STARBUCKS: DELIVERING CUSTOMER SERVICE

A Case Study On STARBUCKS: DELIVERING CUSTOMER SERVICE

Submitted By :KEVAL LAK LANI !"#$ Submitted T% :&'%() K'u*a Me+ta

STARBUCKS: DELIVERING CUSTOMER SERVICE

CASE ,# STARBUCKS: DELIVERING CUSTOMER SERVICE

Overview

STARBUCKS: DELIVERING CUSTOMER SERVICE

Twenty years after its founding as a small coffee shop in Seattle, Starbucks has become a cultural phenomenon with thousands of coffee houses (referred to as stores) across orth !merica and around the world" #ecent market research, howe$er, shows that the firm%s ser$ice is not meeting customer e&pectations" Speed of ser$ice is a particular problem" 'anagement is considering increasing the amount of labor in each store, at a cost of ()* million company+wide, but the potential impact on re$enues,and thus the bottom line++is unclear"

Study Questions 1" -hat factors accounted for Starbucks% success in the early 1..*s and what was so compelling about its $alue proposition/ -hat brand image did Starbucks de$elop during this period/ 2" 0ow has Starbucks changed since its early days/ 1" -hy has Starbucks% customer satisfaction scores declined/ 0as the company%s ser$ice declined or is it simply measuring satisfaction the wrong way/ )" 2escribe the ideal Starbucks customer from a profitability standpoint" -hat would it take to ensure that this customer is highly satisfied/ 0ow $aluable to Starbucks is a highly satisfied customer/ 3" Should Starbucks make the ()* million in$estment in the stores/ -hat%s the goal of this in$estment/ 4s it possible for a megabrand to deli$er customer intimacy/

Ana-ysis
.) /+at (a0t%'s a00%unted (%' Sta'bu01s2 su00ess in t+e ea'-y .33,s and 4+at 4as s% 0%m*e--in5 ab%ut its 6a-ue *'%*%siti%n7 /+at b'and ima5e did Sta'bu01s de6e-%* du'in5 t+is *e'i%d7

STARBUCKS: DELIVERING CUSTOMER SERVICE

4n the 5arly 1..* Starbucks immerges as a big brand, known around the world !t this time, the company ser$es 2* million customers in o$er 3*** stores worldwide and continues to e&pand rapidly, on a$erage opening three new stores a day" 6ut let%s e&amine changes between 1..2 and 2**2" Time %( .33# 'arketing e&perts generally agree that Starbuck%s success was rooted in a timely, well+ integrated $alue proposition (78) that was 9ompiled with the needs of the target market" Va-ue *'%*%siti%n" The initial 78 comprised three elements that can be represented on the board as three concentric circles: 9ore product (a physical good): premium coffee, seen by Starbucks as the highest+;uality coffee in the world. <uality is maintained by careful selection and control of as much of the supply chain as possible" !long with that, additional menu items ha$e been added to complement the array of coffee products offered in the stores =ocus on ser$ice (customer intimacy), recogni>ed regular patrons, and customi>ed their orders" The baristas were more than ?ust order takers and fillers,they came to fulfill a similar role to bartenders in a fa$orite bar and customers would chat with them" !ttracti$e atmosphere and physical en$ironment, with comfortable seating areas that encouraged customers to linger !lso, 9hristine 2ay%s comment, 8eople come for the coffee, but the ambience is what makes them want to stay . The upscale en$ironment contrasted sharply with the more utilitarian surroundings found among other coffee shops (e"g", 2unkin 2onuts)"

Ta'5et ma'1et 8eople who fond of coffee, well+educated, white collar, aged 23+)), skewed toward female .

STARBUCKS: DELIVERING CUSTOMER SERVICE

They were willing to pay a significant price premium o$er competing alternati$es (e"g" 3* cents in a local coffee shop or donut store)" The customers themsel$es became part of the en$ironment, helping to define and reinforce Starbuck%s positioning" B'and *e'0e*ti%ns and 0%nsum*ti%n *atte'ns) 6y the early 1..*, Starbucks% early success had created a classy brand image, with a place with a 5uropean feel that offered the best coffee in the market" 9ustomers, who were willing to pay premium prices for the coffee (bundled with customi>ed ser$ice and a pleasing en$ironment), tended to switch at the stores !s a result, its positioning places it high abo$e most alternati$e coffee suppliers, with its brand associated not only with its coffee houses but also with its packaged coffee beans and coffee products sold through non+company+owned Re-ati%ns+i* %( em*-%yee satis(a0ti%n t% 0ust%me' satis(a0ti%n) Schult> has always belie$ed that employee satisfaction leads to customer satisfaction !nd so Starbucks has offered all the benefits plus careful training in both hard and soft skills to ensure high ser$ice ;uality" #eflecting high partner satisfaction (@*+.*A), well abo$e industry norms, turno$er has traditionally been low, which reduces the e&pense associated with constantly ha$ing to recruit and train new personnel"

#) "

%4 +as Sta'bu01s 0+an5ed sin0e its ea'-y days7

The number of stores has increased sharply,from 1,@@B in =C 1..@ to 3,@@B only four years later making the brand much more accessible and therefore, perhaps, less distincti$e

