PREMIUMISATION IN SERVICE: STARBUCKS DELIVERS THE FINEST EXPERIENCE

Starbucks: The Global Context

Starbucks has earned recognition as a ‘premium experience brand’, a brand that provides a
unique value to the customers through finest experience. The Starbucks chain was founded in 1971
as a small company in Seattle, United States. As of 2017, the chain operated its stores in 27,339
locations worldwide. About 60 per cent of them being company-owned coffee bars and 40 per cent
franchised stores. Its closest rival, global No. 2, Dunkin Donuts, runs less than 10,000 stores. In fiscal
2016, Starbucks posted 11 per cent growth in global net revenue to $21.3 billion.

‘Experience’ is the Secret

Consumers could get a cup of coffee from any coffee shop and at much lower prices. For
instance, in New York, a cup of coffee is available in other ordinary coffee shops at less than one-third
of the price at Starbucks. However, customers do not mind paying that kind of money for enjoying a
Starbucks coffee.

Why do they come back to a Starbucks cafe again and again and are willing to pay a higher
price for Starbucks’ coffee?

What is its distinctiveness?

Desired Image

Consumers of Starbucks coffee belonged to a specific class. The class has its own idea of ‘the
desired image’. And Starbucks offers this desired image. The setting, the ambience and the facilities
all form part of this image and means value for the class.

Delivering Superior Experience to the Customers

The customers are not just gulping a cup of coffee in the cafe, they are enjoying a delightful
experience in the cafe—in the form of good relaxation, in an ambience of their liking. They love this
experience, so they come back again. Starbucks displays a remarkable commitment to ensure that the
speciality of the experience is not over with the first visit and that every visit is made enjoyable. The
distinctiveness is enhanced by the fact that the experience provided is totally sensorial. Starbucks
actually shows how different brewing methods can enhance particular characteristics in the coffee
the consumer sips. It unlocks the full potential of the coffee and offers the consumer the perfect cup
every time.

Meticulous Attention to the Service Process

The service process is the heart of any service business. Service process refers to the
arrangement by which the service is actually produced and delivered to the customer. With Starbucks,
the service process as such—the making of the coffee—has an especially big role in creating the
superior Starbucks experience and value. The attention Starbucks gives to the service process is
actually its trump card here. Each step in the process is important; and the perfect execution of all
these steps results in the final delivery of the Starbucks satisfaction to the customer. This care ensures
consistency in the product; every time the customer gets the coffee he expects—the flavour, colour,
thickness, temperature and sweetness.

Sensory Marketing
 Sensory elements are built into the service process—the process of preparation of the coffee.
And coffee-making lent beautifully to exploitation of sensory elements. Staff members are constantly
told to check the colour of each espresso made, the concentration of the brew, the final temperature
of the coffee, the measure that should go to the cup. They are told to pay more attention to steaming
the milk. The details about boiling the milk go to such an extent that a leaflet captioned ‘Espresso
Excellence’ is given to them explaining that ‘without aeration, the milk lacks sweetness. The perfect
milk requires surfing the tip of the steam wand until the sound is SSHHHH.’ The customer also was
taught what to expect and the staff was drilled about how to take care of the minutest detail of the
process. The company believes that only such a step-by-step process perfection can finally elevate the
simple act of sipping a cup of coffee into a very fine experience.

Achieving Superior Engagement with the Customers

What is the factor underlying the superior experience Starbucks creates for the customers?

It is the superior engagement with the customers that does the trick for Starbucks. The very
definition of Starbuck’s business underscores the customer-engagement element. The definition
states that Starbucks is in the business of human connection and engagement, creating communities
in a third place between home and work. Both customers and independent analysts have identified
‘superior engagement with the customers’ as the main competitive advantage of the brand.

