Starbucks delivering customer service

1. 1. STARBUCKS: DELIVERING CUSTOMER SERVICE MONOJ K RABHA IIM

KOZHIKODE CRM SECTION A 1
2. 2. Brief Introduction • Founded in 1971 by three coffee fanatics- Gerald Baldwin, Gordon
Bowker & Ziev Siegl • Schultz joined the marketing team in 1982 • Later, the founders
sold the entire business to Schultz • By 2002, it served 20 million unique customers in
5000 stores across the globe • Sales had a CAGR of 40%, while Net Earnings had a
CAGR of 50% Key people in the CASE: VP of Administration in North America: Christine
Day CEO: Orin Smith (A Harvard MBA who joined 1990) Chairman & Chief Global
Strategist: Schultz CRM SECTION A 2
3. 3. Problem Statement Starbucks failed to meet customer expectations and deliver
satisfaction thereby losing customer loyalty Whether to invest the $40 million dollars to
enhance the labor in each store? If invested, How it will impact the sales and profitability?
CRM SECTION A 3
4. 4. Factors responsible for the early success of Starbucks Experiential Branding Strategy
consisting of the three major components: • High quality coffee- It monitored roasting
process to distribution around the world • Service- Provide intimate and uplifting
experience each time • Atmosphere- Friendly environment with universal appeal,
encouraged lounging and layouts Other factors that contributed the early success
includes: • Attractive Market- Unexploited without strong competitors • Partner
Satisfaction- High satisfaction rate(80-90%) & low turnover rate • Company’s Distribution
strategy and location of stores- high traffic & high visibility CRM SECTION A 4
5. 5. Core Value Proposition • Starbucks focused on the intangibles associated with drinking
coffee • It was not only about taste and quality, but the experience of drinking coffee in a
Starbucks Store • It provided emotional benefits and tried to enhance the national coffee
culture through its offerings STARBUCKS Coffee Atmosphe re Service CRM SECTION A
5
6. 6. Declining Customer Satisfaction Imperfect tool for measuring customer satisfaction:
Customer Snapshot – Mystery shopping program thrice in a quarter – Rated based on 4
criteria- service, cleanliness, product quality & speed of service – Legendary services-
behaviour that created memorable experience for customer Reasons based on research
outcomes: • Rough brand image of primarily making money & building more stores •
Perceived differentiation between Starbucks and others was very less • Somehow less
trendy as compared to others • Unsatisfactory service of partners • Low speed of service-
customized drinks slowed down the process of delivering CRM SECTION A 6
7. 7. Changing Landscape • The Starbucks of 1992 had 140 stores, whereas in 2002, it had
more than 5000 stores across the world • 77% of the sales were from beverages, while in
1992, half of the sales constituted of whole bean coffees • The Starbucks of 2002 was far
more complex with the addition of new products on the menu • The Partners had to spent
more time as beverages became more customized • The demographics of the customers
changed Earlier only the affluent, well educated and high income group used to visit 
In 2002 another group evolved which was less educated, younger and had low income
CRM SECTION A 7
8. 8. Ideal Customer & Satisfaction • The most ideal customer will be the most loyal
(frequent) customer with around 18 visits per month [ A Loyal customer will also be a
highly satisfied customer too, so he/she will spend $ 4.42 dollar per visit; From Exhibit 9]
• So total lifetime value of a loyal customer is = (4.42*18*12*8.3) = $ 7924 dollars • While
lifetime value of a highly satisfied customer is = (4.42*7.2*12*8.3) = $ 3169 dollars
Satisfaction can be increased by: • Speeding up the service • Free cups: reduce the
perception that Starbucks is only obsessed with expansion and money making • Better
training of partners to treat customers better CRM SECTION A 8
9. 9. Recommendation • Starbucks can significantly increase its sales by converting the
satisfied customers into loyal customers • However, that will require better handling of
customers by partners and shortened service time YES! They should make the
investment in labor as it will improve the ‘service’ which is the major factor driving the
value proposition. Further, $ 40 million results in investment of $ 8000 dollar per store
 (5000 stores) Now the difference between income of a satisfied ($ 209.49) and highly
satisfied customer ($ 381.88) is = $ 172 dollar Therefore, It will require (8000/172)= 46
customers to break even in each of its stores From Exhibit 3, no of visitors per store each
day = 570 CRM SECTION A So, daily 46 more customers (out of 570) need to be highly
satisfied to break even. 9
10. 10. Thank You! CRM SECTION A 10

Startbucks delivering customer service

1. 1. Starbucks: Delivering Customer Service
2. 2. Starbucks: Delivering Customer Service COMPANY BACKGROUND
3. 3. II Giomale acquires Starbucks assets 2000 140 Stores in Northwest and Chicago &
Went Public Changes name to Starbucks Corp. New CEO- Orin Smith  2002  1992
1984 Schultz joined Marketing Team 1987 1982 1971 Starbucks location in Seattle
Schultz founded II Giomale offering brewed coffee & espresso beverages w/ Starbucks
coffee beans Schultz remained -Chairman and Chief Global Strategist Established
leading brand N. America CAGR 40% 20 million unique customer Over 5000 stores
Opening average 3 stores a day T i m e l i n e - S t a r b u c k s
4. 4. Starbucks: Delivering Customer Service VALUE PROPOSITION
5. 5. “Live coffees” mantra - to keeping the national coffee culture alive.
