Coffee and Starbucks

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1. What factors accounted for Starbucks’ extraordinary success in the early 1990’s? What was so compelling about the Starbucks’ value proposition? What brand image did Starbucks develop during this period? Is the value proposition still valid in 2002?

The extraordinary success Starbucks experienced during the early 1990s resulted from Howard Schultz’s passion and vision to create a coffee culture in the United States similar to the coffee culture he experienced while traveling to Italy. Schultz’s vision of the Starbucks brand evolved around providing a quality product while delivering exceptional customer service in an inviting atmosphere. Starbucks’ success can be attributable to the following factors: * Quality Coffee: Starbucks was able to provide the highest quality product by controlling as much of its supply and distribution channels as it could. The company enforced exacting coffee standards and worked directly with the various growers. This allowed them to purchase the green coffee beans and roast them based on the Starbucks’ specifications. * Customer Service: According to Jim Alling, Starbucks’ senior vice president of North America retail, Starbucks’ goal was to create an uplifting experience every time a customer walked through their door. To accomplish this the company encouraged its partners to develop customer intimacy which included making eye contact with the customer while smiling and engaging the customer in conversation, learning the customer’s name especially regular customers and adhering to the company’s “Just Say Yes” policy which required partners to go beyond company rules to satisfy customers. * Atmosphere: Starbucks created an atmosphere that changed the perception of a coffeehouse as a place to just buy coffee. Instead Starbucks strived to create a coffee culture in the US that became a part of everyday life. Starbuck created an ambience in each store that was inviting and encourage customers to linger and socialize. Schultz’s vision was to make Starbucks that “third place” for Americans outside of home and work where they were free to relax and interact with others. * Partners Satisfaction: Employee happiness was a major component of Starbucks’ strategy because upper management truly believed that happy employees resulted in higher customer satisfaction. As a result of this philosophy, Starbucks’ employees were paid above industry standard wages and received health insurance benefits and stock options via the company. Additionally Starbucks encouraged promoting from within the company.

Starbucks’ value proposition was compelling because it placed a lot of emphasis on customer satisfaction and delivering exceptional customer service about everything else. This is noted by the company’s “Just Say Yes” policy which encourages employees or partners to ensure customers have an unforgettable experience every time they frequent the stores. Starbucks’ value proposition does not focus on the coffee but rather on the experience of drinking coffee.

During this period Starbucks developed its name as a brand associated with delivering superior customer service and creating an inviting environment which focused on the experience of drinking coffee. No the Starbucks original value proposition is not valid in 2002. According to the case, Starbucks focus shifted to building the brand and introducing new products instead of focusing on the customer.

2. Day states, “according to the data, we’re not always meeting our customers’ expectations in the area of customer satisfaction.” Why have Starbucks satisfaction measures declined? Has the company’s service declined or are they measuring satisfaction the wrong way?

Starbucks satisfaction measures have declined because management was not utilizing the data collected to drive decision making. Between 1998 and 2002 Starbucks experienced significant growth as shown in Exhibit 2 of the case. With this growth Starbucks lost sight...
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