Starbucks Delivering Customer Service Case Study Questions

Background

The company started its activity in 1971 as small coffee shop located in Seattle specialized in selling whole arabica coffee beans. After being taken over by Howard Schultz in 1982, following a rapid and impressive growth, by mid 2002 the company was the dominant specialty-coffee brand in North America, running about 4,500 stores, 400 international stores and 930 licenses.

In 2002, unexpected findings of a market research showed problems regarding customer satisfaction and brand meaning for Starbucks customers. The situation was unacceptable for a company whose overall objective is to build the most recognised and respected brand in the world. Starbucks was supposed to represent a new and different place where any man would relax and enjoy quality time, alone or with others. But the market research showed that in the mind of the consumers, Starbucks brand is viewed as corporative, trying to expand endlessly and looking to make lots of money.

This huge gap between customers' perception and Starbucks' values and goals called for immediate action.

Christine Day's interpretation of the market research made her think that by shortening the service time for each customer to maximum 3 minutes, all the problems would be solved. However, this solution came with the price of $40 million per year, due to a significant increase in the labour. The proposed solution would most certainly lead to the result desired by Day, but would it be enough to restore Starbucks' damaged brand image? Are 20 seconds of customer service really time worth $40 million per year? This is the question we are trying to answer in this case, while seeking alternative purposes for this expenditure, in order to achieve higher benefits.

How did they get there?

Great quality products, customised, served in clean, convenient placed stores for everyday coffee, friendly and fast...


Presentation on theme: "STARBUCKS Delivering Customer Service"— Presentation transcript:

1 STARBUCKS Delivering Customer Service
Steve MalloyBrian NothackerBhumik ParikhHeidi Utley

2 Class Discussion Coffee drinkers? Brew at home vs. buy
Regular or occasional drinkersBrew at home vs. buyIf buying, where and what type?Brand loyalty?Reasons for or againstCustomer service

3 Evolution of Economic Offerings
CustomizationCommoditiesGoodsServicesExperiencesCommoditizationAdapted from J.R. Meredith and S.M. Shafer, Operations Management For MBAs, John Wiley & Sons, Inc, 2007, p. 15.

4 Starbucks Mission Statement
To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.Our CoffeeOur PartnersOur CustomersOur StoresOur NeighborhoodOur Shareholders

5 Company Background/History
1971 – First store opened1982 – Howard Schultz joins company1983 – Italian espresso bars serve as inspiration. He seesOpportunity to develop similar culture in the USAmerica’s “third place”1987 – Company sold to HSImmediate expansion-17 total stores

6 Company Background/History
1992 – Completes IPO (SBUX) and continued expansion (165 total stores)– Enters into partnerships/alliances with various organizations1995 – Product innovationBegins serving Frappuccino® blended beveragesBegins selling CDsIce cream

7 Company Background/History
– Grow, grow, grow!International expansionAcquisitions/Partnerships3,501 total stores (2000)HS transitions to chief global strategist and Orin Smith named CEO2002 – Becomes dominant specialty-coffee brand in North AmericaSales climbed at a CAGR of 40%Served 20M customers in >5000 storesOpened an average of 3 new stores per dayVirtually no marketing

8 Statement of ProblemStarbucks must determine whether (and how best) an active investment in customer satisfaction will provide a positive return and increased loyalty.

9 Starbucks Branding Coffee Service Atmosphere
Prided itself on being the highest quality coffee in the worldControlled much of the supply chain and worked directly with growers, custom roasting, and distribution around the worldServiceTried to create “customer intimacy” and an “uplifting experience”Repeat customers are bread and butter and creating a personal experience typically creates loyaltyAtmosphere“People come for coffee but the ambience makes them stay”Seating areas that encourage lounging in upscale, inviting environment“Universal appeal” building on people’s need to come together

