If starbucks makes the 40 million investment in labor

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Unformatted text preview: vice is as fast as the customer wants it to be, the partners will remember to greet regulars with their first name and the quality of its products will be of the highest level. This might require an investment from the company, whether that translates to more labor or better training or even withdrawing products from its menu. At the same time, adding lounging areas and more comfortable chairs can encourage customers to feel more relaxed while in the store. Larger tables and power plugs to accommodate laptop use will also not only lead to higher satisfaction but also to higher revenues through use of the T‐Mobile Hotspot wireless internet service. 5. Should Starbucks make the $40 million investment in labor in the stores? First let’s examine what needs to be done for Starbucks to get a positive return if they decide to proceed with the $40 million investment. If Starbucks makes the $40 million investment in labor for its 4574 stores, the investment comes to be about $8,750 for each store. Since the goal of this investment is to increase satisfaction let’s see how this translates into number of customers that need to go from being satisfied to being highly satisfied. From Exhibit 3 we can observe that the difference in revenue per year from a highly satisfied to a satisfied customer is about $172. That means that in order for Starbucks to break even for this investment, it needs to turn 50 customers (8750/172) from being satisfied to be highly satisfied in each of its stores. From Exhibit 3 in the case we know that the average daily customer count, per store is 570. This means that Starbucks needs to turn 50 of 570 or 9% of its customers from satisfied to highly satisfied in order to break even. There are however some major assumptions that are being made in this case. First, the assumption is that speed of service is the number one driver for satisfaction and that the additional labor will provide the increase of speed of service. This is not true however. As we can see f...
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This document was uploaded on 04/02/2014 for the course ECON 101 at Sant'Anna School of Advanced Studies.

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