Starbucks- Delivering Customer Service

Ahmad Adeeb-19A1HP082
Prateek Gupta-19A3HP662
PrateekVarshney-19A3HP650
Palash Singhal-19A1HP116
Shishank Mittal-19A2HP404
Navin Kumar-19A3HP635
 SUMMARY
In 1971, an American coffee company, Starbucks corporation, was founded in Seattle’s Pike
Place Market. The company started as a small coffee shop and specialized in selling whole
arabica beans. In 1982, Mr. Howard Schultz joined the marketing team and later on became the
chairman of the company. Soon the company started expanding, and by 1992 there were 140
shops. In 1992, the company was made public, and by 2002, Schultz established Starbucks as a
coffee brand in North America and made 20 million customers in over 5000 stores. Advertising
expenditure was almost nothing for the company, but the company was not able to meet
customer expectations. Customers were dissatisfied with the service provided by the company in
terms of speed, although the company had a policy of three – minute delivery. To overcome this
problem, Christine Day, the senior vice president of administration, came up with a strategy to
invest an additional $40 million annually in 4500 stores that would help to add 20 hours of labor
a week. The proposed plan can solve the problem of slow service delivery and increase customer
satisfaction. There was an internal resistance by the CFO, and Day has two days to finally
recommend the strategy mentioned above to the Howard Schultz and Orin Smith, thus reducing
the overall EPS. Day was in a dilemma whether he should believe on the customer review on
slow service and what will be the after effects of the proposed plan on the sales and profit of the
company?
Q1. What factors contributed to the extraordinary success of Starbucks in the
early 1990s? What brand image Starbucks develop during this period?
Following factors were responsible for the success of Starbucks in the early 1990s:-

 Retail Expansion: Starbucks owned almost one-third of America’s coffee bars, which
was more than its next five biggest competitors combined.
 Distribution Channel :
a) Company-operated Starbucks’ stores in North-America were located in high -
traffic, high visibility areas like retail centers, office buildings & university
campuses, which made Starbucks a convenient coffee bar for people as it was
more accessible to them because of such diverse presence.
b) Starbucks also sold its coffee products through non-company operated retail
channels like airlines, hotels, and restaurants, etc. which enabled the brand to
be more recognized and thus enhanced the brand awareness.
 Starbucks added width to its product line in coffee shops like in addition to selling
whole bean coffee, and the company also sold rich brewed coffee, Italian style espresso
drinks, cold blended beverages & premium tea, etc. Beverages accounted for the
largest share in terms of sale, i.e., 77% in these stores.
 Product Innovation :
a) The introduction of a coffee & non-coffee-based line of Frappuccino line of
beverages in 1995 had been the most successful product innovation by the
company in the early 90s because it boosted footfall in stores during non-peak
hours. Starbucks then collaborated with Pepsi cola to distribute bottled
Frappuccino beverages.
b) Starbucks partnered with Dreyer’s Grand Ice cream to develop and distribute
a line of premium ice creams.
c) The company launched new products regularly, like it introduced at least one
new hot beverage every holiday season.
 Experiential Branding Strategy: To create an experience around the intake of coffee by
its customers, the company followed this strategy that had three components:-
a) High-Quality Coffee – To ensure coffee standards, Starbucks controlled the
supply chain and monitored the beans roasting process & controlled the
distribution to retail stores worldwide.
b) Customer Service - The company called it ‘Customer Intimacy’ which
meant it wanted to create an intimate and uplifting experience for the
customer every time.
 c) Ambiance – Seating areas were designed to encourage lounging & layouts
were designed in a manner that created ‘inviting environments’ so that people
would want to stay.
 Partner Satisfaction: All Starbucks employees were called ‘Partners,’ and the company
gave health insurance & stock options to even the most entry-level partner. Thus, it had a
high partner satisfaction rate of around 80-90 %.

Starbucks Brand Image during this period :

Table A of the case study – Qualitative Brand Meaning: Independents vs. Starbucks, enlists
the different meanings/Image that the brand had on the minds of its customers which is:-
 The brand is present everywhere.
 Good Coffee on the run
 A Place to meet and move on
 Convenient, consistent and accessible.

Table B of the case study enlists Top Five Attributes Consumers Associate with the
Starbucks Brand that is –
 Starbucks' brand is known as specialty coffee.
 The brand is widely available across the country.
 Customers felt that the stores were trendy and that the brand had a corporate appeal.
 Customers always feel welcome at Starbucks.
Q2. Why have Starbucks ' customer satisfaction scores declined?

The customer satisfaction scores declined mainly due to following reasons –

 Rough image of the brand that Starbucks cares only about expansion.
 Customers perceived very little difference between the Starbucks and the smaller coffee
chains.
 Newer Starbucks customer's expectations were different from the established customers,
and they perceive brand different from them.
 Although Starbucks set a benchmark of three minutes waiting time, it is evident from
exhibit 11 that customers were not satisfied with the Starbucks service, especially in
terms of speed. The reason for slow service was mainly because of the varieties of the
product offered by Starbucks.
 Although Starbucks scored high Customer Snapshot scores, customers were not satisfied,
and Starbucks was not able to meet the customer's expectations. Exhibit 9 clearly shows
that from the total number of customers visiting Starbucks, there was a significant
number of unsatisfied customers.
Q3. How does Starbucks of 2002 differ from Starbucks in 1992?
The year 1992 marked the establishment of Starbucks as a brand.
 In 1992, Starbucks had 140 stores located in Northwest and Chicago, while in 2002, the
company was serving around 20 million unique customers above 5000 stores around the
globe and was opening at an average rate of 3 stores per day.
 In 1992, around 50% of company revenue came from sales of whole-bean coffees, while
in 2002, sales of beverages accounted for 77% of the total company’s revenues.
 Another significant difference is in the change of demographic profile of the customer
base. In 1992, the customer base of Starbucks consisted of affluent, well-educated, white-
collar people between the ages of 24 and 44. In 2002, the customer base mainly consisted
of younger, less well-educated, and in a lower income bracket than the earlier customers
of Starbucks.
 Another significant difference is the change in the image of Starbucks as a brand. In
1992, the stores of Starbucks were seen as a place apart from home and work where you
get the best quality coffee and can relax. In 2002, customers perceived it as a convenient
place where you meet new people, and coffee was just excellent.
 The drink combinations and more customizations of flavors meant more complexity in
the whole process and slower delivery of service in 2002 as compared to 1992, where the
entire process was quite more straightforward.
Q.4 Should Starbucks make the $40 million investment in labor in the stores?
What’s the goal of this investment?

 Not a good idea to invest $40 million that will add 20 hours of labor per week.
 The company’s most significant issue is customer dissatisfaction at this point, not the
delay in getting the coffee. Increasing the labor hours will increase the production of
coffee, but it will not solve the major issue facing by the company.
 The company is trying to show an investment of $40 million is customer-oriented rather
than a labor expense, but just by increasing labor hours, they are not going to fix the
problem related to the customer. The focus should be quality of service.
 Starbuck should only invest in additional labor after conducting proper research about the
actual necessity of such investment.
 There is no need for investment in labor in-store where mostly all customer is highly
satisfied and has a much higher demand for investment in a store where less satisfied
customers are more top in number.

Goal of this investment

 The goal of this investment is to increase customer satisfaction and generate more profits
for the company.
 The plan is to reach close to $20,000 weakly sales for each store. It’s just focused on
growing the business, which would not lead to customer satisfaction.
 Increasing the labor would give the company more room to serve more customers, but the
quality of service only improved when employees make the required effort in making
consumers feel not just welcome but uniquely valued.