Starbucks does not vote for the ‘quick service’ strategy of serving coffee in two minutes and
sending the customers out fast. It prefers to engage them. It encourages them to hang out in the cafe,
rather than just rushing in for a coffee and then dashing out. The Starbucks café provides comfortable,
reasonably private, seats. In many of the outlets, it also offers free laptop service and Wi-Fi facility. As
a policy, the brand prefers to engage the customers as long as they wish to hang out. Some bigger
outlets even host mini concerts, thereby drawing the customers in for a longer stay. The idea is to let
the customers rejoice in a comfortable environment, relish their coffee, chit-chat with friends. If you
want to be left alone, you can choose your corner; the cafe provides every customer the environment
she seeks.

Consistency in Quality of the Coffee and Quality of Customer Experience

How does Starbucks ensure such consistency? It does so through thorough training of its staff.
For instance, for a training session, Starbucks closed all its US outlets on a chosen day. The outlets
remained closed for a whole afternoon. The purpose: retraining its 135,000 staff members. Everyone
went through a three-hour refresher course. Stores reopened the next day, with a new promise posted
above the counters, urging customers to complain if their drink was not ‘perfect’.

Tata Starbucks: The Indian Context

Tata Starbucks, the 50:50 JV between Tata Global Beverage Ltd (TGBL) and Starbucks Coffee
International Inc., opened its 100th store located in Mumbai and celebrated its five-year anniversary
in India in October 2017. It now operates 101 stores in leading metros such as Delhi, Mumbai,
Bangalore, Pune, Hyderabad, Kolkata and Chennai. Its pace of expansion is a record in Starbucks’ 45-
year history. It posted sales of `235 crore in FY 2015–2016, registering a growth of 39 per cent. With
that, Starbucks Corp, the parent, narrowed losses in India to `40 crore.

Working to Create the Same ‘Coffee Moments’ in India

The coffee chain entered the Indian market with the resolve to replicate the Starbucks
experience to Indian customers. It prepared itself for matching the Starbucks universal standard here.
Starbucks chose the Tatas as the Indian partner not merely because of the brand value of Tata.
Starbucks had sized up that the Tatas would take care of standards. Moreover, the Tata Group is no
newcomer to the business, having been a Barista partner earlier. The Starbucks outlet in Mumbai
became the first Starbucks location to have espresso sourced and roasted locally from India, through
the coffee sourcing and roasting agreement with Tata Coffee. Starbucks would manage the business.
It would source its staff from the Taj Hotels of the Tatas mostly.

Well-motivated Employees

Right kind of employees—well-skilled and well-motivated—are a prime requirement for

service excellence and offering finest experience to the customers. Tata Starbucks has over 1,600 such
employees, whom it refers to as passionate partners. They all are well trained in coffee making as well
as customer service. To cite an example of how hard Tata Starbucks tries to keep these passionate
partners well motivated, it recently made it 5-day week for all of them—a rare benefit offered in
services industry of this nature.

They also announced that 40 per cent of workforce will be ladies; right now, it is at 25 per
cent.

Premiumisation Looks Like Surviving

When the project was under consideration, no one was sure if it would be a success and if the
premiumisation would work. There was also the debate by analysts whether Starbucks brand would
decide to play the premium game or become a value player. The premium pricing and the premium
locations did attract a set of customers. But there was no clarity about the viability and extent of
scalability if it remained as a premium brand. The fact that over five years its hot coffees led by the
espresso have been selling at a starting price of `90, while the cold Frappuccinos in the `120–200 range,
indicates this premiumisation is likely to survive.

On an average, each Starbucks shop sold coffee, snacks and merchandise worth `2.8 crore in
FY 2016, three times higher than the stores in most café chains and quick-service restaurant (QSR)
chains. Starbucks is not just about coffee, nor about price, but about experience. The company has
branded itself as a provider of a premium or luxury coffee-drinking experience. It has to stay with the
expected brand salience for making a mark in the long run.

Premiumisation and luxury is all about giving something that is not readily available to all. That
is what makes it special.

? Discussion Question

Do you think that Starbucks brand would still face a dilemma—whether to play the premium
game or to become a value-for-money player chasing decent volumes? Will it be forced to
compromise the Starbucks experience?