers’ expectations
    in the area of customer satisfaction.”

    As a result of these concerns, Day and her associates had come up with a plan to invest an additional
    $40 million annually in the company’s 4,500 stores, which would allow each store to add the equivalent
    of 20 hours of labor a week. “The idea is to improve speed-of-service and thereby increase customer
    satisfaction,” said Day.

    In two days, Day was due to make a final recommendation to both Schultz and Orin Smith,
    Starbucks’ CEO, about whether the company should move forward with the plan. “The investment is
    the EPS [earnings per share] equivalent of almost seven cents a share,” said Day. In preparation for
    her meeting with Schultz and Smith, Day had asked one of her associates to help her think through the
    implications of the plan. Day noted, “The real question is, do we believe what our customers are telling

    1 Jake Batsell, “A Grande Decade for Starbucks,” The Seattle Times, June 26, 2002.

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    504-016 Starbucks: Delivering Customer Service

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    us about what constitutes ‘excellent’ customer service? And if we deliver it, what will the impact be
    on our sales and profitability?”

    Company Background
    The story of how Howard Schultz managed to transform a commodity into an upscale cultural

    phenomenon has become the stuff of legends. In 1971, three coffee fanatics—Gerald Baldwin, Gordon
    Bowker, and Ziev Siegl—opened a small coffee shop in Seattle’s Pike Place Market. The shop
    specialized in selling whole arabica beans to a niche market of coffee purists.

    In 1982, Schultz joined the Starbucks marketing team; shortly thereafter, he traveled to Italy, where
    he became fascinated with Milan’s coffee culture, in particular, the role the neighborhood espresso bars
    played in Italians’ everyday social lives. Upon his return, the inspired Schultz convinced the company
    to set up an espresso bar in the corner of its only downtown Seattle shop. As Schultz explained, the
    bar became the prototype for his long-term vision:

    The idea was to create a chain of coffeehouses that would become America’s “third
    place.” At the time, most Americans had two places in their lives—home and work. But
    I believed that people needed another place, a place where they could go to relax and
    enjoy others, or just be by themselves. I envisioned a place that would be separate from
    home or work, a place that would mean different things to different people.

    A few years later, Schultz got his chance when Starbucks’ founders agreed to sell him the company.
    As soon as Schultz took over, he immediately began opening new stores. The stores sold whole beans
    and premium-priced coffee beverages by the cup and catered primarily to affluent, well-educated,
    white-collar patrons (skewed female) between the ages of 25 and 44. By 1992, the company had 140
    such stores in the Northwest and Chicago and was successfully competing against other small-scale
    coffee chains such as Gloria Jean’s Coffee Bean and Barnie’s Coffee & Tea.

    That same year, Schultz decided to take the company public. As he recalled, many Wall Street types
    were dubious about the idea: “They’d say, ‘You mean, you’re going to sell coffee for a dollar in a paper
    cup, with Italian names that no one in America can say? At a time in America when no one’s drinking
    coffee? And I can get coffee at the local coffee shop or doughnut shop for 50 cents? Are you kidding
    me?’” 2

    Ignoring the skeptics, Schultz forged ahead with the public offering, raising $25 million in the
    process. The proceeds allowed Starbucks to open more stores across the nation.

    By 2002, Schultz had unequivocally established Starbucks as the dominant specialty-coffee brand
    in North America. Sales had climbed at a compound annual growth rate (CAGR) of 40% since the
    company had gone public, and net earnings had risen at a CAGR of 50%. The company was now
    serving 20 million unique customers in well over 5,000 stores around the globe and was opening on
    average three new stores a day. (See Exhibits 1–3 for company financials and store growth over time.)

    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

    2 Batsell.

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    Starbucks: Delivering Customer Service 504-01

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    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.)

    For his part, Schultz remained as chairman and chief global strategist in control of the company,
    handing over day-to-day operations in 2002 to CEO Orin Smith, a Harvard MBA (1967) who had joined
    the company in 1990.

    The Starbucks Value Proposition
    Starbucks’ brand strategy was best captured by its “live coffee” mantra, a phrase that reflected the

    importance the company attached to keeping the national coffee culture alive. From a retail
    perspective, this meant creating an “experience” around the consumption of coffee, an experience that
    people could weave into the fabric of their everyday lives.

    There were three components to this experiential branding strategy. The first component was the
    coffee itself. Starbucks prided itself on offering what it believed to be the highest-quality coffee in the
    world, sourced from the Africa, Central and South America, and Asia-Pacific regions. To enforce its
    exacting coffee standards, Starbucks controlled as much of the supply chain as possible—it worked
    directly with growers in various countries of origin to purchase green coffee beans, it oversaw the
    custom-roasting process for the company’s various blends and single-origin coffees, and it controlled
    distribution to retail stores around the world.

    The second brand component was service, or what the company sometimes referred to as “customer
    intimacy.” “Our goal is to create an uplifting experience every time you walk through our door,”
    explained Jim Alling, Starbucks’ senior vice president of North American retail. “Our most loyal
    customers visit us as often as 18 times a month, so it could be something as simple as recognizing you
    and knowing your drink or customizing your drink just the way you like it.”

