STARBUCKS: Delivering Customer Service

WAC
GROUP -5
BY –

Akanksha verma 19021141008

Aparna Singh 19021141023

Swayam Avasthi 19021141121

Venushree Agarwal 19021141134

Table of contents:

 Introduction
 Brand meaning
 Starbucks partners
 Training of baristas
 Customer satisfaction
 Channels of distribution
 Problem statement
 Competitors
 Strategy
 Innovations
 Market research findings
 Recommendations
INTRODUCTON
This case is based on STARBUCKS COFFEE, which was founded in 1971 by Gerald Baldwin, Gordon
Bowker and Ziev Siegl. They were selling specialized Arabic beans to niche market of coffee purists. In
1982 Schultz joined the marketing team, few years later the founders sold the entire business to Schultz.
By 1992, the company had 140 stores in Northwest and Chicago and successfully competing against
other small scale coffee chains as Gloria Jean’s Coffee Beans and Barnie’s Coffee & Tea.

By 2002, the sales had a CAGR of 40%, While Net Earning CAGR of 50% and it served 20 million unique
customers in 5000 stores across the globe.

As per the case, Christen Day was the Vice President of Administration in North America. Orin Smith was
the CEO and Schultz was the Chairman & Chief Global Strategist.

Objective was to establish itself as most recognized and respected brand. Biggest drivers of company-
retail expansion and product innovation.

BRAND MEANING
 Everywhere—the trend
 Good coffee on the run
 Place to meet and move on
 On the way to work
 Accessible

STARBUCKS PARTNERS
 All employees were called “partners.” The company had 60,000 partners worldwide and about
50,000 in North America.
 The company had a policy of giving health insurance and stock options to all entry level partners
aged 17 and 23.

TRAINING OF BARISTAS
When a partner was hired in one of Starbucks’ North American retail stores, he or she had to undergo
two types of training-Hard Skills and Soft Skills.

 Hard skills-learning how to use the cash register and learning how to mix drinks. Most Starbucks
beverages were handcrafted and to ensure product quality there was a prespecified process
associated with each drink.
  Soft skills-Learning, connecting with the customers, establishing eye contact, smiling and trying
to remember of the customer’s name. Baristas are also encouraged to create conversations with
the customers instead of yes no questions.

CUSTOMER SATISFACTION
Starbucks tracked service performance using a variety of metrics, including monthly status reports and
self reported checklists. The most prominent tool was” Customer Snapshot.” Under this program every
store was visited by anonymous mystery shopper three times a quarter. After completing the visit the
shopper would rate the store on four “Basic Service” criteria-

 Service- This includes greeting the customers, making eye contact with them and saying thank
you.
 Cleanliness- Ensuring cleanliness of the stores, counters, tables and rest rooms.
 Product quality-Presenting the beverages properly and the orders to be filled accurately and
within range.
 Speed of Service-The company’s goal was to serve a customer within three minutes.

Stores were also rated on “Legendary Service” that ensured that the behavior created a memorable
experience for a customer and inspired a customer to return a tell a friend.

CHANNELS OF DISTRIBUTION
Starbucks’ locations in North America were located in high traffic, high visibility settings such as retail
centers, office buildings, and university campuses. These stores sold not only whole bean coffees but
also rich brewed coffees, Italian style espresso drinks, cold blended beverages and premium teas.

 Starbucks also sold coffee products through Specialty Operations that accounted for 15% of net
revenues.
 About 27% of the revenue came from sale of whole bean and ground coffees to hotels, airlines,
restaurants etc.
 About 18% came from domestic retail store.
 Rest 55% came from international licensed stores grocery stores and warehouse clubs and
online and mail order sales.