6. 6. Creating an “experience” around the consumption of coffee
7. 7. Value proposition EXPERIENTIAL BRANDING STRATEGY
8. 8. Coffee Itself offering the highest-quality coffee in the world, coffee standards by
controlling the supply chain as possible and the distribution to retail stores
9. 9. Customer Intimacy Senior VP Retail: Jim Alling Says Our Goal is to create an uplifting
Customer experience every time you walk through our door
10. 10. Atmosphere People come for coffee but the ambience is what make them stay
11. 11. Value proposition DISTRIBUTION STRATEGY
12. 12. To reach customers where they work, travel, shop, and dine Good Location:
Company-operated stores located in high-traffic, high-visibility settings
13. 13. Product mixed tended to vary depending on a store’s size and location Non-
company-operated retail channels, foodservice accounts, domestic retail store licenses
14. 14. Value proposition STARBUCKS PARTNERS
15. 15. All Starbucks employees are called Partners
16. 16. Generous policy of giving health insurance and stock options High partner
satisfaction rate (80% to 90%), well above the industry norm.
17. 17. Lowest employee turnover rates in the industry (just 70%, compared with fast-food
industry averages as high as 300%) Lower managers turnover rates & encouraged
promotion from within its own ranks
18. 18. Starbucks: Delivering Customer Service DELIVERING ON SERVICE
19. 19. Training: hard and soft skills “Just Say Yes” Policy empowered partners the best
service possible
20. 20. Delivering on service MEASURING SERVICE PERFORMANCE
21. 21. Starbucks: Delivering Customer Service COMPETITION
22. 22. Small scale Specialty coffee chains concentrated regionally 1000 of independent
specialty coffee shops Donut and bagel chains (Dunkin donuts)
23. 23. In the home, specialty coffee was estimated to be a $3.2 billion business, of which
Starbucks was estimated to have a 4% share.
24. 24. In the food-service channel, specialty coffee was estimated to be a $5 billion
business, of which Starbucks was estimated to have a 5% share
25. 25. In grocery stores, Starbucks was estimated to have a 7.3% share in the ground-
coffee category and a 21.7% share in the whole- beans category.
26. 26. It was estimated that over the next several years, the overall retail market would grow
less than 1% per annum, but growth in the specialty-coffee category would be strong,
with compound annual growth rate (CAGR) of 9% to 10%
27. 27. Starbucks’ U.S. business was projected to grow at a CAGR of approximately 20%
top-line revenue growth
28. 28. 2002 Strategy Objective Most recognized and respected brand in the world Retail
Expansion Product Innovation
29. 29. Caffeinating the world RETAIL EXPANSION
30. 30. Coffee consumption was on the rise in the United States Half of US population drank
coffee everyday 1/3 of coffee consumption took place outside home
31. 31. 8 states in the US without a 150 of the roughly 300 single company-operated
metropolitan statistical areas in Starbucks. the nation
32. 32. the company believed it was far from reaching saturation levels in many existing
markets For example only one store for every 110,000 people only seven states had
more than 100 Starbucks locations
33. 33. the company believed it was far from reaching saturation levels in many existing
markets For example only one store for every 110,000 people only seven states had
more than 100 Starbucks locations
34. 34.  Retail business was to open stores in new markets  Clustering stores  Resulted
in Cannibalization  But Total incremental sales
35. 35.  United Kingdom, Australia, and Thailand  Licenced Store: Asia, Europe, the
Middle East, Africa, and Latin America  The company’s goal was to ultimately have
15,000 international stores
36. 36. Caffeinating the world PRODUCT INNOVATION
37. 37.  New product launched in every holiday season  Product development took 12-18
months  Ergonomic flow 1995  Coffee and non-coffee-based line of Frappuccino
beverages  boosting traffic during nonpeak hours “We’ve learned that no matter how
great a drink it is, if our partners aren’t excited about it, it won’t sell,” - Alling.
