Starbucks' Core Business Concerns

Starbucks is guided by 4 strategic pillars. A good coffee foundation, great products that are enhance the coffee experience, care for the environment and the Starbucks experience.

While Starbucks may be known for its top quality coffee, I personally feel that its core business is the “Starbucks experience”. The creation of Starbucks culture in the community clearly shows that Starbucks is a “people to people business”. Starbucks mission is “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.” (http://www.starbucks.com.sg/our-heritage.html). With these in mind, I can strongly conclude that Starbucks core business is its services (Environment, culture, connection) and is supported by its products (Coffee).

How does Starbucks provide service differentiation?

Knowing that services are intangible, inseparable, variable and perishable, Starbucks makes sure that their staffs are well trained. By having well trained and cared after staff, they are cherished by Starbucks. Training ensures a “One voice” policy where all Starbucks worldwide have a consistence “flavor” with a touch of local taste throughout the world. Their staffs are also trained to create brand awareness and listen to the customers. It is through the staff that the “Starbucks culture” is formed.

As it is evident that Starbucks’s main concerned is customer’s feedback and concerns, the whole service experience is different from its competitors because Starbucks listens. By listening to its customers, Starbucks will be more locally relevant and local customers can connect to.

Starbucks is built upon word of mouth; something which only happens when there is a strong connection with between the customers and shop.

Evaluate Starbucks atmosphere/physical surroundings.

While doing this project, I visited three different Starbucks around Singapore and one in Malaysia; Johor Bahru; City Square Mall. In Singapore, I visited the ones at Bugis Junction, Orchard Ion shopping mall and Tampines Mall. In all four outlets, I did the same actions. I would ask the staff for recommendations, after which I would order a green tea Frappuccino and spend between 1-2 hours (1/2 an hour at the Malaysia outlet due to time constrain) observing.

I observed that in all four different outlets, the concept was almost identical. The same wooden and homely feel which makes one feel at home and relax. Even in the Malaysia outlet, I felt that I was in Starbucks Singapore.

In addition, I observed that the Starbucks logo was everywhere throughout the store; from the store logo, to the cups, to the sandwich wrapper and even the condiments provided (Sugar). There were the same social responsibility poster in all three Singapore outlets and they were prominently located throughout the shop. There are brochures regarding social responsibility just above the condiment area in all three Singapore Starbucks outlets.

All four Starbucks visited provided almost the same level of service. They all provided the same level of great service and showed the same enthusiasm when serving me. (The ones at Malaysia did have some language barrier but they took the effort to speak good English back to me).

I also noted that all three Starbucks outlet in Singapore are located near an open area. All three outlets have both indoors and outdoors sitting.

Something that most would not take notice would be the roasting of the coffee beans. The sound and smell from the roasting makes the atmosphere lively and stimulating. However I did not see any roasting machine in sight.

What are the strengths and weaknesses of this atmosphere? What can be done to improve the atmosphere at Starbucks?

In my personal opinion, the strength of this atmosphere would be that customers have a choice of where to be seated, indoors to feel cool or out doors to soak up the sun. This is a very good setup as customer’s needs vary. Some might need a warm environment after being in an air-condition place for hours, where others would appreciate a cool place. The sound and smell from the roasting of coffee also makes one want a cup of coffee. In addition, the lack of technology used in the environment also creates a nostalgic feel.

However the weaknesses in my opinion are the fact that the outdoor sitting area is directly under the sun. A suggested possible solution would be installing a beach umbrella, it would be perfect. Another weakness would be the times spend on table occupancy just to relax and chill. This affects potential dine in customers’ opportunity. One solution would be having more seats as I noticed Starbucks sitting arrangement are quite widely spread (Which may be a good thing).

Part B (5 points): Determine what gaps in the 5 Gap Model of Service Quality (Appendix A in your textbook) that Starbucks is currently facing. Next, provide suggestions for improvement for each gap that you believe Starbucks is currently facing.

