Starbucks

Delivering Customer Service

Prof Myers-Tierney
Spring 2011
 Dolan’s Schematic of Marketing Process
Marketing is the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to satisfy customers.

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 Business Decision?
Increase Hours/Store/Week 20 hours
 Meet Customers expectations
 20 hr/week store for 4,500 stores
 Goal: Improve speed of service and increase
customer satisfaction
 Will excellent service increase sales?
 Concerns:
 Labor is already biggest expense
 Cost of added labor $40mm
 Every $6mm is 1 penny/share

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 Starbucks Success
 11 years of 5% or more CAGR (Same
stores)
 Serving 20 million customers in 5000
stores
 Starbucks value proposition
 Premium coffee
 Physical environment
 Service philosophy
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 Starbucks in 1992
Service philosophy

Physical Environment
Brand Consumption
Perceptions Patterns
Premium
Best coffee; Coffee Tendency to linger;
classy, upscale; ritualistic consumption;
a “third place” looking to self-indulge
STARBUCKS

Target Customer
Sophisticated, affluent
coffee lover, embracing
the “live coffee”
lifestyle
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 Starbucks Value
 Offer “live” coffee = Unique Experience
1) Best coffee highest quality – control supply chain
2) Service = customer intimacy ÷ recognize customer, remember their
drink
3) Ambience – Atmosphere – Come for coffee then lounge – upscale
environment
 According to Schultz:
 “It’s based on the human spirit, it’s based on a sense of community,
the need for people to come together.”
 Company Overall Objective
 To establish Starbucks as most recognized and respected brand in
the world.

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 Competition
 Caribou Coffee –Minneapolis –Alaskan
Lodge 200 stores, 9 states
 Peet’s Coffee + Tea –Freshest Coffee -70
stores, 5 states
 Diedrich Coffee – 400 Stores
 Independent Coffee shops
 Donut + Bagel Chains
 Dunkin Donuts -3700 stores, 38 states
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The Competitive Landscape When
Starbucks was Introduced

Starbucks

Dunkin’ Donuts,
corner coffee shops

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 The Competitive Landscape in
2002

Starbucks
convenient, high-quality coffee
in a clean, comfortable setting

an increasing number of
flavored coffee alternatives
Dunkin’ Donuts,
corner coffee shops

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 Starbucks’ Customers
‘Old’ vs. ‘New’
Old customers…
drink Starbucks is part of a self-
indulgent ritual
tend to linger at Starbucks
see Starbucks as a sanctuary to
escape from the ‘real world’
find Starbucks desirable for the social
ambience and atmosphere
Who does this sound like?
New customers…
drink Starbucks is part of a pragmatic
routine
tend to rush at Starbucks
see Starbucks as a place to pass
through on the way to work
find Starbucks desirable for the
convenience
Who does this sound like?
Growth Drivers – Retail Expansion and
Product Service Innovation

 Product
 1 new hot beverage every holiday season
 NPD takes 12-18 months
 Introduced Frappuccino – coffee + New coffee
 Service
 Starbucks stored value card
 1 yr. 6mm cards with $160mm in sales
 Used as gifts = new customers
 Used to collect customer information
 Added T-Mobile Hot spots

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 Research Results (1)
 No chief marketing officers
 Marking in 3 departments
1. Market Research
2. Category Group
3. Marketing group –Promotion plans
 Marketing is everyone’s responsibility
 Correct research very focused, No Big
Picture
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 So What’s
So What’sthe Problem?
the Problem?
 New market research indicates customer dissatisfaction
 New customers are more dissatisfied

 Little differentiation from competitors

 61% agree strongly that “Starbucks cares primarily about making

money”

 55% agree strongly that Starbucks cares primarily about

expansion

 42% of respondents view Starbucks as “corporate”

Are we focusing on the right things?

Are we clearly communicating our values?
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Starbucks’ Service Deterioration
Too little Lots of New New Product
Experienced Customer Complexity
Labor Acquisitions
Tendency to Order Hand-Crafted
Drinks Complex
+ orders
Desire for Customization

Baristas Have No
Long Lines
Time to Chat

Grumpy Leave before

Grumpy
Customers ordering
Employees
Don’t come
back (as
often)
Employee Less of a “Third Place”
Turnover attachment (diminished
brand loyalty)
Order something simple
rather than complex
(lower ticket value)
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Starbucks in 2002 New Acquisitions
Less sophisticated in a
hurry, more pragmatic

Service philosophy

Physical Environment

Different Different Brand

Premium
Consumption Perceptions
Coffee
Patterns

STARBUCKS

Established Customers

Sophisticated affluent
coffee lover, embracing
the “live coffee” lifestyle
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MBA 8520
Starbucks
What happened?
 What Happened?
 Labor program instituted
 $40m focused on stores w/greatest need
 Store sales +, cust. satisfaction +
 Transaction times reduced (some impact from
automated verisma machines, SVC cards)
 Late 2003 launched Starbucks Visa w/points
 2003 revenues up 25%, earning 35%
 In 2004 plan to open 1,300 more stores
long term goal 25k (10k in US, 15K intn’l)