    The third brand component was atmosphere. “People come for the coffee,” explained Day, “but
    the ambience is what makes them want to stay.” For that reason, most Starbucks had seating areas to
    encourage lounging and layouts that were designed to provide an upscale yet inviting environment
    for those who wanted to linger. “What we have built has universal appeal,” remarked Schultz. “It’s
    based on the human spirit, it’s based on a sense of community, the need for people to come together.” 3

    Channels of Distribution

    Almost all of Starbucks’ locations in North America were company-operated stores located in high-
    traffic, high-visibility settings such as retail centers, office buildings, and university campuses.4 In
    addition to selling whole-bean coffees, these stores sold rich-brewed coffees, Italian-style espresso
    drinks, cold-blended beverages, and premium teas. Product mixes tended to vary depending on a
    store’s size and location, but most stores offered a variety of pastries, sodas, and juices, along with
    coffee-related accessories and equipment, music CDs, games, and seasonal novelty items. (About 500
    stores even carried a selection of sandwiches and salads.)

    3 Batsell.

    4 Starbucks had recently begun experimenting with drive-throughs. Less than 10% of its stores had drive-throughs, but in these
    stores, the drive-throughs accounted for 50% of all business.

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    504-016 Starbucks: Delivering Customer Service

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    Beverages accounted for the largest percentage of sales in these stores (77%); this represented a
    change from 10 years earlier, when about half of store revenues had come from sales of whole-bean
    coffees. (See Exhibit 4 for retail sales mix by product type; see Exhibit 5 for a typical menu board and
    price list.)

    Starbucks also sold coffee products through non-company-operated retail channels; these so-called
    “Specialty Operations” accounted for 15% of net revenues. About 27% of these revenues came from
    North American food-service accounts, that is, sales of whole-bean and ground coffees to hotels,
    airlines, restaurants, and the like. Another 18% came from domestic retail store licenses that, in North
    America, were only granted when there was no other way to achieve access to desirable retail space
    (e.g., in airports).

    The remaining 55% of specialty revenues came from a variety of sources, including international
    licensed stores, grocery stores and warehouse clubs (Kraft Foods handled marketing and distribution
    for Starbucks in this channel), and online and mail-order sales. Starbucks also had a joint venture with
    Pepsi-Cola to distribute bottled Frappuccino beverages in North America, as well as a partnership with
    Dreyer’s Grand Ice Cream to develop and distribute a line of premium ice creams.

    Day explained the company’s broad distribution strategy:

    Our philosophy is pretty straightforward—we want to reach customers where they
    work, travel, shop, and dine. In order to do this, we sometimes have to establish
    relationships with third parties that share our values and commitment to quality. This is
    a particularly effective way to reach newcomers with our brand. It’s a lot less intimidating
    to buy Starbucks at a grocery store than it is to walk into one of our coffeehouses for the
    first time. In fact, about 40% of our new coffeehouse customers have already tried the
    Starbucks brand before they walk through our doors. Even something like ice cream has
    become an important trial vehicle for us.

    Starbucks Partners

    All Starbucks employees were called “partners.” The company employed 60,000 partners
    worldwide, about 50,000 in North America. Most were hourly-wage employees (called baristas) who
    worked in Starbucks retail stores. Alling remarked, “From day one, Howard has made clear his belief
    that partner satisfaction leads to customer satisfaction. This belief is part of Howard’s DNA, and
    because it’s been pounded into each and every one of us, it’s become part of our DNA too.”

    The company had a generous policy of giving health insurance and stock options to even the most
    entry-level partners, most of whom were between the ages of 17 and 23. Partly as a result of this,
    Starbucks’ partner satisfaction rate consistently hovered in the 80% to 90% range, well above the
    industry norm, 5 and the company had recently been ranked 47th in the Fortune magazine list of best
    places to work, quite an accomplishment for a company with so many hourly-wage workers.

    In addition, Starbucks had one of the lowest employee turnover rates in the industry—just 70%,
    compared with fast-food industry averages as high as 300%. The rate was even lower for managers,
    and as Alling noted, the company was always looking for ways to bring turnover down further:
    “Whenever we have a problem store, we almost always find either an inexperienced store manager or
    inexperienced baristas. Manager stability is key—it not only decreases partner turnover, but it also

    5 Industrywide, employee satisfaction rates tended to be in the 50% to 60% range. Source: Starbucks, 2000.

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    Starbucks: Delivering Customer Service 504-0

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    5

    enables the store to do a much better job of recognizing regular customers and providing personalized
    service. So our goal is to make the position a lifetime job.”

    To this end, the company encouraged promotion from within its own ranks. About 70% of the
    company’s store managers were ex-baristas, and about 60% of its district managers were ex-store
    managers. In fact, upon being hired, all senior executives had to train and succeed as baristas before
    being allowed to assume their positions in corporate headquarters.

    Delivering on Service
    When a partner was hired to work in one of Starbucks’ North American retail stores, he or she had

    to undergo two types of training. The first type focused on “hard skills” such as learning how to use
    the cash register and learning how to mix drinks. Most Starbucks beverages were handcrafted, and to
    ensure product quality, there was a prespecified process associated with each drink. Making an
    espresso beverage, for example, required seven specific steps.

    The other type of training focused on “soft skills.” Alling explained:

    In our training manual, we explicitly teach partners to connect with customers—to
    enthusiastically welcome them to the store, to establish eye contact, to smile, and to try to
    remember their names and orders if they’re regulars. We also encourage partners to
    create conversations with customers using questions that require more than a yes or no
    answer. So for example, “I noticed you were looking at the menu board—what types of
    beverages do you typically enjoy?” is a good question for a partner to ask.

    Starbucks’ “Just Say Yes” policy empowered partners to provide the best service possible, even if it
    required going beyond company rules. “This means that if a customer spills a drink and asks for a
    refill, we’ll give it to him,” said Day. “Or if a customer doesn’t have cash and wants to pay with a check
    (which we aren’t supposed to accept), then we’ll give her a sample drink for free. The last thing we
    want to do is win the argument and lose the customer.”

