A SERVICE PROCESS ANALYSIS OF STARBUCKS At Sherway Gardens 25 The West Mall Toronto, ON M9C 1B8

Presented to David Shinwell Consumer Services Instructor MTKG 211 2A

Humber College Institute of Technology and Advanced Learning

Presented by Christopher Dul David Menna Mahad Osman

December 2, 2013

MEMORANDUM TO: FROM: SUBJECT: DATE: David Shinwell, Consumer Services Instructor Christopher Dul; Daniel Menna; Mahad Osman A Service Process Analysis of Starbucks December 2, 2013

Attached is a copy of the analysis you authorized the team to perform on October 14. Its mandate was to analyze Starbucks service process after a visit using a positioning map with two main attributes to access their strength in the market and answering nine sections of service delivery questions. The research was quite extensive, but it focused more on people management, service process, and service environment. Although Starbucks controls only 7% of the market share, the data collected from this research shows that the firm will continue to experience rapid growth rates because of its innovation strategies. With this report, the team hopes we have displayed good concept knowledge, used adequate theoretical tools learned in class, and written an A+ grade report. If you have any questions or concerns about the report, please contact me at (416) 371-4106 or by email at <dlch0059@humbermail.ca>. Enc.

EXECUTIVE SUMMARY Managing the customer interface and service recovery are major ways to streamline service deliveries. Starbucks has adequately utilized these processes to put themselves in an advantageous position to market its product effectively to its target market. The purpose of this report is (1) to display our knowledge of the course concepts in a real-life service industry (2) to be evaluated based on the report. The analysis of the report began with a company overview of Starbucks followed by a positioning map of Starbucks compared against six main competitors Tim Hortons, Country Style, Williams, McDonalds, Second Cup, and Coffee Time. Although Starbucks only controls 7% of the market share, it has an edge its design of its Ambience in servicescapes. The other sections of the report included analysis of Starbucks service process, service environment, and people management. This last section of the report deals with our personal experience of the Starbucks visit namely: 1. What we have learned from our examination of Starbucks

2. Overall evaluation based on the look of the written report Our final grade will be based on the quality of our business report as well as effectiveness

TABLE OF CONTENTS EXECUTIVE SUMMARY............................iii COMPANY PROFILE ........................................................................................................................................... 4 POSITIONING ....................................................................................................................................................... 2 Profile of Target Market ...................................................................................................................................... 2 Positioning Map of Starbucks ............................................................................................................................. 2 The Positioning Conclusion ............................................................................................................................. 3 CORE AND SUPPLEMENTARY SERVICE ....................................................................................................... 3 PRICES ................................................................................................................................................................... 4 Non-Monetary Costs ........................................................................................................................................... 4 DESIGNING AND MANAGING THE SERVICE PROCESS ............................................................................. 5 Blueprint of this specific Starbucks location: ..................................................................................................... 5 Analysis of a Fail Point ....................................................................................................................................... 7 CRAFTING THE SERVICE ENVIRONMENT .................................................................................................... 8 Five Key Elements of the Physical Environment of Starbucks .......................................................................... 8 Key Element to Improve ................................................................................................................................... 10 MANAGING PEOPLE ......................................................................................................................................... 11 Emotional Labour .............................................................................................................................................. 11 The Service Talent Cycle .................................................................................................................................. 11 Applicability of the Inverted Organizational Pyramid to Starbucks: ................................................................ 12 WHAT WE LEARNED FROM REPORT ........................................................................................................... 13 OVERALL EVALUATION ................................................................................................................................. 13 BIBLIOGRAPHY AND ENDNOTES ................................................................................................................. 14 TABLE OF FIGURES Figure 1: Positioning Map of Starbucks compared to six competitors ................................................................... 6 Table 1: Five Main Items with Price....................................................................................................................... 4

