Scribd Logo
Upload

Welcome to Scribd!

  • 690 views

    Starbucks - Delivering Customer Value

    Uploaded by

    cloudyapple
    Starbucks was enjoying high sales growth but customer satisfaction was declining. They proposed investing $40 million annually across 4500 stores to increase labor hours by 20 per store per week to improve speed of service and customer satisfaction. This investment of $11,441 per store could be justified if it resulted in converting unsatisfied and satisfied customers to highly satisfied customers through better training and service. Increased labor hours could achieve this by relieving pressure on baristas to improve quality and speed. The investment would improve customer satisfaction metrics and was likely to increase both sales and profits through higher customer retention and conversions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Starbucks - Delivering Customer Value

    Uploaded by

    cloudyapple
    690 views6 pages
    Starbucks was enjoying high sales growth but customer satisfaction was declining. They proposed investing $40 million annually across 4500 stores to increase labor hours by 20 per store per week to improve speed of service and customer satisfaction. This investment of $11,441 per store could be justified if it resulted in converting unsatisfied and satisfied customers to highly satisfied customers through better training and service. Increased labor hours could achieve this by relieving pressure on baristas to improve quality and speed. The investment would improve customer satisfaction metrics and was likely to increase both sales and profits through higher customer retention and conversions.

    Original Description:

    Starbucks Case Analysis

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Starbucks was enjoying high sales growth but customer satisfaction was declining. They proposed investing $40 million annually across 4500 stores to increase labor hours by 20 per store per week to improve speed of service and customer satisfaction. This investment of $11,441 per store could be justified if it resulted in converting unsatisfied and satisfied customers to highly satisfied customers through better training and service. Increased labor hours could achieve this by relieving pressure on baristas to improve quality and speed. The investment would improve customer satisfaction metrics and was likely to increase both sales and profits through higher customer retention and conversions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    690 views6 pages

    Starbucks - Delivering Customer Value

    Uploaded by

    cloudyapple
    Starbucks was enjoying high sales growth but customer satisfaction was declining. They proposed investing $40 million annually across 4500 stores to increase labor hours by 20 per store per week to improve speed of service and customer satisfaction. This investment of $11,441 per store could be justified if it resulted in converting unsatisfied and satisfied customers to highly satisfied customers through better training and service. Increased labor hours could achieve this by relieving pressure on baristas to improve quality and speed. The investment would improve customer satisfaction metrics and was likely to increase both sales and profits through higher customer retention and conversions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 6

    S TAR B U CK S

    DELIVERING CUSTOMER VALUE

    A Case Analysis

    Aditya Nagrare (2014PGP453) | Akshay Kohade (2014PGP024) | Anantha Ranganathan (2014PGP035) | Kapil Kanungo (2011IPM038)|
    K. Karunakar Reddy (2014PGP161) | Prakash Ramchiary (2014PGP257) | Ruthrakumar U (2014PGP313) | Saurav Maitra (2014PGP336)

    Defining the Problem

    2002 Starbucks enjoys its 11th consecutive year of 5% or higher sales growth
    Data indicates that Starbucks isnt always achieving customer satisfaction. Consider the following exhibit

    Exhibit 8 indicates that both


    component-wise
    and
    overall
    satisfaction of new customers is far
    below that of established customers

    A reasonable inference would be


    that customer satisfaction is on a
    decline, consistent with Christine
    Days observations

    The Proposal

    An investment of an additional $40


    million annually

    ..across 4500 stores..

    ..an increase of 20 labour hours per


    store, per week

    Target - to improve speed of service


    and customer satisfaction

    The Question

    An Overview

    Would such an investment translate


    into excellent customer service?

    What would be the impact on sales


    and profitability?

    Calculating the Investment per Store

    Total investment proposed


    Total no. of company operated stores
    Investment per store

    (We neglect the 1078 licensed stores in our calculation, because the investment would not cover these)

    Reasoning: To deduce whether the investment of $11,441.65 per store would be justified, it is necessary to
    calculate the extra revenue that can be generated from the investment.

    The exhibit indicates


    that the average ticket
    Consider Exhibit 9 below:
    size/visit of
    highly
    satisfied
    customers
    exceeds
    that
    of
    satisfied
    and
    unsatisfied customers

    =
    =
    =
    =

    $40,000,000
    3496
    40,000,000/3496
    $11,441.65

    The case further mentions that the most loyal customers visit as frequently as
    18 times a month what we consider Ideal customers

    Possible CustomerConversions
    Consider the following possibilities of generating extra revenue:

    Case 1: Convert Highly Satisfied customers to Ideal customers

    Case 2: Convert Satisfied customers to Highly Satisfied customers

    Case 3: Convert Unsatisfied customers to Satisfied customers

    Case 4: A combination of the above

    Analysing the Impact on Bottom-Line

    (given)
    (Exhibit 2)

