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Starbucks, reinvented: a seven-year study on schultz, strategy and reinventing a brilliant brand.

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BY JULIA HANNA

Harvard Business School Professor and historian Nancy Koehn has studied Starbucks and its leader, Howard Schultz , for close to 20 years. For her, the company represents much more than a phenomenal success story.

In a recently published case, "Starbucks Coffee Company: Transformation and Renewal," (available soon) Koehn and coauthors Kelly McNamara, Nora Khan, and Elizabeth Legris trace the dramatic arc of the company's past seven-plus years—a period that saw Starbucks teeter on the brink of insolvency, dig deep to renew its sense of purpose and direction, and launch itself in new, untested arenas that define the company as it exists today.

"This case distills 20 years of my thinking about the most important lessons of strategy, leadership, and managing in turbulence in the frame of a very relevant company," says Koehn, the James E. Robison Professor of Business Administration. "As a brand, leadership, and entrepreneurship scholar, I've been dogging Starbucks for a long time."

On a 1995 trip to Seattle, Koehn visited a Starbucks store for the first time and was struck by what she saw and felt. The notion of a "third place" between home and work to relax and enjoy the small, affordable luxury of a special coffee beverage seemed to resonate with the social and economic moment, she recalls. Six months later she met Howard Schultz, an entrepreneur who acquired the company in 1987, and was struck by his seriousness of purpose and the breadth of what he wanted to accomplish.

Starbucks Chairman Howard Schultz (Photo credit: Wikipedia)

The case, Koehn's fourth to focus on Starbucks, opens in February 2007. Schultz, no longer Starbucks' CEO but still its chairman, is worried the company is losing its ability to be true to its values while providing a store experience that conveys a sense of comfort, connection, and respect for its product and the communities Starbucks serves.

So Schultz composed a heartfelt, searching memo to senior leadership. In it, he bemoaned decisions (for which he accepted responsibility) that improved efficiency and increased economies of scale but robbed stores of some of their essential magic, such as the smell of roasting coffee and the sights and sounds of traditional Italian espresso machines and baristas at work.

He also cited the company's rapid expansion and the potential "commoditization" of the Starbucks brand. "[W]e desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience," Schultz wrote.

The scope and richness of Koehn's case gives it the feel of a page-turning novel; in that sense, Schultz's memo is the inciting action for all that follows.

Remaining True To Core Values

The challenge that had confronted Starbucks in the early- and mid-2000s was one common to many organizations: Could the company continue to grow while preserving its culture and values? In some areas, the drive to expand, egged on by Wall Street, was compromising the company's ability to invest in its partners (Starbucks' term for its employees), deliver personalized customer service, and maintain a close connection to the local community.

In addition, McDonald's and Dunkin' Donuts had emerged as serious competitors, offering their own lines of specialty coffee beverages. Even so, Starbucks' financials for 2007, the year Schultz composed his memo, didn't look so bad. But the entrepreneur became concerned as he dug more deeply into the numbers. Sure, revenues were up almost 21% over the previous year, but had slowed by over a third; transactions per store were up 1%, versus 5% the year before. Same-store sales rose only 5%, the smallest increase in five years.

In January 2008, Schultz returned as Starbucks CEO, replacing Jim Donald, the man he and other senior colleagues had chosen to lead the company.

Starbucks Sails Again

The case chronicles the blizzard of decisions and initiatives that follow what could have been the company's death knell as the financial crisis hit home and consumers cinched their belts.

"Schultz understood that you can't lift your foot off the gas pedal when you're attempting to transform a company," Koehn says. "Severe as its financial needs may be, you also have to figure out what you will invest in. Schultz knew that if he waited until the company was out of the woods to invest in new products, communication channels, and ways of doing business it would be too late—Starbucks would no longer be relevant."

From the start, Schultz sent the clear, unwavering message that Starbucks' transformation would represent a return to its roots and an uncompromising commitment to core values, such as health care benefits for any partners working at least 20 hours a week.

At a March 2008 gathering of 200 senior-level company leaders, Schultz unveiled a Transformation Agenda that included seven "Big Moves":

• Be the undisputed coffee authority;
• Engage and inspire our partners;
• Ignite the emotional attachment with our customers;
• Expand our global presence—while making each store the heart of a local neighborhood;
• Be a leader in ethical sourcing and environmental impact;
• Creative innovation growth platforms worthy of our coffee;
• Deliver a sustainable economic model.

The case provides a behind-the-scenes look at how the coffee company moved forward on these goals, including the introduction of the milder Pike Place Roast; the story of its VIA Ready Brew line; the launch of a loyalty program; investment in and engagement with social media; focus on a global expansion strategy; and the extension of social programs. The company closed stores, restructured its manufacturing and supply operations, and, perhaps most significantly, took steps to reengage its partners and store managers. In February 2008, Starbucks closed more than 7,000 of its stores across the country for "Espresso Excellence Training," taking the time to work with approximately 135,000 baristas to ensure they could pour a perfect espresso shot and steam milk properly.

For Schultz, however, that wasn't enough—he wanted to reach the company's store managers, recognizing them as essential to the transformation process.

"I needed an unfiltered venue for expressing my empathy about all that we were asking our partners to do and telling them plainly what was at stake," he wrote in Onward: How Starbucks Fought for Its Life without Losing Its Soul . The answer, in Schultz's mind, was a three-day conference in New Orleans in October 2008, a moment when the global economy happened to be tanking. Starbucks' fourth quarter profits were down 97% from the same time a year earlier; for the fiscal year, net earnings were down 53% to $316 million. The Starbucks board was reluctant to send 10,000 partners to New Orleans at a cost of $30 million, but Schultz stuck to his guns.

In addition to rolling up their sleeves and taking part in community service projects to aid areas of the city still recovering from Hurricane Katrina, partners participated in team-building events that reviewed the company's guiding principles and reminded them of their central role in the customer experience. Schultz also brought in Bono, lead singer of U2, to announce a partnership to channel proceeds from holiday beverage sales to the Global Fund in support of AIDS relief programs in Africa.

The New Orleans conference was a turning point for Starbucks; in the "novel" of Koehn's case, it's the climax.

"Investing in a conference of that size is such an unusual thing to do when faced with a cash crunch," Koehn says. "Schultz understood that what saves and breaks businesses is much more than cash. In the midst of so much turbulence, it's all too easy to pull levers on the low-hanging fruit of cash and logistics. But you don't save a business and turn it around without speaking to, focusing, and calling on the spirit of your people."

Schultz's experience qualifies him for closer study in Koehn's HBS course Power and Glory in Turbulent Times: The History of Leadership from Henry V to Steve Jobs. Not all managers are confronted in their careers with the sort of transformation challenge faced by Starbucks, but Schultz's reflections and actions are instructive for anyone charged with finding sources of strength, innovation, and renewal in today's turbulent business environment, Koehn says.

About the author:  Julia Hanna is associate editor of the HBS Alumni Bulletin .

