Term Paper: Balanced Scorecard Analysis: Starbucks

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[. . .] Customer satisfaction numbers have been tumbling as of late despite efforts to retain baristas and to ensure that drinks are served fresh (both areas of customer complaint in the recent past). Prices have been going up and the perception of customer uniqueness is not as strong as it has been in the past. A recent survey of the major fast food coffee chains revealed that although McDonald's was dead last (Starbucks appears to have little worries from the hamburger giant), Dunkin Donuts has become a formidable rival. "The overall average for the sector was 80, and both Dunkin' and Starbucks hit that average. Dunkin' won out in cost -- which was no real surprise -- while Starbucks won the quality fight. The move to 80 was good news for Starbucks, which had fallen behind in 2012, when it dropped down to 76 -- four points below the sector average" (Marder 2013). This is all the more concerning because Dunkin' Donuts has so many beverages that are copycats of Starbucks, one clever way that Dunkin' has challenged Starbucks dominance recently.

Customer satisfaction ratings can be obtained by soliciting direct feedback from customers, either from the organization's website, Facebook page, Twitter, or via qualitative research such as focus groups. An interrelated metric to customer satisfaction is that of customer retention. Once again, for a food-based company, this metric is particularly critical. Coffee is not a product like a refrigerator or a car that people buy only on occasion, every few years. High-volume consumers are very important and generating return traffic is essential. Not only must satisfaction numbers be increasing; people must also be voting with their feet.

Internationally, Starbucks strives to create a coffee 'habit' even in countries that do not traditionally have coffee-drinking cultures. The objective is not necessarily to convert all of tea-drinking Japan and China to coffee but rather to create a cafe-going culture even while fostering a rise in interest in-store based upon attractive coffee options that do suit local tastes. When Starbucks initially expanded to Japan, the first country it entered into the Far East, it was initially very popular; then revenues began to decline as people began to lose interest in the newness of Starbucks. Undaunted, Starbucks engaged in substantial re-tweaking of its positioning within the Japanese coffee market and thus was able to gain a more secure niche, based upon its knowledge. Starbucks knows that customer loyalty, not simple sales, is a critical component of market survival. Starbucks has also generated a customer rewards system internationally which incentivizes return traffic. "Membership rewards have been commonplace for sometime, but Starbucks has mastered the system. The company created a loyalty rewards system where its customers gain rewards on all their purchases within the family of Starbucks products. Members earn 'stars' on everything from coffee drinks to accessories, from grocery store purchases to purchases at Teavana" (Matherson 2012). Of course, these loyalty perks and cards are not exclusive to Starbucks but Starbucks is very careful to ensure that the benefits are indeed 'worth the customer's while' to return. These customer loyalty cards also offer an excellent way to measure customer retention and repeat traffic. Loyalty cards' data allow Starbucks to measure which beverages are of particular interest to the company's most loyal patrons. For example, in the past, Starbucks has found that there is particular interest in selling its specialty seasonal products and beverages. "Throughout the year Starbucks releases a number of seasonal favorites, which I'm sure many of us are very familiar with. The pumpkin spice latte, peppermint mocha and gingerbread latte have become the company's seasonal staples alongside accompanying food offerings" (Matherson 2012). Starbucks has found that loyal consumers will specifically go to Starbucks for these beverages and avoid Starbucks' competitors. These seasonal products provide a clear 'value added' to the customer that cannot be easily replicated.

A final metric of concern for Starbucks is the extent to which it is generating customer traffic and retention in critical markets. For all companies, staying relevant is a vital element of consideration in making market decisions. Generating traffic amongst young people is always of great concern, to ensure that the customer base does not age out of the product or become deceased. For a trendy food company like Starbucks, customers of specific demographic categories are of special interest. For example, because it is not a rock-bottom priced company, attracting customers of a certain level of affluence is desirable. Less price-sensitive customers are less likely to be daunted by an economic downturn such as a recession and are more willing to hold onto their Starbucks as an affordable luxury they cannot do without. Analyzing target markets for specific demographics also allows the company to more specifically create a profile for desirable customers. "By greatly expanding the size of its product portfolio, the company has become a market leader in coffee, juices, sandwiches, snacks and sodas, effectively making Starbucks an all-day option for its customers" (Matherson 2012).

On a more macro, international scale, attracting the emerging middle class of the developing world is critical to Starbucks' long-term survival as a nation. It cannot afford to concede China or Japan to rivals such as Dunkin' Donuts or Subway. China's emerging middle class is particularly attractive, given its intense focus on consumerism and its desire to mimic Western lifestyles. However, as much as Starbucks may market its American quality to China, it has also engaged in intense environmental scanning of the demographic to ensure that the product itself is pleasing to local tastes and, once again, that it is not merely relying upon a transient novelty factor to generate revenue. "Many [Chinese] go to Starbucks not just for a cup of Frappuccino, but also for the Starbucks Experience" that makes them feel cool and trendy" (Wang 2012).

Business process perspective

When evaluating the health of a company, it is not enough to simply consider the financial end result but also reflect upon the processes that go into producing that result. This "includes measures such as cost, throughput, and quality. These are for business processes such as procurement, production, and order fulfillment" ("The balanced scorecard," 2014). A company might be profitable initially because of high levels of demand or because it starts with a great deal of operating capital. But if it cannot keep operating costs low and continue to monitor quality, it will have little long-term life as a business. "Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission)" in the most financially effective way while still upholding product quality ("Balanced scorecard basics," 2014). In particular, Starbucks generates resentment if actual and perceptions of quality are in decline because of its relatively high price point. Regular inspections of stores internationally to ensure high levels of quality and retraining and reeducation of baristas have found to be critical components of maintaining that quality as well as ensuring that raw materials meet company standards (Allison 2005). Raising these standards and aiming for minimal deviations every time a customer walks into the store is linked to retaining customer loyalty and bolstering the image of the brand.

Starbucks has also shown a commitment to expediting the production process while preserving quality. As well as training staff, Starbucks has also been a first mover in generating online sales, thus expediting sales outside as well as in-house. It has also facilitated communication between employees and ensured that the company runs in a seamless fashion. "The store portal was implemented in 2003, and since then has progressed from a non-business- critical tool to the primary means for communications between the corporate office and its stores, replacing previous paper-based correspondence. As a result, the store portal visits per week have risen over 190% from 60,000 visits a week to approximately 175,000 visits per week" as well as facilitated stales of Starbucks products ("Starbucks case study," 2014). Continuing to enhance the user experience and generate website revenue as well as website traffic is a vital component of enhancing Starbucks' throughput as an organization.

In terms of procurement strategies, Starbucks has set ambitious goals for itself in partnering with local entities to generate greater revenue growth internationally. This is an effective way not only to keep operating costs low but also often-hidden costs in getting things done in terms of regulations. In the developing world in particular, corruption is often rife and partnering with a local entity when procuring needed items is vital to avoid becoming enmeshed in a costly web of bureaucracy. "China is not one homogeneous market. There are many Chinas. The culture from northern China is very different from that of the east. Consumer spending power inland is not on par with that in coastal cities. To address this complexity of the Chinese market, Starbucks partnered with three regional partners as part of… [END OF PREVIEW]

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Balanced Scorecard Analysis: Starbucks.  (2014, September 8).  Retrieved July 17, 2019, from https://www.essaytown.com/subjects/paper/balanced-scorecard-analysis-starbucks/8084839

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"Balanced Scorecard Analysis: Starbucks."  Essaytown.com.  September 8, 2014.  Accessed July 17, 2019.
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