STARBUCKS: DELIVERING

CUSTOMER SERVICE

GROUP-4

RIZWANA (18DM171)
ROHINI (18DM172)
SAUMYA (18DM185)
ADITYA (18DM014)
HEMANTH( 18DM071)
SAI KRISHNA (18DM177)
PARVATHY (18DM141)
 INTRODUCTION

• Leading speciality-coffee brand and coffee store chain based in USA.

• Found in 1971 by Gerald Baldwin, Gordon Bowker and Ziev Siegl.

• Achieved a CAGR of 40% since its IPO and owned approximately 6000 stores.

• Competitors ranged from small scale speciality coffee shops to donut and
bagel chains as well.

• Also sold Whole-Bean coffees and food items through its retail channels
however coffee beverages amounted for about 77% of its sales.
 INTRODUCTION

• Further growth in untapped national and

international markets and unreached
saturation levels.

• Was able to reach their customers where they

work, shop, travel and dine.

• Tracks their service performance using a

mystery shopping program called as the
“Customer Snapshot”.

• Follows aggressive growth strategy and in

2002 the two biggest drivers of company
growth were retail expansion and product
innovation
 WHAT FACTORS ACCOUNTED FOR THE
EXTRAORDINARY SUCCESS FOR STARBUCKS IN
THE EARLY 1990’S?

• Expansion:
By 1992, Starbucks had 140 stores in the Northwest and Chicago and was
successfully competing against other small-scale coffee chains such as Gloria
Jean’s Coffee Bean and Barnie’s Coffee & Tea. Also raised 25 million $ through
IPO which helped in expansion

• Clear Segmentation:
Catered primarily to affluent, well-educated, white-collar patrons (skewed female)
between the ages of 25 and 44.

• Locations:
Located in high-traffic, high-visibility settings such as retail centres, office
buildings, and university campuses.
• Depth:
In addition to selling whole-bean coffees, these stores sold rich-brewed coffees,
Italian-style espresso drinks, cold-blended beverages, and premium teas.

• Varied Product Mix:

Product mixes vary depending on the stores size and location; most stores offer a
variety of pastries, sodas, juices, coffee-related accessories and equipment, CDs,
games, and seasonal novelty items.

• Non company operated Stores:

Sold products through hotels, airlines, and restaurants.

• Joint Ventures:
Formed joint ventures to distribute bottled frappuccino thru Pepsi-Cola and an ice
cream thru Dreyer’s Grand Ice Cream.
• Innovations:
Starbucks worked on both product innovations and service innovations. New products
were launched on a regular basis, such as one new hot beverage every holiday
season.

• Store Value Card

This led to reduced transaction times. This increased customer satisfaction
 WHAT WAS SO COMPELLING ABOUT STARBUCKS VALUE
PROPOSITION?

Three components
1.High Quality Product
Offered the highest-quality coffee in the world,
sourced from the Africa, Central and South
America, and Asia-Pacific regions. Even controlled
as much of the supply chain as possible

2. Customer Intimacy
Created an uplifting experience every time
customers walked in.

3. Atmosphere
Lounging and layouts were designed to provide an
upscale yet inviting environment for those who
wanted to linger.
 WHAT BRAND IMAGE DID STARBUCKS DEVELOP
DURING THIS PERIOD?

The brand image that Starbucks developed during this period was not necessarily the best.

• Was known for being widely available, their gourmet/specialty coffee, and being trendy.

• Customers also though that the stores were clean and overall satisfied with the
Starbucks product.

• Market research team discovered that Starbucks’ brand image was declining. Majority
of Customers thought Starbucks cares primarily about making money and was
commercial.

• Starbucks brand image was becoming more about the growth plans of Starbucks rather
than the value they wanted to provide to their customers.
 WHY HAS STARBUCK’S CUSTOMER SATISFACTION
SCORE DECLINED ?

Decline in Customer Satisfaction can be attributed to service gap.

• Customer perception about the company – interested only in expansion and

money making

• Competitors imitating the services of Starbucks

• Little image or product differentiation between Starbucks and smaller coffee

chains

• Change in brand image – Premium brand to an everyday coffee brand

• Evolving Customer base : Unsatisfied new customers

• Only 39% of the customers felt that they were always
welcomed at Starbucks (Top Five attributes consumers
associate with Starbucks)

• Unsatisfactory service speed

• Measuring attributes to product quality rather than

service quality

• Lacked a strategic marketing group – no CMO and

marketing department functioned as three separate
groups
 HAS THE COMPANY’S SERVICE DECLINED OR SIMPLY
MEASURING SATISFACTION IN THE WRONG WAY

Company’s service has not necessarily

declined but the satisfaction was
measured in the wrong way

• Parameters used to measure customer

satisfaction were inaccurate

• Metrics (Customer Snapshots and

Legendary Service) by itself was
becoming inconsistent

• Customer satisfaction also depends

upon the type of customers: customers
that visit more often (21% of their
customer base), spend more often and
are more loyal tend to be more
satisfied
 HOW DOES STARBUCKS OF 2002 DIFFER FROM THAT OF
1992?

• The brand is more accessible with almost 6000

stores compared to that of 140 stores in 1992.

• Menu has expanded with a variety of new coffee

beverages, food items and equipment and
accessories as well.

