Starbucks Historical Background
Howard Schultz was among the founders of Starbucks. He transformed the entire community into an upscale cultural phenomenon by introducing a legendary product. At Seattle Pike Place, Gerald Baldwin, Gordon Bowker and Zier Siegl were among the pioneers who opened a small coffee shop by 1971. It specialized in selling Arabica beans which was a niche market by then.
When Schultz joined the marketing team in 1982, his trip to Italy (Milan) opened an insight into a coffee culture. Schultz convinced the company to introduce an Espresso bar in the market which became a prototype of his vision. He envisaged creation of a chain of coffee houses that would become third place for Americans after home and work. It would be a place to relax, enjoy and separate work from home (Youngme & John, 2003).
Schultz’s idea materialized when the founders agreed to sell him the company. He immediately opened new stores which sold beans and premium priced coffee beverages targeting the affluent, well educated and white collar patrons between all ages (25-44). By 1940, the company had raised 140 stores in North West and Chicago. It had begun to compete with other small coffee chains like Gloria’s Jean Coffee Bean and Barnies’s coffee and Tea.
Schultz’s versatility surprised skeptics when Starbucks was listed on Wall Street. The public offered him $ 25 million. Starbucks grew by 40% and increased net earnings by 50%. The company now serves over 20 million unique customers in over 5000 stores around the globe. Schwaltz has been able to maintain his role at the global level as chairman and chief global strategist. He handed over as CEO in 2002 to Orin Smith, a Harvard MBA graduate who joined the company in 1990 (Jake, 2002).
Starbucks brand strategy involved control of coffee standards across all its chains, control the custom roasting process and control the distribution of products to retail stores across the globe. In addition, customer service intimacy and an atmosphere of ambience were brands that attracted people to come for coffee (Youngme & John, 2003).
Starbucks Company operated its own distribution channels located in busy traffic and visibility settings. Some of the common brands included brewed coffees, espresso drinks with Italian inclination, beverage blends and premium teas.
In essence beverages accounted for 77% of sales, North American food service accounted for 27%, and specialty novelties stood at 15%. 18% of the sales emanated from domestic retail stores. 55% of specialty revenues came from licensed stores, grocery stores, warehouse stores, online and email order sales. The company’s central objective was to access to clients from their own settings (Dina, 2002).
Quality service delivery resonated with human resource policies. At Starbuck, strategies pursued motivated over 60000 employees for service delivery. The lowest level of entry was barista; hourly wage employees. It provided an attractive health insurance package for those aged 17-23 years.
The customer satisfaction rate was 80-90%. Fortunate magazine ranked the company 47th as best place to work. Social mobility was evident as 70% of the managers had risen from baristas and 60% were ex-store managers. They underwent training, succeeded baristas before moving to other positions (Starbucks, 2002).
Retail partners underwent trainings on hard and soft skills. Hard skills included learning how to use cash drinks and mixed drinks. Soft trainings focused on welcoming customers, eye contact while serving, smiling, remembering their names or orders. There were challenges where customizing of dinks to customer needs created strains on quality and customer service (HSBP).
This was tackled through training baristas to make quality products, through a consistent production process, hiring of more baristas, removing non-value-added tasks, and simplifying beverage production process. The company had begun to install automated expresso and verismo machines that reduced number of steps required to make an expresso beverage (service Marketing). Customers evaluated performance through metrics, monthly status reports and self reported checklists (Dina, 2002).
Starbucks as a Modern Organization
Starbucks forces of organization such as workforce, technology and markets have turned diverse, electronic and global as opposed to local, homogeneous and mechanic. Its values transformed from stability and efficiency to change and flexibility (Ray, 1986).
Jaffe argues that bureaucratic organizations are based on three basic principles that include formalization (in form of procedures and policies), instrumentalism and formalization (Jaffe, 2001). Starbucks can be identified as one such organization.