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Starbucks Commits to Raising Awareness of Racial Bias

Brian Kenny: If you happen to be driving on I-96 just outside of Detroit, there's a billboard that will surely get your attention. It reads, “Driving while Black, racial profiling just ahead, welcome.”

“Driving while Black” is an all too familiar term in the US and it highlights one of the many indignities that Black people endure on a daily basis as a result of implicit or explicit bias. In fact, almost any activity that seems mundane to whites, becomes stressful and anxiety-ridden when you do it while Black. Shopping, studying, parenting, and of course, dining. It's a documented phenomenon, the journal of Black studies surveyed 200 restaurant servers in North Carolina and found that 38.5 percent admit to discriminating against Black customers while 59 percent say they've witnessed discrimination by others. Meanwhile, Black diners report that they are often mistaken for valets, coat checks, and washroom attendance. And it's not just a Southern thing. Today's case takes us to a Starbucks in Philadelphia where two Black men seated at a table, waiting for a friend, would become the latest examples of the perils of dining while Black. Today on Cold Call, we'll discuss the case study entitled, Starbucks: Reaffirming Commitment to the Third Place Ideal , with coauthors, Francesca Gino and Katie Coffman. I'm your host, Brian Kenny, and you're listening to Cold Call. Brought to you by Harvard Business School.

Francesca Gino: Thank you for having us, Brian.

Katie Coffman: Great to be here.

Brian Kenny: And we are socially distanced, in fact, we are more than socially distanced, we're far away from each other because we are continuing here to be in the midst of the pandemic. And we are in the midst as well of another major crisis unfolding in the United States. And that has to do with George Floyd's death and the Black Lives Matter movement. So this case to me feels all the more timely and prescient. And ironically, we started talking about doing this case on the podcast well, before that happened. So I think a lot of our questions and conversation today will reflect on the current situation and what we can learn from this case. Katie, I'm going to start off with you; could you just set the scenario, tell us what happened on April 12th, 2018.

Katie Coffman: I think it's a scene we've probably all seen in a Starbucks at one point in our life or another, which is two individuals sitting at a table waiting for another person to arrive. But in this scenario, those two individuals were African American men. And the situation was, these were two aspiring entrepreneurs waiting for a business associate that they were going to have a meeting with. They sat down to wait, they hadn't purchased anything. One of them asked to use the restroom and an employee responded that because they hadn't purchased anything, the restrooms were for customers only. After that they sat back down and the employee approached them again and told them, can I help you with something? Sort of asking, what are you doing here? And they said, "We're waiting for a meeting." And that employee asked them to make a purchase or leave. Within minutes of that encounter with no escalation of voices or any conflict beyond that, the police had been called. And the police arrived, there was a confrontation pretty shortly thereafter and just two police officers turned into six police officers. The men were told they had one more chance to leave, even though other customers, the business associate showed up and said, "We think these people are being treated unfairly, this doesn't seem like they've done anything wrong." The police still stayed and told the men they were actually no longer free to leave. And they were brought to a local station in handcuffs and placed in a cell for several hours before ultimately being released that evening with no charges filed.

Brian Kenny: So that sounds just so familiar, doesn't it? In the current context, and we know that it could have even ended much more tragically than it did, but it's amazing the parallels to what we saw happen with George Floyd and then in so many other instances. Francesca, you've taught it in the classroom. I'm wondering if you could just tell our listeners, how do you dive into this conversation? What's your cold call in this particular case?

Francesca Gino: The first question I always love to ask in class is a question that gets us to analyze how Starbucks responded to the Philadelphia incident. And so I would ask students right off the bat, what were the features of Starbucks response? What were some of the strengths and some of the weaknesses in the response that they used? I did try a couple of time to go down a different route. And maybe this is an approach that is a little bit more courageous because it can bring out right at the start of class, a lot of emotions. But basically I set the stage by telling students why we're discussing the case, that we're really interested in trying to evaluate how this big organization has reacted to an incident of discrimination directly in its store. And an incident, let's not forget, that was caught on camera by customers and it basically became viral within hours. And so I basically say, look, this is obviously not a case in isolation. I ask people to reflect on their experiences for a moment and then ask them whether they would be willing to share the experience, or at least to tell us the words that they would use to describe how they felt. And I described it as a more courageous route, but I think it's a discussion that might be important because it gives students really an opportunity to engage with the challenges of unconscious bias and how so easily this, maybe even without a bad intention, can turn into discriminatory behavior.

Brian Kenny: So we're going to talk a lot about unconscious bias in the course of this conversation, some of our listeners might be thinking, this is a business focused podcast, what does this have to do with business? So I guess I would ask both of you the next question. Why did you decide to write the case? How does it relate back to the kinds of things that you look at as a scholar?

Francesca Gino: Maybe I'll get started by telling you why I think this is a case that it's quite important for a business school and for an audience, whether it's executives or MBA students. Through the case, we basically get to evaluate how a very large organization that operates globally and really takes pride in being open, inclusive in its culture and being a space that is between home and work, reacted to an incident where an employee used discriminatory behavior. And to me, especially in a world where, because of social media, what we do inside organizations becomes knowledge that a lot of people around the globe can get access to. And so they get to see everything that is happening in the moment. It's really important to think through how would we react as leaders or how is it that we're creating the conditions intentionally or not to see people in our own organizations react in this way?

Katie Coffman: There's obviously the moral and ethical imperative to try and root out racism in all forms in our organizations. But on top of that, I think there's increasing awareness of the missed business opportunity. If your organization, especially in the customer service type industry, is not a place that's consistently welcoming, friendly, fair, you're not going to be as successful as a business. So I think understanding the ways where we could actually reach a broader audience with our products, with our services across a variety of industries, is really important and can be a missed opportunity for a lot of organizations.

Brian Kenny: So we know there are significant costs to the brand of firms that find themselves in these kinds of situations. Right? But there are other costs I would imagine that are associated with it, too. Katie, I wonder if you could talk a little bit about some of the, both, I guess the level of pervasiveness of bias, whether it's unconscious or not. And I do want to talk a little bit about what that means, but what are the ripple effects of these kinds of things in terms of the cost of doing business?

Katie Coffman: You could think both about the cost among your own employees and the culture within your organization, the extent to which your employees really feel aligned with the mission and values of your organization, how effectively they're able to work with each other and bring their whole selves to work. So you have to think about, I think the employee side of things, and on the flip side for a company, particularly like Starbucks, you have to think about the customer side of things, which is what's our relationship with the community? What's our relationship with our patrons? Are we a place that people feel comfortable going to, feel proud of going to and include as part of their daily routine? I know in our conversations with Starbucks, a number of members of their leadership team talked about how easy it is to lose a potential customer through one bad experience. And certainly a bad experience like this, has the capacity to reach a large number of people, not just the specific individual who was targeted. In constructing the employee culture you want, but also in making sure that you're an appealing place for people to shop, to do business, to spend their money. Making sure that your organization is as free from the negative consequences of bias as possible. It is really a business imperative.