    Most barista turnover occurred within the first 90 days of employment; if a barista lasted beyond
    that, there was a high probability that he or she would stay for three years or more. “Our training ends
    up being a self-selection process,” Alling said. Indeed, the ability to balance hard and soft skills
    required a particular type of person, and Alling believed the challenges had only grown over time:

    Back in the days when we sold mostly beans, every customer who walked in the door
    was a coffee connoisseur, and it was easy for baristas to engage in chitchat while ringing
    up a bag. Those days are long gone. Today, almost every customer orders a handcrafted
    beverage. If the line is stretching out the door and everyone’s clamoring for their coffee
    fix, it’s not that easy to strike up a conversation with a customer.

    The complexity of the barista’s job had also increased over time; making a venti tazoberry and crème,
    for instance, required 10 different steps. “It used to be that a barista could make every variation of
    drink we offered in half a day,” Day observed. “Nowadays, given our product proliferation, it would
    take 16 days of eight-hour shifts. There are literally hundreds of combinations of drinks in our
    portfolio.”

    This job complexity was compounded by the fact that almost half of Starbucks’ customers
    customized their drinks. According to Day, this created a tension between product quality and
    customer focus for

    Starbucks:

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    504-016 Starbucks: Delivering Customer Service
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    On the one hand, we train baristas to make beverages to our preestablished quality
    standards—this means enforcing a consistent process that baristas can master. On the
    other hand, if a customer comes in and wants it their way—extra vanilla, for instance—
    what should we do? Our heaviest users are always the most demanding. Of course, every
    time we customize, we slow down the service for everyone else. We also put a lot of strain
    on our baristas, who are already dealing with an extraordinary number of sophisticated
    drinks.

    One obvious solution to the problem was to hire more baristas to share the workload; however, the
    company had been extremely reluctant to do this in recent years, particularly given the economic
    downturn. Labor was already the company’s largest expense item in North America (see Exhibit 3),
    and Starbucks stores tended to be located in urban areas with high wage rates. Instead, the company
    had focused on increasing barista efficiency by removing all non-value-added tasks, simplifying the
    beverage production process, and tinkering with the facility design to eliminate bottlenecks.

    In addition, the company had recently begun installing automated espresso machines in its North
    American cafés. The verismo machines, which decreased the number of steps required to make an
    espresso beverage, reduced waste, improved consistency, and had generated an overwhelmingly
    positive customer and barista response.

    Measuring Service Performance

    Starbucks tracked service performance using a variety of metrics, including monthly status reports
    and self-reported checklists. The company’s most prominent measurement tool was a mystery shopper
    program called the “Customer Snapshot.” Under this program, every store was visited by an
    anonymous mystery shopper three times a quarter. Upon completing the visit, the shopper would rate
    the store on four “Basic Service” criteria:

    • Service—Did the register partner verbally greet the customer? Did the barista and register
    partner make eye contact with the customer? Say thank you?

    • Cleanliness—Was the store clean? The counters? The tables? The restrooms?

    • Product quality—Was the order filled accurately? Was the temperature of the drink within
    range? Was the beverage properly presented?

    • Speed of service—How long did the customer have to wait? The company’s goal was to serve
    a customer within three minutes, from back-of-the-line to drink-in-hand. This benchmark was
    based on market research which indicated that the three-minute standard was a key component
    in how current Starbucks customers defined “excellent service.”

    In addition to Basic Service, stores were also rated on “Legendary Service,” which was defined as
    “behavior that created a memorable experience for a customer, that inspired a customer to return often
    and tell a friend.” Legendary Service scores were based on secret shopper observations of service
    attributes such as partners initiating conversations with customers, partners recognizing customers by
    name or drink order, and partners being responsive to service problems.

    During 2002, the company’s Customer Snapshot scores had increased across all stores (see
    Exhibit 7), leading Day to comment, “The Snapshot is not a perfect measurement tool, but we believe
    it does a good job of measuring trends over the course of a quarter. In order for a store to do well on

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    Starbucks: Delivering Customer Service 504-016

    7

    the Snapshot, it needs to have sustainable processes in place that create a well-established pattern of
    doing things right so that it gets ‘caught’ doing things right.”

    Competition
    In the United States, Starbucks competed against a variety of small-scale specialty coffee chains,

    most of which were regionally concentrated. Each tried to differentiate itself from Starbucks in a
    different way. For example, Minneapolis-based Caribou Coffee, which operated more than 200 stores
    in nine states, differentiated itself on store environment. Rather than offer an upscale, pseudo-
    European atmosphere, its strategy was to simulate the look and feel of an Alaskan lodge, with knotty-
    pine cabinetry, fireplaces, and soft seating. Another example was California-based Peet’s Coffee & Tea,
    which operated about 70 stores in five states. More than 60% of Peet’s revenues came from the sale of
    whole beans. Peet’s strategy was to build a super-premium brand by offering the freshest coffee on
    the market. One of the ways it delivered on this promise was by “roasting to order,” that is, by hand
    roasting small batches of coffee at its California plant and making sure that all of its coffee shipped
    within 24 hours of roasting.

    Starbucks also competed against thousands of independent specialty coffee shops. Some of these
    independent coffee shops offered a wide range of food and beverages, including beer, wine, and liquor;
    others offered satellite televisions or Internet-connected computers. Still others differentiated
    themselves by delivering highly personalized service to an eclectic clientele.