George Ritzers’ conception in what he calls McDonalization captures Starbucks’ operations such the fast food industry operating under efficiency, predictability, control and calculability (Ritzer, 1993). The logic of modern organizations is segmentation into smaller responsibilities or parts for accomplishing tasks (Heydebrand, 1989).
Research Design and Methodology
Shuttleworth Martyn (2008) suggests that a survey research design is an indispensable tool when assessing opinions and trends. Since the proposed quota survey ascertained perceptions of Starbucks Holding company chain stores, it became the most appropriate method for the study.
The quota sample to developed came from a list of all employees and customers who had gone through the company for a period of three years. The researcher utilized systematic sampling technique in which a sample was chosen by selecting a random starting point and then picking every 5th household around the chain stores.
The sample interval was determined from the universe of 200000 thousand people. Mehdi Nassipur (2004) argues when a sample is too small, generalizability of the findings becomes difficult. When it is too small it becomes meaningless when analyzed. Besides, when the resources and time are limited a smaller sample becomes justified.
The desired sample was 1500. The sample interval was 133. That means every 133th household had a likelihood of selection. The population resided in a geographically ordered area where potential lived alongside each other. The sample was distributed according to population per region. A triangulation of sampling quota and systematic techniques were utilized as follows. The orderly nature of geographical distribution increased representativeness.
The survey design utilized control categories to obtain a representative sample from the main list. The survey considered control categories. There were six categories which had a larger percentage for males. The decision was arrived at because women were fewer than men.
The higher percentage of males increased their likelihood of selection. Age categories relied on more frequent customer data for the last three years. The larger percentage of 31-35 was necessary to share experiences of those who have been in the job market based on the old training program. Other categories included income levels based on employment or unemployment. The last category was educational levels assessed based on secondary, tertiary or college levels.
Source: HSBP
The survey adopted qualitative and quantitative techniques. Cross sectional survey design ensured validity was achieved. Semi structured questionnaires were used for qualitative methods while strict and closed ended ones targeted quantitative methods. Survey techniques used in the study relied on focus group discussions and in depth interviews. Analysis of results utilized the SPSS software version 18 to summarize frequencies. The qualitative data utilized content analysis.
Starbucks Research Findings
The study endeavored to gauge customer perceptions and rating of the performance of the company indicated mixed reactions. Most of the respondents believed Starbucks had the cleanest stores (83%). 77% of them felt it was convenient for them. 75% felt it was available to customers. 73% thought that the staff were friendly to its customers.
A further 72% liked their coffee flavored brand while 67% felt they had highest quality coffee and fast service. Likewise, 65% felt they had appropriate prices. 60% liked their fresh coffee and best expresso drinks. 65% were attracted to Starbucks due to the pleasant ambience. 39% perceived the knowledge of the staff as important and contributed to better service.
Besides, 37% liked the convenience it created by allowing people to meet in one place for meeting friends. Their best blended ice drinks attracted 34% of the customers to the company. 30% liked their involvement with community projects as a social responsibility. 20% rated their tea as highest quality product. 17% liked their pastry, 16% liked a selection of whole beans and their new innovative beverages (13%).
The results corroborated with sales performance from 2000 to 2005. In 2000, the traditional coffee market share was represented by 75% of total sales. The specialty coffee sales formed 27% which totaled $ 21 billion. The year 2002 improved further to $21.5 billion sales with traditional coffee market dropping slightly to 69% while the coffee specialty improved to 37% of the sales.
In 2005, the company registered $ 22 billion sales with traditional coffee market improving to 59% share and coffee specialty improving to 41% market share.
A study of customer retention showed that customers who first started visiting Starbucks in the past one year were 27% of those interviewed. Those who visited in 1-2 years were represented by 20%. 30% had visited for 2-5 years ago while 23% had visited for 5 or more years.