COMPANY PROFILE

The company we are analyzing is Starbucks. They compete in the hot drinks industry. Entry into the industry is relatively low and competitive; however, each coffee house differentiates itself from its competition through its augmented service options. The industry is growing rapidly with reports suggesting coffee consumption is projected to grow by 5% CAGR in 2017i, with other sources projecting 12% CAGR in the same time period.ii Starbucks holds a 7% market share in Canada with just under 1200iii locations spanning the country. Starbucks has a lot of room for growth with Tim Hortons holding a 76% market share and triple the amount of Starbucks locations. Starbucks offers a product that requires the customer to physically be there People Processing Service, and includes services such as proving coffee, tea, or breakfast sandwiches. The most popular of beverages include Frappuccino and Iced pumpkin spice latte. Its complementary items include pastries, and smoothies such as apple fritters, and chocolate smoothies. As part of its core service offering, Starbucks also offers comfortable conversation areas, WIFI, and beautiful surroundings to create a relaxing environment for customers.

POSITIONING Profile of Target Market Target Market of Starbucks is business people between the ages of 18 and 45 who are very busy. They want a tranquil place where they can relax. They are also willing to pay for variety, taste and quality in high grade or organic coffee. 1. Demographics: Women who are from middle income families to high income families 2. Psychographics: Business people with expensive tastes 3. Geographics People who live in the suburbs Positioning Map of Starbucks
Figure 1: Positioning Map of Starbucks compared to six competitors

The Positioning Conclusion Starbucks provides a similar product with its competitors with a slightly higher price. To justify this higher price, Starbucks augments its service environment to include very high tranquility. This is how Starbucks hopes to hold a competitive edge and offer a unique benefit to its customers. The target profile by Starbucks have high income, therefore they are willing to spend a little bit more for an environment where they get to relax. This fits Starbucks target profile of high income families

CORE AND SUPPLEMENTARY SERVICE Core Service: Supplementary Service: Providing high grade coffee to busy people. Two Facilitating Services 1. A menu at the order desk offering over 30 varieties of beverages 2. Providing all forms of payments including visa, MasterCard and cash Two Enhancing Services 1. Tranquil ambience to make your visit soothing 2. Providing free WIFI for customers

PRICES
Table 1: Five Main Items with Price

Coffee and Tea Tall Freshly Brewed Coffee Vanilla Starbucks True North Blend Caffe Misto Chai Tea Latte Joy Tea $ 1.85 Grande $2.25 Venti $ 2.45

$ 2.35

$ 2.75

$2. 75

$ 2.45 $ 3.75 $ 1.95

$ 2.85 $ 4.25 $ 1.95

$ 2.85 $ 4.25 $ 2.45

Non-Monetary Costs Three non-monetary costs of Starbucks are: Security Cameras Providing security cameras helps to create a safekeeping environment for customers even though it is secondary to preventing theft for their own benefit. Round Table Sitting Areas This subliminally lets paying customers know to stay around and be comfortable by themselves or in small groups. Tranquil Ambience High quality ambience lets customers know they are in a service environment that cares about their mental being and wants to make it better. All three non-monetary cost helps Starbucks justify their high price (see Table 1) when establishing the prices for their services.

DESIGNING AND MANAGING THE SERVICE PROCESS Blueprint of this specific Starbucks location: ACT I FrontSTAGE Entering the establishment: The entrance is located right below the big green Starbucks lettering design and logo >> customer opens the door located below the design and logo >> looks around at the establishment >> observes where people are sitting >> observes the sitting areas and tables >> identifies where they must go to place the order >> walks to the counter where the cashier is located (W) >> glances at the menu located above and behind the cashier Physical Evidence: >> Cheerfulness in asking order >> Physical appearance of employee >> Ambience of physical environment BackSTAGE Appearance: >> Make sure they is enough coffee in storage >> make sure wearing uniform and neat >> have a clean order counter >> maintain coffee grinder

