Starbucks Corporation’s Food and Beverage Management Report

Starbucks is a leading coffee retailer operating on the global scale. Starbucks is a market leader specialized in coffee, beverages and whole milk products. Its brand image and unique image is based on services and products providers to diverse customer groups. Yet successful marketing requires bridging the gap between expectations and demands of customers. It could even be said that successful marketing is the bridging of this gap (Drejer, 2002).

To market successfully, Starbucks must transcend its own internal point of view to understand what the product means, and could mean, to consumers who have their own points of view. Only a product that is meaningful from their point of view will seem relevant to consumers, will seem different from other products, will seem to be reasonably priced. Thus, the goal of understanding consumers is fundamental. Understanding consumers is not just using “marketing research” as an information source, nor is it just performing a staff activity. It is a vital, and may well be the vital, resource factor for marketing.

the case study suggests hat the term service could cover service industries, as well as in the colloquial use of the term, which reflects the quality of the interactions between customers and an organization’s frontline service personnel—the so-called “moments of truth.” A wide net is also cast to include many industries: those that might be said to be the “purer” service sectors (e.g., hotels, lawyers, investments counselors), as well as those “mixed” industries in which the core transaction may be the purchase of a good in conjunction with a large service component (e.g., retail outlets, restaurants, automobile dealerships, realtors or mortgage brokers).

For Starbucks, service means customer satisfaction and ‘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” (Moon and Quelch 2006, p. 3).

The service encounter is often described as an interactive performance: A corporate service provider produces an experiential process in which the consumer and frontline service personnel engage in a communicative exchange through which each party obtains from the other some essence of value (Drejer, 2002). The Starbucks’ customer exits the exchange having been processed in some manner that may be tangibly detectable (e.g., having one’s hair cut) or not (e.g., having one’s taxes figured).

The performance element of services has been elaborated in a drama metaphor (e.g., the frontline service providers considered as cast members, the customers as audience, the physical environment as scenery and props). The term is used to pose questions such as, “does the customer observe a smooth performance on stage” and “what elements in the service operations must be in place behind-the-scenes to provide a smooth on-stage performance” (Paley 2006, p. 87).

In order to ensure customer satisfaction, Starbucks relies on market research. A special attention is given to competition and competitors moves related to customers and new products development. For Starbucks, competition is intensifying in many industries due to factors such as deregulation, or technology (e.g., the creation of consumer databases or the provision of interactivity or self-service automation).

Accordingly, in an attempt to create distinct advantage, managers often seek to provide added value to customers and enhance their corporate competitive advantage by offering better customer service (Fill, 2001). The enhancement of customer service is perpetual, because initial competitive advantages are often easily met, turning the previous distinction into a commodity-like attribute of the service encounter, thereby also raising the expectations of the ever-demanding customer. Thus, services comprise a substantial market presence and are likely to continue to do so (Drejer, 2002).

Starbucks pays a special attention to call centers and customer relationships management. In addition to implications for advertising, the subjectivity and intangibility of services also has an effect on customers’ evaluative judgments. Whereas many aspects of the quality of a produced good can be measured somewhat objectively, service quality and customer satisfaction in services are defined by consumers through their subjective, evaluative assessment of the service experience. These models posit the customer evaluations as a comparison of the encounter experience to one’s prior expectations. Specifically, if one’s experience exceeds one’s expectations, the models predict satisfaction (Drejer, 2002).

In many geographical locations, Starbucks operates as partnership with a local company. The low service quality and customer dissatisfaction is caused by low standards and inadequate services provided by partners. To some extend, “poor service quality” is associated with changing customers’ demands and expectations (Smith and Vogt, 1995). Expectations are thought to be developed through the communications of the firm (e.g., advertisements, other customers via word-of-mouth, or the customer’s own past experience with the focal or competitor firms). Satisfaction and quality are judged in both a gestalt, overall sense, as well as in an attribute-by-attribute analytical sense.