Brian Kenny: Obviously, businesses have been thinking a lot about this, right? This is not a new phenomenon. I think we've talked about finding ways to make people aware of their bias so that they are more thoughtful about how they're engaging with customers and with coworkers and such. Francesca, I would ask you, how persistent is this problem? Have we made any headway or is it just as bad as it's always been?

Francesca Gino: So I would coach this in a couple of observations. First of all, one of the ways in which I believe we've made progress and organizations and leaders have made progress is by focusing more often or more attentively to creating work places that are inclusive. In fact, I would say it's hard to think of leaders who don't think that diversity and inclusion are important to their organizations. Where I don't see a lot of progress yet is truly understanding what it takes to be an inclusive leader or to create an inclusive environment. And it's sometimes troubling to leaders and to employees alike to realize that some of these biases happen at the unconscious level. And to realize that our human nature is imperfect. What I think is equally surprising is to think about what can effectively drive change. So there have been a lot of organizations doing unconscious bias training, often not with the results that they expected. And I think that comes down to not truly understanding what solutions are helpful to reducing unconscious bias. The organizations that are making headway or that are being more thoughtful are really organizations that do not think about diversity inclusion as a HR problem. But somebody or leaders who thinks that fundamentally we need to make, I would say inclusion and diversity part of the DNA of the organization. And that requires much more thoughtfulness and requires being willing of being part of a messy journey where you might not get everything right.

Brian Kenny: But Starbucks had that, Howard Schultz had a vision for Starbucks and they focused a lot on this. Didn't they, Katie? Wasn't this something that was important to Starbucks and apparently it didn't take?

Katie Coffman: I think that's one of the really important learnings from this case, because if we look at the history of Starbucks and their mission and values, one of the fundamental principles they had is that Starbucks is going to exist as what they would call a “third place” for their communities. And the idea of a third place is, you have your home, you have their work, Starbucks is going to be a third place where you could really just be. Right. It's welcoming, it's safe, it's inclusive. You can come, you can have a cup of coffee, you can do your work and it's going to feel like one of those safe, special places to you. And that's been a part of their value systems really from the start. And yet even with that type of mindset and a set of policies aimed at achieving that, you can still have this kind of behavior and this kind of outcome. And I think you could make the same analogy when thinking about individuals. Even individuals with really good intentions, who would not view themselves as a racist person can still, because of these unconscious biases end up with actions, with behaviors, with poorly chosen words, doing things to create problems, particularly for underrepresented groups. And so I think part of the recognition here is this really can happen to any organization, to any person. And you have to have a much deeper understanding of the root causes of these types of behaviors and what we can actually do to make those unconscious biases less problematic in our lives and in our workplaces.

Brian Kenny: So to your point a Francesca, this can't just be an HR initiative, right? This has to be an initiative that cuts across the fabric of the entire organization.

Francesca Gino: Exactly. And one of the things I do appreciate in the response to the Philadelphia incident is that Sternberg started a journey. So everybody, especially the press has been very focused on the fact that they ended up closing down their stores on a particular day to do some training. That was about understanding racial injustice and also understanding unconscious bias. But it was really the beginning of a much larger journey. And so it's interesting that maybe that closing the stores was symbolic to get us started, but it was one only one step of a journey that is still continuous. And again, I think that the leaders were going to be really thoughtful about this need… to be ready to take steps that might not be the right ones, but at least to try their best to address issues that might be happening across all parts of the organization. And it's both about the behavior of the leaders and the employees who work in the organizations, but also trying to understand whether there are policies or systems that are becoming, system that systematically reinforce discriminatory behavior potentially. Like in the case of Starbucks, the policies that they introduced at some point about who's a customer and who's not a customer, might in fact, have contributed to, by judgment on the part of the store manager.

Katie Coffman: I completely agree with what Francesca said and I think so much attention has been paid to that May 29th store closure. In my opinion, one of the smartest things they did were these policy changes, right? So really shortly after this incident, they recognized that their policies were maybe the biggest contributing factor to this incident. And in particular, putting the owners and store managers to make distinctions between customers and non-customers in terms of what was going to be permitted in terms of bathroom use. And they gave them much more explicit guidance on what type of behaviors are appropriate and not appropriate in the store and gave them an explicit guide for actually addressing disruptive behavior. That type of de-escalation emphasis and giving that to their employees, their store managers, their partners, so that they were much better position from a policy perspective to actually handle these types of incidents in a much better way.

Brian Kenny: So let's dive into what Starbucks did, because I think that's the basis of a lot of the most salient points in the case. They shut everything down, did they mandate for employees to go to this training? Was it optional or did you have to do it?

Francesca Gino: They did not make it mandatory. So they allowed people to choose and they didn't actually record whether or not you participated. But from the qualitative data that they collected, it seems as if most people were actually there taking the course and the training.

Brian Kenny: And what was the training like? What were they trying to teach?

Katie Coffman: It's incredibly impressive from an operational perspective, both how quickly and how comprehensively they were able to put together this program. So I think the idea was to spend a couple of hours with store managers, store partners, increasing awareness, and doing education around racial bias. And to produce that content, they actually worked with a variety of both internal and external resources, really consulted with experts in this area to try and make that training as impactful as possible. You have 8,000 stores, there's no way you're going to be able to recruit and train and deploy a bias training facilitator for each of those stores, so they created this centralized version of the content that could then be deployed with iPads, accompanied with a guidebook to help store managers actually navigate and lead the discussion within their own stores. They also gave private notebooks to all the employees who would participate so they could answer questions privately, make reflections, and actually take those home with them with hopes that these learnings would last a little bit longer.

Brian Kenny: And were the managers leading their own teams in this exercise? I mean, was it like a cascading type effect?

Francesca Gino: Exactly. So the store manager is in charge of leading the training, paced according to how the people in the store are actually reacting to the content.

Katie Coffman : I'll just add to that too. I think an important part of their approach, and we mentioned this in the case is that all of this is also paid time. Right. And I think that says something about the mindset too. This isn't extracurricular activity that, hey, wouldn't it be great if we got a little bit better on this, maybe you should spend some time with this. This is employees being paid to engage in these important conversations. And I think that sends a really key message to everyone in the organization.

Brian Kenny: So did it work and how did employees respond to it?

Francesca Gino: So measuring success is actually a question that we ask in class when we teach this case, because we're interested and intend to understand how do you know after making such big investments that you're making progress? That in fact you are looking at your employees, you're looking at your leaders and you see that they're treating each other equally, that there is no sign of discrimination. And this is a really hard question to ask, not only to the students in class, but also when we asked it to the leaders themselves. A couple of data points that they brought up that were interesting: first is what seems to be the climate in the stores around actually having these conversations. And the fact that again, the people in the store often mirror the type of communities that they serve made people feel more included because they had more opportunity to talk about their experiences. Or if you look specifically at the store in Philadelphia, that actually had the incident. If you look at it from a profitability standpoint, the year after the incident was quite a good year for them. And so there are elements, maybe not perfect data or the type of objective performance measures that many leaders may like or that Katie and I would love to see when we look at our research and try to understand the effect of a policy change, but there are at least indicators that can help us understand whether this has been successful or not. And if I were to put my scholar's hat on or my instructor's hat on, I would also try to understand if the journey they've been on fundamentally touches on some of the elements that we know are important when we're trying to fight unconscious bias and discriminations. So for example, the presence of information that is counter stereotypical, or trying to increase content or connecting with empathy, with people who look different from you. And so if I keep this element in mind then I would say, I think that they're on a good standing, given the type of conversations that they've started.

