Starbucks: Delivering Customer Service

In 1971, starbucks was opened by three fanatics named as Gerald Baldwin, Gordon
Bowker and Ziev Siegl. It was built on a dream to make it a third place for people after
work and home. It was intended to be a place to relax and enjoyment. By 1992,
Starbucks had 140 stores in northwest and Chicago. It was competing with brands such
as Gloria jeans coffee bean and Barnies Coffee & Tea. The sales were going up and up.
The successful thing about the Starbucks was the immense sales with no cent spent on
the advertising. The strategy that led to the success was the live coffee mantra. The
starbucks actually made the coffee in front of the customer. This strategy had three
components which made it a big success. The first component is coffee which was of
high quality imported from Africa, central, South America and Asia Pacific regions. The
green coffee beans went through a custom roasted process. The second component
was the service given to the customers. The aim was to create an uplifting experience
for each time you visited the Starbucks. The last component was the atmosphere.
People come for coffee but ambiance will make them stay. The environment of starbucks
was designed to create an inviting appeal for people who wanted to linger. The
environment was set on the sense of community and brought people together.
The Starbucks outlets were company operated in high traffic and visibility which
attracted large number of customers. This location of starbucks also played an important
part in the success of the starbucks. It was available where people needed coffee such
around universities, offices and etc. the major chunk of the profit came from the
beverages. To enhance its reach to customers, starbucks sold coffee through non
company operated outlets. These outlets were called as specialty stores. Moreover,
starbucks also sold coffee to restaurants, hotel, airlines and etc. few outreached areas
were catered by availability of coffee at retail stores. These all contributed to 45% of
sales of starbucks. The remaining 55% was made through international licensed
stores,grocery stores, warehouse clun, online and mail order sales. Starbucks also
made a joint venture with Pepsi to distribute bottled Frappuccino beverages in North
America. The partnership was done with dreyers Ice Cream to develop and distribute a
line of premium Ice creams. The companys broad distribution strategy was with the goal
to reach where ever their customer existed. They wanted people to try starbucks even
before they paid first visit to starbucks.
The next step which helped in success of the starbuck was its relationship with
employees. The employees at starbucks were called as partners. Starbucks believed
that employee satisfaction can lead to customer satisfaction. Employees were given
promotion within their ranks. The employees had to undergo two types of trainings. The
first type focused on hard skills and other on soft skills. The soft skills focused on
connecting with customer through conversations, eye contact, smile and try to remember
their names. The starbucks had a policy called just say yes which stressed upon
accommodating customers when they complain or spill coffee. They had to go any level
to retain customer even if starbucks had to give free coffee to customers. The least
option was to say no and loose a customer.

To improve efficiency of coffee making, it moved from manual method to verismo

machines which reduced the number of steps required to make an espresso beverages.
Starbucks also tracked performance using various metrics. Every store was visited by a
mystery shopper three times a year. The performance evaluation was done on four
characteristics i.e. service, cleanliness, product quality and speed of service. Legendary
services were noted by mystery shoppers. Legendry service was the type of service
offered by the employee that made it memorable for customer and caused him to return
and recommend a friend too.
The starbucks formulated a new objective in 2002 i.e. most recognized and respected
brand in the world. It was achieved through retail expansion and product innovation.
The retail expansion was done by opening stores in new geographical regions and
clustering stores in existing markets.
The product innovation led to launch of new product on regular basis. The success of
the new product was based upon the acceptance from partners. If they didnt accept
then it wont sell. The successful innovated products were coffee and non-coffee based
Frappuccino beverages. The next big product innovation was stored value card which
had credit in it. The introduction of the card resulted in customer who possessed visited
twice than cash payer customer. The taste, ambience and services all contributed to the
success of the starbucks.
In addition to this, the distribution network of the starbuck also played a greater role in
success of the starbucks. In spite of all these effort are not showing a perfect customer
satisfaction response. The customer satisfaction is very low. To cater this, company is
thinking about various options one of them is to reduce the coffee making time. This will
build strong relationship with customers. The emphasis on expansion and innovation
overlooked customer service thus impacting customer satisfaction. The company should
take initiatives to solve this issue.
Q2:
Can you put any quantitative value to Customer Satisfaction in this case which ca
n lead to a justification an investment in this area. hint: you can in particular analy
ze Exhibits 7, 9 & 10. Explain briefly.

They are planning to invest $40 Million annually to 4500 stores of starbucks, want to
increase 20 hours of labor a week, idea behind is to improve speed of service and
increase customer satisfaction so that it could contribute to overall increase in profits.
Quantitative measures are given that a satisfied customer would visit 4.3 times per
month to starbucks, would spend $4.3 per visit on average and his life time value would
go for 4.4 years but for highly satisfied customer theses figure are very attractive and
company would try to convert satisfied customer to highly satisfied because it is
contributing more to generation of revenue, he visits 7.2 times a month and spends
$4.42 per visit on average and average lifetime value is 8.3 years.
Worth of customer for firm = lifetime value visit times per year spends $per day

Worth of Satisfied customer= 4.4 (4.3)12 $4.06= $921.78

Worth of Highly Satisfied customer= 8.3 (7.2)12 $4.42= $3169.67
So, highly satisfied customer are more important and contributing more in generation of
revenue for company as compare to satisfied customer, so company should focus on
transforming satisfied customer to highly satisfied customer.
Another tool of customer satisfaction is given in which attributes depending upon their
importance are ranked and to further clarify percentages are allotted to each attribute.
According to key attributes required to enhance customer satisfaction, first priority is
given to clean environment, convenient environment is given second priority, treated as
valuable customer is given third priority and 75% value score is given to it, it is directly
related to the labor force related to the services. Friendly staff is given 73% of scores,
both are dealing with the soft skills of workforce means that there is no need of
increasing workforce instead their way of service is important. Coffee quality is given
67% importance, which is also their one component of their value proposition but it is
declining they should focus on improving quality of offering other two are service and
atmosphere; service and cleanliness two components are improving according to exhibit
7 of customer snapshot. Only 13% score given to Innovative beverages shows that
innovation strategy of expansion is contributing only 13% to sales, is not very fruitful,
10% valued customer give importance to faster service.
Exhibit 7 is also showing that service time is reducing, showing baristas efficiency and
fastness of service. Supporting the fact that there is no need to invest in labor, moreover
service cleanliness are improving and are good but quality is declining , so should focus
on improvement of Quality which is given 67% score.
In order to enhance customer satisfaction $40 Million investment for extra labor hours is
not good strategy because with increase in hours complexity of Job would further
increase because there is requirement of remembering names of customers, hard skills
and also very important factor of personalization that is on arrival of customers they
would serve promptly according to his likings, extending work hours would not result into
customer satisfaction because it would raise complexity of work for baristas , moreover
hourly wage system is not very friendly, instead of investing in extending labor hours
they should focus on proper usage of their customer data base, they have written in
case that they are not using customer data properly. In order to drive decision based on
data they have pooled, they need to develop a team who would focus on development of
strategic marketing function, most importantly would design planes to raise customer
satisfaction.