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Starbucks: Delivering
Customer Service
Starbucks: Delivering Customer Service

COMPANY BACKGROUND
II Giomale acquires
Starbucks assets

2000

140 Stores in
Northwest
and Chicago
& Went
Public

Changes name to
Starbucks C...
Starbucks: Delivering Customer Service

VALUE PROPOSITION
“Live coffees” mantra - to keeping the national coffee culture alive.
Creating an “experience” around the consumption of coffee
Value proposition

EXPERIENTIAL BRANDING STRATEGY
Coffee Itself
offering the highest-quality coffee in the world, coffee
standards by controlling the supply chain as possib...
Customer Intimacy
Senior VP Retail: Jim Alling Says
Our Goal is to create an uplifting Customer
experience every time you ...
Atmosphere
People come for coffee but the
ambience is what make them stay
Value proposition

DISTRIBUTION STRATEGY
To reach customers where they work, travel,
shop, and dine

Good Location: Company-operated stores located
in high-traffic...
Product mixed tended to vary depending on a
store’s size and location

Non-company-operated retail channels, foodservice a...
Value proposition

STARBUCKS PARTNERS
All Starbucks employees
are called Partners
Generous policy of giving health insurance and

stock options
High partner satisfaction rate (80% to 90%),

well above the...
Lowest employee turnover rates in the industry
(just 70%, compared with fast-food industry
averages as high as 300%)
Lower...
Starbucks: Delivering Customer Service

DELIVERING ON SERVICE
Training: hard and soft skills
“Just Say Yes”
Policy empowered
partners the best
service possible
Delivering on service

MEASURING SERVICE PERFORMANCE
Starbucks: Delivering Customer Service

COMPETITION
Small scale Specialty coffee chains concentrated regionally
1000 of independent specialty coffee shops
Donut and bagel cha...
In the home, specialty coffee was

estimated to be a $3.2 billion business, of
which Starbucks was estimated to have a

4%...
In the food-service channel, specialty
coffee was estimated to be a $5
billion business, of which Starbucks
was estimated ...
In grocery stores, Starbucks was estimated

to have a 7.3% share in the ground-coffee
category and a 21.7% share in the wh...
It was estimated that over the next
several years, the overall retail market
would grow less than 1% per annum,
but growth...
Starbucks’ U.S. business was projected to grow at a
CAGR of approximately 20% top-line revenue growth
2002 Strategy
Objective
Most recognized and
respected brand in the
world

Retail Expansion

Product Innovation
Caffeinating the world

RETAIL EXPANSION
Coffee consumption was on the rise in the United States
Half of US population drank coffee everyday
1/3 of coffee consumpt...
8 states in the US without a

150 of the roughly 300

single company-operated

metropolitan statistical areas in

Starbuck...
the company believed it
was far from reaching
saturation levels in many
existing markets
For example
only one store for ev...
the company believed it
was far from reaching
saturation levels in many
existing markets
For example
only one store for ev...
 Retail business was to open stores in new markets
 Clustering stores
 Resulted in Cannibalization
 But Total incremen...
 United Kingdom, Australia, and Thailand

 Licenced Store: Asia, Europe, the Middle East, Africa, and Latin America
 Th...
Caffeinating the world

PRODUCT INNOVATION
 New product launched in every holiday
season
 Product development took 12-18 months
 Ergonomic flow
1995
 Coffee and ...
Starbucks: Delivering Customer Service

SERVICE INNOVATION
Store Value Card -2001
“The most
significant product
introduction since Frappuccino



August 2002

 gift recipients are...
Starbucks: Delivering Customer Service

STARBUCKS MARKET RESEARCH:
TROUBLE BREWING?
3 separate groups

lacked a strategic
marketing group
had no chief marketing
Officer

 Market research
 Category group
...
Caffeinating the world

STARBUCKS’ BRAND MEANING
Qualitative Brand Meaning: Independents vs. Starbucks
The Top Five Attributes Consumers Associate with the
Starbucks Brand

