Starbucks : Delivering Customer Service

Group 7

Divnay Bhutra S 14020841036 Apoorva Namjoshi 14020841124

Yashika Atre 14020841172 Amit Chaturvedi 14020841004

Zaid Shaikh 14020841114 N.Supreeth 14020841146

Summary of Case• Starbucks, a leading specialty-coffee brand and

coffee store chain based in the US was founded in 1971 by Gerald Baldwin, Gordon Bowker, and Ziev Siegl.

• In 2002, Starbucks had achieved a CAGR of 40% since its IPO and owned approx 5000 stores

• Its competitors range from small-scale specialty coffee chains to independent specialty coffee shops, and donut and bagel chains.

• Further growth in untapped national and international markets and unreached saturation levels.

Continued…• Starbucks used company-operated stores in areas

with high traffic and high visibility.

• Additionally, Starbucks sold coffee products through retail channels.

• Joint-venture partnerships to distribute certain products, e.g. bottled Frappuccino through Pepsi-Cola.

• Starbucks was able to reach customers “where they work, travel, shop, and dine”.

Continued…• When a partner was hired, he/she had to undergo two types of

training i.e. hard skills and soft skills.

• They tracked service performance using mystery shopper program called the “customer snapshot”.

• They followed aggressive growth strategy and in 2002 the two biggest drivers of company growth were retail expansion and product innovation.

• In 2002, company had gathered evidence that customer satisfaction is on the decline, its brand image is showing some rough edges and its customer base has also significantly changed.

What factors accounted for the extraordinary success of Starbucks

in early 1990s? What was so compelling about the Starbucks value proposition? What brand

image did Starbucks develop during this period?

Why Starbucks succeeded in early years

• 3 components of experimental branding– High quality coffee: it monitored process of roasting to

distribution around the world.– Service: practicing customer intimacy regularly and providing

lively experience each time.– Atmosphere: lounge experience with universal appeal.

• Other factors contributing to early success of Starbucks– Attractive market: unexploited by competitors– Partner satisfaction: low turnover rate and high satisfaction

rate (80%-90%)– Store location: high customer traffic and high visibility areas.

Core Value Proposition• Focus on intangibles associated with coffee drinking.• Focus on overall experience of coffee at a Starbucks

store rather than only taste and quality.

Customer intimacy

AmbienceCoffee

Known for speciality/gourmet coffee

Widely available Corporate Trendy Always feel welcome at starbucks

0%

10%

20%

30%

40%

50%

60%

54%

43% 42% 41%39%

Top five attributes consumers associate with Starbucks Brand

Starbucks changing brand image

• OLD Image

– The best quality coffee available

– A third place

– A sanctuary from the world

• NEW Image

– Good coffee on the run

– Place to meet and move on

– Convenient, accessible and consistent

Why have Starbucks customer satisfaction score declined? Has the company service declined or is it simply measuring satisfaction the wrong way?

Fall in Customer Satisfaction

Customer Snapshot: The imperfect tool•Mystery shopper program: 3 times in a quarter. •Criteria for ratings: service quality, product quality, cleanliness & speed of service. •Legendary services: that behaviour which made the experience memorable for customer.  

Outcomes based on research•Primarily making money and building more stores created a rough brand image. •Less differentiation perceived between Starbucks and other. •Comparatively less trendy. •Unsatisfactory service of partners. •Due to drink customisation, speed of service was reduced.

High quality brand

Brand I trust

For someone lik

e me

worth payin

g more fo

r

known for s

peciality

coffee

known as the co

ffee expert

best-tasti

ng coffee

highest-qualtiy c

offee

Overall O

pinion of starbucks

0%

10%

20%

30%

40%

50%

60%

34%

30%

15%

8%

44%

31%

20%

26% 25%

51% 50%

40%

32%

60%

45%

31%

41%44%

Attitude Towards Starbucks

New customers (first visited in past year) Established customers(first visited 5+ years ago)

Starbucks Service DeteriorationToo little

experienced labor

Baristas have no time to chat

Grumpy employees

Grumpy Customers

Employee turnover

Lots of new customer acquisitions

Desire for customization

Long lines

Baristas have no time to chat

Leave before ordering

Don’t come back (as often)

Less of a ‘third place’ attachment

Order simple than complex (lower

ticket value)

Complex Orders

How does the Starbucks of 2002 differ from the Starbucks of 1992?