    Finally, Starbucks competed against donut and bagel chains such as Dunkin Donuts, which
    operated over 3,700 stores in 38 states. Dunkin Donuts attributed half of its sales to coffee and in recent
    years had begun offering flavored coffee and noncoffee alternatives, such as Dunkaccino (a coffee and
    chocolate combination available with various toppings) and Vanilla Chai (a combination of tea, vanilla,
    honey, and spices).

    Caffeinating the World
    The company’s overall objective was to establish Starbucks as the “most recognized and respected

    brand in the world.” 6 This ambitious goal required an aggressive growth strategy, and in 2002, the
    two biggest drivers of company growth were retail expansion and product innovation.

    Retail Expansion

    Starbucks already owned close to one-third of America’s coffee bars, more than its next five biggest
    competitors combined. (By comparison, the U.S.’s second-largest player, Diedrich Coffee, operated
    fewer than 400 stores.) However, the company had plans to open 525 company-operated and 225
    licensed North American stores in 2003, and Schultz believed that there was no reason North America
    could not eventually expand to at least 10,000 stores. As he put it, “These are still the early days of the
    company’s growth.” 7

    The company’s optimistic growth plans were based on a number of considerations:

    6 Starbucks 2002 Annual Report.

    7 Dina ElBoghdady, “Pouring It On: The Starbucks Strategy? Locations, Locations, Locations,” The Washington Post, August 25,
    2002.

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    504-016 Starbucks: Delivering Customer Service

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    • First, coffee consumption was on the rise in the United States, following years of decline. More
    than 109 million people (about half of the U.S. population) now drank coffee every day, and an
    additional 52 million drank it on occasion. The market’s biggest growth appeared to be among
    drinkers of specialty coffee,8 and it was estimated that about one-third of all U.S. coffee
    consumption took place outside of the home, in places such as offices, restaurants, and coffee
    shops. (See Exhibit 6.)

    • Second, there were still eight states in the United States without a single company-operated
    Starbucks; in fact, the company was only in 150 of the roughly 300 metropolitan statistical areas
    in the nation.

    • Third, the company believed it was far from reaching saturation levels in many existing
    markets. In the Southeast, for example, there was only one store for every 110,000 people
    (compared with one store for every 20,000 people in the Pacific Northwest). More generally,
    only seven states had more than 100 Starbucks locations.

    Starbucks’ strategy for expanding its retail business was to open stores in new markets while
    geographically clustering stores in existing markets. Although the latter often resulted in significant
    cannibalization, the company believed that this was more than offset by the total incremental sales
    associated with the increased store concentration. As Schultz readily conceded, “We self-cannibalize
    at least a third of our stores every day.”

    9

    When it came to selecting new retail sites, the company considered a number of criteria, including
    the extent to which the demographics of the area matched the profile of the typical Starbucks drinker,
    the level of coffee consumption in the area, the nature and intensity of competition in the local market,
    and the availability of attractive real estate. Once a decision was made to move forward with a site,
    the company was capable of designing, permitting, constructing, and opening a new store within 16
    weeks. A new store typically averaged about $610,000 in sales during its first year; same-store sales
    (comps) were strongest in the first three years and then continued to comp positively, consistent with
    the company average.

    Starbucks’ international expansion plans were equally ambitious. Starbucks already operated over
    300 company-owned stores in the United Kingdom, Australia, and Thailand, in addition to about 900
    licensed stores in various countries in Asia, Europe, the Middle East, Africa, and Latin America. (Its
    largest international market was Japan, with close to 400 stores.) The company’s goal was to ultimately
    have 15,000 international stores.

    Product Innovation

    The second big driver of company growth was product innovation. Internally, this was considered
    one of the most significant factors in comparable store sales growth, particularly since Starbucks’ prices
    had remained relatively stable in recent years. New products were launched on a regular basis; for
    example, Starbucks introduced at least one new hot beverage every holiday season.

    The new product development process generally operated on a 12- to 18-month cycle, during which
    the internal research and development (R&D) team tinkered with product formulations, ran focus

    8 National Coffee Association.

    9 ElBoghdady.

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    Starbucks: Delivering Customer Service 504-016
    9

    groups, and conducted in-store experiments and market tests. Aside from consumer acceptance,
    whether a product made it to market depended on a number of factors, including the extent to which
    the drink fit into the “ergonomic flow” of operations and the speed with which the beverage could be
    handcrafted. Most importantly, the success of a new beverage depended on partner acceptance.
    “We’ve learned that no matter how great a drink it is, if our partners aren’t excited about it, it won’t
    sell,” said Alling.

    In recent years, the company’s most successful innovation had been the 1995 introduction of a coffee
    and non-coffee-based line of Frappuccino beverages, which had driven same-store sales primarily by
    boosting traffic during nonpeak hours. The bottled version of the beverage (distributed by PepsiCo)
    had become a $400 million10 franchise; it had managed to capture 90% of the ready-to-drink coffee
    category, in large part due to its appeal to non-coffee-drinking 20-somethings.

    Service Innovation

    In terms of nonproduct innovation, Starbucks’ stored-value card (SVC) had been launched in
    November 2001. This prepaid, swipeable smart card—which Schultz referred to as “the most
    significant product introduction since Frappuccino” 11—could be used to pay for transactions in any
    company-operated store in North America. Early indications of the SVC’s appeal were very positive:
    After less than one year on the market, about 6 million cards had been issued, and initial activations
    and reloads had already reached $160 million in sales. In surveys, the company had learned that
    cardholders tended to visit Starbucks twice as often as cash customers and tended to experience
    reduced transaction times.

    Day remarked, “We’ve found that a lot of the cards are being given away as gifts, and many of those
    gift recipients are being introduced to our brand for the first time. Not to mention the fact that the
    cards allow us to collect all kinds of customer-transaction data, data that we haven’t even begun to do
    anything with yet.”