 Known for specialty/gourmet coffee (54% strongly a...
Caffeinating the world

CHANGING CUSTOMER
Evolving customer base
Newer customers tended to be younger, less well-educated, and in a lower
income bracket than Starbu...
Caffeinating the world

CUSTOMER BEHAVIOR
No difference between
rural and urban

Customer Visit Frequency
Caffeinating the world

MEASURING AND DRIVING CUSTOMER
SATISFACTION
Starbucks was not meeting expectations in terms of customer satisfaction
83% of Starbucks’ customers
rate a clean store as being
highly important (90+ on a
100-point scale) in creating
customer s...
Caffeinating the world

REDISCOVERING THE STARBUCKS
CUSTOMER
Relaxing the Labour-hour
Starbucks: Delivering Customer Service

QUESTIONS
Questions 1

FACTORS ACCOUNTED FOR THE EXTRA-ORDINARY
SUCCESS OF STARBUCKS IN THE EARLY 1990’S?
“Buying coffee as a drink, The experience of enjoying coffee”
 Changed the coffee drinking experience in the U.S
 Starbu...
First Mover Advantage
 The concept was new
 There was no competition

Courtesy: Ramya, Vighnesh, Venketraman, Sharath (A...
Customer Service
Customer Intimacy’ : “Our goal is to create an uplifting experience every time you walk
through the door....
Ambience
Starbucks had seating areas to encourage
lounging
It had universal appeal

Courtesy: Ramya, Vighnesh, Venketraman...
Partner Satisfaction = Customer Satisfaction
 Generous benefits even to most entry level partners
 Partners were among t...
Coffee Quality
Starbucks offered highest quality coffee in the world, sourced from Africa, Central
& South America etc

Co...
Target Audience
Targeted primarily towards
the affluent, well ‐ educated,
white ‐ collar people (Age
group: 25 – 44)
Court...
Questions 2

WHAT WAS SO COMPELLING ABOUT THE
STARBUCKS VALUE PROPOSITION
 It places the customer and the service delivered to the customer above everything else.
 It moved away from the tangibl...
The Brand Image
 Starbucks was known for being widely available

 Their specialty coffee, and being trendy.
 Customers ...
Questions 3

WHY HAS STARBUCKS’ CUSTOMER SATISFACTION
SCORES DECLINED? OR IS IT MEASURING IT IN A
WRONG WAY
Despite the overwhelming presence and convenience, the
scores declined
 There was very little image or product differenti...
Market research data shows that customer satisfaction has declined
The satisfaction level of customers varies with the typ...
Starbucks is measuring much on how people view the company
 More customers were beginning to agree with the fact the Star...
Questions 4

HOW HAS STARBUCKS CHANGED SINCE
EARLY DAYS?
Retail Expansion
The store had expanded rapidly, from 140 stores in 1992 to 4500 stores in 2002

Courtesy: Ramya, Vighnesh...
Product Concentration
 In 1992, about half of the company’s sales came from sales of whole ‐ bean coffees
whereas in 2002...
Customer base
 “Customers going to the Starbucks”  “Starbucks going to the
customers”

 There was a change in the demog...
Brand Image
 The Starbucks image to the public started changing

 1992 : ‘Third Place’: Get the best coffee and relax
 ...
Questions 5

DESCRIBE THE IDEAL STARBUCKS CUSTOMER FROM
A PROFITABILITY STANDPOINT.
The ideal customer from a profitability standpoint is
 The loyal customer who visits the store 18 times a month
 Service...
Questions 6

WHAT WOULD IT TAKE TO ENSURE THAT THIS
CUSTOMER IS HIGHLY SATISFIED? HOW VALUABLE
IS A HIGHLY SATISFIED CUSTO...
 Cater to their needs and match/exceed their expectations.
 Ensure service is as fast as customer wants it to be
 Add l...
Questions 7

SHOULD STARBUCKS MAKE THE $40 MILLION
INVESTMENT IN LABOUR IN THE STORES?
Yes!!
 Allocate the money based on size of store, number of customers,

location and need for additional labour instead o...
Starbucks: Delivering Customer Service

