Starbucks as an Important Coffee Chain of North America - Case Study Example

Literature Review‏ and Starbucks Case Study Starbucks is an important coffee chain of North America. It has chains all over the world and bears a good reputation for its services and brand name. In the recent past a survey of the market shows that there are issues concerning the service area. Starbucks operates across the world in around 44 countries. There are 1796 stores operated by Starbucks and other 2792 joint ventures or in other words, licensed shops. (Company Fact Sheet) The mission is to put people before product (in terms of quality and quantity). Here comes the role of servicing the customers. This determines the basic principle of Starbucks whose objectives include customer values, employees and suppliers. The company has come across certain issues concerning its services marketing system and levels of customer satisfaction. The coffee shops of Starbucks face crucial issues like customization of specific drinks by the customers. One of the important motives of the company is satisfaction of customers, but customization consumes time unnecessarily and reduces the scope and speed of serving other customers. Increasing the number of employees working at hourly wage is one solution but the economic downturn that has taken place recently has reduced this possibility of hiring new people as well. Apart from North America the country has its wings across the metropolitans. Around one store every 20000 people are present in Pacific Northwest zone and there is one shop for every 110000 people in the Southeast region. Product differentiation is also very less in this company compared to the other coffee stores. It was supposed to be interested in making more profit with little investment and thus neglected customer servicing. The standard of customer satisfaction were deteriorating with respect to the pace of service. (Moon, Youngme and Quelch, 8) The issues point out that Starbucks has been going through problems related customer satisfaction and services. This is however shocking for a company that places customer valuation as its foremost objective. It had achieved a major success with its products without much investment in advertising. Although previously it mainly catered to a limited number of affluent customers, presently it caters to a wide variety of people coming from different age groups, ethnic, social and economic background. However, complaints against its sluggish services and limited product differentiation and highly skewed nature of its stores across the world have come up. Moreover, the company does not have a strategic marketing group. In fact it lacked a chief marketing officer. Instead it had an organizational structure that made all the senior executives of the company to take the responsibilities related to marketing. This structure also brings in problems related to ignoring market and customer associated trends. (Moon, Youngme and John Quelch) Starbucks face a problem in delivering fast services in its crowded stores because of customer’s customization. Customers often have a tendency to ask for some extra ingredients in their selected drinks and hence prolong the time taken by the baristas to serve the customers. This is a chain effect where holding up one customer would mean keeping the rest also waiting. This introduces inefficiency in the service system. Moreover, Starbucks has a rule of serving customers within three minutes of order, which counts from the placing of the order till the serving at the table. The customization poses a lot of problem on the efficiencies of the baristas and also the image of the company. In Starbucks, the hourly wage store operators are known as baristas. They are trained well and show high efficiency in their work. However, customer customization reduces the speed of services. One solution to the problem is increasing the number of baristas per store. Yet, Starbucks does not seem to be inclined to go for this option owing to the adversities arising from the recent economic meltdown. (Frankel; Moon, Youngme and Quelch) From 1990, there has been a steady increase in the number of competitors in this industry. The industry fits well in the food and beverages industry, which is the largest part of disposable income. The aspiring entrants in this market were many and they were egged on by the success of Starbucks. The competitors were opening up stores in all parts of the country. Moreover, the suppliers of Starbucks were big global players and their bargaining power was very strong as opposed to the smaller players who were preferred by the rivals. There is high chance of increasing this power when unique and differentiated products are supplied to the company (Peng, 41). This industry underlines the fact that the main theme of growth is expanding. Expansion means opening up of new stores in virgin localities to tap the customer base. To open up a new store the company incurs a heavy expenditure on the set up of the store. In addition to this, there is a running cost and the labor cost for each store that has to be taken care of. The annual expense of Starbucks in this regard with its vast array of stores is huge and this pressurizes the budget of the