There are 5 Gap in the Gap Model. Starbucks do not face Gap 1 (Consumer expectations versus management perception) due to the fact that it is their culture to listen to customers and their feedback/suggestion that will be communicated to the management through the staff. By constantly listening and opening up for both customers and staffs feedback the management perception will always be grounded.

Starbucks, in my personal opinion have adequate commitment to service quality. This can be seen from its policies and being put in to actions by its service staffs. Starbucks makes its service quality standard feasible for its service staff to carry it out. This can be supported by Starbuck’s quality training program to maintain standardization and a common targeted goal for all to follow. Starbucks also have enough service staff to cater to all customers ordering. Starbucks staff also received great benefits and fair wage. “Starbucks offers comprehensive benefits packages to eligible partners working at least 20 hours per week” (http://news.starbucks.com/article_display.cfm?article_id=225) However, from my observation, there’s one little problem that Starbucks is facing. Due to the large amount of customer during the peak period, there seems to be a slight delay in the clearing of tables for the next group of customer. This problem can easily solve if Starbucks educate its customer to throw their own leftovers. Hence with all these in mind, Starbucks is not facing any Gap 2 (Management perception versus Service Quality Specification) problems.

Because Starbucks relies more on human rather than on technology, the chances of facing Gap 3 (Service Quality specifications versus Service Delivery) will be more. Even with all the trainings and enforcement, there is surely a time where services provided will varies. One such example I faced was when I asked for extra milk for my coffee, some outlets will provide the milk without question asked while some other outlets will need me to bring my coffee to the counter to be verified. This might be minor but it clearly shows the difference in actions. This is only one such example to show that Starbucks is facing Gap 3.

Recently, there have been quite a substantial amount of promotions from Starbucks. The products displayed on promotional posters are nothing close to the real thing. This is made even worst when there is huge crowd purchasing the same products. When service staff rushed out order, the quality fall short on what was shown and described in the poster. I would say that on normal days, Starbucks indeed do not face Gap 4 (Service Delivery versus External Communications). However with promotions on going, Gap 4 is truly evident from customers’ point of view.

Gap 5 (Expected Service versus Perceived Service) in my personal opinion will exist in most of not all companies. As the company expends, this Gap gets bigger. This is true for Starbucks. But one thing for sure is that Starbucks is doing well in minimizing Gap 5 through its rigorous training and great staff welfare. “We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard.”(http://www.starbucks.com.sg/mission-statement.html).

Part C (16 points): Developing Marketing Strategies for Starbucks

Conduct a SWOT analysis of Starbucks. This should include 2 items for each component of the SWOT (2 strengths, 2 weaknesses, 2 opportunities and 2 threats).

Strengths

Location and operating hours.

Starbucks stores are located in high traffic, high visibility locations, with the idea of capturing crowds from the different heartland with their signature and seasonal drinks. Having to be located at easily accessible prime areas, Starbucks are able to reach out to more customers than their competitors. With 80 outlets in Singapore of which 18 outlets that are operating 24 hours a day, 7 days a week, Starbucks provides more convenience to its customers (http://www.starbucks.com.sg/stores-24h.html). As people enjoys spending longer hours at cafe catching up with friends, especially during the weekend’s nights, having a cafe that operates 24 hours will appear as a more attractive option for the customers.

Established brand name.

Starbucks is an established brand with huge media presence that can be easily recognized by many. Coffee drinkers trust the quality of coffee that Starbucks sell, and they relate coffee to Starbucks instantly. This allows Starbucks gain a competitive advantage over their competitors. Aside from coffee, consumers relate the brand name Starbucks to relaxing and discussion. These factors differentiate Starbucks from their competitors and prompt customers to choose Starbucks as their first choice. Also, having an established brand name means that Starbucks spend lesser effort in their advertising campaign. Instead, the loyalty customers will act as the mobile advertisement as they share their experience with their friends.