THANK YOU
Startbucks delivering customer service
Startbucks delivering customer service
Startbucks delivering customer service
Startbucks delivering customer service
Startbucks delivering customer service
Startbucks delivering customer service
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Startbucks delivering customer service

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Startbucks delivering customer service

  1. 1. Starbucks: Delivering Customer Service
  2. 2. Starbucks: Delivering Customer Service COMPANY BACKGROUND
  3. 3. II Giomale acquires Starbucks assets 2000 140 Stores in Northwest and Chicago & Went Public Changes name to Starbucks Corp. New CEO- Orin Smith  2002  1992 1984 Schultz joined Marketing Team 1987 1982 1971 Starbucks location in Seattle Schultz founded II Giomale offering brewed coffee & espresso beverages w/ Starbucks coffee beans Schultz remained -Chairman and Chief Global Strategist Established leading brand N. America CAGR 40% 20 million unique customer Over 5000 stores Opening average 3 stores a day T i m e l i n e - S t a r b u c k s
  4. 4. Starbucks: Delivering Customer Service VALUE PROPOSITION
  5. 5. “Live coffees” mantra - to keeping the national coffee culture alive.
  6. 6. Creating an “experience” around the consumption of coffee
  7. 7. Value proposition EXPERIENTIAL BRANDING STRATEGY
  8. 8. Coffee Itself offering the highest-quality coffee in the world, coffee standards by controlling the supply chain as possible and the distribution to retail stores
  9. 9. Customer Intimacy Senior VP Retail: Jim Alling Says Our Goal is to create an uplifting Customer experience every time you walk through our door
  10. 10. Atmosphere People come for coffee but the ambience is what make them stay
  11. 11. Value proposition DISTRIBUTION STRATEGY
  12. 12. To reach customers where they work, travel, shop, and dine Good Location: Company-operated stores located in high-traffic, high-visibility settings
  13. 13. Product mixed tended to vary depending on a store’s size and location Non-company-operated retail channels, foodservice accounts, domestic retail store licenses
  14. 14. Value proposition STARBUCKS PARTNERS
  15. 15. All Starbucks employees are called Partners
  16. 16. Generous policy of giving health insurance and stock options High partner satisfaction rate (80% to 90%), well above the industry norm.
  17. 17. Lowest employee turnover rates in the industry (just 70%, compared with fast-food industry averages as high as 300%) Lower managers turnover rates & encouraged promotion from within its own ranks
  18. 18. Starbucks: Delivering Customer Service DELIVERING ON SERVICE
  19. 19. Training: hard and soft skills “Just Say Yes” Policy empowered partners the best service possible
  20. 20. Delivering on service MEASURING SERVICE PERFORMANCE
  21. 21. Starbucks: Delivering Customer Service COMPETITION
  22. 22. Small scale Specialty coffee chains concentrated regionally 1000 of independent specialty coffee shops Donut and bagel chains (Dunkin donuts)
  23. 23. In the home, specialty coffee was estimated to be a $3.2 billion business, of which Starbucks was estimated to have a 4% share.
  24. 24. In the food-service channel, specialty coffee was estimated to be a $5 billion business, of which Starbucks was estimated to have a 5% share
  25. 25. In grocery stores, Starbucks was estimated to have a 7.3% share in the ground-coffee category and a 21.7% share in the whole- beans category.
  26. 26. It was estimated that over the next several years, the overall retail market would grow less than 1% per annum, but growth in the specialty-coffee category would be strong, with compound annual growth rate (CAGR) of 9% to 10%
  27. 27. Starbucks’ U.S. business was projected to grow at a CAGR of approximately 20% top-line revenue growth
  28. 28. 2002 Strategy Objective Most recognized and respected brand in the world Retail Expansion Product Innovation
  29. 29. Caffeinating the world RETAIL EXPANSION
  30. 30. Coffee consumption was on the rise in the United States Half of US population drank coffee everyday 1/3 of coffee consumption took place outside home
  31. 31. 8 states in the US without a 150 of the roughly 300 single company-operated metropolitan statistical areas in Starbucks. the nation
  32. 32. the company believed it was far from reaching saturation levels in many existing markets For example only one store for every 110,000 people only seven states had more than 100 Starbucks locations
  33. 33. the company believed it was far from reaching saturation levels in many existing markets For example only one store for every 110,000 people only seven states had more than 100 Starbucks locations