While an overall satisfaction measure gives a crude index of customer perception, the attribute-level quality indicators are those that can provide useful diagnostics. The detail allows for a pragmatic utility in assessing the financial effectiveness of corporate initiatives intended to enhance customer service and satisfaction (McDonald and Christopher 2003). Certain actions or modifications of the service delivery system will please customers more than others, so the challenge becomes one of identifying those valued qualities—those that drive repeat purchase most directly and therefore of greatest priority.

Furthermore, it is important to tie indicators of satisfaction to firm-level financial performance measures, to demonstrate that the seemingly simple and mundane human interaction involved in service encounters (the frontline’s competence and empathy) indeed impacts the corporate bottom line, albeit somewhat indirectly (Drejer, 2002).

Starbucks, as a company that provides service and products, either as its central provision or in a value-added capacity in a bundle of attributes included in a customer’s purchase of some good, may find it useful to distinguish those elements of the service purchase experience that are “core” from those that are “supplemental.” The core of a purchase is that which forms the business identity. The supplemental services are the components of the service delivery system that are intended to facilitate and enhance the customer’s experience. Initially the supplemental services are introduced as competitive advantages, distinct features that the competition does not offer.

Often, as with these examples, the supplemental services are easily met, so that soon all competitors have enriched their offerings to meet the requirements in the marketplace (Fill, 2001). The new array of services becomes commodity-like, and each firm must seek additional unique, supplemental services to begin the distinguishing process again. Continual improvement efforts like these also contribute to the customer’s ever-increasing expectations.

For Starbucks, the core-supplemental distinction also has implications for customer satisfaction. Retention programs and self-service are the core of its current strategy. The core service of an airline is transportation from one city to another, and supplemental services include features such as: frequent flyer accounts, conveniently located hubs, movies and meals on board, and so on. Rarely will customers state explicitly that they seek “safety, ” though presumably of course they do (Kotabe and Helsen, 2006).

Safe workplace is a critical attribute of the core, and one that is assumed to be true. There should not be variance among competitors on core attributes. Competitive distinctions can occur on the value-added services. Hence, achieving good quality on the core service does not enhance customer satisfaction—good quality on attributes like safety is a “given” (Drejer, 2002). Poor service on core attributes can certainly drive customer dissatisfaction however (as reactions to extended delays or near-miss accidents can attest). In contrast, variability on supplemental services can drive customer satisfaction or dissatisfaction (Fill, 2001).

For Starbucks, loyalty programs help to add value to services and products provided to the end consumer. For Starbucks, value means trade-off comparison between quality or satisfaction against price, including both economic and psychological prices, such as search and purchase efforts. Stronger customer service is expected when paying higher prices, and poorer customer service may be tolerated when paying lower rates. The simultaneity of production and consumption also drives the aspect of services that they are perishable: the flight that lifts off with empty seats can never retrieve those seats for future use; the professional’s time spent on seasonal projects must also manage supply and demand imbalances.

The closest approximation services managers have to inventories is queuing, but this solution is not often desirable to customers (Pittengrew et al 2006). The fact that services are co-created by two dynamic and fallible humans also leads to services being described as heterogeneous (Keegan and Green. 2004). Service provision varies across customers and across frontline employees at multisite or even the same-site location. Different employees have different skills and attitudes, and different customers have different needs. Like cholesterol, there is good and bad heterogeneity. Good heterogeneity is the opportunity in the interactive service encounter to tailor the service provided to suit a customer’s unique needs. Bad heterogeneity is error.

Starbucks underlines that this marketing instrument serves to reduce the perceptions of the riskiness of the purchase, and it serves as a cue to the quality of the service to be expected (Keegan and Green. 2004). After all, the customer reasons, how could a firm offer a guarantee unless they are good enough and confident that they will not require frequent redemption. It also serves as a very clear tool for the frontline employees regarding what errors are intolerable, and what redress is expected by disgruntled customers—the guarantee provides explicit empowerment. Thus, value is the worth in monetary terms of all that a market offering provides to a customer firm.