Weaknesses

Inconsistency in the quality of the beverages.

The inconsistent quality of coffee across outlet leads may lead to customer dissatisfaction. I do notice that the green tea Frappuccino that I ordered varies in taste across outlets due to the sugar syrup that the staffs have added into the drink. The customer may find the sweetness acceptable in one outlet but may find it unacceptable at the other. Often Starbucks will offer a new drink as a replacement, but this ended up as an additional expense to Starbucks and a bad experience for the customer. This is why Starbucks always sends its staff for training.

Dependency on supplier.

Dependency on single supplier might run the risk of non-delivery. Hence the need to maintain good relationship with suppliers and to engage more than just one supplier should not be neglected. Starbucks rely on the suppliers and vendors to provide high quality products. Any shortcomings of the suppliers and vendors will damage Starbucks reputation and potentially affecting Starbucks results of operations. A vendor or supplier’s failure to meet Starbucks standards, provide products in a timely and efficient manner and comply with applicable laws may negatively impact Starbucks business and profitability.

Opportunities

Delivery services.

Customers who values convenience will also welcome the idea of Starbucks providing delivery services. Due to certain constraints imposed by the company or the heavy workload, the office crowd may not be able to step out of their office for coffee. Having to provide delivery services will add value to the services that Starbucks is offering. In the current century where people get their purchase done online, Starbucks should make online ordering possible to avoid losing this group of IT savvy consumers to their competitors who are already providing online ordering services.

Organic products.

While the lifestyle of people has changed over the years, there is also an increase in disposable income and people are more willing to spend on more premium products. Thus, Starbucks should find ways to attract them. Consumers are always on the lookout for healthier options. Providing low-fat milk is no longer sufficient to satisfy the consumers. Customers are looking for organic products and whole meal products which Starbucks are lacking. In view of the selection of pastry, Starbucks may replace some of the buttery products with whole meal items. This might be especially useful technique in an aging Singapore. Starbucks might want to make adjustments to their menu to cater to the older crowd.

Threats

Economic problems.

Starbucks relies very much on consumers. Their income will result in the changes in sales pattern. Poor economy may lead to consumers having lesser money for purchases. This will result in lesser customer traffic and average value per transaction. In the long run, this will negatively impact Starbucks financial performance since revenues are lesser. Such unforeseen economic problems will also result in an increase in commodity cost and this lead to higher cost price. This place Starbucks in a difficult position as increasing the price of their product will further impact the customer traffic.

Climate changes.

The supply and price of coffee can be affected by multiple factors in the producing countries, including weather, political and economic conditions as well as the actions of certain organizations and associations that have attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. The supply of coffee will impact the running of day-to-day business should there be any shortage of coffee beans. There will be an adverse impact on Starbucks profitability when they are not able to fulfill the demand.

What strategic initiatives could Starbucks undertake for each element of the Product Expansion Grid (see Slide 12, Chapter 3 notes). Please list 2 initiatives for each element in the grid (2 for product development, 2 for market development, etc).

Market penetration

More Advertising.

Starbucks is one company with little advertising done to promote its product. One can hardly find advertisement of Starbucks on television or magazine. Hence, customers always have to rely on Starbucks’s website/Facebook pages or through word of mouth to learn of any recent updates on Starbucks such as new product launch.

This is a risky act as it means certain customers might be not aware of the new product launch if he or she does not check for updates. Starbucks should engage in more advertising campaigns, with the idea of updating the current customers and reaching out to the new customers. Also, Starbucks may consider becoming the sponsor for certain events and which eventually; provide them with a chance to advertise their products.

Self-service water point.

