 In late 2002, as per vice president a star buck was enjoying its 11 th consecutive year

of 5% or higher comparable store sales growth.

 Vice president was demonstrated that star bucks close to a recession-proof product.
 Starbucks have always taken great pride in their retail service.
 But always not meeting customers’ expectations in the area of customer satisfaction.
 To improve speed-of-service and thereby increase customer satisfaction, ready to
open 4500 stores worth of $40 million.
 An expectation of the investment is the EPS [earnings per share] equivalent of
almost seven cents a share.
 But management worries about, do their customers are telling them about what
constitutes excellent‘customer service? And if they deliver it, what will the impact be
on their sales and profitability?
 By 1992, the company had 140 such stores in the Northwest and Chicago and was
fruitfully competing against other small-scale coffee chains such as Gloria Jean‘s
Coffee Bean and Barnie‘s Coffee & Tea.
 The star bucks value propositions: to create an experience around the consumption
of the coffee, an experience that people would weave into their lives to create an
elevating experience in customer familiarity. To create an ambiance based on human
spirit, sense of community, and the need for people to come together.
 Star bucks growth in sales but
o Customer dissatisfaction
 Poor service in speed
o personalized drinks
 Slow down the service process
 Strain on works
o Competition
 A verity of regionally worried small scale field coffee, begal and donut
chains
 Sales had climbed at a compound annual growth rate (CAGR) of 40% since the
company had gone public, and net earnings had increased at a CAGR of 50%. The
star bucks was now serving 20 million exclusive customers in well over 5,000 stores
around the globe and was opening on average three new stores a day.

Strategy with starbucks is

Proceed with investing the $40 million annually in the 4,500 stores to increase
service efficiency (impacting customer satisfaction. Goal ~ customer retention in the
competitive coffee house market)
 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.
  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 flavoured coffee and non
coffee alternatives, such as Dunkaccino and Vanilla Chai.

Product Innovation

 The new product development operated on a 12- to 18-month cycle, team tinkered
with product formulations, ran focus groups, and conducted in-store experiments
and market tests. 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.

Service Innovation

 The company‘s latest service innovation was its T-Mobile Hot Spot wireless Internet
service, introduced in August 2002. The service accessible high-speed access to the
Internet in certain Starbucks stores in the United States and Europe, starting at
$49.99 a month.
 This organizational structure forced all of Starbucks‘senior executives to take for
granted marketing- related responsibilities.

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.
 Don't try to compress every last cent out of a customer.
 Don't agree to conventional price ceilings.
 Starbucks is a master at recombinant cultural marketing.
Service Improvements 34%

Friendlier 19%
Faster 10%
Price Incentives 31%
Free cup x visits
Reduce Price
Other Total 21%
Don’t know already satisfied 28%
Context: Starbucks was continuously investing in innovative product, improvement
to drive sales and growth .The financial numbers replicate this growth (Exhibit 1
from Starbucks case document). But latest market research shows that customer
service, on which Starbucks prided itself, was perceived as unsatisfactory. Customers
viewed Starbucks as a corporate giant focused on making money and growing in size.
It showed that Starbucks’s strategy of using customer snapshot scores to measure
service performance was proving ineffective.