PROBLEM STATEMENT
 As per the data received by Starbucks, they failed to meet customer expectations in the area of
customer satisfaction.
 Starbucks lacked a strategic marketing group.
 The company had no chief marketing officer and its marketing department functioned as three
separate groups- a market research group, category group and a marketing group.
 Self-cannibalization of at-least one third of stores every day.
 COMPETITORS
 Small scale specialty coffee chains, offered a range of food and beverages, beer, wine etc.
Others offered satellite televisions and internet connected computers.
 Minneapolis-based caribou coffee running 200 stores in 9 states, offered pseudo European
atmosphere.
 California- based Peet’s Coffee and Tea operated 70 stores in 5 states, offered whole beans.
 Dunkin Donuts, operated against 3700 stores in 38 states, offered flavored coffee and non-
coffee alternatives.

STRATEGY
 The value proposition differentiated by means of high levels of services and quality elements
offered which converted the experience of drinking coffee to social experience. This led to
Starbucks being able to build a brand for itself.
 Starbucks brand strategy was best captured by its “LIVE COFFEE” mantra.
 There were three components to this experiential branding strategy:-
1. The first component was the coffee itself. Starbucks prided itself on offering what
to be highest quality coffee in the world.
2. The second component was the service or “customer intimacy”. Their goal was to
create an uplifting experience every time their customer walks through the
Starbucks coffee shop.
3. The third component was atmosphere. It was said that the people come for the
coffee but the ambience is what makes them want to stay.

Retail expansion:

 Owned one-third of America’s coffee bars. Its Goal was to have 15,000 international stores.
 Company operated in 150 of the 300 statistical areas of US and 300 companies-owned stores in
UK, Australia, and Thailand. It also had 900 stores in countries like Asia, Europe, the Middle East,
Africa and Latin America.
 Planned to open 525 company-operated and 225 licensed North America.
 Selection of new retail sites were done taking in account profile of the Starbucks drinker
matching with demographics, level of coffee consumption in the area, nature and intensity of
competition.

Innovations
Product innovation:

 Most successful innovation was Frappuccino beverages, a $400 million franchise, distributed by
PepsiCo.
 Introduced at least one new hot beverage every holiday season.
 Success of a new beverage depended on partner acceptance.
Service innovation:

 Prepaid, swipe able card known as Starbucks stored-value card (SVC) was launched in 2001 to
pay for transactions in any company operate store in North America.
 T-Mobile Hotspot wireless internet service introduced in 2002 offered high-speed internet in
selected stores in US and Europe at $49.99 a month.

MARKET RESEARCH FINDINGS

1. Brand image
 Very little image or product differentiation between Starbucks and the smaller coffee chains in
the minds of speciality coffeehouse customers.
 Starbucks’ brand image had some rough edges. The number of respondents who strongly
agreed with the statement “Starbucks cares primarily about making money” was up from 53% in
2000 to 61% in 2001.
 The number of respondents who strongly agreed with the statement “Starbucks cares primarily
about building more stores” was up from 48% to 55%.
 54% consumers strongly agree that it is known for its specialty/gourmet coffee while 39%
strongly agree that they always feel welcomed at Starbucks.
2. The Changing customer
 Starbucks’ newer customers were younger, less well-educated, and in a lower income bracket
than its established customers.
 The new customers visited the stores less frequently and had very different perceptions of the
Starbucks brand compared to more established customers.
 Historical customer profile—the affluent, well educated, white-collar female between the ages
of 24 and 44 had expanded.
3. Customer Behavior
 Regardless of the market—urban versus rural, new versus established—customers tended to
use the stores the same way.
 The company’s most frequent customers averaged 18 visits a month while the typical customer
visited just five times a month.

RECOMMENDATIONS
1. Relax labour-hour controls in the stores to add an additional 20 hours of labour, per week, per
store, at a cost of an extra $40 million per year.
2. Need to bring service time down to three-minute level, regardless of the time of day which will
increase customer satisfaction and build stronger long term relationships.
3. Poll results showed that Starbucks needs to have friendly staff, faster service and better offers
for loyal customers.
4. Establish connection between satisfying customers and growing the business.