STARBUCKS: DELIVERING CUSTOMER SERVICE

DILUK PERERACOHORT: BAY BRIDGE

FACTORS ACCOUNTED FOR EARLY THE EXTRAORDINARY SUCCESS OF STARBUCKS IN THE EARLY 1990S

Experiential Branding strategy- created a

coffee culture and built a loyal customer base

Premium coffee- Worked directly with growers, monitored roasting process and controlled distribution around the world to ensure quality

Service- Provided intimate, uplifting personalized experience every time

A third place atmosphere- Sophisticated, upscale, classy yet inviting environment, encouraged lounging

Other Factors

Employee satisfaction- Satisfaction rate 80%-90% and low turnover rate ensured baristas are motivated to become experts at hard and soft skills to offer warm personalized service to tea fanatics

Unexploited attractive market without strong competition

Wide available distribution strategy and store locations on high visible, high traffic areas

WHAT WAS SO COMPELLING ABOUT THE STARBUCKS VALUE PROPOSITION?

Starbucks experience- Best quality

coffee, intimate service, friendly

baristas and European style classy layout,

that encourage lounging for customers

Target customer expectation- premium

coffee, upscale

third place ambience , live coffee

culture

Target customers- Sophisticate

d, white collar,

educated, affluent coffee lovers,

looking for premium

coffee experience

DEVELOPED HIGHLY DIFFERENTIATED VALUE

PROPOSITION PERFECTLY TO MATCH

THE TARGET CUSTOMER SEGMENT

MUTUALLY REINFORCING CYCLE

HOW DOES THE STARBUCKS OF 2002 DIFFER FROM THE STARBUCKS OF 1992?

Brand is more accessible-Over 5000 stores compared to 140 stores in 1992

Increased product range- Menu complexity has

increased, non coffee products targeting mainstream

customers compared to only targeting coffee fanatics 10

years ago

Non coffee house channels- kiosks, supermarkets,

warehouse clubs, hotels, airplanes

New retail formats- Drive throughs

Difficulty level of Barista job increased- Due to many drink variations

and less time for barista to have a friendly chat

WHAT BRAND IMAGE DID STARBUCKS DEVELOP DURING THIS PERIOD?

Known for specialty /gourmet coffeeHigh quality coffee (not top quality necessarily)Widely available Convenient Clean comfortable storesFeel welcome

Signals of dilution of brand image-Primarily cares about money- increased from 53% to 61%Primarily Cares about building more stores- increased from 48% to 55%More concerned about growth plan than customer satisfaction

WHY HAVE STARBUCKS’ CUSTOMER SATISFACTION SCORES DECLINED?Diluted brand image- consumer

belief Starbucks primarily concerned about money and store availability, rather than

customer satisfaction

Considered less trendy

Perceived difference of image and product differentiation

compared to independent coffee shops was less, hence paying a

premium price for Starbucks was questionable

Baristas unsatisfactory service Speed of service was not

satisfactory level- lack of hard and soft skillsSpeed of service was not satisfactory

Customer Satisfaction

HAS THE COMPANY’S SERVICE DECLINED? NOT NECESSARILY DECLINED

People from these 2 different worlds define great service differently. To make the matter worst same customer would expect rush service from Monday to Friday and would lounge and read newspapers on weekends

Due to the dramatic expansion of customer base, Starbucks now has to serve customers that were not original part of the target market, whose expectations and behaviors are different, hence it impact each other:

Overall customers are pleased with product quality, cleanliness and

atmosphere. However wait time is increasing, this is not necessarily not

due to a service inefficiency.Original target customer gaze at long menu, starts a friendly conversation with barista and requests customized beverage, while new customers complain about service slowing down during rush hour time. On the other hand if baristas rush third place ambience for established customers will be destroyed and baristas will be less friendly and grumpy.

IS IT MEASURING SATISFACTION THE WRONG WAY? IMPERFECT TOOL

• CUSTOMER SNAPCHAT METRICS OF FRIENDLINESS, ORDER FILLED ACCURATELY AND SPEED OF SERVICE IS SELF-CONTRADICTING AND INCONSISTENT

• FRIENDLY THE BARISTA, SLOWER THE SERVICE• BARISTA TAKE TIME TO PREPARE PERFECT HAND CRAFTED BEVERAGE, SLOWER THE SERVICE• LEGENDARY SERVICE ENCOURAGES BARISTAS TO CREATE A MEMORABLE EXPERIENCE FOR THE

CUSTOMERS AND INITIATE CONVERSATIONS, THIS IS INCONSISTENT WITH THE GOAL OF 3 MINUTE SERVICE TARGET.