38. 38. Starbucks: Delivering Customer Service SERVICE INNOVATION
39. 39. Store Value Card -2001 “The most significant product introduction since Frappuccino
 August 2002  gift recipients are being introduced to brand for the first time T-Mobile
Hotspot wireless Internet service Can use to pay for transactions company-operated
store in North America  cardholders tended to visit Starbucks twice  customer-
transaction data
40. 40. Starbucks: Delivering Customer Service STARBUCKS MARKET RESEARCH:
TROUBLE BREWING?
41. 41. 3 separate groups lacked a strategic marketing group had no chief marketing Officer
 Market research  Category group  Marketing group market research contradicted
fundamentals Were not looking at big picture “Marketing is everywhere at Starbucks—it
just doesn’t necessarily show up in a line item called ‘marketing.’
42. 42. Caffeinating the world STARBUCKS’ BRAND MEANING
43. 43. Qualitative Brand Meaning: Independents vs. Starbucks
44. 44. The Top Five Attributes Consumers Associate with the Starbucks Brand  Known for
specialty/gourmet coffee (54% strongly agree)  Widely available (43% strongly agree) 
Corporate (42% strongly agree)  Trendy (41% strongly agree)  Always feel welcome
at Starbucks (39% strongly agree)
45. 45. Caffeinating the world CHANGING CUSTOMER
46. 46. Evolving customer base Newer customers tended to be younger, less well-educated,
and in a lower income bracket than Starbucks’ more established customers.
47. 47. Caffeinating the world CUSTOMER BEHAVIOR
48. 48. No difference between rural and urban Customer Visit Frequency
49. 49. Caffeinating the world MEASURING AND DRIVING CUSTOMER SATISFACTION
50. 50. Starbucks was not meeting expectations in terms of customer satisfaction
51. 51. 83% of Starbucks’ customers rate a clean store as being highly important (90+ on a
100-point scale) in creating customer satisfaction. Service gap between Starbucks scores
on key attributes and customer expectations
52. 52. Caffeinating the world REDISCOVERING THE STARBUCKS CUSTOMER
53. 53. Relaxing the Labour-hour
54. 54. Starbucks: Delivering Customer Service QUESTIONS
55. 55. Questions 1 FACTORS ACCOUNTED FOR THE EXTRA-ORDINARY SUCCESS OF
STARBUCKS IN THE EARLY 1990’S?
56. 56. “Buying coffee as a drink, The experience of enjoying coffee”  Changed the coffee
drinking experience in the U.S  Starbucks wanted to create a chain of coffeehouses
that would become America’s ‘Third place’ Starbucks was a place where people can
enjoy their social interactions, relax, or just spent some time by themselves. Courtesy:
Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
57. 57. First Mover Advantage  The concept was new  There was no competition
Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business,
Coimbatore)
58. 58. Customer Service Customer Intimacy’ : “Our goal is to create an uplifting experience
every time you walk through the door.” ‘Speed of Service : They served the customer
within 3 minutes ‘Just Say Yes Policy’ : Provide the best service possible, even it
required going beyond company rules  If a customer spills and asks for a re drink, they
did provide Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of
Business, Coimbatore)
59. 59. Ambience Starbucks had seating areas to encourage lounging It had universal
appeal Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business,
Coimbatore)
60. 60. Partner Satisfaction = Customer Satisfaction  Generous benefits even to most entry
level partners  Partners were among the highest paid hourly workers  Lowest turnover
in the industry Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of
Business, Coimbatore)
61. 61. Coffee Quality Starbucks offered highest quality coffee in the world, sourced from
Africa, Central & South America etc Courtesy: Ramya, Vighnesh, Venketraman, Sharath
(Amrita School of Business, Coimbatore) It controlled its supply chain to ensure coffee
standards
62. 62. Target Audience Targeted primarily towards the affluent, well ‐ educated, white ‐
collar people (Age group: 25 – 44) Courtesy: Ramya, Vighnesh, Venketraman, Sharath
(Amrita School of Business, Coimbatore)
63. 63. Questions 2 WHAT WAS SO COMPELLING ABOUT THE STARBUCKS VALUE
PROPOSITION
64. 64.  It places the customer and the service delivered to the customer above everything
else.  It moved away from the tangible benefits that the coffee offers, such as taste to
