By: Jared Sabelhaus Jeff Porter Kevin Clark

Introduction
It used to be regular or decaf when people talked about what kind of coffee they preferred, however today it is a whole new world when people talk about their coffee drink of choice. Sure, regular and decaf are still choices, but with the proliferation of Starbucks nationally and worldwide, one is more likely to hear orders that include; Toffee Nut Crme, Caramel Macchiato, Espresso Macchiato or many more variations of the new coffee drinking generation. Although, Starbucks has humble beginnings, it evolved over the years into a retail giant, branching out into new areas and partnering with other giants to get their brand to the masses. There are several reasons why Starbucks is on top of their market, one being the meticulous attention they pay to details. Starbucks prides itself in providing the highest quality product with excellent customer service. Coffee beans were imported from all over the world and freshly roasted in shop. The stores were constructed to give the customer a unique and intimate experience upon every visit. The immense effort by Starbucks employees was part of Starbucks brand strategy to weave the coffee house experience into Americas third place. A place between home and work where people could read by themselves or meet with friends while drinking the best specialty drinks in the country. Though Starbucks grew to be the icon for the specialty coffee market, after the turn of century, market and customer research started to show alarming trends. The data was not only showing a lack of image and product differentiation between Starbucks products and other smaller coffee chains but also a discontent with customer service. In response to these issues, Starbucks decided to make changes with one option

being a $40 million dollar investment in additional labor for its retail stores. In this case we analyzed the current issues and problems facing Starbucks, and we came up with different options and alternatives that they could possibly pursue. In conjunction with our options we are going to analyze the presenters approach and our critiques on options they provide.

Assumptions
The data collected on customer service for Starbucks from mystery shopper programs and other sources is accurate and reflects the current feelings of customers. All information from financial statements that are taken from the credible internet sources is accurate.

History
1970 - Company founded by Gerald Balwin, Gordon Bowker and Ziev Siegl. 1971 - Starbucks opens its first location in Seattles Pike Place Market. 1982 - Howard Schultz joins Starbucks as director of retail operations and marketing. Starbucks starts providing coffee to fine restaurants and espresso bars. 1983 - Schultz travels to Italy, where hes impressed with the popularity of espresso bars in Milan. He sees the potential in Seattle to develop a similar coffee bar culture. 1984 - Schultz convinces the founders of Starbucks to test the coffee bar concept in a new location in downtown Seattle. 1985 - Schultz founds Il Giornale, offering brewed coffee and espresso beverages made from Starbucks coffee beans.

1987 - With the backing of local investors, Il Giornale acquires Starbucks assets and changes its name to Starbucks Corporation. 1988 - Starbucks introduces a mail order catalog with service to all 50 states. 1991 - Establishes a relationship with CARE, the international relief and development organization, and introduces the CARE coffee sampler. It becomes the first privately-owned U.S. company to offer a stock option program that includes parttime employees. Opens first licensed airport location in Seattle. 1992 - Starbucks completed initial public offering with Common Stock being traded on the Nasdaq National Market under the trading symbol SBUX. 1996 - Starbucks opens its first stores abroad in Japan, Hawaii, and Singapore. Starbucks and Dreyers Grand Ice Cream, Inc. introduce Starbucks Ice Cream and Starbucks Ice Cream Bars. Pepsi-Cola and Starbucks form a business venture called North American Coffee Partnership and it begins selling a bottled version of Starbucks Frappuccino blended beverages. 1998 - Acquires Seattle Coffee Company in the United Kingdom with more than 60 retail locations. They signed a licensing agreement with Kraft Foods Inc. to extend the Starbucks brand into grocery channels across the U.S. They opened two new coffeehouse concepts, Caf Starbucks in Seattle and Circadia Coffee House in San Francisco. 1999 - Starbucks acquired Tazo, a Portland, Oregon based tea company. 2001 - They begin offering wireless internet access in stores. They begin offering the Starbucks card, a store value card for customers to use and reload (3).

S.W.O.T. Strengths
Although Starbucks spent little money on building their name it has become one of their biggest strengths. Starbucks has ingrained itself as a household name and even been immortalized in movies. Starbucks size has contributed to its continued sales growth. Radio show hosts Bob and Tom have a running joke about a Starbucks on every corner. This might not be an accurate portrayal, however; they do have over 4500 retail stores, thereby giving Starbucks the ability to distribute their product more effectively than their competitors. Atmosphere of Starbucks is one that is meant to get people to relax. To do this Starbucks provides fireplaces, leather chairs, newspapers, etc. This combined with a very large product line gives the customer the feeling of having a relaxing and trendy experience. Starbucks continues to be a trendy place to go. With live music and other events continually going on at the local Starbucks, people go to be seen as well as to be a consumer (8).

