Case Analysis: STARBUCKS: DELIVERING CUTOMER SERVICE

Case 4 in Lovelock et al., 20, Services Marketing: People, Technology, Strategy, Pearson, Delhi,
Chennai, Chandigarh, 7e, pp.495-510
SITUATION ANALYSIS:
1. Key Service Offering of Starbucks , in 1992 or the Starbucks Value Proposition : An experience
around the consumption of coffee , which consisted of 3 major components:
i. Coffee
ii. The Positive experience from the time customer enters Starbucks till he exits the
store: termed as Customer Intimacy
iii. Atmosphere: ambience which makes customers want to stay, linger, lounge around,
sense of community, people coming together-socialise ; or relax and be by
themselves
2. Starbucks stores as of 2002,
i. 3 stores opened a day on an average.
ii. number of stores= 5,000 globally
iii. Number of customer, globally= 20 million
iv. Sales = increased to 40% CAGR
v. Net Earnings= increased at a CAGR of 50%
vi. Points (iv) and (v) support increase in number of retail outlets have not had any
negative impact on quality of service, as sales have increased
vii. Having more number of stores is probably what is allowing Starbucks to increase
its sales due to increased reach, even though stores are cannibalising each
others sales
3. Starbucks Employees: Major input of the Starbucks service value proposition/brand/service
offering.
i. Hourly wage earners
ii. Highly satisfied
iii. Highly trained in both hard and soft skills
iv. Employee satisfaction customer satisfaction
4. Products: product proliferation in the form of coffee variety has increased. Added to complexity
of the baristas job; many new coffee varieties require many additional steps ; more steps means
slower service
5. Product quality/consistency versus customisation: customisation slows service down
6. New type of customers : the new reality
7. Customer behaviour in terms of coffee consumption:
i. Coffee consumption on the rise
ii. Biggest growth in coffee consumption is for speciality coffeetype of coffee offered by
Starbucks
iii. 1/3
rd
of coffee consumption in the US takes place outside homes, such as in offices,
restaurants and coffee shops: customers drinking coffee at offices, would be ones ordering
coffee from Starbucks as a take out-for whom, speedier service would be more relevant;
while those drinking at coffee shops are the ones for whom Starbucks experiential offering
is relevant. However, this bifurcation is not provided explicitly in more details and numbers.


8. How Starbucks profiles its customers:
i. Established versus New :
Established New (2002)
Customer has been Starbucks
customer since 5 + years
Customer has been with Starbucks
since one year only
Older, better educated, higher income opposite
Coffee consumption: higher lower
Attitude towards Starbucks: more
positive
Less positive

As per Exhibit No. 8, 77 % of Starbucks customers are those who can be defined as new while only
23% are the established one
IMPLICATION A:In business terms, established customers more valuable as compared to New
Customers to Starbucks
ii. Customer profiling on basis of number of visits per month : high frequency,
typical and low
Following table on the basis of Figure A, pp. 507 and Exhibit 9, pp 508:
S.No. CUSTOMERS Segment A Segment B Segment C
1 Type of Customers
on Basis of
Frequency of Visits
High:
Avg number of visits =
7.2
Average
Avg number of visits =
4.3
Low:
Avg number of visits = 3.9
2 Level of
Satisfaction
Satisfaction: High Satisfied Unsatisfied
3 Loyalty Loyalty: High as per
number of visits and
avg amount spent per
visit = $4.42
Average, avg amount
spent per visit =$ 4.06

Low, avg amount spent per visit = $3.88
4 Customer Base No. Of such customrs=
21%
37% 42%
5 New versus
Established
Customers:
Average Customer
Life in years
8.3
4.4
1.
6 Volume of Business % of transactions: 62% 27% 11%


From above table, implications:
Customer satisfaction has a direct impact on loyalty, number of visits, volume of
business (Revenues); hence Customer Satisfaction important [S.No. points 2 & 3]
Segment A customers are most valuable , which are a small 21% of total customer
base [S.No. 1,3 & 4]
Of total customers, satisfied = Segment A and Segment B = 58 % ( 21% + 37%) [S.No.
2 & 4]
Of total customer base, established customers = Segment A plus , say half of
Segment B = 21% + 19% = 40%; New= 60%
A large %, 42% are not satisfied [S.No. 4] and this set of customers coincide with low
frequency of visits (S. No. 1), lower volume of business (S. No. 6 and S. No. 3, esp. In
terms of average amount spent ) and new customer (average life of customer= 1, S.
No. 5)
IMPLICATION B: New Customers are now a larger part of the total customer base of Starbucks and
are mostly not satisfied, visiting less, contributing to lower business revenues.
Discussion:
Thus, 2 Major Observations:
IMPLICATION A: In business terms, established customers more valuable to New Customers to
Starbucks: Starbucks cannot afford to alienate these customers and must maintain their satisfaction
and loyalty levels.
IMPLICATION B: New Customers are now a larger part of the total customer base of Starbucks and
are mostly not satisfied, visiting less, contributing to lower business revenues. Becoming the new
reality for Starbucks, Starbucks cannot ignore these customers either ; these customers would shape
the future of Starbucks business and hence their low customer satisfaction levels have to be
addressed
The question, however, is that do these 2 types of customers- want two different things from
Starbucks??!
Question that Starbucks also needs to ask is why do the New customers have a lesser positive
attitudes towards Starbucks than the establish dons? Has this been due to the way the Starbucks
brand evolved by 2002, reducing differentiation & hence its brand meaning to a large extent, as is
mentioned in the case as well? (Table A, p. 506)
9. Starbucks snapshots.

The Snapshots seem to show the stores are doing quite well., except in the Average Wait Time:
which has still not reached customer expectations of 3 mins in 2002 (though improvements have
been mad such 2001 and prior Quarters of 2002)

10. Customer Expectations:
While a number of attributes have come about as considered important for customers, including
clean store, convenient, treatment as a valuable customer, etc; the attribute Fast Service ranks
lower than 6 attributes that come before it. [Exhibit 10]

What is important in understanding whether Starbucks is meeting Customer Expectations is the
poll to determine what Starbucks could do to make them feel more valued . As per Exhibit 11,
34% want improvements in service (which mean 34% perceive service is not up to the mark). Of
these, though not explicitly evident from Exhibit 11 , most customers polled felt sped of service
would contribute most to service improvements at Starbucks.

Hence, Days focus on investing for increased speed at Starbucks.

At Starbucks, with coffee being handmade, speed would come about through have more
employees, which is why she recommends $40 million for labour.

However, what would have supported this decision further would have been, had this poll
clearly indicated which customer segments are prioritising speed of service?

To support her decision, Day, would need to bring forth the following points:

1. Who, amongst our customers are most valuable to us?: is it Segment A, B or C ?
2. Which customer segments are demanding higher speed : if it is Segment A or B,
speedier service is definitely something that cannot be ignored
3. What impact would investing $40 million for speedier service have on business?
Would it create enough satisfaction that would convert into enough increased
revenues and loyalty numbers?
4. How is this decision going to affect the Starbucks experience? Is the Starbucks
experience relevant to todays customers?
5. How is this decision perceived or going to affect, Starbucks employees-its most
valuable asset?

Aditi Naidu,
Assistant Professor-Marketing,
Jaipuria Institute of Management, Indore