intangible benefits of experiencing a Starbucks coffee Courtesy: Ramya, Vighnesh,
Venketraman, Sharath (Amrita School of Business, Coimbatore)
65. 65. The Brand Image  Starbucks was known for being widely available  Their
specialty coffee, and being trendy.  Customers also though that the stores were clean
and were satisfied with the Starbucks product. Courtesy: Ramya, Vighnesh,
Venketraman, Sharath (Amrita School of Business, Coimbatore)
66. 66. Questions 3 WHY HAS STARBUCKS’ CUSTOMER SATISFACTION SCORES
DECLINED? OR IS IT MEASURING IT IN A WRONG WAY
67. 67. Despite the overwhelming presence and convenience, the scores declined  There
was very little image or product differentiation between Starbucks and the smaller coffee
chains  The brand image of Starbucks also had some rough edges Courtesy: Ramya,
Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
68. 68. Market research data shows that customer satisfaction has declined The satisfaction
level of customers varies with the type of customer. The demographics of its customers
are changing Expectations could have increased  It set the standards very high for its
customers  With the expansion and product innovation, it was not able to meet the
 standards  Customized drinks might have had harmful effect  Increasing lead time
Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business,
Coimbatore)
69. 69. Starbucks is measuring much on how people view the company  More customers
were beginning to agree with the fact the Starbucks cared primarily about making money
and building more stores.  Generally customers are satisfied with the coffee. Courtesy:
Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
70. 70. Questions 4 HOW HAS STARBUCKS CHANGED SINCE EARLY DAYS?
71. 71. Retail Expansion The store had expanded rapidly, from 140 stores in 1992 to 4500
stores in 2002 Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of
Business, Coimbatore)
72. 72. Product Concentration  In 1992, about half of the company’s sales came from sales
of whole ‐ bean coffees whereas in 2002 about 77% of the sales came from beverages.
 Product Innovation Strategy  The company had added new products in menu and
also sold equipment and accessories Courtesy: Ramya, Vighnesh, Venketraman,
Sharath (Amrita School of Business, Coimbatore)
73. 73. Customer base  “Customers going to the Starbucks”  “Starbucks going to the
customers”  There was a change in the demographic profile of the customer base 
Affluent, upper class professionals  Young and low income group Courtesy: Ramya,
Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
74. 74. Brand Image  The Starbucks image to the public started changing  1992 : ‘Third
Place’: Get the best coffee and relax  2002: A convenient place to hangout and the
coffee was just good Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School
of Business, Coimbatore)
75. 75. Questions 5 DESCRIBE THE IDEAL STARBUCKS CUSTOMER FROM A
PROFITABILITY STANDPOINT.
76. 76. The ideal customer from a profitability standpoint is  The loyal customer who visits
the store 18 times a month  Service time in all stores not exceed 3 mins  Improve
customer throughput  Reach as close to $20000 level in terms of weekly sales
Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business,
Coimbatore)
77. 77. Questions 6 WHAT WOULD IT TAKE TO ENSURE THAT THIS CUSTOMER IS
HIGHLY SATISFIED? HOW VALUABLE IS A HIGHLY SATISFIED CUSTOMER TO
STARBUCKS?
78. 78.  Cater to their needs and match/exceed their expectations.  Ensure service is as
fast as customer wants it to be  Add lounging areas and more comfortable chairs and
tables so that customers feel relaxed when using hotspot also  Customer satisfaction ->
loyalty-> increase in average ticket size-> higher profits Courtesy: Ramya, Vighnesh,
Venketraman, Sharath (Amrita School of Business, Coimbatore)
79. 79. Questions 7 SHOULD STARBUCKS MAKE THE $40 MILLION INVESTMENT IN
LABOUR IN THE STORES?
80. 80. Yes!!  Allocate the money based on size of store, number of customers, location
and need for additional labour instead of apportioning the $40 million equally to all the
stores  Apart from making the investment, Starbucks need to look more into their
customer base and improve on their brand image and value proposition Courtesy:
Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
81. 81. Starbucks: Delivering Customer Service THANK YOU