Weaknesses
No coordinated strategic marketing group. Though, senior executives assume marketing-related duties often times however, due to dual roles, information on trends is overlooked.

With the expansion comes increased overhead costs such as; taxes, insurance, and utilities expenses.

The wide variety of products though a strength for product diversification is also a weakness because it places a heavy burden on Starbucks partners to learn a huge variety of drink combinations and thereby taking more time to complete drinks which slows the delivery down (8).

Opportunities
Coffee consumption is on the rise in the U.S. with the biggest growth being among drinkers of specialty coffee. This coupled with that fact that eight states are without a single company-operated Starbucks and that it is widely believed that the company is far from reaching saturation levels in many of their existing markets bodes well for expansion not only in the U.S. but also worldwide. Licensing agreements with other distribution channels is a very good way for Starbucks to extend their brand name. For instance, a bottled version of Frappuccino that is distributed by PepsiCo is a $400 million dollar franchise. Continued innovation of products and service. Innovations in product lines will continue to drive sales while innovations in service will enable Starbucks partners to quickly make new products (8).

Threats
Loss of intimate atmosphere with continued expansion. Customers will feel that each retail store has just become a cookie-cutter of other Starbucks. Evolving customers and customer expectations. Service time is among the top complaints of customers and Starbucks overlooked new customer wants and needs. Loss of image and/or product differentiation. Competition from smaller coffee chains has blurred the differentiation in the eyes of specialty coffee drinkers. No longer are patrons of coffeehouses there because they know a lot about quality coffee but more for the convenience and specialty of drinks (8).

Marketing And Finance

To fully evaluate Starbucks, we need to take a closer look at their financial statements and ratios. These numbers come from the fiscal year 2002. The profit margin tells us for every dollar in sales it generates .065 cents in profit, or 6.5% (3). A measure of profitability is the return on equity, which is a measure of how the stockholders did during the year (10). For every dollar in equity, Starbucks generated around 12.5 cents in profit, or 12.5% (3). Return on assets is a measure of the profit per dollar of assets (10). For every dollar of total assets, Starbucks generated about 9.4 cents in profit, or 9.4% (3). For some liquidity ratios, we will use the current ratio, quick ratio, and net working capital. The current ratio is a measure of a companys short-term liquidity (10). For every dollar in current liabilities, Starbucks is covered 1.58 times over (3). The quick ratio is

computed almost exactly like the current ratio except it excludes inventory (10). Starbucks quick ratio is 1.09 times (3). Net working capital is the ability to meet shortterm obligations (10). The net working capital for Starbucks is around $310 million (3). One feature of Starbucks is that its debt to equity ratio has been 0 or slightly over 0 for many years meaning that they are financing their assets with equity. The total assets have increased from $1,846,519,000 in 2001 to $2,292,736,000 in 2002, an increase of about 24%. The total asset turnover for Starbucks is 1.43 times meaning for every dollar in assets they generate $1.43 in sales (3). Starbucks seems to have a solid financial background with increasing profits. From the year 1998 to 2002, gross profit has increased from $730 million to over $1.9 billion. Net revenues from 2001 to 2002 increased about 24%, while the cost of goods sold only increased 21% (3). The year before that net revenues increased by 21.5% and cost of goods sold by only 15.5%. Net income has steadily been increasing from $68.4 million in 1998 to around $215 million in 2002. The cash flow provided by operating activities in 2002 was over $477 million compared to $318 million in 2000. The net cash flow from investing in 2002 is -$485 million compared to -$373 million in 2000 (3). Finally, net cash provided by financing activities was $67 million in 2002 compared with the 2000 total of $59 million. The reason this isnt a very large increase is because of the repurchase of over $52 million in common stock in the year 2002 decreasing the amount of cash provided (3). The key ratios and financial statements for Starbucks are for the most part above the industry standard (2). Starbucks statements provide it with a solid foundation to continually grow at the pace they want to.

