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Starbucks: Delivering Customer Service

Group 4, Section- D
Problem Statement
The plan proposed by Day involved relaxing the labour- hour controls in the stores to add an
additional 20 hours of labour per week per store. But, the plan met with significant internal
resistance, as it costed an extra $ 40 million per year. The CFO of the company was concerned
about its potential impact on the bottom line of the company. As a result, Day was in a dilemma
of whether to recommend the plan to company CEOs under the challenge of tying customer
satisfaction to the bottom line.
According to the Loyalty Report of customer in USA- 2017, almost 8% of highly satisfied
customer turn out to be loyal customer provided they are given more satisfactory and delighted
treatment (Offering, recognition). These high satisfied customers and satisfied customer
database is approximately 40% in USA market in Starbucks case 58% customer falls into this
categories (Figure – A).
Exhibit 11 that focuses on factors driving “valued customer” has major findings in above
aspect. 19% of customer believe more friendly and attentive staff is the requirement, 10%
prefer and ask for faster and efficient service, 19% of customer expect free cups after X-no of
visit and 11% want reduced pieces. Focusing on these four preferred choices company can do
much better to improve its services and convert its highly satisfied & satisfied customer to loyal
customer. But this would require a multi-dimensional effort that would play cumulative role in
increasing overall benefit to the company.
The study of Exhibit – 10 as per finding of market research reveals that 75% customer like
being treated as valuable customer. This segment includes the customer who can turn loyal if
treated differently. 73% focused on friendly staff. May be in current situation staffs are
overburdened and thus can’t give friendly services as expected. Fast service is important to
65% of the customers.
Hence coming to the conclusion the Starbucks must therefore increase number of hours to make
its service effective and convert high satisfied and satisfied customer to loyal customer. The
two crux issues to do that are: -
1. Increasing internal work force capacity by investing $40 million.
2. Others measures to attract and persuade more customer (Incentive/ Rewards/
The rationale for first action is discussed below-
a. From exhibit 1 it can be well concluded that profit of Starbucks per year as a percent of
sales is 6.5%.
b. The current waiting time as per exhibit 6 is 3.10 minute which need to be reduced.
c. Adding 20 labour hours each store will result in new waiting time that will be 2.8
Minutes well within the limit increasing the customer perception of service as excellent
service and increasing their satisfaction by 10%.

Waiting time Reduction
Labour Hour 20
Labour Hour/day 2.86
Labour Minutes/day 171.43
No of Customer Per day 570

Labour Allocation/ Time 0.30

reduction Per Customer
New waiting time Minute 2.80

d. The cost of this service is $180. Exhibit 3. If even out of 570 1% customer changes
their perception and becomes brand loyal then it would be of great impact. Total
satisfied and Highly satisfied customers are 58%. This is equal to 330 one percent is
approx. 3.3 customer. Per day average ticket of these customer is $3.85. So earning
reduction is calculated below: -

Earning Reduction
Average rate Labour $9 $9
Total labour Hours Per
day 51.4 54.3
Labour cost/day $462.6 $488.70
Average ticket $3.85 $3.85
Customer No 570 570
Revenue $2194 $2194
Earning $1731.9 $1705.3
Difference In earning $27

e. This earning reduction per month would be equal to $ 810. However, if considerable
number of customer from satisfied and highly satisfied turn up to loyal then this loss
will be easily recovered. By this investment, we are focusing on speed and quality all
aspect of service.
Satisfied Satisfied Loyal
Customer Customer Customer
No of Visit Per Month 4.3 7.2 18
Avg Ticket Size 4.06 4.42 4.42
Revenue per month 17.458 31.824 79.56

Difference in revenue
with respect to
satisfied Customer 62.102 47.736

If satisfied and highly satisfied customer convert into loyal customer, then it would be quiet
easy for the company to recover this $810 cost in much easy way. Thus, Starbucks will be
making a profit of 6.25% from every revenue. $3 is average profit per customer per month if
he changes from highly satisfied to loyal. This in turn would require 300 customers per

month to cover expenses. Hence, every day 10 customer would require to be converted i.e
2% of total visit to loyal which seems feasible according to Loyalty report.
The second issue can be covered by -
a. Since company has introduced credit card for Starbucks they can use same card to
transfer credit point to loyal customer after every visit. They can make a cap of 20 visit
per month for free coffee. This will not only increase number of uses but would spread
word of mouth too.
b. They can also focus on building best customer database and rewarding by displaying
them as star customer and engage more with them.
c. Starbucks also need to formulate own marketing team in consolidated manner in future.
Other Alternatives: -

Starbucks is a classic example where company is having an internal focus to overcome

external uncertainties of service industry. Customer satisfaction, Employee satisfaction and
shareholder’s satisfaction may seem like diverse stakeholder interests with conflicts, but as
per Starbucks past experience, satisfied employees lead to satisfied customers and customer
satisfaction eventually leads to better share prices in the market.
Apart from coffee as a product, customer service and ambience are an important component
of branding of Starbucks. Employees are an important part of this service aspect of the
business and company always had an employee focus in delivering more customer
satisfaction. But even with improvement in all service quality parameters over the years,
market survey revealed an increases customer dissatisfaction. With all adequate services
(employee behaviour, speed, quality and cleanliness) being provided efficiently, this
dissociation can be mainly attributed to the un-fulfilment of desired services. The data shows
that the consumer base is changing rapidly with 27% of consumer base constituted by new
customers, just last year. The customers are no more an exclusive white collar working class,
but youngers, less educated low income groups are also part of the customer base. The
perception of Starbucks is changing among the new customers and company needs to re-
establish it positioning in the new customer base.
The Survey reveals the major desired attributes the customer’s value. Unlike premium
customers, the new customer base is price sensitive (31% strength) with high response for
offer prices and incentives. These customers expect improvement in services (34% strength)
with more customer friendly staff and faster and efficient service and personalization of
service. These improvements in services, which have high impact on customer satisfaction
can be achieved through $40 million per year which can lead to more loyal customers (rational
for the same shown in next session). Additionally, company need to invest in offers and
incentives to address the new young customer base. It’s important to retain this customer
base sine this can lead to long term commitment and brand loyalty. The CFOs concern of
investment leading to fall in share prices is not rational since he is looking at short term goals.
The backbone of Starbucks business models is customer satisfaction through better employee
satisfaction and performance. So the investment of $40 million dollar although will bring a
negative cash flow will eventually lead to better customer satisfaction and eventually increase
in share prices. (long term studies shows high correlation between customer satisfaction and
share price)