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Starbucks: Will Growth Spoil Its Espresso Bar Culture?

One of the biggest services marketing success stories, Starbucks Coffee Company, started out as just a product, coffee. Only when its top executive envisioned coffee not as something to retail in a store but instead as something to experience in a coffeehouse did consumers began to recognize Starbucks as unique. At that point, the Starbucks that successfully replicates a perfectly creamy caf latte in stores from Seattle to St. Paul, was born. Customer connection, committed employees, and consistency of service and product are three of the most important reasons that Starbucks grew to more than 13,500 outlets and that it annually reports profit growth of more than 20 percent a year. Starbucks owns more than 6,000 of the stores and maintains control over all that takes place in those stores, all of it designed to create a special cultural experience that differs in every way from fast-food outlets. Today, however, the company faces a critical crossroads between its long-term service philosophy and an aggressive strategy to grow the company from 13,500 to 40,000 outlets worldwide.

THE PHILOSOPHY: ROMANCE AND THEATER THROUGH CUSTOMER CONNECTION AND COMMITTED EMPLOYEES
On his first visit to Starbucks in 1981, founder and chairman Howard Schulzs philosophy of a coffeehouse was born: A heady aroma of coffee reached out and drew me in. I stepped inside and saw what looked like a temple for the worship of coffee It was my Mecca. I had arrived. The special experience that he created for Starbucks was a place where customers could come and spend time, comfortable in their surroundings. The worship of coffee meant smelling fresh-ground beans and having delicious coffee drinks to languish over. This feeling of being at home also depended on the connection between customers and employees, who banter with each other while they order and deliver coffee. Ideally, employees interacted personally with customers, recognizing them and the kind of coffees they liked to drink. To accomplish this, Starbucks treated its employees in special ways. To hire, keep, and motivate the very best employees, Starbucks set three guidelines for on-the-job interpersonal relations: (1) maintain and enhance employee self-esteem, (2) listen to and acknowledge employee issues, and (3) encourage employees to ask for help. These and other human resource practices, including higher-than-average pay, health insurance, and stock options, reduced turnover to 60 percent compared with 140 percent for hourly workers in the fast-food business in general. All employees are called partners, and those who prepare coffee are called baristas, the Italian name for one who prepares and serves

coffee. As many as 400 to 500 employees per month nationally are carefully trained to call (triple-tall nonfat mocha), make drinks, clean espresso machines, and deliver quality customer service. Baristas are taught coffee knowledge so that, among other things, they know how everything tastes-and customer service-so that they can explain the Italian drink names to customers. Both to reward employees and to stretch them to learn more, the company offers an advanced Coffee Master program that teaches them how to discriminate among regional coffee flavors. Patterned after the wine business, graduates earn black aprons and the right to use an insignia on their business cards.

customers while pulling shots. Another decision involved incorporating drive-in windows, now in one-quarter of the restaurants, which by definition eliminated the need for customers to come into the store altogether. Still another decision ended the practice of scooping fresh coffee from bins in stores and grinding it in front of customers by shipping and using coffee in flavor-locked packaging. This decision alone forever removed the smell of fresh coffee from the outlets. Each of these approaches made operations more efficient but interfered with the service experience. Despite Howard Schultzs obsession to grow Starbucks, he is concerned that the Starbucks experience may be jeopardized by the time- and costsaving approaches that might be needed to fuel that growth. In a 2007 memo distributed internally-but leaked externally-he admonished the company for making decisions like those just cited that could commoditize the brand and make it more like a fast-food chain than a coffee house. He commented: Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. The danger is that the company will become more like fast-food chains (think McDonalds and Dunkin Donuts, both of which have focused on improving the coffee experience) and less like the casual coffee houses he created in the 1990s. The company knows that customers want their coffee quickly, but Schultz dose not want to sacrifice the intensity of customer connection between baristas and customers that makes the firms services different/ The battle within the company is making sure

THE THREAT: AGGRESSIVE GROWTH AND PROFIT TARGETS


Given the success of the Starbucks philosophy and execution, one might wonder what strategy could derail Starbucks. Many say that an obsession to grow from the current 13,500 to 40,000 outlets-half of them outside the US- is the biggest threat to the continuation of the Starbucks success story. Accompanying the growth goals, Starbucks also has aggressive profit targets than can only be achieved by streamlining operations, often in ways that remove the authenticity of the Starbucks experience. Decisions about streamlining operations have cut costs but also affected the romance and drama of Starbuckss service experience. One of these decisions was to adopt automatic espresso machines rather than having baristas pull shots individually. While this move increased efficiency and speed of service, the new machines blocked the sight line of the drinks being made and eliminated the opportunity for baristas to converse with

growth doesnt dilute our culture, Schultz claims. Starbucks, an outstanding example of company-owned channels, faces the same struggle as other highly successful service businesses: growth brings it efficiency through standardization. In service businesses where personal connections between employees and customers are critical, growth can interfere with the intimacy necessary for the service experience to be real. Source: Zeithaml, Valari A., Mary Jo Bitner and Dwayne D. Gremler. 2009. Services Marketing. Singapore: The McGraw-Hill Companies

Questions for The Case


1. What is the main problem presented in the case? 2. Design a business strategy that suits Starbucks for the next 5 years! (Use SWOT Framework for simplification) 3. Based on the strategy you propose from the second question, design an implementation plan based on service marketing mix for starbucks.

Analysis must be written in a word document (.doc or .docx) and must be submitted via email (TFL@ppm-manajemen.ac.id, cc: ppmtfl@gmail.com) with subject Case Analysis TFL 5. Font: Calibri, Size:11, Line Spacing: 1.15, Page Size: A4, Page Number: Maximal 3 pages.