Financial Ratios Profit Margin Return on Equity Return on Assets Current Ratio Quick Ratio Net Working Capital
http://www.starbucks.com

Starbucks 6.5% 12.5% 9.4% 1.58 1.09 $310 million

$2,500,000 $2,000,000
Total Assets

$1,500,000 $1,000,000 $500,000 $0 2001 2002

Current Assets Total Liabilities Current Liabilities Total Equity

$40 Million Investment Starbucks had not been meeting the customers expectations as far as customer service goes. Christine Day made up a plan that would invest an additional $40 million annually in the companys 4,500 stores, thereby allowing each store to add what would be 20 hours of labor a week. She thought this would solve the problem of customer satisfaction by improving the speed of service and making it more convenient. However, this plan has to be looked at in detail to see if it is worth it and what impact it may have on their financial statements and bottom line figures. Day says, The investment is the EPS equivalent of almost seven cents a share (8). She believes we shouldnt look at this

extra labor as an expense, but more like an investment. Each $6 million in profit contribution translates into a penny a share, says Day. If customers want better service, well invest in it and well see a positive return, not an expense (8). By our calculations the $40 million investment would cause the general and administrative expenses, since it is a labor expense, to increase by $40 million to $242,161,000 (3). This in turn would cause operating income to decrease from $318,725,000 to $278,725,000. Net income would then decrease by $40 million from over $215 million to around $175 million. If we used 2002 numbers, the effect of EPS would be about a 10 cent decrease because before it was 54 cents and now it is only 44 cents (3). This is not just a one time investment of $40 million though. To keep the customer satisfaction level high, they must continue to invest in extra labor if they feel this will help with the satisfaction of customers. So each year Starbucks will be spending at least $40 million, probably more since they aggressively want to expand, just to add 20 hours of labor each week in each store. What will shareholders think when their earnings are possibly losing anywhere from 7 to 10 cents a share just from this one investment? Since this investment will have to occur every year, Starbucks earnings will have to dramatically increase just to keep pace with their earning per share so they wont continue falling.

Market Summary Starbucks is beginning to move into a coffee shop style of business offering the internet to the growing number of customers who are using it. Their focus has been more on customer service and providing high quality products. Starbucks is expanding their

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brand recognition by licensing their products and providing more incentives through the Starbucks Card (8). Target Market Starbucks target market includes those between the ages of 18-40 that are affluent, well educated, and sophisticated. Both men and women enjoy coffee today, so there is no real distinction among gender. A rise in consumption among ethnic groups has given Starbucks more opportunities in areas that include Hispanic and Cuban Americans. Office workers in downtown urban areas that are near professional buildings are gaining popularity. College campuses, airport terminals, and busy shopping areas are all high traffic locations for potential customers (8).

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Market Analysis Starbucks is currently attempting to pursue the following types of people to adopt their products and continue doing business with them for a long time. They want people that are loyal customers and who continue to spend their money with us. As you can see from the graph on the previous page, established customers have a higher, more positive attitude toward Starbucks. Those people with a hectic, always on the run lifestyle need the caffeine of our products to keep them going, but also people with a relaxed lifestyle who like to spend the time in our stores reading or browsing the internet can do so (8). Market Needs Starbucks knows that people need that extra shot of caffeine to keep them going many days, and often times people even become addicted to their products. The growth of the internet and the use of the internet within Starbucks stores allows for customer loyalty and brand recognition because Starbucks was one of the first to do this. A highly trained, knowledgeable, friendly and efficient staff will increase customer satisfaction (8). Market Growth The total number of stores opening has increased since 1998 from 1,886 stores to 5,886 in 2002, an increase of over 212% (8). Large cities that cater to large numbers of traveling business people and tourists have typically become beneficial to those wishing to use the internet. Business people use the internet services to catch up on email and communications with their family, and tourists do the same. Population continues to grow, especially with college and university students providing for an even larger market.

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Target Market Growth Starbucks has been trying to expand overseas for a couple years now. The total number of international stores has grown from 131 stores in 1998 to 1,312 in 2002, an increase of over 901% (8). Currently, Starbucks has stores located throughout Europe including Switzerland and England with future plans for Germany. They already operate over 300 stores in the United Kingdom, Australia, and Thailand with Japan being its largest international market at over 400 stores (8). Their goal is ultimately to have over 15,000 international stores.