ACT II FrontSTAGE Taking the Order: >> Desired request made to the cashier (F) >> pays the cashier after they receive the request >> receives possible change for the transaction >> receives a sales receipt with your order number >> walk away from the cashier to designated waiting area >> number will be called by cashier when ready (W) > BackSTAGE Validating Payment Method: >> Tell customer the price to pay for coffee or food (F) >> Make sure payment method is valid >> Transact right customer order >> kindly instruct customer where to wait and listen for order number ACT III FrontSTAGE Customer Receives Order: >> Order number is called >> customer hears the number >> matches number with receipt they possess >> walks to the order pick-up area >> located to the right of the cashier >> shows order number to cashier to confirm >> receives the completed order >> looks for an empty seat >> walks to the empty seat >> sits down >> drinks coffee >> read newspaper (F) Physical Evidence: >> Taste of coffee or food >> Cleanliness of sitting area or restroom

BackSTAGE Preparations: >> Order is sent to the cook or coffee maker >> they observe the request >> they begin to cook or make the coffee >> they get a cup based on the size that is ordered >> poor the coffee beans into the machine for process >> poor the coffee out of the machine >> order is completed >> put a lid on the cup >> incase coffee is too hot, put extra cup holder >> prepare the order for customer >> send the finished order back to the cashier >> the cashier calls the customer order number out loud (F) L I N E of Internal: IT Interaction in B a c k S T A G E from ACT I ACT III >> Frying machines >> Coffee machines >> Ovens >> Microwaves >> Hot Water machines >> Analysis of a Fail Point Request What You Desire to the Cashier (F):
Problem: This point definitely has the biggest chance of becoming a failure. This is due to several reasons. First and foremost, the location might be extremely busy to the point where a customer wont want to wait in the line and will be unable to request what they desire. The customer might have to go to another location and do the whole front stages process all over again. Another important reason for failure would be if the coffee is too expensive, or if the coffee price takes the customer by surprise. It would be hard to pay for an expensive cup of coffee if the customer does not feel comfortable doing so. Solution: There are a few things that can be done to prevent this fail point. One is creating two clear labelled stations that state where to order and another to mark where to pay. A moving ordering line will show fast service and prevent a customer from going to another location or coffee shop. To prevent customers from being surprised about a price, clear displayed items with prices in bold letters will let the customer know the price before ordering. Also giving consultation to the customer by advising them on coffee in their price range will help to prevent uncomfortable feelings.

CRAFTING THE SERVICE ENVIRONMENT Five Key Elements of the Physical Environment of Starbucks 1. Starbuck Logo above the Store Entrance

The Starbucks logo helps to make it easier for customers to identify the store and differentiate it from other coffee shops. Without the logo it would be nearly impossible to locate the Starbucks. 2. Order Counter

This is part of their spatial layout and functionality. It signals the customer where to go to order, where to pay and where to receive coffee afterwards.

3. The Starbucks Frontline Staff Uniforms

The green color uniforms helps customers differentiate between employees and the other customers. It also cognitively helps create a feeling of nurturing so its easier to feel comfortable and ask questions if needed. 4. Round Table Sitting Areas

The choice of this type of furniture round sitting table creates a sense of invitation. In essence, Starbucks wants you to stay a while and feel comfortable.

5. Soft Music In the Background

Starbucks target market requires them to have music that they can relate to, and is at the same time also calming. Starbucks choose contemporary soft music, which was not too slow and not too hard.

Key Element to Improve The Key element that needs improving is the Order Counter. There is only one marked area for ordering and paying for coffee. This is highly inefficient because when it gets busy, two functions are done in the same area which affects functionality. This can be improved upon by creating two separately marked areas, one for ordering and one for payment. This can also help when the line gets long, the second counter can now be switched to a second order area, and two people can be served at the same time to increase order and payment taking cycle.