  34. 34.  Retail business was to open stores in new markets  Clustering stores  Resulted in Cannibalization  But Total incremental sales
  35. 35.  United Kingdom, Australia, and Thailand  Licenced Store: Asia, Europe, the Middle East, Africa, and Latin America  The company’s goal was to ultimately have 15,000 international stores
  36. 36. Caffeinating the world PRODUCT INNOVATION
  37. 37.  New product launched in every holiday season  Product development took 12-18 months  Ergonomic flow 1995  Coffee and non-coffee-based line of Frappuccino beverages  boosting traffic during nonpeak hours “We’ve learned that no matter how great a drink it is, if our partners aren’t excited about it, it won’t sell,” - Alling.
  38. 38. Starbucks: Delivering Customer Service SERVICE INNOVATION
  39. 39. Store Value Card -2001 “The most significant product introduction since Frappuccino  August 2002  gift recipients are being introduced to brand for the first time T-Mobile Hotspot wireless Internet service Can use to pay for transactions company-operated store in North America  cardholders tended to visit Starbucks twice  customer-transaction data
  40. 40. Starbucks: Delivering Customer Service STARBUCKS MARKET RESEARCH: TROUBLE BREWING?
  41. 41. 3 separate groups lacked a strategic marketing group had no chief marketing Officer  Market research  Category group  Marketing group market research contradicted fundamentals Were not looking at big picture “Marketing is everywhere at Starbucks—it just doesn’t necessarily show up in a line item called ‘marketing.’
  42. 42. Caffeinating the world STARBUCKS’ BRAND MEANING
  43. 43. Qualitative Brand Meaning: Independents vs. Starbucks
  44. 44. The Top Five Attributes Consumers Associate with the Starbucks Brand  Known for specialty/gourmet coffee (54% strongly agree)  Widely available (43% strongly agree)  Corporate (42% strongly agree)  Trendy (41% strongly agree)  Always feel welcome at Starbucks (39% strongly agree)
  45. 45. Caffeinating the world CHANGING CUSTOMER
  46. 46. Evolving customer base Newer customers tended to be younger, less well-educated, and in a lower income bracket than Starbucks’ more established customers.
  47. 47. Caffeinating the world CUSTOMER BEHAVIOR
  48. 48. No difference between rural and urban Customer Visit Frequency
  49. 49. Caffeinating the world MEASURING AND DRIVING CUSTOMER SATISFACTION
  50. 50. Starbucks was not meeting expectations in terms of customer satisfaction
  51. 51. 83% of Starbucks’ customers rate a clean store as being highly important (90+ on a 100-point scale) in creating customer satisfaction. Service gap between Starbucks scores on key attributes and customer expectations
  52. 52. Caffeinating the world REDISCOVERING THE STARBUCKS CUSTOMER
  53. 53. Relaxing the Labour-hour
  54. 54. Starbucks: Delivering Customer Service QUESTIONS
  55. 55. Questions 1 FACTORS ACCOUNTED FOR THE EXTRA-ORDINARY SUCCESS OF STARBUCKS IN THE EARLY 1990’S?
  56. 56. “Buying coffee as a drink, The experience of enjoying coffee”  Changed the coffee drinking experience in the U.S  Starbucks wanted to create a chain of coffeehouses that would become America’s ‘Third place’ Starbucks was a place where people can enjoy their social interactions, relax, or just spent some time by themselves. Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  57. 57. First Mover Advantage  The concept was new  There was no competition Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  58. 58. Customer Service Customer Intimacy’ : “Our goal is to create an uplifting experience every time you walk through the door.” ‘Speed of Service : They served the customer within 3 minutes ‘Just Say Yes Policy’ : Provide the best service possible, even it required going beyond company rules  If a customer spills and asks for a re drink, they did provide Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  59. 59. Ambience Starbucks had seating areas to encourage lounging It had universal appeal Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  60. 60. Partner Satisfaction = Customer Satisfaction  Generous benefits even to most entry level partners  Partners were among the highest paid hourly workers  Lowest turnover in the industry Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  61. 61. Coffee Quality Starbucks offered highest quality coffee in the world, sourced from Africa, Central & South America etc Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore) It controlled its supply chain to ensure coffee standards