In an attempt to measure attitudes towards Starbucks products, it was revealed that 51% believed in their quality products while 34% had a contrary opinion. 50% trusted their brands while 30% felt differently. 32% said the products were worth paying more for with a paltry 8% feeling contrary. 60% had noticed their specialty coffee. The rating of company products indicated trust and confidence emanating from the customers.
Starbuck’s survey indicated that it was difficult to differentiate between Starbucks and smaller coffee shops. 61% of respondents from 2001 survey revealed that Starbucks cared about money. 55% felt it cared about building new stores. Customer trends were evolving to younger ones, less educated and with low income as opposed to old and affluent ones. It had increased Hispanic customers in California.
The findings of the study further revealed that customer perceptions indicated that Starbucks had valued brands (34% of females and 51% of males), trusted the brands (30% of females and 50% of males), had brands worth paying for (44% females and 60% males while 31% females and 45% males considered it as coffee experts. Atypical customer visited 5 times in a month while frequent ones visited 18 times per month. It further revealed that Starbucks was not meeting customer expectations because of a service gap (Starbucks, 2003).
Alternatives Analysis and Selection Criteria
Innovations contributed to new product design and launch of hot beverage brands every season. Increased investment in research hand innovation through Focused groups, in-store experiments and market tests were attributable to recent innovations as the 1995 introduction of Frappuccino and non coffee beverages (Stanley, 2002).
In 2001, the Stored Value Card (SVC), a swappable card was launched which could pay transactions in any company operated store in N. America. The effect of the innovation was issuance of 6 million cards and soaring of sales to $160 million. The latest invention was the Hot Spot wireless T-mobile introduced in 2002 to offer high speed access to internet in 2000 stores (Stanley, 2002).
Recommendations
Christin Day’s proposal to invest $ 40 million annually in 4500 stores to allow stores to add 20 hours of labor a week was tenable. It would increase speed of service and thereby enhance customer satisfaction. New customer trends had changed and needed new products to capture their needs. Increased funding for more research and design was still viable.
Action and Implementation Plan
- Approve $ 40 million investment proposal and recruit baristas for training as soon as possible.
- Source more funds for research and design.
- Reinvent customer retention strategies
- Rebrand non poorly performing products
- Fill the service expectation gaps
- Introduce an IT system or portal to link all the chain stores for ease of marketing and sales
- Train the staff of products and services to improve service quality.
References
Dina E. (2002, August 25th). Pouring It On: The Starbucks Strategy? Locations, Locations, Locations. The Washington Post, 30, 23-25.
HBSP. (2003). New Online Tolls for Building new Coursepacks. www.hsbp.harvard.edu. Web.
Heydebrand, W. (1989). New Organizational Forms. Work and Occupations, 16 (3). 323-357
Jaffe, D. (2001). Organization Theory: Tensions and Change. New York: McGraw-Hill.
Jake Batsell. (2002, June 26th). A Grande Decade for Starbucks. The Seattle Times, 20, 15-20.
Martyn, Shuttleworth. (2008). Survey Research Design. Web.
Nassipur, Mehdi. (2004). Overview of Sample Surveys: Applied Sampling Workshop at the Annual TRB Conference, Traffic Safety IDOT, Washington.
Ray, C.H. (1986). Corporate Culture: The Last Frontier of Control? Journal of Management Studies, 23 (3), 287-29.
Ritzer, G. (1993). The McDonalization of Society. London: Pine Forge Press.
Youngme, Moon & John Quelch. (2003). HBS Cases, Boston: Harvard Business Services Marketing (2003). Pearson Learning Solution. Web.
Starbucks. (2003) Starbucks Survey Reports February 2003. Harvard Square, Cambridge, Massachusetts.
Starbucks, (2002). Starbucks’ Customer Perception 2002 Survey Report. Harvard Square, Cambridge, Massachusetts.
Stanley Holmes. (202, March 18th). Starbucks’ Card Smarts. Business Week, 30, 21-25.