1. Starbucks: Delivering
Customer Service

2. Starbucks: Delivering Customer Service
COMPANY BACKGROUND

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. Starbucks: Delivering Customer Service
VALUE PROPOSITION

5. “Live coffees” mantra - to keeping the national coffee culture alive.

6. Creating an “experience” around the consumption of coffee

7. Value proposition
EXPERIENTIAL BRANDING STRATEGY

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. 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. Atmosphere
People come for coffee but the
ambience is what make them stay

11. Value proposition
DISTRIBUTION STRATEGY

12. To reach customers where they work, travel,
shop, and dine
Good Location: Company-operated stores located
in high-traffic, high-visibility settings

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. Value proposition
STARBUCKS PARTNERS

15. All Starbucks employees
are called Partners

17. Generous policy of giving health insurance and
stock options
High partner satisfaction rate (80% to 90%),
well above the industry norm.

18. 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

19. Starbucks: Delivering Customer Service
DELIVERING ON SERVICE

20. Training: hard and soft skills
“Just Say Yes”
Policy empowered
partners the best
service possible

21. Delivering on service
MEASURING SERVICE PERFORMANCE

26. Starbucks: Delivering Customer Service
COMPETITION

27. Small scale Specialty coffee chains concentrated regionally
1000 of independent specialty coffee shops
Donut and bagel chains (Dunkin donuts)

29. In the home, specialty coffee was
estimated to be a $3.2 billion business, of
which Starbucks was estimated to have a
4% share.

30. 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

31. 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.

32. 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%

33. Starbucks’ U.S. business was projected to grow at a
CAGR of approximately 20% top-line revenue growth

34. 2002 Strategy
Objective
Most recognized and
respected brand in the
world
Retail Expansion
Product Innovation

35. Caffeinating the world
RETAIL EXPANSION

36. 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

37. 8 states in the US without a
150 of the roughly 300
single company-operated
metropolitan statistical areas in
Starbucks.
the nation

38. 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

39. 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

40.  Retail business was to open stores in new markets
 Clustering stores
 Resulted in Cannibalization
 But Total incremental sales

41.  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

42. Caffeinating the world
PRODUCT INNOVATION

43.  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.

44. Starbucks: Delivering Customer Service
SERVICE INNOVATION

45. 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

46. Starbucks: Delivering Customer Service
STARBUCKS MARKET RESEARCH:
TROUBLE BREWING?

47. 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.’

48. Caffeinating the world
STARBUCKS’ BRAND MEANING

49. Qualitative Brand Meaning: Independents vs. Starbucks

50. 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)

51. Caffeinating the world
CHANGING CUSTOMER

52. Evolving customer base
Newer customers tended to be younger, less well-educated, and in a lower
income bracket than Starbucks’ more established customers.

54. Caffeinating the world
CUSTOMER BEHAVIOR

55. No difference between
rural and urban
Customer Visit Frequency

56. Caffeinating the world
MEASURING AND DRIVING CUSTOMER
SATISFACTION

57. Starbucks was not meeting expectations in terms of customer satisfaction

58. 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

59. Caffeinating the world
REDISCOVERING THE STARBUCKS
CUSTOMER

60. Relaxing the Labour-hour

61. Starbucks: Delivering Customer Service
QUESTIONS

62. Questions 1
FACTORS ACCOUNTED FOR THE EXTRA-ORDINARY
SUCCESS OF STARBUCKS IN THE EARLY 1990’S?

63. “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)

64. First Mover Advantage
 The concept was new
 There was no competition
Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)

65. 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)

66. Ambience
Starbucks had seating areas to encourage
lounging
It had universal appeal
Courtesy: Ramya, Vighnesh, Venketraman, Sharath (Amrita School of Business, Coimbatore)

67. 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)

68. 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

69. 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)

70. Questions 2
WHAT WAS SO COMPELLING ABOUT THE
STARBUCKS VALUE PROPOSITION

71.  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)

72. 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)

73. Questions 3
WHY HAS STARBUCKS’ CUSTOMER SATISFACTION
SCORES DECLINED? OR IS IT MEASURING IT IN A
WRONG WAY

74. 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)

75. 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)

76. 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)

77. Questions 4
HOW HAS STARBUCKS CHANGED SINCE
EARLY DAYS?

78. 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)

79. 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)

80. 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)

81. 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)

82. Questions 5
DESCRIBE THE IDEAL STARBUCKS CUSTOMER FROM
A PROFITABILITY STANDPOINT.

83. 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)

84. Questions 6
WHAT WOULD IT TAKE TO ENSURE THAT THIS
CUSTOMER IS HIGHLY SATISFIED? HOW VALUABLE
IS A HIGHLY SATISFIED CUSTOMER TO STARBUCKS?

85.  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)

86. Questions 7
SHOULD STARBUCKS MAKE THE $40 MILLION
INVESTMENT IN LABOUR IN THE STORES?

87. 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)

88. Starbucks: Delivering Customer Service
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