  62. 62. Target Audience Targeted primarily towards the affluent, well ‐ educated, white ‐ collar people (Age group: 25 – 44) Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  63. 63. Questions 2 WHAT WAS SO COMPELLING ABOUT THE STARBUCKS VALUE PROPOSITION
  64. 64.  It places the customer and the service delivered to the customer above everything else.  It moved away from the tangible benefits that the coffee offers, such as taste to intangible benefits of experiencing a Starbucks coffee Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  65. 65. The Brand Image  Starbucks was known for being widely available  Their specialty coffee, and being trendy.  Customers also though that the stores were clean and were satisfied with the Starbucks product. Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  66. 66. Questions 3 WHY HAS STARBUCKS’ CUSTOMER SATISFACTION SCORES DECLINED? OR IS IT MEASURING IT IN A WRONG WAY
  67. 67. Despite the overwhelming presence and convenience, the scores declined  There was very little image or product differentiation between Starbucks and the smaller coffee chains  The brand image of Starbucks also had some rough edges Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  68. 68. Market research data shows that customer satisfaction has declined The satisfaction level of customers varies with the type of customer. The demographics of its customers are changing Expectations could have increased  It set the standards very high for its customers  With the expansion and product innovation, it was not able to meet the standards  Customized drinks might have had harmful effect  Increasing lead time Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  69. 69. Starbucks is measuring much on how people view the company  More customers were beginning to agree with the fact the Starbucks cared primarily about making money and building more stores.  Generally customers are satisfied with the coffee. Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  70. 70. Questions 4 HOW HAS STARBUCKS CHANGED SINCE EARLY DAYS?
  71. 71. Retail Expansion The store had expanded rapidly, from 140 stores in 1992 to 4500 stores in 2002 Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  72. 72. Product Concentration  In 1992, about half of the company’s sales came from sales of whole ‐ bean coffees whereas in 2002 about 77% of the sales came from beverages.  Product Innovation Strategy  The company had added new products in menu and also sold equipment and accessories Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  73. 73. Customer base  “Customers going to the Starbucks”  “Starbucks going to the customers”  There was a change in the demographic profile of the customer base  Affluent, upper class professionals  Young and low income group Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  74. 74. Brand Image  The Starbucks image to the public started changing  1992 : ‘Third Place’: Get the best coffee and relax  2002: A convenient place to hangout and the coffee was just good Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  75. 75. Questions 5 DESCRIBE THE IDEAL STARBUCKS CUSTOMER FROM A PROFITABILITY STANDPOINT.
  76. 76. The ideal customer from a profitability standpoint is  The loyal customer who visits the store 18 times a month  Service time in all stores not exceed 3 mins  Improve customer throughput  Reach as close to $20000 level in terms of weekly sales Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  77. 77. Questions 6 WHAT WOULD IT TAKE TO ENSURE THAT THIS CUSTOMER IS HIGHLY SATISFIED? HOW VALUABLE IS A HIGHLY SATISFIED CUSTOMER TO STARBUCKS?
  78. 78.  Cater to their needs and match/exceed their expectations.  Ensure service is as fast as customer wants it to be  Add lounging areas and more comfortable chairs and tables so that customers feel relaxed when using hotspot also  Customer satisfaction -> loyalty-> increase in average ticket size-> higher profits Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  79. 79. Questions 7 SHOULD STARBUCKS MAKE THE $40 MILLION INVESTMENT IN LABOUR IN THE STORES?
  80. 80. Yes!!  Allocate the money based on size of store, number of customers, location and need for additional labour instead of apportioning the $40 million equally to all the stores  Apart from making the investment, Starbucks need to look more into their customer base and improve on their brand image and value proposition Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)
  81. 81. Starbucks: Delivering Customer Service THANK YOU

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