    The company’s latest service innovation was its T-Mobile HotSpot wireless Internet service,
    introduced in August 2002. The service offered high-speed access to the Internet in selected Starbucks
    stores in the United States and Europe, starting at $49.99 a month.

    Starbucks’ Market Research: Trouble Brewing?
    Interestingly, although Starbucks was considered one of the world’s most effective marketing

    organizations, it lacked a strategic marketing group. In fact, the company had no chief marketing
    officer, and its marketing department functioned as three separate groups—a market research group
    that gathered and analyzed market data requested by the various business units, a category group that
    developed new products and managed the menu and margins, and a marketing group that developed
    the quarterly promotional plans.

    This organizational structure forced all of Starbucks’ senior executives to assume marketing-related
    responsibilities. As Day pointed out, “Marketing is everywhere at Starbucks—it just doesn’t
    necessarily show up in a line item called ‘marketing.’ Everyone has to get involved in a collaborative
    marketing effort.” However, the organizational structure also meant that market- and customer-

    10 Refers to sales at retail. Actual revenue contribution was much lower due to the joint-venture structure.

    11 Stanley Holmes, “Starbucks’ Card Smarts,” BusinessWeek, March 18, 2002.

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    504-016 Starbucks: Delivering Customer Service

    10

    related trends could sometimes be overlooked. “We tend to be great at measuring things, at collecting
    market data,” Day noted, “but we are not very disciplined when it comes to using this data to drive
    decision making.” She continued:

    This is exactly what started to happen a few years ago. We had evidence coming in
    from market research that contradicted some of the fundamental assumptions we had
    about our brand and our customers. The problem was that this evidence was all over the
    place—no one was really looking at the “big picture.” As a result, it took awhile before
    we started to take notice.

    Starbucks’ Brand Meaning

    Once the team did take notice, it discovered several things. First, despite Starbucks’ overwhelming
    presence and convenience, there was very little image or product differentiation between Starbucks
    and the smaller coffee chains (other than Starbucks’ ubiquity) in the minds of specialty coffeehouse
    customers. There was significant differentiation, however, between Starbucks and the independent
    specialty coffeehouses (see Table A below).

    Table A Qualitative Brand Meaning: Independents vs. Starbucks

    Independents:

    • Social and inclusive
    • Diverse and intellectual
    • Artsy and funky
    • Liberal and free-spirited
    • Lingering encouraged
    • Particularly appealing to younger coffeehouse customers
    • Somewhat intimidating to older, more mainstream coffeehouse customers

    Starbucks:

    • Everywhere—the trend
    • Good coffee on the run
    • Place to meet and move on
    • Convenience oriented; on the way to work
    • Accessible and consistent

    Source: Starbucks, based on qualitative interviews with specialty-coffeehouse customers.

    More generally, the market research team discovered that Starbucks’ brand image had some rough
    edges. The number of respondents who strongly agreed with the statement “Starbucks cares primarily
    about making money” was up from 53% in 2000 to 61% in 2001, while the number of respondents who
    strongly agreed with the statement “Starbucks cares primarily about building more stores” was up
    from 48% to 55%. Day noted, “It’s become apparent that we need to ask ourselves, ‘Are we focusing
    on the right things? Are we clearly communicating our value and values to our customers, instead of
    just our growth plans?’” (see Table B below).

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    Starbucks: Delivering Customer Service 504-016

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    Table B The Top Five Attributes Consumers Associate with the Starbucks Brand

    • Known for specialty/gourmet coffee (54% strongly agree)
    • Widely available (43% strongly agree)
    • Corporate (42% strongly agree)
    • Trendy (41% strongly agree)
    • Always feel welcome at Starbucks (39% strongly agree)

    Source: Starbucks, based on 2002 survey.

    The Changing Customer

    The market research team also discovered that Starbucks’ customer base was evolving. Starbucks’
    newer customers tended to be younger, less well-educated, and in a lower income bracket than
    Starbucks’ more established customers. In addition, they visited the stores less frequently and had
    very different perceptions of the Starbucks brand compared to more established customers (see Exhibit
    8).

    In short, the team learned that Starbucks’ historical customer profile—the affluent, well-educated,
    white-collar female between the ages of 24 and 44—had expanded.

    Customer Behavior

    With respect to customer behavior, the market research team discovered that, regardless of the
    market—urban versus rural, new versus established—customers tended to use the stores the same
    way. The team also learned that, although the company’s most frequent customers averaged 18 visits
    a month, the typical customer visited just five times a month (see Figure A below).

    Figure A Customer Visit Frequency

    Source: Starbucks, 2002.

    42%

    11%

    37%

    27%

    21%

    62%

    0%

    20%

    40%

    60%

    80%

    100%

    % of Total
    Starbucks

    Customer Base

    % of All
    Starbucks

    Transactions

    Customer visits 8+ times/month

    Customer visits 3-7 times/month

    Customer visits 1-2 times/month

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    Measuring and Driving Customer Satisfaction

    Finally, the team discovered that, despite its high Customer Snapshot scores, Starbucks was not
    meeting expectations in terms of customer satisfaction. The satisfaction scores were considered critical
    because the team also had evidence of a direct link between satisfaction level and customer loyalty (see
    Exhibit 9 for customer satisfaction data).

    While customer satisfaction was driven by a number of different factors (see Exhibit 10), Day
    believed that the customer satisfaction gap could primarily be attributed to a 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 (see
    Exhibit 11 for more information).