    Thus, extra revenue


    could be generated by
    converting
    some
    unsatisfied
    and
    satisfied customers to
    highly
    satisfied
    customers

    Contribution per Customer Existing Scenario

    Using Exhibit 9, we calculate contribution earned from each type of customer


    Contribution earned from each customer per year = Average Ticket Size per visit x No. of visits per customer
    per year
    Contribution - Ideal customers
    =
    $4.42
    x
    18
    =$954.72
    Contribution - Highly Satisfied customers
    =
    $4.42
    x
    7.2
    =$381.89
    Contribution - Satisfied customers
    =
    $4.06
    x
    4.3
    =$209.50
    Contribution - Unsatisfied customers
    =
    $3.88
    x
    3.9
    =$181.58

    Contribution per Customer Scenario after Investment


    Case 1: Converting Highly Satisfied customers to Ideal customers
    Extra contribution received on conversion
    = Contribution per Ideal - Contribution per Highly Satisfied
    = $954.72 - $381.89 = $572.83
    Number of customers to be converted per store per year to break-even after investment
    = Investment per store per year / Extra contribution received
    = $11441.65 / $572.83
    = 19.97
    Case 2: Converting Satisfied customers to Highly Satisfied customers
    Extra contribution received on conversion
    = Contribution per Highly Satisfied - Contribution per Satisfied
    = $381.89 - $209.50 = $172.39
    Number of customers to be converted per store per year to break-even after investment
    = Investment per store per year / Extra contribution received
    = $11441.65 / $172.39
    = 66.37
    Case 3: Converting Unsatisfied customers to Satisfied customers
    Extra contribution received on conversion
    = Contribution per Satisfied - Contribution per Unatisfied
    = $209.50 - $181.58 = $27.91
    Number of customers to be converted per store per year to break-even after investment
    = Investment per store per year / Extra contribution received
    = $11441.65 / $27.91
    = 409.92

    Analysing the Impact on Bottom-Line

    Impact of Increasing Wage Hours

    Consider Exhibit 3 below:

    Total cost of labour per store per


    week = No. of labour hours per
    week x Wage rate per hour =
    360 x $9 = $3240

    Revenue generated per week


    per store = Average daily
    customer count x No. of days x
    Average ticket = 570 x 7 x $3.85
    = $15361.50

    Contribution generated per store per week = Cost of Labour Revenue = $15361.5 - $3240 = $12121.50

    Increasing labour hours per week by 20

    Total cost of labour per store per week = No. of labour hours per week x Wage rate per hour = 380 x $9 = $3420
    To achieve the same contribution of $12121.50, the revenue that must be generated is $3420 + $12121.50 =
    $15541.50

    Approach 1 - Expanding Customer Base

    Maintaining ticket size at $3.85,

    Required customer base to generate revenue of $15541.50 = Revenue / Ticket Size = $15541.50/$3.85 = 576.68

    Required increase in the number of customers to achieve desired revenue = 576.68 570 = 6.68

    Thus, a 1.16% increase in the customer base is required to achieve desired revenues

    Approach 2 Increasing Average Ticket


    Maintaining customer base at 570,

    Required average ticket to generate a revenue of $15541.50 = Revenue / Customers = $15541.50/570 = $3.90

    Thus, a 1.16% increase in the average ticket is required to achieve desired revenues
    The case suggests that it would be easy to generate $20,000 per store, in which case the break-even revenue
    of $15541.50 would be quite easily achieved.

    Analysing the Impact on Bottom-Line

    Training:

    With the additional training, we could provide soft skills training to baristas, which would help us improve
    customer satisfaction measures such as friendlier staff, providing personal touches to service, etc, which
    are attributes listed in Exhibits 10 and 11.

    We could also train them in hard skills, to improve the quality of coffee, knowledgeable staff, etc.

    Quality of Coffee and Service

    With the investment of $40,000,000, there would be 20 additional hours of labour per week per store, with
    which we could relieve the pressure per barista, thereby leading to faster service to reduce the waiting
    time to below 3 minutes.

    The above would additionally improve the quality of coffee

    And back to the Questions

    Would such an investment translate into excellent customer service?


    Yes. The investment would allow for training and operational efficiencies which would improve
    customer satisfaction measures listed in Exhibits 10 and 11

    What would be the impact on sales and profitability?

    Converting customers would increase the profitability, thereby justifying the additional investment.
    Training also would improve the quality of service, which would further increase sales or generate new
    customers.

    Conclusion

    CONSIDERING THE GAINS AND RETURNS INVOLVED, THE INVESTMENT OF $40,000,000 IS JUSTIFIED

    Thank You!
    Measures to Improve Customer Satisfaction

    You might also like