• NEW INTERNAL MEASUREMENTS SHOULD BE INTRODUCED TO CAPTURE THESE CONFLICTING CUSTOMER EXPECTATIONS

DESCRIBE THE IDEAL STARBUCKS CUSTOMER FROM A PROFITABILITY

STANDPOINT. HOW VALUABLE IS A HIGHLY SATISFIED CUSTOMER

TO STARBUCKS?

Life time revenue

stream of a highly

satisfied customer

worth $ 2970 more

than that of an

unsatisfied customer.

Life Time Value

As per below calculation

revenue stream of

highly satisfied

customer annually is $

200 more than an

unsatisfied customer and

$ 172 more than just a

satisfied customer.

Revenue Annually

Ideal customer would be most

frequent (loyal) customer who

visits Starbucks 8 times a month,

and will spend $4.42 per visit.

These customers account for 62% of all transaction value. Customers

that visit 1-2 times per month

only generate 11% of all

transaction value

Highly Satisfied Customer

Unsatisfied SatisfiedHighly

satisfiedVisits/month 3.9 4.3 7.2

Visits/year 46.8 51.6 86.4$ per

Transaction 3.88 4.06 4.42

Revenue/year 182 210 382

Average Life

(years) 1.1 4.4 8.3Revenue/

Life 200 924 3170

WHAT WOULD IT TAKE TO ENSURE THAT THIS CUSTOMER IS HIGHLY SATISFIED?

• IT IS COMPLEX TO DELIVER CUSTOMER SATISFACTION TO CUSTOMERS WITH DIFFERENT EXPECTATIONS.

• STARBUCKS CUSTOMERS GIVE PRIORITY TO CLEAN STORE, HENCE KEEP THE STORE CLEAN, MAINTAIN HIGH SANITATION LEVEL.

• CONVENIENCE IS THE SECOND PRIORITY. HENCE SPEED UP THE SERVICE. ESTABLISH MORE STORES IN HIGH VISIBILITY TRAFFIC AREAS, INCLUDE DRIVE-THROUGHS, REMODEL SHOP LAYOUTS, INTRODUCE QUICK COFFEE MAKING MACHINES AND PREPAID CARDS TO SPEED UP THE PROCESS AND ELIMINATE ANY BOTTLENECKS.

• NEXT, CUSTOMERS GIVE PRIORITY TO GETTING TREATED AS A VALUABLE CUSTOMER AND FRIENDLY STAFF. BETTER TRAINING OF BARISTAS ON SOFT SKILLS WOULD BE THE SOLUTION.

WHAT’S THE GOAL OF THIS INVESTMENT? SHOULD STARBUCKS MAKE THE $40 MILLION INVESTMENT IN LABOR IN THE STORES?

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 SPEED, CONVERTING SATISFIED CUSTOMERS TO HIGHLY SATISFIED CUSTOMERS AND PREVENT TURNING INTO ‘UNSATISFIED’ CUSTOMERS

GOAL: INCREASE SALES BY CONVERTING SATISFIED CUSTOMERS TO HIGHLY SATISFIED LOYAL CUSTOMERS; BY PROVIDING FASTER SERVICE WITHOUT

COMPROMISING VALUE ADDED COFFEE EXPERIENCE TO ESTABLISHED CUSTOMERS.

 IS IT POSSIBLE FOR A MEGA-BRAND TO DELIVER CUSTOMER INTIMACY? YES POSSIBLE, BUT DIFFICULT BALANCING ACT

New custome

rs

Established

customers

Defines Starbucks- protect unique value proposition

Require customer intimacy

Less profitable, time consuming

Does not require intimacy

More revenue, low cost- growth vehicle

STARBUCKS WILL HAVE TO MANAGE INTERESTS OF

BOTH SEGMENTS; INCREASE SERVICE EFFICIENCY

WITHOUT NEGLECTING SERVICE QUALITY AND CUSTOMER INTIMACY.