STARBUCKS: DELIVERING CUSTOMER SERVICE

. 9ompetitors remain mostly regional (e"g", 8eets), but ha$e benefited from the Starbucks phenomenon in terms of its creating primary demand for premium+priced coffee in nice locations which distincti$e from the competitors" The customer profile has changed" newer customers (first $isited within past year) tending to be younger than established customers (first $isited 3D years ago)E they are less well educated, with somewhat lower incomes (although still good), drinking slightly less coffee per week, and with less fa$orable attitudes toward Starbucks,much less likely to see the brand as high ;uality (+1F percentage points), as trusted (+2* pts), worth paying more for (+2) pts), best tasting (+11 pts) and highest ;uality (+13 pts)" Gminously, only 13A of newer customers agree with the statement that Starbucks is for someone like me ($s" )*A for established customers) and their o$erall opinion of the brand is 1. points lower" 8ressures on baristas ha$e increased" The increase in menu items means there are more products to deli$ered and the pressure to deli$er customi>ed drinks means there is less time to align with customers" 9ontrast this to the typical bar, where a high proportion of drink orders are relati$ely easy for bartenders to supply: beers, house wines, sodas, or simple mi&ed drinks (e"g" gin and tonic) rather than comple& cocktails" Hittle image or differentiation in minds of specialty coffee house patrons between Starbucks and smaller coffee chainsE howe$er, independent coffee houses are seen as significantly different the independents now have the brand meaning that Starbucks used to have!. ote the image of Starbucks as offering good coffee on the run, place to meet and mo$e on, and con$enience orientedE on the way to work" This suggests a different pattern of consumption in which speed and con$enience rather than ambience ha$e become dominant" 9ustomer satisfaction seems to be lower among more recent customers, an ominous trend for a fast+growing chain.

8) /+y +a6e Sta'bu01s2 0ust%me' satis(a0ti%n s0%'es de0-ined7 as t+e 0%m*any2s se'6i0e de0-ined %' is it sim*-y measu'in5 satis(a0ti%n t+e 4'%n5 4ay7 ! broad concern for management is the emergence of two different types of customers, new $s traditional,with different e&pectations" 4t may be hard for Starbucks to satisfy both of these broad categories and these two broad segments cannot mi& well within a traditional store"
B

STARBUCKS: DELIVERING CUSTOMER SERVICE

-e can infer that newerIolder customers may ha$e different priorities" =or instance, fast ser$ice probably gets much higher emphasis from newer customers than long+term customers" 'anagement admits that we%$e started to lose sight of the consumer . 6ut perhaps it would be fairer to say that they ha$e failed to understand the different needs of newer consumers"

") Des0'ibe t+e idea- Sta'bu01s 0ust%me' ('%m a *'%(itabi-ity stand*%int) /+at 4%u-d it ta1e t% ensu'e t+at t+is 0ust%me' is +i5+-y satis(ied7 %4 6a-uab-e t% Sta'bu01s is a +i5+-y satis(ied 0ust%me'7 ! highly satisfied customer $isits Starbucks far more often than a merely satisfied customer (F"2 timesImonth $s )"1 times), has a higher tab per $isit (()")2 $s ()"*B)" This translates to an annual spending difference of (1@1"@) $s" (2*."32 " The comparable

STARBUCKS: DELIVERING CUSTOMER SERVICE

figure for an unsatisfied customer, whose patronage is likely to be relati$ely short li$ed, is (1". & (1"@@ & 12) J (1@1"3B" 0ighly satisfied customers ha$e a customer lifetime of @"1 years, $ersus only )") years for merely satisfied customers and a mere 1"1 years for unsatisfied customers" The longer a customer remains loyal, the more attracti$e financially sheIhe becomes" 0owe$er, these data won%t show net profitability, because we ha$e no case information on the cost of ser$ing a customer on each $isit" 6ecause long+term customers may purchase more speciali>ed drinks, re;uire more customi>ed (and therefore more time consuming) ser$ice, and occupy seats in the stores for longer periods, so it may be happened that they may generate a lower profit margin on each sale" 9) S+%u-d Sta'bu01s ma1e t+e :", mi--i%n in6estment in t+e st%'es7 /+at2s t+e 5%a- %( t+is in6estment7 The primary goal of the proposed ()* million in$estment is to impro$e customer satisfaction by increasing speed of ser$ice" 4t will increase in annual operating costs (2* hours of e&tra labor per week per store) that will be incurred each year,and the total will rise as the number of stores increases,rather than a one+time in$estment" To reco$er this e&penditure in the first year, how many satisfied customers would Starbucks ha$e to con$ert to highly satisfied status/ !nd how many from unsatisfied to satisfied/ !nnual $alue of satisfied to highly satisfied J ((1@1"@) K 2*."32) J (1F2"12" ()*,***,***I(1F2"12 J 212,12B customers (based on revenues only, not net profits, since excludes direct costs, so actual figures required will be higher !nnual $alue of unsatisfied to satisfied J ((2*."32 K 1@1"3B) J (2F".B" ()*,***,***I(2F".B J 1,)1*,B13 customers (see disclaimer above

These data should be seen in the conte&t of 2* million indi$idual customers worldwide" !ssuming there aren%t wide differences in the costs of ser$ing each group, focusing on currently satisfied customers appears a better bet than on unsatisfied" Lnfortunately, the case doesn%t tell us what proportion of customers fit into each of the three satisfaction categories, so we can%t calculate what percent of each of the two lower groups needs to be con$erted" !lthough satisfaction appears to be correlated with length of patronage, we cannot assume that all recent customers are less satisfied than all long+term customers" T+an1 ;%u