Starbucks Success Case Study

The Success Mantra:

There were multiple factors which contributed towards the massive success of Starbucks. The story of how Howard Schultz managed to transform a commodity into an upscale cultural and lifestyle experience is a page taken out of the fairy tales.

The key driver behind Starbuck’s success was its ability to leverage the capital market to it’s maximum potential. It was able to create a niche market for itself by triggering a ‘Latent’ demand which addressed to the ‘Unstated Need’ of the affluent, well educated, white collar patrons (skewed female) between the ages of 25 and 44. The idea was to create a chain of coffeehouses that would become America’s “third place” - place that would be separate from home or work, a place that would

This job complexity was compounded by the fact that almost half of Starbucks’ customers customized their drinks. This was directly co-related to the increase in employee turnover.

To summarize, the rather potent combination of new customer segments, product / service complexity and increased workload on the baristas led to the decrease in customer satisfaction scores. The need of the hour was a new and accurate CSAT measurement system which takes into account the diversified customer base (and their separate needs/expectations from the brand).

The aggressive growth rate of stores across the world had a ripple effect which led to Starbucks undergoing multiple changes:

a. Globalization – The number of retail stores were 5000 and counting. It also started experimenting with new retail formats such as ‘drive-throughs’. Around 15% of its revenue came from non-company operated retails channels, known as ‘Specialty Operations’ which included international licensed stores, grocery stores, warehouse clubs and online mail-order sales. The goal was simple – reach customers where they work, travel, shop and

New Customer Segments – The rapid growth of retail stores and expansion of distribution channels led to a new customer segment. The newer customers tended to be younger, less well-educated, and in a lower income bracket than Starbucks’ more established customers. They also had a new set of expectation from the brand.

c. Expansion of Product Portfolio – Innovation was a key player in Starbuck’s operation and growth strategy. New products were launched on a regular basis; for example, Starbucks introduced at least one new hot beverage every holiday season. In fact, multiple beverages were introduced for non-coffee drinker. This led to an increase in operational complexity as well.

d. Increased Pressure on Baristas – The rapid growth of stores meant a high demand of baristas across the globe. Unlike before, not all baristas were hand-picked who had mastered ‘both’ the hard-skill and soft-skill required for the job. Moreover, the diversification of customer base and increased product portfolio meant that they had to deliver ‘customer-made’ beverages as quickly as possible and maintain the ‘customer intimacy’ quotient at the same time.

The above table clearly states that the most profitable / valuable customer for Starbucks is a ‘Highly Satisfied Customer’ with an average lifetime revenue of