Starbucks Case Study

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• So total lifetime value of a loyal customer is = (4.42*18*12*8.3) = $ 7924 dollars

• While lifetime value of a highly satisfied customer is = (4.42*7.2*12*8.3) = $ 3169 dollars

- Satisfaction can be increased by:

• Speeding up the service

• Free cups: reduce the perception that Starbucks is only obsessed with expansion and money making

• Better training of partners to treat customers better

- Highly satisfied customer is most valuable to Starbucks

- Should Starbucks make the $40 million investment in labor in the stores? What's the goal of this investment? Is it possible for a mega-brand to deliver customer intimacy?

Recommendation

• Starbucks can significantly increase its sales by converting the satisfied customers into loyal customers

• However, that will require better handling of customers by partners and shortened service time

They should make the investment in labor as it will improve the ‘service’ which is the major factor driving the value proposition.

Further, $40 million results in investment of $8000 dollar per store (5000 stores)

Now the difference between income of a satisfied ($ 209.49) and highly satisfied customer ($ 381.88) is = $ 172 dollar

Therefore, It will require (8000/172) = 46 customers to break even in each of its stores. From Exhibit 3, no of visitors per store each day = 570. So, daily 46 more customers (out of 570) need to be highly satisfied to break even.

It is possible for a megabrand like Starbucks to deliver customer intimacy, and this can be achieved only by improving the services so as to provide customers that uplifting experience every time they walk into the store.