To gain an estimate of the value that a customer receives, the supplier gathers comprehensive and elemental data on how its offering adds value or reduces costs in the customer’s application (Drejer, 2002). At the same time, suppliers should investigate what potential changes in their market offerings would be worth to customers. Although suppliers are more conversant with the technical and economic benefits of their offerings, they should not neglect service and social benefits, which can be significant sources of value (Pittengrew et al 2006).

Gaining an accurate understanding of competitors’ prices often is difficult in business markets because of problems in determining comparability. A supplier should investigate what supplementary services are and are not included in a competitor’s quoted price for a market offering. In pursuit of their own interests, customers may dissemble about a competitor’s pricing and offering comparability.

Further adding to the difficulty of accurately understanding a competitor’s pricing is the increasing use of a variety of off-invoice discounts, such as year-end rebates. Suppliers must gather data from the field on the range of prices that customers are paying for market offerings. Suppliers also should seek out disconfirming as well as confirming evidence on competitor pricing moves (Keegan and Green. 2004).

For instance, a salesperson might report that a competitor has cut the price of its market offering. In addition to seeking out other instances of pricecutting to confirm this report, a supplier also should seek out disconfirming instances where the competitor did not cut the price of its offering. Gathering this data will give the supplier a finer-grained understanding of variations in competitor pricing in the marketplace (Pittengrew et al 2006).

A supplier must also gather data about its own prices. Use of off-invoice rebates or allowances, whose percentages may depend on the amount of business that the customer has done with the supplier during the quarter or year, make it difficult for a supplier to know at the time exactly what price it is realizing from a given transaction. Monitoring transaction prices enables a supplier to learn the extent to which exceptions are being made from set pricing strategy and tactics (Hollensen, 2007).

Starbucks should change its correct strategy and adopt its products to customers needs and new demands. As a market leader, Starbucks should learn that success depends on adroitly balancing three pervasive, but often conflicting, marketplace requirements.

First, markets are becoming highly fragmented and customers are requesting, and getting, more customized offerings (Hollensen, 2007). Second, customers are uncompromising in their demands that market offerings be sold for either the lowest price or the lowest total cost. Third, due to the success of the total quality management movement, many purchasers now take quality as a given and believe there are few meaningful differences between competing products (Drejer, 2002).

In sum, overcoming inertia and systems impediments are essential, because more fully and more accurately allocated costs can provide quite a different picture of how costly some services actually are. An understanding of the value of services to customers and the cost to perform them enables business market managers to identify value drains, which are services that cost the supplier more to provide than they are worth to customers receiving them and have no strategic significance.

A producer of chemicals for use in extracting oil from wells routinely performed a field analytic monitoring service for each of its customers to determine when, and in what amounts, they should apply its products. Gaining an estimate of the value of market offering elements is not always easy; having one, though, is essential. With an understanding of value, discussions with customers focus on performance and meeting customer requirements.

Reference List

Drejer, A. (2002). Strategic Management and Core Competencies: Theory and Application. Quorum Books.

Fill, C. (2001). Marketing Communication: Contexts, Contents, and Strategies. 2. edn. Upper Saddle River, NJ: Prentice Hall.

Pittengrew, A. M., Thomas, H. Whittington, R. (2006). Handbook of Strategy and Management. Sage Publications.

Hollensen, S. (2007). Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition.

Keegan, W. J., Green. M. C. (2004). Global Marketing. Prentice Hall; 4 edition.

Kotabe, M., Helsen, K. (2006). Global Marketing Management. Wiley.

McDonald M., Christopher M. (2003). Marketing: A complete Guide. Palgrave Macmillan.

Moon, Y., Quelch, J. (2006). Starbucks Delivering Customer Service. Harvard Business School.

Paley, N. (2006). The Manager’s Guide to Competitive Marketing Strategies. Thorogood.

Smith, R. E., Vogt, Ch. A. (1995). The Effects of Integrating Advertising and Negative Word-of-Mouth Communications on Message Processing and Response. Journal of Consumer Psychology 4 (1), 133-123.