[Solution] Starbucks is a resounding restaurant success story. - #80034

Starbucks is a resounding restaurant success story. Beginning with its first coffee house in 1971, Starbucks has grown to more than 5,200 locations with projections of reaching 10,000 by the year 2005. Opening up its first international outlet in the mid 1990s, Starbucks now operates in more than 22 countries (900 coffee houses) outside of North America. Besides selling beverages, pastries, confections, and coffee-related accessories and equipment at its retail outlets, Starbucks also purchases and roasts high-quality coffee beans in several locations. The company’s objective is to become the most recognized and respected brand in the world. Starbucks maintains a strong environmental orientation and is committed to taking a leadership position environmentally. In addition, the company has won awards for corporate social responsibility through its community building programs, its strong commitment to its origins (coffee producers, family, community), and the Starbucks Foundation, which is dedicated to creating hope, discovery, and opportunity in the communities where Starbucks resides.

In November 2001, Starbucks launched its prepaid (debit) Starbucks card. The card, which holds between $5 and $500, can be used virtually at any Starbucks location. The card was so popular when it first was released that many stores ran out. By mid-2002, Starbucks had activated more than 5 million of these cards. It is believed that the card accounted for a large portion of the company’s 7% same store increase in sales in early 2002 and that it is responsible for attracting many new patrons to the store. As customers “reload” the cards, it appears they are placing more money on them than the initial value of the card.

Discussion:

a) Starbucks enjoyed considerable success with its debit cards, which they sell for $5 to $500. Since the card was introduced in November 2001, sales revenue increased. Suppose Starbucks management wants to study the reasons why some people purchase debit cards with higher prepaid amounts than to other people. Suppose a study of 25 randomly selected prepaid card purchasers is taken. Respondents are asked the amount of the prepaid card, the customer’s age, the number of days per month the customer makes a purchase at Starbucks, the number of cups of coffee the customer drinks per day, and the customer’s income. The data follow. Using these data, develop a multiple regression model to study how well the amount of the prepaid card can be predicted by the other variables and which variables seem to be more promising in doing the prediction. What sales implications might be evident from this analysis?

Amount of Prepaid Card ($)	Age	Days per Month at Starbucks	Cups of Coffee per Day	Increase ($1,000)
5	25	4	1	20
25	30	12	5	35
10	27	10	4	30
5	42	8	5	30
15	29	11	8	25
50	25	12	5	60
10	50	8	3	30
15	45	6	5	35
5	32	16	7	25
5	23	10	1	20
20	40	18	5	40
35	35	12	3	40
40	28	10	3	50
15	33	12	2	30
200	40	15	5	80
15	37	3	1	30
40	51	10	8	35
5	20	8	4	25
30	26	15	5	35
100	38	19	10	45
30	27	12	3	35
25	29	14	6	35
25	34	10	4	45
50	30	6	3	55
15	22	8	5	30

b) Suppose marketing wants to be able to profile frequent visitors to a Starbucks store. Using the same data set already provided, develop a multiple regression model to predict days per month at Starbucks by Age, Income, and Number of cups of coffee per day. How strong is the model? Which particular independent variables seem to have more promise in predicting how many days per month a customer visits Starbucks? What marketing implications might be evident from this analysis?

c) Over the past decade or so, Starbucks has grown quite rapidly. As they add stores and increase the number of drinks, their sales revenues increase. In reflecting about this growth, think about some other variables that might be related to the increase in Starbucks sales revenues. Some data for the past seven years on the number of Starbucks stores (worldwide), approximate sales revenue (in $ millions), number of different drinks sold, and average weekly earnings of U.S. production workers are given here. Most figures are approximate. Develop a multiple regression model to predict sales revenue by number of drinks sold, number of stores, and average weekly earnings. How strong is the model? What are the key predictors, if any? How might this analysis help Starbucks management in attempting to determine what drives sales revenues?

Sales Year	Revenue	Number of Stores	Number of Drinks	Average Weekly Earnings
1	400	676	15	386
2	700	1015	15	394
3	1000	1412	18	407
4	1350	1886	22	425
5	1650	2135	27	442
6	2200	3300	27	457
7	2600	4709	30	474