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Starbucks- Diluk Perera
Starbucks achieved early extraordinary success in the 1990s through experiential branding that created a coffee culture, premium coffee quality, personalized service, and a sophisticated third place atmosphere. Key factors included employee satisfaction, an unexploited market with little competition, and strategic store locations. Starbucks developed a highly differentiated value proposition perfectly matching its target customer segment of affluent, educated coffee lovers seeking a premium experience. However, as Starbucks expanded with over 5,000 stores by 2002, it faced new challenges in balancing the expectations of its original customers versus new customer segments, while also addressing perceptions of a declining brand image and customer satisfaction.
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Starbucks- Diluk Perera
- 1. STARBUCKS: DELIVERING CUSTOMERSERVICE DILUK PERERA COHORT: BAY BRIDGE
- 2. FACTORS ACCOUNTED FOREARLY THE EXTRAORDINARY SUCCESS OF STARBUCKS IN THE EARLY 1990S Experiential Branding strategy- created a coffee culture and built a loyal customer base Premium coffee- Worked directly with growers, monitored roasting process and controlled distribution around the world to ensure quality Service- Provided intimate, uplifting personalized experience every time A third place atmosphere- Sophisticated, upscale, classy yet inviting environment, encouraged lounging Other Factors Employee satisfaction- Satisfaction rate 80%-90% and low turnover rate ensured baristas are motivated to become experts at hard and soft skills to offer warm personalized service to tea fanatics Unexploited attractive market without strong competition Wide available distribution strategy and store locations on high visible, high traffic areas
- 3. WHAT WAS SOCOMPELLING ABOUT THE STARBUCKS VALUE PROPOSITION? Starbucks experience- Best quality coffee, intimate service, friendly baristas and European style classy layout, that encourage lounging for customers Target customer expectation- premium coffee, upscale third place ambience , live coffee culture Target customers- Sophisticated, white collar, educated, affluent coffee lovers, looking for premium coffee experience DEVELOPED HIGHLY DIFFERENTIATED VALUE PROPOSITION PERFECTLY TO MATCH THE TARGET CUSTOMER SEGMENT MUTUALLY REINFORCING CYCLE
- 4. HOW DOES THESTARBUCKS OF 2002 DIFFER FROM THE STARBUCKS OF 1992? Brand is more accessible-Over 5000 stores compared to 140 stores in 1992 Increased product range- Menu complexity has increased, non coffee products targeting mainstream customers compared to only targeting coffee fanatics 10 years ago Non coffee house channels- kiosks, supermarkets, warehouse clubs, hotels, airplanes New retail formats- Drive throughs Difficulty level of Barista job increased- Due to many drink variations and less time for barista to have a friendly chat Consumption pattern difference- tendency to lingering to rushing, ritualistic drinking to routine, desire for social ambience to convenience New customer segment- younger, less affluent/educated and less sophisticated and does not consider Starbucks as premium coffee, hence less likely to pay a premium price
- 5. WHAT BRAND IMAGEDID STARBUCKS DEVELOP DURING THIS PERIOD? Known for specialty /gourmet coffee High quality coffee (not top quality necessarily) Widely available Convenient Clean comfortable stores Feel welcome Signals of dilution of brand image- Primarily cares about money- increased from 53% to 61% Primarily Cares about building more stores- increased from 48% to 55% More concerned about growth plan than customer satisfaction
- 6. WHY HAVE STARBUCKS’CUSTOMER SATISFACTION SCORES DECLINED?Diluted brand image- consumer belief Starbucks primarily concerned about money and store availability, rather than customer satisfaction Considered less trendy Perceived difference of image and product differentiation compared to independent coffee shops was less, hence paying a premium price for Starbucks was questionable Baristas unsatisfactory service Speed of service was not satisfactory level- lack of hard and soft skillsSpeed of service was not satisfactory Customer Satisfaction
- 7. HAS THE COMPANY’SSERVICE DECLINED? NOT NECESSARILY DECLINED People from these 2 different worlds define great service differently. To make the matter worst same customer would expect rush service from Monday to Friday and would lounge and read newspapers on weekends Due to the dramatic expansion of customer base, Starbucks now has to serve customers that were not original part of the target market, whose expectations and behaviors are different, hence it impact each other: Overall customers are pleased with product quality, cleanliness and atmosphere. However wait time is increasing, this is not necessarily not due to a service inefficiency. Original target customer gaze at long menu, starts a friendly conversation with barista and requests customized beverage, while new customers complain about service slowing down during rush hour time. On the other hand if baristas rush third place ambience for established customers will be destroyed and baristas will be less friendly and grumpy.