Brian Kenny: Katie, let me ask you this question. I'm wondering in the wake of what happened with George Floyd and what feels like a movement at this point, something feels different about what's happening in our country right now. Does this change the inflection of the conversation that you would see yourself having with students around this?

Katie Coffman: One of the things I've taken away from the last couple of weeks, or maybe now months of this social movement, is that the bar for what it means to be a good person in this context is going up. And I think going up in a really good way. It's no longer enough to be someone who's not actively engaging in discrimination. It's now important to actually, I think the term we're seeing a lot is to be anti-racist, right. That you're taking active actions to make the systems, the institutions, the culture around you, one that is less racist and more equitable. When you think about judging Starbucks's response, I think in a lot of ways over the last year now, the bar is going up for whether Starbucks's response is good enough. And I think that's actually a really positive reflection on where we're moving from a societal perspective, which is, we're not just getting rid of problems, but are they actually doing enough to create change? And so I'm really excited to teach this case more in the coming year and hear from our students and from executives of how they see the recent conversations, changing their views of this incident and the response. I think it couldn't be more timely.

Francesca Gino: I also think that there is an aspect of the case that usually doesn't get as much attention or didn't get as much attention in previous sessions that I've taught when I use this case. We focus a lot on how you would react as a leader if you were actually to see something happening like this in your own organizations. So the attention is on the store managers calling the police on these two Black customers. But the story is a little bit more complex and richer. How about the police officers who were there and arrested the two individuals without too many questions about what had happened? And so I think given the current social crisis that we're living through, I think the students, whether MBAs or executives, would point to the role of the officers much more quickly and likely they would also point to the customers who were sitting there watching this unfold and practically doing anything.

Katie Coffman: And there, I would applaud Starbucks too, because in thinking about their response and maybe it didn't stand out at the time, but I can tell you reading back through it now, a lot of the guidance they provided is, who can you call before you call the police? If there's a behavior that's going on that you think needs to be addressed, where can you turn first? Should you actually be turning attention to a mental health professional? Is there a shelter that you need to be connecting with? And all of these other resources. And I think it's just so very connected to the conversations we're having now, the movement to defund the police, that wasn't really part of the mainstream conversation at the time of the incident. And yet I think Starbucks had a lot of foresight to say, if we can avoid the stage where we're even calling the police in the first place, maybe that has the potential to have a real positive impact.

Brian Kenny: One last question for each of you, and this has been really interesting hearing you talk about the case. I think lots of great insights here. But for our listeners, almost all of whom I think are people who are interested in business or practicing business in some way, some are leaders, some are managers, some are somewhere in between. What can they do individually? Because I think a lot of us look at this and it's like boiling the ocean, it seems like such an enormous problem. And what kind of impact could I have? But I would expect that there are some things that people can do practically within their role, no matter what they are. So Katie, I'll ask you to maybe comment on that, what piece of advice you'd like to give and then Francesca, same from you.

Katie Coffman: I think awareness of unconscious bias is an important first step and recognizing the prevalence of it in ourselves and across others that we're going to encounter. And I think that type of awareness is an important first step, but hardly sufficient. And so when do these unconscious biases become most problematic? Well, it's really about these implicit associations, these intuitive decisions we make, these quick decisions we make. So both in our policy design and in our individual actions, can we interrupt that mapping from unconscious bias, implicit association to action. Because it's going to be very hard, I think we've seen in research, you can't just suddenly become someone who has no unconscious bias. But I think the case is much stronger that you can become someone who takes actions and acts with a deliberate hand to make it the case that whatever unconscious bias you have is going to be less likely to impact the decisions you make.

Brian Kenny: Great. Francesca?

Francesca Gino: I was struck in writing this case and talking to the leaders about the reaction that the CEO had, Kevin Johnson, when he was thinking back to the moment he realized this had happened, and it did seem it was discriminatory behavior. And he kept asking himself two questions. One was, what is the right thing to do? How did we prepare our people for this? And I think that that is a very profound question because unconscious bias is in fact pervasive. And as leader, we do play a role in trying to understand it better but also give people the opportunity to have conversations, to try to understand how to pause in the moment and make sure that they're coming up with the right judgment and the right behavior in that particular moment.

Brian Kenny: Great advice. And hopefully there will be other cases forthcoming where companies are showing great examples of how to do this and to succeed at it. Katie and Francesca, thank you so much for joining us on Cold Call.

Francesca Gino: Thank you so much, Brian, for having us.

Katie Coffman: Thank you so much.

Brian Kenny: If you enjoy Cold Call, you might like other podcasts on the HBR Presents network. Whether you're looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what's on the mind of Harvard Business School professors, the HBR Presents network has a podcast for you. Find them on Apple Podcasts or wherever you listen. I'm your host, Brain Kenny, and you've been listening to Cold Call, an official podcast of Harvard Business School on the HBR Presents network.

Brian Kenny is Chief Marketing and Communications Officer at Harvard Business School.

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Understanding Starbucks’ Business Strategy

Founded in 1971 in Seattle, WA, Starbucks Corporation is a world-renowned company specialising in the roasting, marketing, and retailing speciality coffee. With a workforce of approximately 402,000 employees in 2023, Starbucks operates 35,711 stores in 76 countries.

Their exceptional product mix comprises premium-quality coffees, teas, freshly-made food items, and a range of other beverages crafted and roasted by hand. The company also licenses its trademarks and offers a variety of coffee and tea products through other channels, such as grocery stores and national food service accounts.

Starbucks markets its product mix under various brand names, including Tazo, Teavana, Seattle’s Best Coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La Boulange, and Verismo. And as of the 2023 report, Starbucks has generated a total revenue of $26.51 billion in 2022.

In addition, Starbucks’ business strategy has played a significant role in establishing its reputation as a premier coffee tradition worldwide. Though the business strategy of Starbucks is simple, it is grounded in principles, which has contributed to its success.

The Starbucks’ Business

Starbucks, a premier roaster, marketer, and retailer of speciality coffee we know today, was founded in 1971 in Seattle’s Pike Place Market.

Howard Schultz, who joined Starbucks as a Director of retail operations and marketing in 1982, began providing coffee to fine restaurants and espresso bars. Once, when Schultz travelled to Italy, he was inspired by the popularity of espresso bars in Milan and recognised the potential to develop a similar coffeehouse culture in Seattle. He convinced the founders of Starbucks to test the coffeehouse concept in downtown Seattle, where the first Starbucks Caffè Latte was served in 1984.