• Difficulty level of a barista’s job increased due

to many drink variations and less time for a
barista to have a friendly chat.

• Change in the customer base to younger, less

affluent and less sophisticated customers who
do not consider Starbucks as a premium coffee
and hence are less likely to pay a premier price.
 HOW DOES STARBUCKS OF 2002 DIFFER FROM THAT OF
1992?

1992 2002

Process Simple Complex

Sales 50% sales from whole-bean 77% sales just from

coffee beverages
Ambience Lounge with an Italian Smaller coffee stores
coffee culture without lounging
Delivery time Faster Service Slower Service

Company Norm Customers going to Starbucks going to

Starbucks customers
Company Image Best quality coffee where Good coffee, meeting
one can relax people and move on
 IDEAL STARBUCKS CUSTOMER

Unsatisfied Satisfied Highly

• Ideal Customer for Starbucks is their
Customer Customer Satisfied
most loyal customer. They visit as Customer
often as 18 times per month.
Number of Starbucks 3.9 4.3 7.2
• Highly Satisfied Customer Generates Visits/Month
Average Ticket Size/Visit $3.88 $4.06 $4.42
50% of total revenue generated by
Average Customer Life 1.1 4.4 8.3
Starbucks per year. (Years)
Revenue Generated per $15.13 $17.46 $31.82
• Highly Satisfied Customer generates Month
16 times more revenue for Starbucks Revenue Generated per $181.58 $209.50 $381.89
Year
than Unsatisfied customer over his Percentage of Revenue 23.49% 27.10% 49.41%
life time. Generated per Year
Revenue Generated over $199.74 $921.78 $3,169.67
Customer life
 FACTORS DRIVING "VALUED
CUSTOMER" PERCEPTIONS

How could Starbucks make Improvements to service

you feel more like a valued
customer? BETTER SERVICE 2%

28% 34%
MORE KNOWLEDGEABLE
4%
STAFF

21% PERSONAL TREATMENT

(REMEMBER MY NAME, 4%
31% REMEMBER MY ORDER)

Improvements to Service (total)

FASTER, MORE EFFICIENT
10%
SERVICE
Offer Better Prices/Incentive Programs
(total)
Other (total) FRIENDLIER, MORE
19%
ATTENTIVE STAFF
Don't Know/Already Satisfied
0% 5% 10% 15% 20%
 FACTORS DRIVING "VALUED
CUSTOMER" PERCEPTIONS

Offer Better Prices/Incentive Other

Programs
MORE STORES/MORE
2%
CONVENIENT LOCATIONS
OFFER PROMOTIONS,
3%
SPECIALS
COMMUNITY
2%
OUTREACH/CHARITY

REDUCE PRICES 11%

IMPROVE ATMOSPHERE 8%

FREE CUP AFTER X BETTER

19% QUALITY/VARIETY OF
NUMBER OF VISITS 9%
PRODUCTS

0% 5% 10% 15% 20% 0% 2% 4% 6% 8% 10%

 THINGS TO DO TO ENSURE HIGH
CUSTOMER SATISFACTION

• Reduce Average wait time to less than 3 minutes.

• More Friendly and Attentive staff.

• Offer Incentives for regular customers.

• Make the stores more Social and Convenient.

• Add more variety to the menu.

 SHOULD STARBUCKS GO AHEAD WITH
HIRING OF ADDITIONAL LABOR

INVESTMENT PAY OFF BREAK EVEN ANALYSIS

• INVESTMENT PER STORE=$40M / 5000 STORES= $ 8000

• DIFFERENCE BETWEEN SATISFIED AND HIGHLY SATISFIED CUSTOMERS= $ 172

• TO BREAK EVEN AT EACH STORE= 8000/172= 46 CUSTOMERS

• NO. OF VISITORS PER STORE EACH DAY= 570 (EXHIBIT 3)

• TO BREAK EVEN DAILY 46 MORE CUSTOMERS OUT OF 570 SHOULD BE CONVERTED FROM
SATISFIED TO HIGHLY SATISFIED.

RECOMMENDATION:
Starbucks should make this investment as it will
improve service, would convert satisfied customers
to highly satisfied. Thereby making it more profitable

•
 SHOULD STARBUCKS GO AHEAD
WITH HIRING OF ADDITIONAL
LABOUR

OPPORTUNITIES
● Reduction of service time
● Reduction of workload of
existing partners
● Better connection with
customers as more time for
verbal chit-chat
● Proper division of work
ensuring specialization
● Minimization of wastage and
errors
● Serving better quality product
● Overall improved customer
satisfaction
RISKS
● Future plans of expansion and
product innovation need more
capital
● Apart from hiring costs,
training costs will also be
incurred
● Tendency of workers to leave
within the 90-day period,
leading to wastage of hiring
and training cost
● If returns from this investment
aren't high, bottom line will
suffer
 CUSTOMER INTIMACY: IS IT
PROFITABLE

● Attracting loyal customers

● Shift of brand image from “speciality coffee” to “handcrafted coffee”

● Need to communicate the company's value to the customers

● Better catering to new customers, in terms of numbers as well as

changing behavior

● Better link between customer expectation and customer satisfaction

● Will have to manage both new and regular customers by increasing

service efficiency and customer intimacy

We are now open to Questions!