- 8. IS IT MEASURINGSATISFACTION THE WRONG WAY? IMPERFECT TOOL • CUSTOMER SNAPCHAT METRICS OF FRIENDLINESS, ORDER FILLED ACCURATELY AND SPEED OF SERVICE IS SELF-CONTRADICTING AND INCONSISTENT • FRIENDLY THE BARISTA, SLOWER THE SERVICE • BARISTA TAKE TIME TO PREPARE PERFECT HAND CRAFTED BEVERAGE, SLOWER THE SERVICE • LEGENDARY SERVICE ENCOURAGES BARISTAS TO CREATE A MEMORABLE EXPERIENCE FOR THE CUSTOMERS AND INITIATE CONVERSATIONS, THIS IS INCONSISTENT WITH THE GOAL OF 3 MINUTE SERVICE TARGET. • NEW INTERNAL MEASUREMENTS SHOULD BE INTRODUCED TO CAPTURE THESE CONFLICTING CUSTOMER EXPECTATIONS
- 9. DESCRIBE THE IDEAL STARBUCKSCUSTOMER FROM A PROFITABILITY STANDPOINT. HOW VALUABLE IS A HIGHLY SATISFIED CUSTOMER TO STARBUCKS? Life time revenue stream of a highly satisfied customer worth $ 2970 more than that of an unsatisfied customer. Life Time Value As per below calculation revenue stream of highly satisfied customer annually is $ 200 more than an unsatisfied customer and $ 172 more than just a satisfied customer. Revenue Annually Ideal customer would be most frequent (loyal) customer who visits Starbucks 8 times a month, and will spend $4.42 per visit. These customers account for 62% of all transaction value. Customers that visit 1-2 times per month only generate 11% of all transaction value Highly Satisfied Customer Unsatisfied Satisfied Highly satisfied Visits/mo nth 3.9 4.3 7.2 Visits/year 46.8 51.6 86.4 $ per Transactio n 3.88 4.06 4.42 Revenue/y ear 182 210 382 Average Life (years) 1.1 4.4 8.3 Revenue/L
- 10. WHAT WOULD ITTAKE TO ENSURE THAT THIS CUSTOMER IS HIGHLY SATISFIED? • IT IS COMPLEX TO DELIVER CUSTOMER SATISFACTION TO CUSTOMERS WITH DIFFERENT EXPECTATIONS. • STARBUCKS CUSTOMERS GIVE PRIORITY TO CLEAN STORE, HENCE KEEP THE STORE CLEAN, MAINTAIN HIGH SANITATION LEVEL. • CONVENIENCE IS THE SECOND PRIORITY. HENCE SPEED UP THE SERVICE. ESTABLISH MORE STORES IN HIGH VISIBILITY TRAFFIC AREAS, INCLUDE DRIVE-THROUGHS, REMODEL SHOP LAYOUTS, INTRODUCE QUICK COFFEE MAKING MACHINES AND PREPAID CARDS TO SPEED UP THE PROCESS AND ELIMINATE ANY BOTTLENECKS. • NEXT, CUSTOMERS GIVE PRIORITY TO GETTING TREATED AS A VALUABLE CUSTOMER AND FRIENDLY STAFF. BETTER TRAINING OF BARISTAS ON SOFT SKILLS WOULD BE THE SOLUTION.
- 11. WHAT’S THE GOALOF THIS INVESTMENT? SHOULD STARBUCKS MAKE THE $40 MILLION INVESTMENT IN LABOR IN THE STORES? INVESTMENT PAY OFF BREAK EVEN ANALYSIS: • INVESTMENT PER STORE=$40M / 5000 STORES= $ 8000 • DIFFERENCE BETWEEN SATISFIED AND HIGHLY SATISFIED CUSTOMERS= $ 172 • TO BREAK EVEN AT EACH STORE= 8000/172= 46 CUSTOMERS • NO. OF VISITORS PER STORE EACH DAY= 570 (EXHIBIT 3) • TO BREAK EVEN DAILY 46 MORE CUSTOMERS OUT OF 570 SHOULD BE CONVERTED FROM SATISFIED TO HIGHLY SATISFIED. • RECOMMENDATION: STARBUCKS SHOULD MAKE THIS INVESTMENT AS IT WILL IMPROVE SERVICE SPEED, CONVERTING SATISFIED CUSTOMERS TO HIGHLY SATISFIED CUSTOMERS AND PREVENT TURNING INTO ‘UNSATISFIED’ CUSTOMERS GOAL: INCREASE SALES BY CONVERTING SATISFIED CUSTOMERS TO HIGHLY SATISFIED LOYAL CUSTOMERS; BY PROVIDING FASTER SERVICE WITHOUT COMPROMISING VALUE ADDED COFFEE EXPERIENCE TO ESTABLISHED CUSTOMERS.
- 12. IS IT POSSIBLEFOR A MEGA-BRAND TO DELIVER CUSTOMER INTIMACY? YES POSSIBLE, BUT DIFFICULT BALANCING ACT New customers Established customers STARBUCKS WILL HAVE TO MANAGE INTERESTS OF BOTH SEGMENTS; INCREASE SERVICE EFFICIENCY WITHOUT NEGLECTING SERVICE QUALITY AND CUSTOMER INTIMACY.