The amazingly successful experiment led to the founding of Il Giornale in 1985, where they started offering brewed coffee and espresso beverages made from Starbucks coffee beans.

In 1987, Il Giornale acquired Starbucks assets and changed its name to Starbucks Corporation. The company opened its first store outside the United States in Vancouver, Canada, and other places, making it to total stores numbered 17.

In 1988, Starbucks became one of the first companies to offer full health benefits to eligible full- and part-time employees, including coverage for domestic partnerships. It was the company’s first step towards its principles and standards. And later, in 1990, they unveiled the mission of Starbucks, which was for employees and customers alike,

To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.

What Changes Did Starbucks Bring In Its Initial Days In The Industry?

Following its grounded principles and serving quality, Starbucks completely redefined the tradition of coffee culture in many countries.

To put it short, Starbucks –

• Introduced high-quality, speciality coffee beans that were roasted in small batches and sourced from around the world.
• Created a unique retail experience where customers were allowed to watch the roasting process and purchase coffee beans to take home.
• Offered a diverse range of coffee and tea beverages, like espresso and frappuccino-based drinks, which were not commonly found in American coffee shops then.
• Created a welcoming and comfortable atmosphere for customers to enjoy their coffee, with soft lighting, cosy seating, and background music.
• Fostered a sense of community and connection among customers and employees, with a focus on personalised service and customer relationships.
• Encouraged environmental sustainability through initiatives such as recycling and reusable cups.
• Provided employee benefits, such as health insurance and stock options, which were uncommon in the service industry then.

The Starbucks’ Business Strategies

There’s no one business strategy that made Starbucks what it is today. Instead, the company used a mix of numerous strategies to build, grow, and expand its business.

Premium Customer Experience With Third-Place Experience

The Starbucks business model is centred around providing a premium customer experience emphasising high-quality products and a welcoming atmosphere of third-place, a place away from home and work. Here are some key points to explain this:

• Premium Customer Experience: Starbucks is known for providing a high-end experience to its customers, where the customer gets the most personalised service, as the company focuses on attention to detail and providing an upscale and comfortable atmosphere.
• High-Quality Products: Starbucks prides itself on sourcing and roasting its own coffee beans, which are carefully selected for their flavour and quality. The company also offers a range of other high-quality products, including tea, pastries, and sandwiches, which is the most valuable attraction for the customers.
• Third-Place Experience: Starbucks has created a unique atmosphere in its stores that encourages customers to spend time there, whether they are working, socialising, or simply enjoying a cup of coffee. This experience of being in the “third place” away from home and work, where people can do just what they want to do, has contributed to the company’s success by building customer loyalty and encouraging customers to stay longer, buy more, and pay repeat visits.
• Personalised Service: Starbucks baristas are known for their knowledge and passion for coffee and are trained to provide personalised service to each customer. They offer recommendations to customers based on individual tastes and preferences and take the time to engage with customers in a friendly and welcoming way.
• Technology: Starbucks very smartly invested in technology to enhance its stores’ customer experience and convenience. They introduced mobile ordering, digital payment options, in-store Wi-Fi, charging plugs under each table, and more, making it easy and convenient for customers to order and enjoy their coffee, chill time, or even work.
• Employee Training and Development: Starbucks strongly emphasises employee training and development, with programs designed to help baristas develop their skills and advance their careers within the company. This investment in employees has helped to build a strong and dedicated workforce, which is essential to maintaining the high level of customer service that Starbucks is known for.

Strong Customer Relationships

Strong customer relationships are a critical part of Starbucks’ business strategy. The company aims to build a lasting relationship and connection with its customers through several means, such as its loyalty programs, Starbucks rewards, coupon cards for extensive and regular purchases, and more. The program offers various benefits, including free drinks and food on birthdays, personalised offers based on customer purchases, free refills, and more. These programs and benefits incentivise customers to return back, make purchases regularly, and strengthen relationships with the brand.

Moreover, the company collects, analyses, and uses the data to improve its products and services continually. The data they collect includes preferred drinks, ordering frequency, and payment methods. They use this data to personalise customers’ experiences by providing customised offers, product recommendations, and more.

Additionally, Starbucks has implemented several social responsibility initiatives, such as ethical sourcing and community involvement. These efforts help build trust and loyalty with customers prioritising ethical and socially responsible businesses. Starbucks fosters a strong sense of community and loyalty among its customers by creating a positive impact on the world.

Overall, Starbucks’ focus on building strong customer relationships has been a significant factor in its success as a business to date.

Strategic Global Expansion

Global expansion is one of the key elements of Starbucks’ business strategy. As it started with just one outlet in 1971, the company had 17 outlets in 1987 and has 35,711 outlets in 2023 and a presence in 76 countries. This means, on average, this coffee house chain has opened 2-3 new outlets every day since 1987.

But to have these outlets in thousands and a presence in various countries, Starbucks’ business strategy heavily relies on its licensing and franchising programs. These stores can either operate as licensed or franchised.

Licensed stores are operated within existing establishments. Companies such as Ahold Delhaize, Target Corporation, Barnes & Noble, Publix Super Markets, and Albertson Companies are a few examples of those licensed to operate Starbucks kiosks.

In most of the Europe, Middle East, and African markets, Starbucks’ franchising program is the primary market penetration strategy. Franchise owners operate new and freestanding stores independently. For instance, Anil Patil founded 23.5 Degrees Limited, Starbucks’ first UK franchised business partner, which opened the first franchise in Hampshire in 2013. It now operates 60 franchise stores across the United Kingdom.

By utilising licensing and franchising programs, Starbucks maximised market entry and global reach, appealing to different vendors with different interests in franchise and licensing programs.

Moreover, this strategy involves careful planning and analysis of each market, including the local culture, economy, and competition. Starbucks works to tailor its menu and store design to each location while maintaining its core brand identity and standards, be it the franchise or licensed store.

Starbucks’ Failure In Australia And Europe

Even though the company tried to get into the Australian and European markets with its strategic Starbucks business strategy, adopting its culture at its best, it failed in these places.

Starbucks’ failure in Australia and Europe can be attributed to several factors, including:

• Cultural differences
• Fierce competition
• A lack of understanding of local markets

Starbucks failed to resonate with consumers in Australia due to the country’s strong coffee culture. Australians have a preference for strong, bold coffee and are known for their love of espresso-based drinks like flat whites and lattes. On the other hand, Starbucks offered a range of sweet and syrupy drinks that were not aligned with Australian tastes. In addition, Starbucks’ prices were considered high compared to local coffee shops, further hindering their success.

Starbucks faced stiff competition in Europe from established local coffee shops and chains. Countries like Italy, France, and Spain have a long history and tradition of coffee culture, and Starbucks was seen as an unwelcome outsider. The company struggled to adapt to local tastes and preferences, with many Europeans preferring traditional espresso-based drinks over Starbucks’ more sugary offerings. Additionally, Starbucks faced criticism for its business practices and for contributing to the homogenisation of local cultures.

