Starbucks:

Delivering Customer Experience

Group 3
Akshay Bapat | Ankit Baghel | Ashish Ranjan | Deepak Kumar
Khushboo Rawat | Sahil Patel | Shubhi Dangi
Core Issue: Not Meeting Customer Expectations
2002: 11th consecutive year of ~5% sales growth; recession-proof product

Research: Not meeting expectations with regards to customer satisfaction

Investment Plan: $40 Million annually across 4500 Stores

~ Additional 20 Labour ~ EPS equivalent of Improvement in Speed Increasing Customer

Hrs/Week 7 cents/share of Service Satisfaction

Christine Day, Starbucks Senior Vice President of Administration - North America

Starbucks believed their retail outlets constituted excellent customer service
Question 1: Should the research and what customers are saying be taken seriously?
Question 2: If demands are serviced, will there be an impact on sales and profitability?
 Starbucks: Company Background
Core Idea: Coffeehouses that are Americas third place (after home and work)

Place where customers can go and relax, enjoy with others or be by themselves

History:

1971: Gerald Baldwin, Gordon Bowker and Ziev Siegl start coffee shop in Seattle

1982: Howard Schultz joins Marketing Team; inspiration from Milan trip (Espresso
Bars)

1986: Starbucks founders agree to sell Howard the company

1992: 140 stores in Northwest and Chicago

1992: IPO - $25 Million

VP: Experiential Branding Strategy

Controlling the supply chain as much as possible and the

Highest Quality Coffee
distribution to retail stores

Create an uplifting experience every time you walk through

Customer Intimacy our door.

Atmosphere People come for coffee but ambience is what make the
stay
Channel of Distribution
To reach customer where they work, travel, shop and dine

Good location: company operated stores located in high traffic, high visibility settings

Varying product mix depending on store size and location

Specialty Operations: Non-company operated retails, food service accounts, domestic

retail store license
Starbucks Partner
Partner Satisfaction Customer Satisfaction

All Starbucks employees are called partners.

Policy of health insurance and stock options

High partner satisfaction rate (80-90%)

Lowest employee turnover rate (70% compared

to fast food industry average 300%)

Lower manager turnover rate & encouraged

promotion from within its own ranks
Delivering on Service
Every new partner had to undergo two types of training:

Hard skills- How to use the cash register and learning how to mix drinks?

Soft skills- How to connect with customersto welcome them to the store, to
establish eye contact, to smile, and to try to remember their names and
orders if theyre regulars.

Every time where customization is required, there were slowdown in service

delivery for everyone else. This issue can be resolved by increasing efficiency by
removing non-value added tasks.
Measuring Service Performance
The companys most prominent measurement tool was a mystery shopper
program called the Customer Snapshot. The mystery shopper would rate the
store on four Basic Service criteria:

Service

Cleanliness

Product quality

Speed of service

Stores were also rated on Legendary Service- behavior that created a

memorable experience for a customer, that inspired a customer to return often.
Caffeinating The World
AIM : To establish Starbucks as the most recognized & respected brand in the world

Major drivers : Retail expansion & product innovation

Retail Expansion:

Considerations for growth plans

Coffee consumption was on the rise ( of US population drank coffee daily)

8 states in US without a single Starbucks outlet (presence in only 150/300 areas)

Market was far from saturation ( only 7 states had >100 Starbucks locations)

To open stores in new markets while geographically clustering stores in existing ones
Product Innovation:

At least one new hot beverage launched every holiday season

Same store-sales boosting traffic during non-peak hours

90% market share in ready-to-drink coffee category($400 m)

Service Innovation:

Store-value card (SVC) :

6 million cards issued reaching $160 million in sales

Cardholders visited twice as cash customers; reduced transaction time

 Starbucks Market Research
Starbucks was considered as one of worlds most effective marketing organizations

Marketing department had 3 separate groups:

Market research group

Category group

Marketing group

Everyone was involved in marketing. But this organisational structure also meant that
market- and customer- related trends could sometimes be overlooked
Starbucks Brand Meaning
There was little image or product differentiation between Starbucks and smaller coffee
chains

There was significant differentiation between Starbucks & independent speciality coffee
houses

Starbucks brand was perceived as:

Primarily about making money

Building more stores

Starbucks needed to ensure that

they were communicating their
Values to customers rather than
focusing more on growth
The Changing Customer
Starbucks customer base was evolving - younger, less well-educated, in a
lower income bracket and less frequent visitors
Customer Behaviour
The typical customer visited starbucks 5 times a month whereas the most
frequent customers visited on an average 18 times a month

By Customer Visit Frequency

By Satisfaction Level
 Recommendations
Starbucks should go ahead with investing $40 mn and add the equivalent of 20 hours of
labor a week because of following reasons:

Given the product variation- tension between product quality & Customer focus

Need to bring service time down to 3 minutes level in all the stores

To create difference and to have competitive advantage over smaller coffee chains

Help in achieving $20000 level per store in terms of weekly sales

Increase in sales by converting Satisfied customer to Highly Satisfied customer

Starbucks value proposition:Service referred to as customer intimacy

34% respondents prefer improvements in service, speed of service (Exhibit-11)