10 DistributionLocations in North America mostly company owned in high traffic, high visibility areasSell whole bean coffees, brewed coffees, espresso, cold blended beverages, premium teas.Product mix depends on size and locationSome stores offered variety of cold drinks, juices and pastries along with novelties like games and CDsBeverages accounted for 77% of salesAdditional “specialty” channels accounted for 15% of net revenue (hotels, licenses, airlines etc, international licenses, grocery stores)Partnership with Kraft Foods for grocery distribution, Pepsi for Frappuccino drinks, Dreyer’s for ice cream.Using all of these avenues to reach customers where they “work, travel, shop, and dine”

11 Employees = Partners 60,000 partners worldwide, 50,000 in USA
Mostly hourly wage employees (baristas)Believe that if partners are happy, customers will be too.Generous policy of health insurance and stock options led to satisfaction rates between 80-90%47th in Fortune best places to workLow turnover rate (70%, fast food rate > 300%)Believe manager stability is key to decreasing turnover, which increase customer satisfaction (regular customers recognized etc)Company encouraged promotion from within (70% of managers were once baristas etc).All senior managers were trained as baristas before being allowed to assume position in corporate headquarters.

12 ServiceEmployees trained in “hard skills” (drinks and cash register) as well as “soft skills” such as communication with customers etc“Just Say Yes” policy – allowed employees to go above and beyond in satisfying customer requestsTimes changing…Product mix and handcrafted specialty drinks making it more difficult to serve customers quicklyCustomers more worried about speed than chit chatComplexity of beverages reducing speed and making barista’s job more difficult½ of all customers customized their drinksCompany reluctant to hire more baristas because of economy and expense so they began to remove non value add tasks, simplify beverages, and add automated espresso machines

13 Measuring Service Performance
Monthly Status ReportsSelf-Reported ChecklistMystery Shopper -> “Customer Snapshot”ServiceCleanlinessSpeedProduct Quality“Basic Service” versus “Legendary Service” – memorable experienceDuring 2002, scores were increasing across all stores and was considered a reliable measurement

14 Caffeinating the World
Overall objective = Starbucks as the most recognized and respected brand in the worldAggressive growth strategyRetail ExpansionOpen another 525 retail, 225 licensed stores in North America, eventually expand to 10,000 storesConsumption on the rise, eight states with no stores, believed it was far from saturationGoal of 15,000 international storesProduct InnovationContinually launching new products like holiday drinks and blended beverages to increase same store sales and increase trafficService InnovationGift CardsWireless HotSpots

15 Can You Guess Where This Is?

16 Forbidden City – Beijing, China

17 Trouble Brewing Starbucks has a distributed marketing structure
Each officer was responsible for their own groups marketing“Marketing is everywhere”Data was taken but not used effectivelyStarbucks realized this and immediately noticed trends

18 Brand Differences Trendy Good for a quick drink Convenient Consistent
PredictableIntelligentArtsyInclusiveWelcoming to loungingAppeals to youth

19 Bad Trends on the Rise “Starbucks cares primarily about making money”
“Starbucks cares primarily about building more stores”

20

21 Evolving Trends in Demographics
Loyal Starbucks addictsAverage customer

22 What’s the first thing that enters your mind when somebody says, “Starbucks”?

23 37% of customers 21% of customers 42% of customers 62% of transactions
Are from:

24 What kind of risk might this data indicate?
transactions27% oftransactions11% oftransactions37% of customers21% of customers42% of customersAre from:What kind of risk might this data indicate?

25 Customer Satisfaction Dips
Feelings of:Lack of attentiveness by the BaristasToo much going on in the storeLong lines

26 What Changes to Make?Goal: Lower service time below three- minutes per customerGoal: Maintain a high-standard of friendly customer serviceInitial PlanRelax labor-hour controlsAdd 20 hours of labor per store at a cost of $40M

27 What Changes to Make?Goal: Lower service time below three- minutes per customerGoal: Maintain a high-standard of friendly customer serviceInitial PlanRelax labor-hour controlsAdd 20 hours of labor per store at a cost of $40MWhat would you do with $40M to improve operations at a retail coffee shop?

28 AlternativesWhat are the advantages / disadvantages of a order kiosk?

29 QUESTIONS?

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