In both continents, after facing a huge loss and an unwelcoming atmosphere from the locals, the company had to shut down its outlets in non-prime locations. It planned to shut 61 stores out of 85 in 2008, and even today, Australia has only 58 stores while other countries like the US has 15,873 , China has 6091, and Canada has 2101 stores.

Starbucks’ Product Differentiation

The product differentiation strategy is crucial to the entire Starbucks business strategy. Starbucks has been able to differentiate itself by creating a unique coffee culture that sets it apart from other coffee chains.

In addition to its unique culture, Starbucks has expanded its product offerings beyond coffee by including food and other beverages. This diversification has helped the company attract more customers and increase its revenue streams.

Starbucks is committed to the sustainability and ethical sourcing of coffee beans to differentiate itself from other coffee brands further. Starbucks purchases 800 million pounds of coffee every year, or about 5 per cent of the world’s coffee, from fresh farms. This commitment helps keep consistent, improve, and evolve the coffee’s taste while supporting environmentally friendly practices and fair wages for coffee farmers.

Starbucks uses superautomatic, push-button espresso machines that reduce human error to ensure consistency and quality. This helps keep all drinks across all the stores tasting as similar as possible.

Additionally, Starbucks classifies its market based on demographic, geographic, behavioural, and psychographic factors, using a product differentiation approach to cater to the needs and preferences of each segment. As mentioned above, Starbucks integrates and moulds its products and offerings according to the place, culture, and taste requirements.

Overall, Starbucks’ product differentiation strategy, which includes creating a unique coffee culture, expanding its product offerings, commitment to sustainability, use of technology, and targeted marketing, has been successful in helping the company stay ahead of its competitors. Starbucks continues to innovate and differentiate itself to maintain its position as one of the world’s most recognised and successful coffee chains.

Starbucks’ Consistent Branding Experience

Consistent branding means presenting a unified brand image across all customer touchpoints, including in-store experience, product packaging, and marketing communications. Starbucks’ business strategy focuses on the same and consistently delivers a high-quality experience that customers expect from the brand.

The consistent branding experience has helped Starbucks build customer loyalty by creating an emotional connection with its customers. Starbucks has positioned itself as a premium brand, and customers are willing to pay a premium price for the experience they receive. The consistency in branding is something in this entire strategy which has helped reinforce the emotional connection with customers, and they keep returning for the same experience.

Starbucks has also used social media to engage with customers and build brand awareness. The company has a strong social media presence and actively engages with customers across different platforms. The company uses social media to showcase new products, promote events, and share customer stories. This engagement helps build brand loyalty and increases the likelihood of customers returning to Starbucks.

Overall, Starbucks’ consistent branding experience, emotional connection with customers, and use of social media for branding have all contributed to the company’s success in building customer loyalty.

Starbucks’ Ethical Brand Reputation

Starbucks’ ethical brand reputation refers to the company’s commitment to ethical and sustainable business practices that benefit not only its customers, employees, and shareholders but also the communities and environments in which it operates.

For Farmers

One of the ways Starbucks has established its ethical brand reputation is through its implementation of ethical sourcing practices for its coffee. The company sources its coffee beans through ethical and sustainable means, working directly with farmers and their communities to ensure that they receive fair wages and support for sustainable farming practices. This ensures the quality and consistency of the coffee and supports the economic and social well-being of the farmers and their families.

For Environment

Additionally, Starbucks has implemented environmental stewardship practices to reduce its carbon footprint and minimise its impact on the environment (and focus on green marketing ). The company has set ambitious goals to reduce its greenhouse gas emissions, increase the use of renewable energy, and minimise waste. For example, Starbucks has implemented a recycling program in its stores, and it uses eco-friendly materials for its cups and packaging.

For Employees

In addition to benefiting its customers and the environment, Starbucks’ ethical brand reputation also benefits its employees. The company offers a comprehensive benefits package, including health insurance, retirement plans, and stock options, to all eligible employees, including part-time workers. Starbucks also offers educational opportunities through its College Achievement Plan, which covers the full tuition cost for eligible employees to earn a bachelor’s degree online from Arizona State University.

Moreover, Starbucks’ ethical and sustainable practices create a positive work environment that encourages employee engagement and job satisfaction. For instance, the company has implemented fair labour practices, such as providing equal pay, advancement opportunities and fostering a culture of diversity and inclusion. These practices have helped the company attract and retain talented employees who are committed to Starbucks’ mission and values. Starbucks has built a loyal and dedicated workforce that contributes to its success by investing in its employees’ well-being and providing a positive work environment.

Starbucks’ ethical brand reputation is a critical part of its business strategy , helping the company to establish itself as a leader in ethical and sustainable business practices. This has helped to build brand loyalty among consumers who prioritise these values.

Starbucks builds strong customer relationships by understanding the needs and desires of customers and thus providing personalised service, implementing a rewards program, and engaging with customers through social media to create an overall better experience.

Starbucks’ business strategy includes creating a premium customer experience with a third-place experience (a place away from home and work), building strong customer relationships, expanding globally, implementing product differentiation, maintaining consistent branding, and promoting an ethical brand reputation.

Starbucks differentiates its products from competitors by creating a unique coffee culture, offering a wide range of food and drink options, and prioritising sustainability and ethical sourcing of coffee beans.

Starbucks differentiates itself from its competitors by creating a unique coffee culture and providing a premium customer experience focusing on creating a third-place experience. Additionally, Starbucks has expanded its product offerings beyond coffee to include food and other beverages and is strongly committed to ethical sourcing and sustainability. These factors, combined with consistent branding and customer engagement, have helped Starbucks establish itself as a leader in the coffee industry.

Starbucks’ approach to sustainability depends completely on ethical sourcing practices, reducing its carbon footprint, promoting social responsibility and environmental consciousness, and providing benefits to its employees.

Starbucks failed in Australia due to the saturation of the Australian coffee market, high competition from local coffee chains, and the high cost of real estate. Additionally, the company’s American-style coffee and business practices did not resonate well with Australian consumers, who preferred local coffee shops and cafes. As a result, Starbucks was forced to close down many of its stores in Australia, and its operations in the country have ultimately been deemed a failure.

Starbucks Statistics

Starbucks’ business strategy has been a significant factor in its success, leading to the company’s impressive growth and global reach. Today, Starbucks has become one of the most recognisable and successful coffee chains worldwide, with an extensive global presence and millions of loyal customers. Here are some statistics that showcase the scale of Starbucks’ success.

• Starbucks has a presence in over 76 countries .
• Starbucks employees over 4,02,000 employees
• There are 35,711 thousand Starbucks stores worldwide as of 2022
• Starbucks serves an average of 100 million customers per week worldwide.
• Starbucks is the largest coffeehouse chain in the world, with revenues of over $26.51 billion in 2022, says Statista 2023 report.
• On average, Starbucks sells 8 million cups of coffee daily, which means 500 cups per store.

