Professional Documents
Culture Documents
STARBUCKS:
Delivering Customer Service
What factors accounted for the extraordinary success of Starbucks in the early
1990’s? What was so compelling about the Starbucks value proposition? What
brand image did Starbucks develop during this period?
The extraordinary success of Starbucks can mainly be attributed to Mr. Schultz who
established the main concepts of value proposition and placed huge importance on
customers first. His value proposition was very different in terms service quality. He
adopted a strategy that can be best described by its ‘live coffee’ mantra. This success
was achieved through several factors in the 1990’s:
1) Product strategy
Product innovation
Starbucks placed huge importance on Research and Development, which they
believed could help the company’s sales. A great example would be Frappuccino
beverages which boosted sales in non peak hours in 1995, and in terms of the non
product innovation the Store Value Card (SVC) which was launched in November
2001. It is considered to be the most important innovation after Frappuccino
beverages as it reached 160 millions in sales in less than one year of its release.
Quality of the coffee
They offered highest quality coffee from Asia, Pacific, Africa, South and Central
America directly controlled the supply chain, working with coffee growers controlled
quality by owning stores not giving franchises
2) Place strategy
Store Ambience
Mr. Schultz have transformed the concept of buying coffee. He wanted to not only
offer high quality coffee, but rather an experience. An experience that the customer
would want to come back for. He created a welcoming lounge where people can
relax and enjoy their coffee. The environment he created encouraged more people
to come in groups.
Distribution Channel
Almost all starbucks shops where located in high visibility areas, making it easier to
attract more customers. Joint ventures where also formed with companies like
Pepsi-Cola to distribute bottled Frappuccino beverages in North America, as well as
a partnership with Dreyer’s Grand Ice Cream to develop and spread a line of
premium ice creams. In order to better understand the expansion technique it is
vital to quote Christine Day:
‘Our philosophy is pretty straightforward—we want to reach customers where
they work, travel, shop, and dine. In order to do this, we sometimes have to
establish relationships with third parties that share our values and commitment
to quality.’
Expansion
Schultz offered Starbucks to the public offering, which helped the company raising
$25 million, which in return helped Starbucks to open further stores across the
country.
3) Service strategy
Service
Starbucks focused on creating a good relationship with their customers, training its
partners, ensuring they welcome customers in a happy manner and to remember
the names and usual orders if possible. They wanted to make sure that customers
were served within 3 minutes, and thanks to the “Just Say Yes” policy it helped its
partners to provide the best service possible, even if it meant going the extra mile.
Partner Satisfaction
Howard believed that the partners (employees) needed to be happy as it would
reflect in customers’ satisfaction. Entry level employees were granted health
insurance and stock options, and Starbucks mainly promoted existing employees
rather than hiring new ones, resulting in one of the lowest employee turnover ( Just
70% compared to the 300% of the fast food industry.)
The main brand image Starbucks was trying to build is that it is customer centric,
that they would offer the best coffee quality, friendly environment to enjoy coffee
like no other place.
Why and how have Starbucks’ customer satisfaction scores declined? Has the
company’s service declined? Or is it simply measuring satisfaction the wrong
way?
Starbucks value proposition was always around 3 main factors (high quality. High
service and a friendly atmosphere. As portrayed in Exhibit 7 there was an adverse
relationship between service delivery and product quality. Moreover, there is a huge
percentage of Starbucks customers that seemed dissatisfied with the service
provided. We believe that there are several factors that led to such results:
1 - A new customer segment
The new customers that were visiting Starbucks came from a younger generation,
and in return they expected a slightly different method of treatment. This change in
generations created a form of misconception and gap difference between what is
served and what is given.
2 - Brand Identity and image
Even though Starbucks had a strong presence and convenience customers found a
very small product differentiation between Starbucks and other smaller coffee
chains. Moreover, the research team found out that a huge portion of customers no
longer saw Starbucks as the cradle of unique experience but rather as a company
that wanted to build more stores and make as much money possible. This made
Starbucks question themselves if they were still delivering on their values as before.
3 - Losing Sight of Core Proposition
Starbucks recent decision to expand rapidly and become product focused affected
the customer focused approaches. As time went they became less customer centric.
4 - A Decline in the Service and a Possible Measurement Gap
34% of Starbucks customers believed that the service provided could be improved as
it was more friendly and faster. It is worth mentioning that the wide variety of
customized coffee made it hard for the currently hired partners to cope. The highly
customized amount of coffee made the serving time longer and partners could not
be as friendly as expected. The atmosphere was stressful.
It is worth mentioning that in some parts the results of the satisfaction rates are
contradicting and inconsistent. Thus Starbucks has to find a more accurate
mechanism.
After taking into consideration all previously mentioned reasons behind the
customer satisfaction scores decline, the combination have led into a deviation from
the main vision, more stressed partners, which in return can be seen in a less friendly
and slower service, and eventually led to a worse customer satisfaction score.
How does Starbucks of 2002 differ from the Starbucks of 1992?
1 - In 1992 Starbucks had only 140 stores in Northwest and Chicago and was
competing with small scale coffee chains, but in 2002 the company had become a
gigantic shark in the coffee industry, owning 5000 coffee shops, becoming one of
the biggest brand names in the coffee industry.
2 - The demographic profile of the customers also changed from 1992 to 2002. In
1992 the customer segment that Starbucks had was more of middle to upper class,
while customers who joined later were younger, less educated and not earning
much.
3 - Back in 1992 the product range offered was limited, yet as time went on they
became more complex and innovative.
4 - The increase in service time when making customized coffee made the job
harder for the partners to have a friendly chat and increased the level of difficulty,
since they had to work faster.
5 - Starbucks introduced overtime methods of expansion through different house
channels like airports and restaurants. Different partnerships were formed with
companies like Dreyer’s Grand Ice Cream
6 - Starbucks brand image also changed over time from a place where it was
perceived by others as a company of strong values and whose main focus was its
customers to a normal company that only had one main goal, to expand and make
money. The main Starbucks vision of experience kind of faded.
Describe the ideal Starbucks customer from a profitability standpoint. What
would it take to ensure that this customer is highly satisfied? How valuable is a
highly satisfied customer to Starbucks?
Starbucks main effort was to drive customer satisfaction which would lead to long
term relationships. The Starbucks’ segment from the very beginning was affluent,
well-educated white collar workers, mainly females, who would take the pace from
an American rapid lifestyle to enjoy the cup of coffee every day.
This most valuable customer segment was the one established 5 and more years
ago. If we look at the exhibit 9, this segment is much more satisfied with the overall
experience with the brand (44% vs 25%). These are also drinking coffee more
frequently (19 vs. 15) and more likely to visit Starbucks regularly.
In conclusion, we believe that the $40 million is worth the investment in case
we reach the breakeven point, and our extra advice to the board of Starbucks
is that there are other factors that they should also try to improve such as
clean store, convenience and coffee taste flavour.