Competition Starbucks faces competition from small-scale specialty coffee chains. Caribou Coffee tried to differentiate itself through its environment by providing the look and feel of an Alaskan lodge with fireplaces. Peets Coffee & Tea tried to provide the freshest

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coffee by having the coffee roasted and shipped within 24 hours (8). They also face competition from independent specialty coffee shops. These shops offer a wide range of food and beverages, including beer, wine, and liquor. Competition also comes from donut and bagel chains like Dunkin Donuts, which is beginning to offer flavored coffees (8). Keys to Success There are many key factors for Starbucks to remain successful. They must continue to be big and stay small. This means that growing at the pace they are they must continue to establish new markets with new customers, but at the same time remain small enough to remain authentic and not have the same store outline everywhere. Starbucks must continue to treat all employees, customers, and the environment with respect. Almost all employees have some kind of stock option plan and health care. They must maintain their unique, innovative, upscale atmosphere that will differentiate it from their competition. The establishment of Starbucks as the third place where people can come for socialization and entertainment is a key (8). They must continue to be innovative and diversified. By constantly coming up with new products and by having a wide range of products they can attract new customers and retain existing ones. Critical Issues Starbucks faces many critical issues that involve risks. It could be very difficult to change some older habits of coffee drinkers that just like a traditional or decaffeinated drink. Older people may be intimidated by the upscale atmosphere and many do not know how to use the internet. Younger people however may not have the money to buy from Starbucks and are often times bored with the music and entertainment selection. Another issue is whether or not people are willing to pay for the services of the internet.

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A lack of knowledgeable staff will significantly reduce the satisfaction among customers if service is just average.

Marketing Strategy The main strategy for Starbucks is to deliver improved customer service through service, cleanliness, quality, and speed of service. The growth of the company will occur through expansion of the retail market, product innovation, and finally service innovation. They will try to cluster their stores by locating them in close proximity so they can saturate the market. Starbucks will focus on building a loyal customer base that will use their services. The sales staff at Starbucks must know how to make each drink in a timely manner so hands-on training is necessary before anything else can occur (8). Marketing Mix Starbucks will provide a place where people can enjoy a cup of coffee and also use the latest technology in their upscale atmosphere. Starbucks can be enjoyed only at company-owned stores or those that are licensed. This means Starbucks can be found almost anywhere from the street corner to the airport to a college campus. They want to continue to create new products every year and add new combinations to diversify their menu and keep customers happy. Pricing for Starbucks has tried to remain as constant as possible without losing market share or profits. Starbucks promotion will rely on stressing the differences between themselves and other local and specialty coffee shops (8).

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Segmentation Starbucks is segmented by its atmosphere, types of coffee beans, and types of coffee. Below is a picture of where Starbucks would be located, specialty coffee, in the market. Taste Specialty coffee Price

Instant coffee

Product Innovation The biggest thing for Starbucks in introducing new products to their menu is testing them to make sure that people will actually buy them. It would all start out with testing from within the company by research and development. They would tinker with product formulations and possibly come up with a new drink (8). These could then be tested at certain stores throughout the country by giving away samples to customers and then getting their opinion on whether they would buy the new drink. Focus groups could be used to ask customers personally by employees about the drinks they like and what they would like to see. This could also tell us what gender and the ages of those who like certain drinks. All drinks however could not make it to the final stage because the speed

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at which some could be made would not fit with the speed needed for better customer satisfaction (8). Service Innovation In 2001, Starbucks introduced its store-value card. This could be used to pay for transactions in any store in North America with just a swipe of the prepaid card. Over six million cards were issued in one year with sales from activations and reloads reaching $160 million. People with this card visited Starbucks twice as often as those who paid with cash and experienced faster transaction times (8). The cards also act as a way of reaching new customers since they are given away as gifts to people who have never been to Starbucks. Another ability of the cards is to collect data on customers transactions possibly giving Starbucks a hint as to what age group, gender, or profession buys what drink.

Problems
No unified Marketing Department Most companies of Starbucks magnitude use a hierarchical system when it comes to their marketing department. Even though Starbucks is considered to have one of the most effective marketing organizations, there was no one person calling the shots (8). They were lacking more than just a strategic marketing department; they didnt have a chief marketing officer either. Things are done on a more bureaucratic basis. There is not one marketing department with several different duty-specific departments. There is one marketing department that functions as three different groups: a market research group, a category group, and a marketing group. The market research group gathers and