company. A partnership is formed between Starbucks and Conservation International in order to encourage production of coffee in an environment friendly manner such that the supplier bargaining power problem may be resolved to some extent. The method applied by the company to market its product is “continued application of our values inside of everything we do, from a marketing standpoint, from a product development standpoint, who we hire, how we hire, how we treat our people.” (Austin and Reficco, 5) Another issue that was found out about Starbucks was that the company had very little product differentiation. Although it had numerous stores with new ones opening up frequently, yet according to the specialty coffee house customers, it did not have a very huge image or extensive product differentiation with respect to other smaller coffee chains. However, Starbucks has a distinct line of differentiation with respect to independent specialty coffee houses. These were considered as rough facets of the company’s brand and image. Allegations regarding its objectives come forth. Starbucks was alleged of creation of wealth as its foremost objective. It was more interested in opening stores than in valuing customers. The present shows that customer satisfaction and customer service together are deteriorating and immediate steps to improve them were necessary. Taking into account the customers changing taste and the change in the customer base were equally necessary. Its market reviews showed that Starbucks was not up to the mark with respect to the expectations of customers and customer satisfaction. This is a vital point because customer satisfaction is positively correlated with customer loyalty. The main reason for this dissatisfaction lies in the gap in services between the company’s score on chief attributes and the expectations of customers. When asked through Starbucks polling of customers the majority answered that improvement in services mainly, the speed of service was very much necessary. The problem is that Starbucks measurement of the level of customer satisfaction does not fall under the CSI category, it mainly measures parameters that relate to the quality of the product and not to the quality of the service. (Ballal, Kothawade & Iyer) The first essential step for service marketing of Starbucks is charging a reasonable price. If it is too low then there will be a crisis of coffee, which in turn is going to negatively affect the company’s business. Again with a high price the product will not find much market. Advertising is the second important step for marketing the business and drawing customers. This should cover all forms of media. Third, it is necessary to conduct a survey among customers in order to trace their likes and dislikes or tastes and preferences about the kinds of products. Comments of customers regarding the service of the company should be considered. This will help the company improve its service towards customers. This aspect is the most important consideration of Starbucks. Customers should be treated properly and in the right manner such that they might return back to the same company – “You want the customer to know that you care about them and you want to give them the newest technologies available; such as wireless hubs in most Starbucks coffee shops” (Dalley, McCurry, Koroch, and Heeres). Therefore, the food and beverages industry is the sector where large portions of expenditure of disposable income are made. The coffee industry falls in this category and Starbucks is the largest coffee chain in the world. The chain has faced serious problems in the recent past over their quality and time management. However, with proper care it can address and rectify the problems. The service area should be the first priority of the company and all the employees should be trained to realize the importance of customer service. Customers should be received warmly and more staffs could help in improving the speed of service. The company has already taken important measures in this direction for instance, installation of automated machines at the coffee stores. Works Cited 1. Austin, James and Ezequeil, Reficco, (3rd March,2009).Corporate social entrepreneurship. Harvard Business School, Available at: http://www.hbs.edu/research/pdf/09-101.pdf (accessed on February 24, 2010) 2. Ballal, Manish, Kothawade, Niraj & Iyer, Sairam, Slideshare. Available at: http://www.slideshare.net/Spartanski/starbucks-case-analysis (accessed on February 24, 2010) 3. Company Fact Sheet, Starbucks Coffee Company, 2008.available at: http://www.starbucks.com/aboutus/Company_Factsheet.PDF (accessed on February 24, 2010) 4. Dalley, Candace, McCurry, Tom, Koroch, Justin and Christopher Heeres, Systems / Information Systems, available at: http://homepages.wmich.edu/~c4heeres/Project3bus270.htm (accessed on February 24, 2010) 5. Frankel, Alex. Confessions of a Starbucks Barista. Brown Alumni Magazine. September/October 2007. Available at: http://www.brownalumnimagazine.com/content/view/1462/40/ (accessed on February 24, 2010) 6. Moon, Youngme and John Quelch, Starbucks: Delivering Customer Service, Harvard Business School, July 10, 2006 7. Peng Mike W. Global Strategy, KY: Cengage Learning, 2008 Read More