MANAGING PEOPLE Emotional Labour The employees at Starbucks all experience emotional labour. There are many negative sides to the term emotional labour, and in a company such as this, it is absolutely unavoidable that it is would not be part of the workplace and service. For example, Starbucks employees must present themselves in a friendly and supportive manor. They must always smile at customers, be sociable, and be respectful at all times, even when they might have had a customer who was rude to them or had yelled at them five minutes before. However, it is not a surprise because Starbucks is an extremely popular company, and therefore, busy throughout the day. Consequently, if the location is very busy in the morning hours of the day, employees tend to show an exhausting and frustrated bodily language. This is understandable, but if a customer decides to be belligerent, this negativity can be taken out on that particular customer. And when attitudes and egos get involved, mixed with fatigue from employees, this might lead to a downfall in service and reputation. Starbucks can help by first selecting the right candidate for the job. Secondly, they can train their frontline staff how to handle emotional stress and to cope with customers who yell at them. Thirdly, they can offer counseling to those who need it as well as teach their staff how to alleviate stress on the job.

The Service Talent Cycle The three main elements of the Service Talent Cycle are relevant in the operations of Starbucks because:

Hiring the right people The frontline staffs of Starbucks are the face of the company, and as such what people perceive of them is what the reputation of Starbucks becomes. An intense selective process to pick the right person for the job will help ensure Starbucks reputation of good customer service is not tarnished.

 Enabling your people Starbucks creates a team of members that are used to working together and supporting each other. This leads to camaraderie, common achieving goals and productivity, all the criteria for a highly performing service delivery that requires in its highly competitive market. Motivating and Energizing your people Starbucks needs to keep its pay structure competitive in the market or they risk losing their talent pool to other coffee shops. Providing feedback and recognition to its frontline staff will help Starbucks to be the preferred employer to work for.

Applicability of the Inverted Organizational Pyramid to Starbucks: Starbucks is based on an Employees first-Customers second process. Employees first create a bit of a question because most service firms put customer first. Putting employees before customers and management literally turns the organization upside down, thus leading to an inverted organizational chart. First line employees are at the top of the chart, and senior management is located at the bottom. This means that senior management serves all of the levels above. The reason for putting employees first is to create the perfect team. Once employees form a great team, then success will follow. The inverted organizational pyramid is also relevant to Starbucks because the customer interacts with the frontline staff more than management. Most customers do not know Howard Schultz, the CEO of Starbucks but they are very familiar with Maggie at the Starbucks coffee shop. How they are treated by her goes a long way in showing if they will shop there again or not.

WHAT WE LEARNED FROM REPORT The three most important things we learned from the report are: 1) Chris learned that to run a successful business, you must first know who your target market is. A positioning map helps you determine where your strengths are, and use that as an advantage to market your product to your target market. From this report, Starbucks advantage is its market is Ambience. 2) Daniel learned that team work is very important when it comes to the outcome of quality service. If a team can work together to the best of their abilities individually, the service will be top notch. 3) Mahad learned that in order to operate a successful business such as Starbucks you need to hire the right employees. It is important to hire the right people because the customers impression of employees is what can determine a company's success. Employees who value their customer's needs will ensure that whichever company they work for has a good reputation.

OVERALL EVALUATION Based on the overall look of the written report, we deserve an A+ for this report. We worked really well hard on the report to give a well detailed analysis of Starbucks service process. Together, we took the time to figure out what we wanted to accomplish, how we were going to do it, and divided the work equally. We were a great team.

BIBLIOGRAPHY AND ENDNOTES

http://www.euromonitor.com/coffee-in-canada/report http://singaporestockmarketnews.blogspot.ca/2013/09/super-group-chinese-caffeine-fix.html http://o.canada.com/business/tim-hortons-might-control-the-highways-but-starbucks-rules-the-city/

ii

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Lovelock, C. H., Wirtz, J., & Chew Yee Peng, P. (2009). Essentials Of Services Marketing, First Edition. Boston: Prentice Hall.