    Rediscovering the Starbucks Customer
    Responding to the market research findings posed a difficult management challenge. The most

    controversial proposal was the one on the table before Day—it involved relaxing the labor-hour
    controls in the stores to add an additional 20 hours of labor, per week, per store, at a cost of an extra
    $40 million per year. Not surprisingly, the plan was being met with significant internal resistance.
    “Our CFO is understandably concerned about the potential impact on our bottom line,” said Day.
    “Each $6 million in profit contribution translates into a penny a share. But my argument is that if we
    move away from seeing labor as an expense to seeing it as a customer-oriented investment, we’ll see a
    positive return.” She continued:

    We need to bring service time down to the three-minute level in all of our stores,
    regardless of the time of day. If we do this, we’ll not only increase customer satisfaction
    and build stronger long-term relationships with our customers, we’ll also improve our
    customer throughput. The goal is to move each store closer to the $20,000 level in terms
    of weekly sales, and I think that this plan will help us get there.

    In two days, Day was scheduled to make a final recommendation to Howard Schultz and Orin
    Smith about whether the company should roll out the $40 million plan. In preparation for this meeting,
    Day had asked Alling to help her think through the implications of the plan one final time. She mused:

    We’ve been operating with the assumption that we do customer service well. But the
    reality is, we’ve started to lose sight of the consumer. It’s amazing that this could happen
    to a company like us—after all, we’ve become one of the most prominent consumer
    brands in the world. For all of our focus on building the brand and introducing new
    products, we’ve simply stopped talking about the customer. We’ve lost the connection
    between satisfying our customers and growing the business.

    Alling’s response was simple: “We know that both Howard and Orin are totally committed to
    satisfying our retail customers. Our challenge is to tie customer satisfaction to the bottom line. What
    evidence do we have?”

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    Exhibit 1 Starbucks’ Financials, FY 1998 to FY 2002 ($ in millions)

    FY 1998 FY 1999 FY 2000 FY 2001 FY 2002

    Revenue
    Co-Owned North American 1,076.8 1,375.0 1,734.9 2,086.4 2,583.8
    Co-Owned Int’l (UK, Thailand, Australia) 25.8 48.4 88.7 143.2 209.1
    Total Company-Operated Retail 1,102.6 1,423.4 1,823.6 2,229.6 2,792.9
    Specialty Operations 206.1 263.4 354.0 419.4 496.0
    Net Revenues 1,308.7 1,686.8 2,177.6 2,649.0 3,288.9
    Cost of Goods Sold 578.5 747.6 961.9 1,112.8 1,350.0
    Gross Profit 730.2 939.2 1,215.7 1,536.2 1,938.9
    Joint-Venture Incomea 1.0 3.2 20.3 28.6 35.8
    Expenses:
    Store Operating Expense 418.5 543.6 704.9 875.5 1,121.1
    Other Operating Expense 44.5 54.6 78.4 93.3 127.2
    Depreciation & Amortization Expense 72.5 97.8 130.2 163.5 205.6
    General & Admin Expense 77.6 89.7 110.2 151.4 202.1
    Operating Expenses 613.1 785.7 1,023.8 1,283.7 1,656.0
    Operating Profit 109.2 156.7 212.3 281.1 310.0
    Net Income 68.4 101.7 94.5 181.2 215.1

    % Change in Monthly Comparable Store Salesb
    North America 5% 6% 9% 5% 7%
    Consolidated 5% 6% 9% 5% 6%

    Source: Adapted from company reports and Lehman Brothers, November 5, 2002.

    aIncludes income from various joint ventures, including Starbucks’ partnership with the Pepsi-Cola Company to develop and
    distribute Frappuccino and with Dreyer’s Grand Ice Cream to develop and distribute premium ice creams.

    bIncludes only company-operated stores open 13 months or longer.

    Exhibit 2 Starbucks’ Store Growth

    FY 1998 FY 1999 FY 2000 FY 2001 FY 2002

    Total North America 1,755 2,217 2,976 3,780 4,574
    Company-Operated 1,622 2,038 2,446 2,971 3,496
    Licensed Storesa 133 179 530 809 1,078

    Total International 131 281 525 929 1,312
    Company-Operated 66 97 173 295 384
    Licensed Stores 65 184 352 634 928

    Total Stores 1,886 2,498 3,501 4,709 5,886

    Source: Company reports.

    aIncludes kiosks located in grocery stores, bookstores, hotels, airports, and so on.

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    Exhibit 3 Additional Data, North American Company-Operated Stores (FY2002)

    Average

    Average hourly rate with shift supervisors and hourly partners $ 9.00
    Total labor hours per week, average store 360
    Average weekly store volume $15,400
    Average ticket $ 3.85
    Average daily customer count, per store 570

    Source: Company reports.

    Exhibit 4 Product Mix, North American Company-Operated Stores (FY2002)

    Percent of Sales

    Retail Product Mix
    Coffee Beverages 77%
    Food Items 13%
    Whole-Bean Coffees 6%
    Equipment & Accessories 4%

    Source: Company reports.