Premium coffee

Physical EnvironmentService Philosophy

Consumption PatternTendency to linger,

Ritualistic consumption,Looking to self-indulge

Target CustomerSophisticated, affluent coffee lover, embracing the ‘live coffee’ lifestyle

Brand PerceptionBest coffee,

classy, upscale, a “third place”

Starbucks in 1992

Premium coffee

Physical EnvironmentService Philosophy

Different Consumption

Patterns

Different Brand

Perception

Established CustomersSophisticated, affluent coffee lover, embracing the ‘live coffee’ lifestyle

New AcquisitionsLess sophisticated,

In a hurry, more pragmatic

Starbucks in 2002

Starbucks over the years : Comparison1992 2002

Sales 50% sales from sale of whole bean coffees

77% sales from beverages

Menu Whole bean coffee Addition of new items-Food and new beverages

Ambience Lounge with an Italian coffee culture

Smaller coffee store without lounging

Target audience Mid to upper class Professionals

Younger and lower income demographic profile

Drink Combinations Fewer beverages Too many beveragesReason: Addition of a new beverage every holiday seasonProcess Simple ComplexDelivery time Faster service Slower serviceCompany norm Customers going to the

StarbucksStarbucks going to the customers

Company Image Best quality coffee where one can relax

Just good coffee, meeting people and move on

Describe an ideal Starbucks customer from a profitability standpoint. What

would it take to ensure that this customer is highly satisfied? How

valuable is highly satisfied customer to Starbucks?

• The most ideal customer of Starbucks will be the one who will visit the store most frequently on an average 18 visits a month.

• Also the ideal customer will be the one who will be highly satisfied. Thus, he/she will spend $4.42 per visit.

• The ideal customer will have an average customer life of 8.3 years.

THE MOST IDEAL CUSTOMER

Differences in revenue of a highly satisfied customer with a satisfied customer

Unsatisfied Customers

Satisfied customers

Highly Satisfied

Customer

Ideal Custome

rsNumber of Starbucks

Visits/Month 3.9 4.3 7.2 18

Average Ticket Size/Visit

$

3.88

$

4.06

$

4.42

$ 4.42

Average Customer life(years) 1.1 4.4 8.3 8.3

Revenue generated per month

$ 15.13

$ 17.46

$

31.82

$

79.56

Revenue generated per year

$ 181.58

$

209.50

$

381.89

$

954.72

Revenue generated over avg customer life

$ 199.74

$

921.78

$ 3,169.67

$

7,924.18

The total lifetime value of a highly satisfied customer is around $ 3170 while that of satisfied customer is around $ 922 and unsatisfied customer is around $ 200

Thus, the difference of lifetime value between highly satisfied and satisfied customer is: $(3170-922)= $ 2248

Also, the difference of lifetime value of highly satisfied and unsatisfied customer is: $ (3170-200)= $ 2970

Thus, it is of utmost importance for Starbucks to raise its customer satisfaction scores.

Factors affecting “Valued Customers” Perceptions

34%

31%

21%

28%Improvement to Service

Offer Better Prices/ Incentive Program

Other

Already Satisfied

Improvement to service

Offer Better Prices/ Incentive Program

Better quality/variety of products

Improve atmosphere

Community outreach/Charity

More stores/More convenient loactions

0% 2% 4% 6% 8% 10%

9%

8%

2%

2%

Series1

Others

Free cup after x number of visits

Reduce Prices

Offer Promotions, specials

19%

11%

3%

Friendlier,more attentive staff

Faster.more efficient service

Personal treatment

More knowledge staff

Better Service

19%

10%

4%

4%

2%

To make customer highly satisfy:

• Speed up the service

• Focus on friendlier and more attentive staff

• Improving efficiency on services by investing in new machines

• Focus on better incentives for customers after a particular number of visits

• Improve efficiency in cleanliness

Thank you