Final Thoughts

In conclusion, Starbucks has successfully implemented a range of business strategies that have contributed to its growth and popularity over the years. The company’s focus on providing a premium customer experience and building strong relationships with its customers has helped it establish a loyal customer base.

Additionally, its strategic global expansion has allowed it to reach new markets and increase its revenue streams. While the company has faced some setbacks in markets such as Australia and Europe, it has adapted its strategies to continue its growth trajectory around the other parts of the world.

Starbucks’ product differentiation, consistent branding experience, and ethical brand reputation have all contributed to its success and helped the company stand out from its competitors. Overall, Starbucks’ innovative and customer-centric business strategies have made it one of the world’s most recognisable and successful coffee chains.

Ravpreet is an avid writer, prone to penning compelling content that hits the right chord. A startup enthusiast, Ravpreet has written content about startups for over three years and helped them succeed. You can also find her cooking, making singing videos, or walking on quiet streets in her free time.

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Starbucks China: Managing Growth through Innovation

Starbucks China: Managing Growth through Innovation ^ HK1099

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Product Description

Publication Date: July 18, 2017

Industry: Food and beverage sector

Source: University of Hong Kong

Starbucks has noted rapid growth in China, targeting 70% growth in three years. Although popular among a Chinese clientele, it is facing a number of internal and external challenges related to the Chinese economic slowdown, and issues associated with the paradox of growth. As a leader in innovation, it has developed and implemented top-notch solutions across domains such as HR, R&D, CRM, design, digital, product development, supply chain, electronic payment, etc., and needs to continue the innovation process to stay ahead of the competition. What can it do to expand and innovate continuously? As growth reduces elasticity, what should it do to retain the flexibility to address market demands and interruptions quickly?

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[Solved]Starbucks Delivering Customer Service Case Study Solution: 5 Questions answered

Starbucks Delivering Customer Service case study comes from HBR. A link to the original case can be found here . The case can be analyzed from the perspectives of marketing, sales improvement, and from a strategic investment point of view. The company is contemplating a strategic investment of $40 Mn to bolster its systems and process to cater to the needs of new customers. We can also analyze Starbucks delivering customer service case study from the standpoint of future organizational vision and reinventing a brand

For more such solved case studies as the Starbucks Delivering Customer Service case study, please follow the link

Starbucks delivering customer service case study summary

In 1971, Gerald Baldwin, Gordan Bowker, and Ziev Siegl established a small shop in Seattle’s market. The company excelled at selling whole Arabica beans to coffee purists, a niche market. In 1982, Schultz joined Starbucks. A few years later, Schultz purchased the company. After he ascended to power, new stores opened. Starbucks delivering customer service Case Study also narrates the story of the owners and their vision for the organization in order to deliver a unique customer value

The organization went public. Both whole-bean coffee and coffee with a higher price tag were sold at the stores. By 1992, Starbucks had 140 stores in the Pacific Northwest and Chicago and was competing favorably with smaller coffee chains such as Gloria Jean’s Coffee Bean and Barnie’s Coffee & Tea. In 2002, Starbucks was the most well-known specialty coffee brand in North America. The company’s annual sales and net income grew at a rate of 40% and 50%, respectively. The company had over 5,000 stores worldwide and over 20 million customers.

It focused primarily on marketing at the point of sale and in local stores. The slogan “live coffee” encapsulated Starbucks’ brand positioning. It demonstrated how vital it was to preserve the national coffee culture , which provided customers with a “ experience” comprised of the coffee, the service, and the atmosphere. They were all baristas and were referred to as “partners. ” They believed that if partners were satisfied, so would customers. Consequently, employee turnover was low. When a partner was hired, he or she was required to complete “hard skills” and “soft skills” training in order to connect with customers more effectively.

Several types of matrices, such as monthly status reports and self-reported checklists, were used to evaluate the performance of the service. In addition, they had a mystery shopper program known as “customer overview The shopper rated four “fundamental services.” The company’s goal was to become “the most recognizable and esteemed brand in the world.” Starbucks vice president Christine Day devised a plan to invest an additional $40 million per year in the company’s 4,500 locations. This equates to an additional 20 hours of work per week. They are unsure whether to believe what customers say about customer service and its impact on sales and profits.

Starbucks Delivering Customer Service case study: What Contributed to the exceptional positioning of Starbucks in the Coffee Segment?

The extraordinary success of Starbucks in the early 1990s can be attributed to Howard Schultz, who added value propositions to the company by enhancing its services and adding quality to them. Schultz believed that coffee drinking creates an experience in the customer’s mind known as “the third place.”

Contributing to Starbucks’ extraordinary success in the 1990s were:

Starbucks works directly with its growers to maintain the superior quality of its coffee beans, and because all of its stores are company-owned, they are able to maintain tight control over its products and services.

Starbucks trains its partners in both hard and soft skills prior to hiring them in order to foster positive relationships with its customers. They instructed their employees on how to interact with customers by smiling, making eye contact, and remembering their names and preferences.

• The Customers : Their ‘Just Say Yes’ policy encourages partners to provide the best service possible, even if it exceeds company regulations, and their three-minute serving time enhanced customer satisfaction.
• Partner satisfaction : Schultz referred to Starbucks’ employees as “Partners,” and the company provides even entry-level employees with health insurance and company stock as a form of incentive. They believe that customer satisfaction depends on the satisfaction of their partners, which is why the company has one of the lowest employee turnover rates in the industry as a result of their promotion strategy of promoting partners within their rank and approximately 70% of the company store manager was an ex-partner.
•  The atmosphere of Starbucks stores : Schultz’s intention is to create a drinking coffee experience, where people drink coffee not only for its taste and quality but also to enjoy the experience. It is a place where people come to relax and enjoy social interaction, which is why they have comfortable seating areas and the layout of their stores is inviting.
• Location of the stores: Starbucks stores are situated in high-traffic areas such as office buildings, shopping centers, and university campuses.

The store’s value proposition is so compelling because they provide high-quality premium coffee and services to their customers as a result of their highly controlled supply chain strategy. In addition, they serve additional menu items such as pastries, soda, and juice, and they regularly launch new products. They are so focused on their services that they are familiar with their customers if they frequent the establishment, and their attributes, ambiance, and seating environment are an added value proposition.

Starbucks Delivering Customer Service case study: What Factors led to the decline of Customer Satisfaction Scores in the Early 1990s?

The customer satisfaction rating for Starbucks has dropped as a result of a gap between the company’s primary attributes and the expectations that customers have for the brand. Paying a premium price for Starbucks did not make a whole lot of sense because the chain does not stand out in terms of either its image or its products when compared to other, smaller coffee shop chains.

Customers started believing that Starbucks had entered a money-making industry and that the company placed a higher priority on shop expansion than on their satisfaction. On many occasions, “service enhancement” and “service speed” were the areas that required the most improvement. Also shown in the presentation is the fact that 11.34 percent of people believe that improvements to the services they receive could make them feel more valued.

• As shown in Exhibit 10, the majority of respondents (83 percent) believe that maintaining a clean environment is an essential component in achieving high levels of customer satisfaction.