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    Exhibit 5 Typical Menu Board and Price List for North American Company-Owned Store

    Espresso Traditions Tall Grande Venti Brewed Coffee Tall Grande Venti
    Classic Favorites Coffee of the Day 1.40 1.60 1.70
    Toffee Nut Latte 2.95 3.50 3.80 Decaf of the Day 1.40 1.60 1.70
    Vanilla Latte 2.85 3.40 3.70
    Caffe Latte 2.55 3.10 3.40 Cold Beverages Tall Grande Venti
    Cappuccino 2.55 3.10 3.40 Iced Caffe Latte 2.55 3.10 3.50
    Caramel Macchiato 2.80 3.40 3.65 Iced Caramel Macchiato 2.80 3.40 3.80
    White Chocolate Mocha 3.20 3.75 4.00 Iced Caffe Americano 1.75 2.05 3.40
    Caffe Mocha 2.75 3.30 3.55
    Caffe Americano 1.75 2.05 2.40 Coffee Alternatives Tall Grande Venti
    Toffee Nut Crème 2.45 2.70 2.95
    Espresso Solo Doppio Vanilla Crème 2.20 2.45 2.70
    Espresso 1.45 1.75 Caramel Apple Cider 2.45 2.70 2.95
    Hot Chocolate 2.20 2.45 2.70
    Extras Tazo Hot Tea 1.15 1.65 1.65
    Additional Espresso Shot .55 Tazo Chai 2.70 3.10 3.35
    Add flavored syrup .30

    Organic milk & soy available upon request Whole Beans: Bold ½ lb 1 lb
    Our most intriguing and exotic coffees
    Gold Coast Blend 5.70 10.95
    French Roast 5.20 9.95
    Sumatra 5.30 10.15
    Decaf Sumatra 5.60 10.65
    Ethiopia Sidame 5.20 9.95
    Arabian Mocha Sanani 8.30 15.95
    Frappuccino Tall Grande Venti Kenya 5.30 10.15
    Ice Blended Beverages Italian Roast 5.20 9.95
    Coffee 2.65 3.15 3.65 Sulawesi 6.10 11.65
    Mocha 2.90 3.40 3.90
    Caramel Frappuccino 3.15 3.65 4.15 Whole Beans: Smooth ½ lb 1 lb
    Mocha Coconut 3.15 3.65 4.15 Richer, more flavorful coffees
    (limited offering) Espresso Roast 5.20 9.95
    Decaf Espresso Roast 5.60 10.65
    Crème Frappuccino Tall Grande Venti Yukon Blend 5.20 9.95
    Ice Blended Crème Café Verona 5.20 9.95
    Toffee Nut Crème 3.15 3.65 4.15 Guatemala Antigua 5.30 10.15
    Vanilla Crème 2.65 3.15 3.65 Arabian Mocha Java 6.30 11.95
    Coconut Crème 3.15 3.65 4.15 Decaf Mocha Java/SWP 6.50 12.45

    Tazo Tea Frappuccino Tall Grande Venti Whole Beans: Mild ½ lb 1 lb
    Ice Blended Teas The perfect introduction to Starbucks coffees
    Tazo Citrus 2.90 3.40 3.90 Breakfast Blend 5.20 9.95
    Tazoberry 2.90 3.40 3.90 Lightnote Blend 5.20 9.95
    Tazo Chai Crème 3.15 3.65 4.15 Decaf Lightnote Blend 5.60 10.65
    Colombia Narino 5.50 10.45
    House Blend 5.20 9.95
    Decaf House Blend 5.60 10.65
    Fair Trade Coffee 5.95 11.45

    Source: Starbucks location: Harvard Square, Cambridge, Massachusetts, February 2003.

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    504-016 Starbucks: Delivering Customer Service
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    Exhibit 6 Total U.S. Retail Coffee Market (includes both in-home and out-of-home consumption)

    Other estimatesa for the U.S. retail coffee market in 2002:

    • In the home, specialty coffeeb was estimated to be a $3.2 billion business, of which Starbucks
    was estimated to have a 4% share.

    • In the food-service channel, specialty coffee was estimated to be a $5 billion business, of which
    Starbucks was estimated to have a 5% share.

    • In grocery stores, Starbucks was estimated to have a 7.3% share in the ground-coffee category
    and a 21.7% share in the whole-beans category.

    • It was estimated that over the next several years, the overall retail market would grow less than
    1% per annum, but growth in the specialty-coffee category would be strong, with compound
    annual growth rate (CAGR) of 9% to 10%.

    • Starbucks’ U.S. business was projected to grow at a CAGR of approximately 20% top-line
    revenue growth.

    Source: Adapted from company reports and Lehman Brothers, November 5, 2002.

    aThe value of the retail coffee market was difficult to estimate given the highly fragmented and loosely monitored nature of the
    market (i.e., specialty coffeehouses, restaurants, delis, kiosks, street carts, grocery and convenience stores, vending machines,
    etc.).

    bSpecialty coffee includes espresso, cappuccino, latte, café mocha, iced/ice-blended coffee, gourmet coffee (premium whole bean
    or ground), and blended coffee.

    Specialty
    Coffee
    27%

    Traditiona
    l Coffee

    73%

    2000 – $21 billion

    Specialty
    Coffee
    31%

    Tradition
    al Coffee

    69%

    2002E – $21.5 billion

    Specialty
    Coffee
    41%

    Tradition
    al Coffee

    59%

    2005E – $22 billion

    v) Starbuc
    ks Share

    i) Starbuc
    ks Share

    iii) Starbuc
    ks Share

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    Exhibit 7 Customer Snapshot Scores (North American stores)

    Source: Company information.

    90

    91

    92

    93

    94

    95

    Q3 01

    Q4 01 Q1 02 Q2 02 Q3 02

    Service

    89

    90
    91
    92
    93
    94
    Q3 01 Q4 01 Q1 02 Q2 02 Q3 02

    Cleanliness

    90
    91
    92
    93
    94
    95
    Q3 01 Q4 01 Q1 02 Q2 02 Q3 02

    Product Quality

    3.00

    3.20

    3.40

    3.60

    3.80

    4.00

    Q3 01 Q4 01 Q1 02 Q2 02 Q3 02

    Average Wait Time
    (in minutes.seconds)

    0%
    20%
    40%
    60%
    80%
    100%
    Q4 01 Q1 02 Q2 02 Q3 02

    Legendary Service Scores

    1 or 2 star 3 star 4 star 5 star

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    Exhibit 8 Starbucks’ Customer Retention Information

    % of Starbucks’ customers who first started visiting Starbucks . . .

