Starbucks: Delivering Customer Service

M512 MARKETING STRATEGY

Starbucks: Delivering

Customer Service

Alkis Marangos

I have neither given nor received unauthorized aid on this assignment

1. What factors accounted for the success of Starbucks in the early 1990¡¯s? What was so

compelling about the Starbucks value proposition?

The success of Starbucks in the early 1990¡¯s can be attributed to Howard Schultz¡¯s vision of

the Starbucks brand. Schultz inspired of a company which would make the customer the

centre of its success and would change the coffee drinking experience in the U.S. In order to

achieve this, Schultz successfully utilized his human resources by establishing benefits that

would force those resources to create value in the process of the coffee drinking experience.

Starbucks was successful because it placed value to the customers first in its value

proposition. Following is a number of factors that accounted to Starbucks success in the

early 1990¡¯s:

a. Atmosphere: Schultz¡¯s idea was to make Starbucks America¡¯s ¡°third place¡±. By

recreating the Italian coffee culture he met in Milan, he managed to make Starbucks

a place where people can enjoy their social interactions, relax, or just spent some

time by themselves. In essence, the Starbucks idea changed the norm from ¡°buying

coffee as a drink¡± to ¡°the experience of enjoying coffee¡±. People viewed Starbucks as

a place they wanted to be at and they spent as much time as they could in the stores.

It was an uplifting experience that was complemented with the layout designed to

provide an inviting environment.

b. Coffee quality: Starbucks strategy was to open only company©\owned stores and

avoid franchising. This enabled the company to keep full control of quality of its

products and services. At the same, Starbucks tried to control as much of the supply

chain as possible in order to keep the quality of coffee at high and consistent levels

by working with growers and enforcing coffee standards. These two strategies

enabled Starbucks to deliver on the first component of its value proposition; quality.

c. Service: Partners were trained on both ¡°hard skills¡± and ¡°soft skills¡± when hired to

work for a Starbucks retail store. This equal emphasis on the ¡°hard¡± and ¡°soft¡± skills

further highlighted Starbucks strategy to make the experience pleasant for the

customer. The ¡°soft skills¡± were a way to teach the partners on how to connect with

the customer, by establishing eye contact, smiling and greeting them with their

names when the customers were regulars. In addition to that there was also the ¡°Just

Say Yes¡± policy for which the partners went beyond company rules in order to satisfy

the customers. These again created a friendly environment for customers who felt

special and in combination with the two points mentioned above increased their

customer satisfaction.

d. Partner satisfaction: Schultz¡¯s belief was that if the Starbucks employees were happy,

then this would lead to higher customer satisfaction. For this reason, Starbucks

partners were among the highest paid hourly workers, they enjoyed health benefits

and they had stock options. This resulted in one of the lowest employee turnover

rates in the industry and a consistently high employee satisfaction rate. Furthermore,

the majority of promotions for Starbucks were within its own ranks. Even though

there is no evidence that the satisfaction of partners led to customer satisfaction, it

would be safe to assume that the low employee turnover meant that partners stayed

at their positions for longer time, were more experienced in treating the customer

and could provide a faster service.

e. Specific target audience: Starbucks coffee in the 1990¡¯s was targeted primarily

towards the affluent, well©\educated, white©\collar people. Being able to attract such

an affluent demographic and serving them by providing superior service, helped in

being able to provide the service at a consistent level and keep the customers

satisfied.

f.

Attractive market: The concept of Starbucks was new and the notion of turning the

coffee drinking into a social experience was almost unexploited in the U.S. In the

early 1990¡¯s Starbucks did not face fierce competition. The absence of the above

concept helped Starbucks succeed.

Starbucks value proposition is compelling because it places the customer and the service

delivered to the customer above everything else. Even though Starbucks is a retail©\coffee

store, the value proposition is not about the coffee exclusively but about the coffee culture

and the experience of drinking coffee. With its value proposition, Starbucks moves away

from the tangible benefits that the coffee offers, such as taste, stimulation, alertness and

concentrates on the quality of its coffee and the intangible benefits of the experience of

drinking Starbucks coffee. Starbucks value proposition is not about coffee, it is about the

experience of drinking coffee in a Starbucks store integrating the product with the emotional

benefits.

Service

Coffee

Starbucks

Atmosphere

2. How does the Starbucks of 2002 differ from the Starbucks of 1992?

The Starbucks of 1992 marked the beginning of the establishment of the brand. In 1992,

right when the company became public, Starbucks had 140 stores located in the Northwest

and Chicago. Ten years later, in 2002, Starbucks had over 4500 stores scattered throughout

the U.S and internationally. During those ten years, Starbucks established itself as the

¡°number one¡± coffee store in the U.S by following an expansion strategy. Starbucks had

locations in 42 of the 50 states and was continuing this expansion strategy in order to

capture new markets and cluster existing markets. Starbucks retail expansion strategy

consisted of the company selecting locations based on whether the demographics of an area

matched the profile of a typical Starbucks drinker, the level of coffee consumption and the

nature and intensity of competition. An important component of this strategy was that

Starbucks did not mind cannibalizing the sales of its stores as long as the incremental sales

resulting from the opening of a new store were higher than before. The retail expansion has

led the Starbucks customers to view it as more corporate and caring about making money.