I observed that Starbucks do not provide water point and customers have to queue for both order and plain water. Such an act will lead to unwanted delay for people who are queuing for orders. Hence it is recommended that Starbucks have a water point set up where customer can help themselves with the plain water. Since it is a self-service water point, no additional staffs are required to be deployed to station at the water point. Moving forward, this will ease the queue at Starbucks and also, it is unlikely that the customer will cut queue in their attempt to get a cup of plain water from the staff. On top of that, staffs will be able to achieve productivity at work since there is lesser distraction from the customer who interrupts them to request for a cup of plain water.

Market development

Loyalty programs.

In my personal opinion, The Starbucks Card, which aims to retain and promote loyalty, has failed to reach its maximum capacity. Starbucks need to increase the advertisement on the Starbucks Card to reach out to more people, such as advertising it on magazines and newspaper instead of relying on its websites and customers.

On top of that, more benefits should be introduced or otherwise, the customers can’t find any distinctive factor that differentiate Starbucks loyalty card from its competitors. For example, Starbucks may customize uniquely gifts for loyalty customers instead of just having them to enjoy complimentary beverages after a specific number of purchases. In addition, there is a high tendency that customers forget to bring their Starbucks Card while purchasing. Hence, allowing the customers to provide the staff with their NRIC number to clock in the loyalty points would be a good alternative.

Delivery services.

Till date, there is still no specialty coffee company in Singapore that provides delivery services. To be the first company that initiates this idea would pose a significant threat to its competitors since delivery services provide much convenience for customers. By offering delivery services, we can target customers who are too busy to step out of their office or home but yet at the same time, they would like to have some coffee. A new customer segment!

Product development

Since Starbucks main product is the Starbucks experience, I will start with “Enhancing customer services”.

It is recommended that service staff attend courses related to communications and complaints handling to equip them with the relevant skills in providing professional services to the customer. I have notice that most service staff does not have much communication during customer interaction except for the short moment where the customer placed an order.

It would be good to engage the customers in small casual conversation to enhance the overall service experience and to build customer loyalty. Nevertheless, it is important to note that having to achieve this will only put Starbucks on par with its competitors. To stand out from its competitors, Starbucks service staff should make the effort to remember the customer and their orders, should the customer revisits. To get this started, they may consider asking for the customer’s name and pen it down on the cup, just when they pen down the beverages order on the cup. When the beverage is ready for collection, the service staff will call out the name instead of their usual practice of calling out the orders. Such customer service with a human touch will go a long way to enhance customer relations and satisfaction, thereby leading to increased business and revenues.

Increased customer satisfaction.

One of the area that customer are not entirely satisfy with Starbucks is their variety of products. For someone who always goes to Starbucks, the variety of products sold in Starbucks is limited. When this happens, customers tends buy from other shops. Hence it is essential that Starbucks introduce new items on a monthly basic. Customer value new items and they will be thrilled with Starbucks launching new items monthly. This is a good way of retaining customers. Also, Starbucks should revisit the pricing of their products. As the price of the Starbucks’s product are considered to be on the higher end as compared to their competitors, it would be advisable to ensure that the product sold is indeed value for money.

Diversification

Starbucks Ice Cream.

Working in the Ice Cream industry for more than a year, I feel that there is a great market that Starbucks can tap upon. As Singapore is a warm and humid country, Ice Cream would be an attractive alternative that Starbucks can look in to on top of its current cold beverages. Different types of coffee and tea flavor ice cream would diversify Starbucks market.

Organic Products.

Also an opportunity, Consumers are always looking for healthier options. Providing low-fat milk is no longer sufficient to satisfy the consumers. Customers are looking for organic products and whole meal products which Starbucks are lacking. In view of the selection of pastry, Starbucks may replace some of the buttery products with whole meal items. This might be especially useful technique in an aging Singapore. Starbucks might want to make adjustments to their menu to cater to the older crowd.

Sources:

http://www.starbucks.com.sg/our-heritage.html

http://news.starbucks.com/article_display.cfm?article_id=225

http://www.starbucks.com.sg/mission-statement.html

http://www.starbucks.com.sg/stores-24h.html