    In the past year 27%
    1–2 years ago 20%
    2–5 years ago 30%
    5 or more years ago 23%

    Source: Starbucks, 2002. Based on a sample of Starbucks’ 2002 customer base.

    New Customers
    (first visited
    in past year)

    Established Customers
    (first visited
    5+ years ago)

    Percent female 45% 49%
    Average Age 36 40
    Percent with College Degree + 37% 63%
    Average income $65,000 $81,000
    Average # cups of coffee/week
    (includes at home and away from home) 15

    19

    Attitudes toward Starbucks:
    High-quality brand 34% 51%
    Brand I trust 30% 50%
    For someone like me 15% 40%
    Worth paying more for 8% 32%
    Known for specialty coffee 44% 60%
    Known as the coffee expert 31% 45%
    Best-tasting coffee 20% 31%
    Highest-quality coffee 26% 41%
    Overall opinion of Starbucks 25% 44%

    Source: Starbucks, 2002. “Attitudes toward Starbucks” measured according to the percent of customers who agreed with the
    above statements.

    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

    Source: Self-reported customer activity from Starbucks survey, 2002.

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    Starbucks: Delivering Customer Service 504-016
    19

    Exhibit 10 Importance Rankings of Key Attributes in Creating Customer Satisfaction

    To be read: 83% of Starbucks’ customers rate a clean store as being highly important (90+ on a 100-point
    scale) in creating customer satisfaction.

    Source: Self-reported customer activity from Starbucks survey, 2002.

    5%

    13%

    16%

    17%

    17%
    20%

    30%

    34%

    37%

    39%

    50%

    60%
    60%

    65%

    65%

    67%

    72%

    73%

    75%

    77%

    83%

    0% 20% 40% 60% 80% 100%

    Selection of merchandise

    New, innovative beverages

    Selection of whole beans

    Selection of noncoffee beverages

    Highest-quality pastry, desserts

    Highest-quality tea

    Involved in the community

    Best ice-blended drinks

    Place to relax, meet friends

    Knowledgeable staff

    Pleasant atmosphere/ambience

    Best espresso drinks

    Freshest coffee

    Appropriate prices

    Fast service

    Highest-quality coffee

    Coffee taste/flavor

    Friendly staff

    Treated as a valuable customer

    Convenient

    Clean store

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    504-016 Starbucks: Delivering Customer Service

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    Exhibit 11 Factors Driving “Valued Customer” Perceptions

    How could Starbucks make you feel more like a valued customer? % Responses

    Improvements to Service (total) 34%
    Friendlier, more attentive staff 19%
    Faster, more efficient service 10%
    Personal treatment (remember my name, remember my order) 4%
    More knowledgeable staff 4%
    Better service 2%

    Offer Better Prices/Incentive Programs (total) 31%
    Free cup after x number of visits 19%
    Reduce prices 11%
    Offer promotions, specials 3%

    Other (total) 21%
    Better quality/Variety of products 9%
    Improve atmosphere 8%
    Community outreach/Charity 2%
    More stores/More convenient locations 2%

    Don’t Know/Already Satisfied 28%

    Source: Starbucks, 2002. Based on a survey of Starbucks’ 2002 customer base, including highly satisfied,
    satisfied, and unsatisfied customers.

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      Starbucks: Delivering Customer Service
      Company Background
      The Starbucks Value Proposition
      Channels of Distribution
      Starbucks Partners
      Delivering on Service
      Measuring Service Performance
      Competition
      Caffeinating the World
      Retail Expansion
      Product Innovation
      Service Innovation
      Starbucks’ Market Research: Trouble Brewing?
      Starbucks’ Brand Meaning
      Table AQualitative Brand Meaning: Independents vs. Starbucks
      Table BThe Top Five Attributes Consumers Associate with the Starbucks Brand
      The Changing Customer
      Customer Behavior
      Figure ACustomer Visit Frequency
      Measuring and Driving Customer Satisfaction
      Rediscovering the Starbucks Customer
      Exhibit 1Starbucks’ Financials, FY 1998 to FY 2002 ($ in millions)
      Exhibit 2Starbucks’ Store Growth
      Exhibit 3 Additional Data, North American Company-Operated Stores (FY2002)
      Exhibit 4 Product Mix, North American Company-Operated Stores (FY2002)
      Exhibit 5Typical Menu Board and Price List for North American Company-Owned Store
      Exhibit 6Total U.S. Retail Coffee Market (includes both in-home and out-of-home consumption)
      Exhibit 7Customer Snapshot Scores (North American stores)
      Exhibit 8Starbucks’ Customer Retention Information
      Exhibit 9Starbucks’ Customer Behavior, by Satisfaction Level
      Exhibit 10Importance Rankings of Key Attributes in Creating Customer Satisfaction
      To be read: 83% of Starbucks’ customers rate a clean store as being highly important (90+ on a 100-point scale) in creating customer satisfaction.
      Exhibit 11Factors Driving “Valued Customer” Perceptions

    • i) Starbucks Share of Specialty Coffee Market
    • ii) 42% (estimate)
    • iii) Starbucks Share of Specialty Coffee Market
    • iv) 50% (estimate)
    • v) Starbucks Share of Specialty Coffee Market
    • vi) 38%

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