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analyzes market data requested by the various business units (8). The category group develops new products and also manages the menu and margins (8). The marketing group develops the companys quarterly promotional plans (8). To continue the theme of a bureaucratic organization Starbucks also forced all of its senior executives to assume marketing-related responsibilities. Christine Day was quoted as saying Everyone has to get involved in a collaborative marketing effort (8). We feel that for an organization to be successful there must be a collective effort, but in the case of Starbucks we feel that with three different groups on a level playing field that it is leaving the company wide open for conflict. It seems that each group has the same decision making power as the other. Some may argue that the groups have different focuses therefore; having differing opinions isnt a big problem. We think that each group has their own agenda and goals they are trying to accomplish but they are all in the marketing department. They may have different agendas but all should have the same collective goal. Even if they dont whose to say which group is right? That is the problem we would like to avoid. Up to date Starbucks has good enough luck that their reputation and service has taken them virtually everywhere they have wanted to go without any significant turmoil. We are just trying to prevent all the what-if scenarios.

Declining Customer Satisfaction Starbucks is known for having customer satisfaction ratings well above the industry average. Their goal has always been to gain a lifetime customer with every purchase. Customer satisfaction scores are so critical to Starbucks because they have evidence of a direct link between the satisfaction level and customer loyalty (8). After finding out that Starbucks was not meeting their high customer satisfaction requirements

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Day pinpointed the problem to customer service. After Starbucks conducted a poll on its customers they found that improvements to service, specifically the speed of service was the most frequently mentioned problem. Schultz always wanted to mimic the Italian coffeehouse atmosphere, where people come to a place that is comfortable. Where they are greeted with a warm smile, a place where every person feels like they are the center of attention. Todays American society is fast paced with people looking for ways to fit more into the day. Our society is based on convenience. People want to know where they can get a cup of the highest quality coffee on the go. We dont think the majority of people care as much about the conversation as they are with how fast they can get their beverage. We think that as long as people are greeted with a smile and they get their cup of high-quality coffee in a timely fashion they will be happy.

Declining Genuine Image From the companys inception Howard Schultzs goal was to provide a place that people could go to meet and feel comfortable no matter the occasion. Schultzs dream had been realized until as of late. Starbucks image was one of comfort, quality and status. This image is now shifting to one that is more corporate. Now they are looked at as more of an on-the-go type establishment. Instead of attracting those only of the socially elite, Starbucks is now the universal trend. Their biggest demographic is no longer middle aged educated women, but young adults of both genders. In a survey conducted by Starbucks in 2002 approximately 42% of customers questioned attributed Starbucks with being corporate. They also found that in 2000 53% of respondents strongly agreed that Starbucks cares primarily about making money. This number

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increased to 61% in 2001 (8). We feel that the number one goal of Starbucks is to genuinely make each and every customer 100% satisfied. We just think that the data is

right there in front of them and now they have to find an effective way to use convey it to the public.

Intimidating Store Presence Coffee is a very traditional beverage. We feel that Starbucks is too intimidating for older more traditional coffee drinkers for two reasons. The first is the wide variety they offer in their coffee line. Traditionally there was regular and decaf. Starbucks has introduced to the mainstream mocha, latte, Frappuccino, espresso, and Macchiato. Most people have never heard of these words, let alone know what they mean or what they have to do with coffee. A lot of people wouldnt care to figure it out when they can go to the local convenience store and buy a regular cup of coffee. Before there were two additives: crme and sugar. Now there are several flavors of coffee with several additive options. At Starbucks anyone can get coffee with flavored syrup, toppings, whipped cream, foam, and even an extra shot of espresso. Its just as complicated when it comes to the crme/milk. Before, coffee would be served with crme on the side. Now they add 2% milk, 1% milk, vitamin D milk, fat free milk, or even soymilk. To top it all off people can now order their coffee hot or cold. Add together all these different options and there are hundreds of different coffee combinations to choose from. Where would a beginner into the Starbucks culture begin in the ordering process? We are a believer in meeting everyones demand, but we also believe that too many choices can be intimidating and confusing. We feel that once a consumer is familiar with the Starbucks

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menu board it is easy to find their preference and they are more likely to return, but we think getting to that point is a tough and intimidating road. The second issue we have with the intimidating Starbucks store presence is their unique language. Starbucks has taken words from other languages and incorporated them into their everyday operations. For example, they dont call their labor workers employees or even servers they call them baristas, which is the Italian word for bartender. This is just an example of a whole menu board full of Italian referenced words used to represent all of their different alternatives. New customers confusion is two-fold. Not only are they likely to be indecisive about the type of coffee they want, but also most cant even decipher what the choices represent.