The establishment of smaller coffee stores without lounging areas had also taken away the

¡°atmosphere¡± component of the value proposition that the Starbucks of 1992 had built on.

The Starbucks of 2002 was also more complex than the Starbucks of 1992. 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. The company had added new products such as food

items and new beverages in its menu and also sold equipment and accessories. The

beverage menu expansion along with the drink customization led to partners spending more

time than before to prepare a handcrafted customized beverage. In addition to that, the

¡°product innovation¡± strategy through which the company introduced at least a new

beverage every holiday season meant further menu expansion, additional training times for

partners and possibly additional service times until a partner mastered the making of the

new beverage. The drink combinations that could be prepared at a Starbucks in 2002 were

many more than the ones that could be prepared at a Starbucks coffee store in 1992,

making the whole process more complex and the delivery service slower.

Another big difference between the Starbucks of 2002 and the Starbucks of 1992 was the

demographic profile of the customer base. In 1992, the customer base of Starbucks

consisted of affluent, mid to upper class professionals who went to Starbucks to enjoy their

coffee and the culture of it. The retail expansion of Starbucks resulted in changing the norm

from ¡°customers going to the Starbucks¡± to ¡°Starbucks going to the customers¡±. The

customer base of Starbucks in 2002 was changing to a younger, less©\educated and with a

lower income demographic profile.

Finally, the Starbucks image to the public started changing. The image of 1992 consisted of a

place which you can call ¡°third place¡±, where you can get the best quality coffee and where

you can relax. In 2002, the image had changed to a convenient place, where you can meet

people and move on and the coffee was just good.

3. Why has Starbucks customer satisfaction scores declined? Has the company¡¯s service

declined, or is it simply measuring customer satisfaction the wrong way?

Unfortunately, with the data available it is extremely hard to say whether the company¡¯s

service has declined or if there is something wrong with the way that customer satisfaction

is measured. Even though the evidence shows that customers are not as satisfied as before,

this does not necessarily mean that the service has declined. It might as well mean that the

expectations of the customers have been raised due to competition or marketing or any

other external forces. In order to make a fair assessment of the situation however, I will try

to examine all possibilities starting from the way the customer satisfaction is measured.

The Customer Snapshot mystery shopper program is a subjective measure to record results.

If there is a more than one mystery shopper visiting a coffee store, then there might be

inconsistency between the different mystery shoppers regarding the definition of the

criteria. For example, it appears that there is not enough explanation as to what exactly is

defined as clean. Is a store considered to be clean when it appears tidy and smells nice but

there are two empty beverages on one table? For Mystery Shopper X, this can be considered

clean, but for Mystery Shopper Y this can be considered dirty. This inconsistency could also

be visible within different stores. A lot of times, a mystery shopper goes to the store with

the predisposition to examine different things during his stay in the store. In order to be able

to see more consistent results and be able to compare, I would like to see how customers

would respond to certain criteria right after their Starbucks experience (survey outside

store).

One other thing that I would like to see in the research is the breakdown of customers by

number of visits per month. Even though the research breaks down the sample by new and

established customers, it would make sense to see what percentage of the new customers

are regulars and what their attitude towards Starbucks is. Instead what we see is all the new

customers clustered together and taking the average of them to determine the overall

opinion of Starbucks. Both of these are just assumptions as to what could have been wrong

with the way Starbucks is measuring its customer satisfaction. Again, these assumptions are

based on the evidence available in the case. Let¡¯s now see why the customer satisfaction

scores have declined.

A very possible explanation to this could be because of the growing customer base. As it is

suggested in Exhibit 8 of the case, the less satisfied customers are the new customers that

have visited Starbucks for the first time within the past year. On the other hand, the

established customers (first visited Starbucks 5+ years ago) appear to have a better overall

opinion about Starbucks. This does not necessarily mean that the service of Starbucks has

changed. It rather more closely leads to the conclusion that the new customers have higher

expectations which could have been a result of more information available, getting used to

the coffee experience culture, more competitors available. To make myself clearer I will

provide an explanation of this with an example. Starbucks coffee store on Indiana Avenue in

Bloomington IN. has been offering the same consistent level of service to its customers since

its opening in 1994. All the customers are greeted with their first name, and all the customers

are served within 3 minutes after they arrive in the store. Mr. John has been a regular visitor

of this Starbucks location since its opening and is extremely satisfied with the service. Mr.

Steve, decided to visit Starbucks for the first time a few months ago, towards the end of

2001. Mr. Steve was a regular of Dunkin Donuts where he would be greeted every day with

his first and last name, the barista knew exactly what beverage he wanted, and he was

always served within two minute. Mr. Steve is not satisfied with the Starbucks service even

though the service at Starbucks has been the same for the last 8 years. This example shows

that even though Starbucks could have been consistent in its service, it has added a new

customer (Mr. Steve) to its customer base who is not as satisfied because the service does

not meet the expectations Mr. Steve had acquired from using a competitor.

Let¡¯s also examine now, possible reasons that could have resulted in actual declining

customer service of Starbucks. When Starbucks evolved as a business it set the standards

very high for its customers through its value proposition. Even though the company initially

managed to meet these standards, the retail expansion and the product innovation strategy

that the company followed along with the customization of the drinks had a harmful effect

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