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 What Happened?
 Feb 2007 Starbucks has 13k stores,
plan is to reach 40K worldwide
 CEO Howard Shultz Feb 14, 2007
memo criticized decisions that have:
 “led to the watering down of the
Starbucks experience and
 What some might call the
commoditization of our brand”

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 What Happened?
 January 2008 Howard Schultz returns
as CEO, says:
 “company's rapid growth had led to
bureaucracy.
 Starbucks shares lost almost half their
value last year as price increases and a
weak economy slowed traffic at its U.S.
locations,
 and a lack of appealing new products
dulled demand.
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 What Happened?
 A few days after his return, Mr. Schultz:
 shuffled a handful of top management
positions
 plans to close weak stores and slow the
number of store openings in the U.S. as
well as refocus the chain on coffee.
 Starbucks plans to close all of its company-
operated stores in the U.S. from 5:30 p.m.
to 9 p.m. local time to retrain 135,000 store
workers, in part to teach them how to
better make espresso drinks.

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 What Happened?
 Jan 29, 2009: Starbucks Corp., posting a 69%
drop in quarterly profit, said it will close another
300 stores and cut 6,700 workers as it continues
to reel from overexpansion and a sharp sales
slowdown amid the recession.
 Will close an additional 200 locations in the U.S.
and 100 locations internationally by this fall, on
top of more than 600 store closures the company
announced last year. The chain currently has
nearly 17,000 outlets and 167,000 workers.
 Starbucks plans to lay off 6,000 store workers
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Take Aways?

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 Take Aways
 Difficulty of maintaining brand “experience” with
rapid growth. “Exclusivity”
 Importance of positioning in rapidly developing
market (DD, McD)
 Decision trade-offs (Brand vs Operational
Efficiencies)
 Higher price based on Starbucks “experience”
 Diluted “experience” = diluted brand, customer
satisfaction and profits…..
 Focusing on multiple segments is difficult

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Extra Slides

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1971
Starbucks History
Founded by Gerald Baldwin, Gordon Bowken, Ziev Siegl
Opened small coffee shop in Seattle

Specialized in whole bean

Focused on coffee purists

1982
Howard Shultz joined Starbucks Marketing Team
Travel to Italy

Observed espresso bars in neighborhoods

Convinced management to set up an espresso bar in Seattle downtown shop

1984
Schultz bought out founders
Began opening stores

Sold whole bean premium-priced coffee

Target affluent, well educated, white collar, 25-44, skewed female

1992
140stores in northwest + Chicago
Went public

2002
Schultz –COB, Chief strategist, Orwin Smith – CEO 
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
Starbucks
Company owned most stores in U.S.
Channels
 Stores in high traffic, highly visibility
 Sold beans, rich brewed coffee, Espresso, Teas
 Retail Mix
Coffee Beverage 77%
Food 13%
Whole Bean Coffee 6%
Equipment/Accessori 4%
es
 Specialty Operations 15% of Sales
North America food service 27%
Hotels, airline,
restaurants
Domestic Retail stores 18%
Int’l Stores, grocery, clubs
Pepsi Frappuccino 55%
100
 Goal: Reach customers whereCMM
they work, travel, shop, dine
%
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
Growth
Retail Expansion
Drivers Stores (1)
 Starbucks owned 1/3 of U.S. Coffee Bars
 Next biggest Diedrich only 400 stores
 Starbucks PGN (2003)
525 New Company owned
stores
225 New Licensed Stores
 Why: 750 Total new stores
 Coffee consumption increasing
 109mm people drink every day

 52mm people occasionally drink coffee

 1/3 of coffee drink outside home –work, restaurants, coffee shops

 8 states no Starbucks

 Starbucks only in 150 of 300 Metropolitan Statistical Areas

 Pick New Location

 Right demographics
 Level of Consumption

 Competition

 Attractive Real Estate

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 Partners (Employees)
Starbucks Partners
USA 50,000
ROW 10,000
Total 60,000
 Compensation / Benefits
 Paid Hourly
 Health Insurance
 Stock Options
 Turnover
 Starbucks: 70%
 ROW: 300%
 Highest T.O. is in 1st 90 days
 Experience
 70% of Store mgrs ex-baristas
 60% of District mgrs ex-store managers
 All Senior mgrs – Train + Succeed as baristas
 Howards DNA
 Training
 Hard Skills – Mix drinks, Register
 Soft Skills – Connect w/ customer, Just say Yes
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 Research Results (2)
 How could Starbucks make you feel more
like a valued customer
Service Improvements 34%

Friendlier 19%

Faster 10%

Price Incentives 31%

Free cup x visits

Reduce Price

Other Total 21%

Don’t know already 28%

satisfied
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 Measuring Service
 Customer Snapshot
 Mystery shoppers 3 times/quarter/store
 Basic Service
1. Service –Greet customer, eye contact
2. Cleanliness –store, tables, restrooms
3. Product Quality –Fill order accurately, Right temperature
4. Speed of Service –waiting time, Goal: 3 minutes
 Legendary Service
 Memorable experience –customer returns, tell friends

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