Alternatives
Marketing With the problems discussed above we feel that changes do need to be made to enhance Starbucks image and product differentiation along with adjustments to customer service. Starbucks can proceed in several ways to smooth out the rough edges of their image and differentiate themselves from other coffee stores. We feel that Starbucks marketing mix has a sound foundation but does need some tweaking in the promotion department most notably a change in advertising. Starbucks has historically spent very little for advertising their brand or their product compared to other fast-food marketing budgets. Since image and product differentiation have slipped we feel that Starbucks should go on the offensive in terms of advertising. There are several advertising types available to Starbucks and they are listed below along with what they mean.

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Types There are two broad categories of advertising style; product and institutional o Product advertising- Advertising that for selling a specific product, this then has four main sub categories (9). o Pioneering advertising- Developing the primary demand for a product category (9). o Competitive advertising- Advertising that develops selective demand for a specific brand (9). o Comparative advertising- Advertising that makes specific brand comparison between two company products (9). o Reminder advertising- Advertising to keep a companys name in front of public (9). o Institutional advertising- Advertising that promotes image, and reputation of the company rather than a specific product (9). Along with choosing an advertising strategy Starbucks has to choose a medium that will deliver Starbucks message to its customers. This medium can be in television, radio, newspaper, magazines and many more areas. o Television Advantages- Wide reach, gives a Visual of product Disadvantages- Expensive, May not reach the coffee drinkers (9) o Newspaper Advantages- Local, timely, more in line with a typical Starbucks customer Disadvantages- Short life (9)

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o Magazines Advantages- More in line with a typical Starbucks customer, targeted, good detail (9) Disadvantages- Long lead time, inflexible (9) Objectives of Advertising Whichever style and medium of advertising that is chosen, it has to accomplish three objectives. The first objective is it has to inform consumers on how much better Starbucks quality is than their competitors. Secondly, it must convey the image that Starbucks is trendy. It is a place for everyone to either get a cup of coffee for the road or be able to relax with friends. Lastly, it must target possible new customers and convey how easy it is to go into a Starbucks and order a drink (9).

Customer Service Customer service is very important to Starbucks, which is based on four major areas: service, cleanliness, product quality, and speed of service. In a poll conducted by Starbucks to determine what they could do to make consumers feel more like valued customers, speed of service was the number one reason cited. The foremost plan to increase speed of service is a $40 million dollar investment per year to provide each store with twenty hours in extra labor each week (8). In the eyes of Christine Day this investment would eliminate the service gap and get the service time below three minutes. When we asked Store Manager Shane Rayford is what he thought adding 20 extra hours to the weekly workforce he said, we could definitely use the extra help during peak hours, but Im not sure if it would be worth the $40 million investment

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(11). These extra hours could be used in variety of ways but would most likely be used to cover peak time for retail stores. As a group we feel this plan has several problems. First, it is hard to tell if adding labor is exactly the solution to the problem because not much information is out there on productivity of workers and what the marginal increase/decrease in productivity would be. Next, the presenting group acknowledges that right now employees at Starbucks work longer shifts than most other fast-food chains so a large investment in new workers will be needed. Hypothetically, since each store will add 20 hours for labor each week, which we are assuming only half of the stores will be able to absorb the hours without hiring anyone new. So if the remaining half hires one new person to cover the 20 hours, then over 2250 new workers will be added. The initial investment might be able to cover labor costs for the workers but it is not clear if they will be able to cover the added overhead costs in the form of payroll taxes and benefit costs. Right now Starbucks is aggressively expanding their operations, adding stores at a rapid rate. Then it follows logically that these stores will also get the extra 20 hours and the investment would have to be increased every year. This plan coupled with the ambitious plan of expansion, which goal is 15,000 stores, will see an increase in costs that will conceivably eat away at profits. Different options include an investment in technology that will require the current barista to be more efficient. Not only would this action help in speed of service but would also keep Starbucks with the coveted trendy tag. For instance, in 2001 Starbucks launched the Store-value card (SVC), which is a prepaid, swipeable smart card (8). This card has been positively received by customers and has implications on shortening wait time. Possible adaptations to the SVC could be to mimic the Exxon gas stations