• Because seventy-seven percent of customers placed a high premium on convenience, Starbucks made it a point to open multiple locations across the country.

• Seventy-five percent of customers ranked being treated as a valuable customer as extremely important for the generation of customer happiness, and Starbucks partners made certain to remember their customers’ names, welcome them, and inquire about their preferred drink modification preferences, among other things.

Because of this, asserting that the company’s service has worsened in recent years would be an exaggeration, given that consumers continue to give Starbucks high marks in a variety of other categories. However, Starbucks is becoming increasingly concerned about the lengthening wait times.

Because Starbucks is more concerned with the value of its brand, expansion, and profit than with how customers perceive its coffee, the customer snapshot is not an ideal instrument for measuring customer happiness.

Starbucks Delivering Customer Service case study: How did Customer Transform from 1992 to the early 2000s?

The average customer in 2002 was younger than the average customer in 1992, and the average customer in 2002 had less education than the average customer in 1992.

•In 1992, Starbucks’ customers were mostly wealthy people, but by 2002, they also included people with lower incomes.

• The market research team also found that customers used stores, in the same way, no matter where they were or how they were set up.

• In the research, it was also found that the most frequent customers came in an average of 18 times a month, but the average customer only came in five times a month.

• The research team also found out that Starbucks’ customers had changed from wealthy, well-educated, white-collar women between the ages of 24 and 44 to younger customers with less education who wanted more options and took more work to please.

Is it advisable for Starbucks to Invest $40 Mn in its stores and staff? What is the rationale behind the investment and share a mathematical model to justify the investment?

The investment plan called for “relaxing the labor-hour restrictions in the stores” in order to increase the amount of available labor in each store by 20 hours per week at an additional annual cost of $40 million.

Starbucks Delivering Customer Service case study: Breakeven Calculations

Analysis of the Profitability of the Investment Plan Investment per Store = $40,000,000 / 5886 stores = $6795.8 per store

$172 is the revenue difference between customers who are satisfied and customers who are extremely satisfied.

For each location to be profitable, $6795.8 must be divided by 172, which equals forty customers. There are 570 customers who shop at each location on a daily basis.

For the company to become profitable, 40 of its 570 existing customers must be upgraded from satisfied to extremely satisfied. Therefore, Starbucks is recommended to invest $40 million in order to increase service speed and decrease the number of satisfied customers who become dissatisfied.

As there is a direct correlation between satisfied customers and loyal customers, this would result in the consumer base’s long-term commitment.

Starbucks Delivering Customer Service case study: The rationale behind the  investment

The objective of investing $40 million in labor was to maximize customer satisfaction by converting satisfied customers into highly satisfied customers, thereby increasing revenue. This was accomplished by increasing the level of satisfaction of satisfied customers. Exhibit 10 displays the results of the 2002 consumer survey conducted by Starbucks. According to the survey, approximately 65 percent of Starbucks’ customers consider prompt service to be one of the most important factors in determining their level of satisfaction with their Starbucks coffee experience.

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Starbucks Harvard Case Solution & Analysis

Home >> Finance Case Studies Analysis >> Starbucks

Approach to the Case

Historical financial performance reveals that growth and profitability ratios are constantly declining but based on the future projection of financial results; the profitability of Starbucks will begin to improve but growth rate in revenues will still follow a declining trend and this will be confirmed by 15% growth in specialty coffee industry and fall in per capita consumption of coffee in the US. However, launch of Starbucks’ new marketing strategy will attract more customers with project profitability. Additionally, the impact of selling through specialty sale agreements on brand image of Starbucks is expected to decline in future and this is confirmed by the marginal growth in sales revenues as per the forecast. Moreover, the fall in cost of sales show that Starbucks will be able to establish good relations with not only farmers but also with the exporters and decline in cost of sales is confirmed by lower cost of fuel in future.

Meanwhile, the projected results show that asset utilization will improve in future that will be confirmed by management of inventory through improved inventory control system. In addition to this, accounts payable and turnover ratios will increase and the same will be confirmed through management of inventory that will avoid excessive cost tied up in inventory.

External Environment

Starbucks has been able to secure a competitive position through introduction of innovative coffee products and integration of technology systems in its operations and advanced technology has given it a competitive edge.

However, if Starbucks does not take care of the technological changes in coffee industry then it may lose its competitive position because the quality and taste of coffee depends on the technology used.

Business and Corporate Strategy

Starbucks’ strategy is to develop its worldwide coffee brand through high quality and innovative products with worlds’ best work force; moreover, Starbucks is opening more outlets. It wants to exceed customer expectations and give a memorable experience through their every interaction with Starbucks. Additionally, it gives importance to cultural values and makes sure that growth and expansion do not erode cultural values.

Starbucks’ strategy and mission will lead to success in future because innovation and customer satisfaction is at the heart of business success.

Operations and Organization

Starbucks purchases high quality coffee beans from farmers and its quality control system insures the quality standards. Moreover, Starbucks has reached wide market and retail stores offer a unique experience and these outlets also serve community services to its consumers, which gives it a competitive advantage.

However, quality of coffee beans depends on skills of farmers and rapidly changing technology can affect the uniqueness of its coffee taste, moreover, an increase in fuel prices can affect inventory management. Meanwhile, proposed marketing strategy will target the world market of coffee lovers, which will help to achieve growth in sales revenues.

Is Starbucks growing in the best way possible?

Starbucks is growing through specialty coffee agreements, business ventures along with grocery stores and strategy is quite sensible because Starbucks has good knowledge of coffee products and it has a large variety of coffee products offering to new markets, however, Starbucks is delaying its marketing strategy that can help in order to create public awareness about the availability of Starbucks’ coffee products in local grocery stores. Moreover, business partners do not give a unique experience of Starbucks’ retail outlets. Therefore , Mr. Schultz’ concern is somehow valid because Starbucks can achieve more growth by establishing its own outlets instead of growth through other means.

Is Starbucks overextending in its quest for growth?

Starbucks offers unique coffee to premium consumers, therefore, establishment of new distribution channels will overextend its operations and this will not contribute to profit maximization in contrast to pursuing growth through establishment of own its outlets or by offering competitive prices. Therefore, overextension is not required and Mr. Schultz’ concern is valid in this regard.

How Starbucks should react to the opportunities available to it?

Starbucks has the world coffee market as a potential opportunity to increase its sales revenues and Starbucks can exploit its existing supply chain system to monitor and manage the inventory in the world market. Meanwhile, establishment of its own retail stores in high class areas of the world will lead to an increase its customer base, which will strengthen its competitive position. Mr. Schultz’ is recommended to exploit opportunity in the form of world market for coffee products in order to earn more revenues and should not consider McDonald’s offer.

Based on the analysis of Starbucks operations and its strategies, we as a consultant will recommend Mr. Schultz to look for growth opportunities by exploring new market segments and by introducing innovative products. Product development strategy is already a part of Starbucks corporate strategy, which should be emphasized in order to attract consumers and retain the ........................

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