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Speedpass, which is easier and faster than using a credit or debit card (6). There is no waiting for authorization or signing receipts. Exxons Speedpass is used by simply pointing the Speedpass "wand" at the area of the pump or register that says "Place Speedpass Here." The Speedpass automatically and immediately communicates your payment preferences. It knows what credit or check card you wish to use. Speedpass even knows whether or not you want a receipt. This technology operates on a radio frequency that transmits an identification and security code (6). This would be a very trendy and time saving addition for Starbucks. A major draw back however, is this is a relatively new technology, and the cost for development and the time to implement are going to be significant. Other uses of technology would be the use of the internet and telephone. Starbucks could come up with an order online and call ahead system that would not take very long to develop. Also, they could have a call ahead check out line for those who used the system. Adding call ahead would be relativity easy but Starbucks could go further and implement online bill pay and account reloads for their SVC. As far as product innovations go the company can continue to improve the automation of the drink making process. Starbucks has recently begun to install automated espresso machines that reduce waste and increase efficiency of the worker. These new machines have had a positive response both from customers and baristas. Starbucks can work to bring more drinks under automation but they have to be careful to balance automation with quality and tradition. In regards to making Starbucks less intimidating it will have to be a two prong effort. One effort will be using advertising as mentioned above as a way of familiarizing

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new customers with products. Another way is to continue to develop products that are distributed by third parties like their Frappuccino line of beverages. This will allow people to try Starbucks without having to travel to the retail store until they are ready. As far as in-store, an effort has to be made to make customers feel comfortable right away. Innovating and entering into partnerships with other companies such as wireless internet access might be ways to relieve the anxiety of going into new stores.

Suggestions We did not mention the consolidation of the marketing group because we feel that this is not an alternative but must become a reality. Along with this consolidation of the three marketing groups we would want to appoint a chief marketing officer in which these departments reported. Starbucks is growing and one of the few large companies not to advertise or have strategic marketing plan. We feel with the creation of this position and the consolidation of the group that they will be better able to use market research to be both proactive and reactive to market and customer information. Integration of the marketing department and appointment of a Chief should take place over a period of a couple of weeks. To gather feedback on this change will be difficult, but it will be ultimately up to the new chief to organize, promote and evaluate Starbucks marketing efforts. In the past Starbucks has mostly just advertised new products. We feel that an increased effort needs to not only spotlight new drinks but also, the image and product differentiation of Starbucks. We feel that a majority of the advertising should be done in newspapers and magazines which are tailored more to what the average Starbucks

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customer does with their free time. As far as content, Starbucks needs to engage in both product and institutional advertising. Customers need to know that at Starbucks product quality and customer satisfaction are number one in their minds. Advertising needs to really emphasize why Starbucks coffee products are better quality than their competitors. The campaign however, needs to be positive because a negative campaign is likely to upset the average Starbucks customer because of the education level on other aspects of their personality. An example of a positive ad is one in which they could explain the process on how coffee beans at Starbucks are tested after being roasted with a blood cell analyzer and discarded if not on target. Other advertisements could emphasize the friendliness of staff and the ease of ordering at Starbucks in effort make. The purpose of the advertising campaign is to get people to re-evaluate the differences between Starbucks and competitors. We feel that putting advertising campaign could take a few months to implement. Feedback will be gathered from polling customers about brand image and product differentiation at regular intervals to examine if the advertising is effective or not. As far as improvement in customer satisfaction, we feel that Starbucks should not go ahead with the current plan to invest $40 million per year in added labor for the reasons we stated above. Instead we feel that if the company is willing to invest to increase customer satisfaction level then they should invest in technological advancements. Implementing a system service innovation such as speedpass, online/call ahead ordering with an express lane and product innovations like a continued automating of machines, like the new espresso machines, will decrease the time a customer is in line. This allows customers to either get a cup and run or spend more time

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enjoying the interior. Investing in technology does have weaknesses, large investment for development; however we feel that the other option is old-fashion and would not be in the spirit of keeping Starbucks trendy like increases in technological advances. It is unknown how long the process to develop the new advancements would take to implement however we do feel that most should be up and running with in a year and half. The easiest ways to measure the effect of these changes is by polling. Six months after full implementation of changes, we would not only want to poll our customers, but also the baristas to see how they feel about the changes and make any corrections at that time.

Counter Opposing Groups Paper

We found numerous errors in their writing including arguments which we did not agree with. One thing we thought was wrong was that they put their timeline and history first before their introduction. Only after reading through 11 pages of their case did we find their introduction, which kept us wondering what this paper was actually about. Below are some statements they made that we feel arent accurate and need some discussion. Pg. 13 Starbucks could try to obtain more business by targeting those diet conscious consumers. This would include having no fat milk, creamer, or other toppings as an option to all beverages that use regular milk, creamer or other toppings.

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Starbucks already offers no fat milk and creamer along with sugar free toffee and vanilla toppings. This suggestion is wrong because this already exists in the current market. Pg. 14 Another way to bring in a younger crowd is to carry a line of sodas. Carbonated soft drink volume was up 0.6 percent last year, per Beverage Digest. The select refers to something other than the Cokes and Pepsis, which customers could get at any gas station, fast food chain, or supermarket. This statement is contradicting because they want to give consumers an option different from Coke and Pepsi, but will customers really go out of their way to get these select sodas? This is not what Starbucks is known for because they have made a deal in the past with PepsiCo., and Pepsi distributes their Frappuccino line of beverages. Pg. 14 This softer line would tone down coffee in the four main areas that coffee is measured: aroma, acidity, body and flavor. The acidity would be moderately low, which means the coffee would not be as tangy or lively as a bolder, richer brew of coffee. Finally, the flavor could be described as the baby food for coffee drinking. If you change the four main areas that coffee is measured, then is it really still coffee? We feel if the younger generation doesnt like coffee, then by changing the four main areas will not make them more likely to start drinking coffee because it will still have a coffee taste. If the flavor is described as baby food for coffee drinking, then does this mean that the coffee is of low quality or that maybe it tastes as bad as baby food?

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Pg. 29 Starbucks should also develop products geared toward younger consumers, and should carry a line of sodas. Customers would enjoy the food items with their coffee while not emptying their wallets. Pg. 30 Starbucks should put more coffee on the shelves of groceries such as Target, allowing coffee drinkers who consume at home to enjoy the products Starbucks offers. These two statements basically state the obvious. They are not very specific about the food items that would be available and Starbucks already offers some food items such as bagels, pastries, and cakes. The second quotation is stating what Starbucks is already doing. They already have a specialty line of coffee in grocery stores for at-home consumption. Pg. 31 Financials We feel that the opposing group didnt fully analyze the financial statements and didnt fully disclose what the proposed $40 million investment would do to the financials. They mentioned that increased use of the Starbucks cards would increase revenues, but there isnt information to back this up and this wont necessarily increase revenues if discounts are given.

Conclusion
Starbucks has evolved from a small Seattle company to a specialty coffee giant with over 4500 stores in the world. Today Starbucks has pressure from competitors but most of the pressure is internal. We feel that since Starbucks is devoted to providing the best customer service, changes do need to be made. We feel that the opposing group has very good ideas but we feel that our idea of investing more in technology is the correct action.

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Works Cited
1. Dipasquale, Cara B. Macarthur, Kate. Fast food looks for loyalty. Advertising Age, 10/28/2002, Vol. 73 Issue 43, p44, 1/2p, 2 graphs, 2c

2. http://finance.yahoo.com/q/co?s=SBUX 3. http://www.starbucks.com 4.http://moneycentral.msn.com/investor/invsub/results/compare.asp?Page=TenYearSum mary&Symbol=SBUX

5. Innovative 'Starbucks Express' Debuts In Denver. Foodservice Equipment & Supplies, Sep2002, Vol. 55 Issue 9, p16, 1/5p. 6. Kuykendall, Lavonne. Gadgets Galore, But Where's the Next Speedpass? American Banker. 3/23/2004, Vol. 169 Issue 56, p12A. 7. Lee, W.A.. Starbucks Brews a Model for Prepaid Cards. Bank Technology News, Jun2002, Vol. 15 Issue 6, p35, 2p; 8. Moon, Youngme, Quelch, John. Starbucks: Delivering Customer Service. Harvard

Business School. 3, February 2004. 9. Prerreault, William D., E. Jerome McCarthy. Basic Marketing: A Global-Management Approach. 14th ed. McGraw-Hill Irwin, New York 2002. 10. Ross, Stephen, Westerfield, Randolph, Jordan, Bradford. Fundamentals of Corporate Finance. 6th ed. McGraw-Hill Irwin, New York 2003. 11. Rayford, Shane. Store Manager. Starbucks. 5943 S East Street. Indianapolis, IN 46227. (317) 788-9672. March 11, 2005. Telephone Interview.

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