Assessing the mechanism of the service profit chain taking the examples of Starbuck's

1. Assessing the service profit chain

4. Starbucks – A unique community experience by providing customers a “3 rd place” between home and work. Service Delivery System Operating Strategy Service Concept Target Market STRATEGIC SERVICE VISION

5. Source: The Service Profit Chain by Haskett, Sasser & Schlesinger Actual Profit to Service Provider Cost to Service Provider Value of results to Customer vs. = Potential profit to Service Provider Service Delivery System Operating Strategy Service Concept Target Market STRATEGIC SERVICE VISION Price and Access Costs to Customer Value of results And Perceived Quality to Customer vs. = Value to Customer Profit Customer Value Equation Customer Satisfaction Customer Loyalty Growth Employee : Satisfaction Loyalty Productivity and Quality Capability SERVICE PROFIT CHAIN

7. Profit Customer Value Equation Customer Satisfaction Customer Loyalty Growth Employee : Satisfaction Loyalty Productivity and Quality Capability SERVICE PROFIT CHAIN Internal Marketing Interactive Marketing External Marketing Company (Management) Customers Employees “ Enabling the promise” “ Delivering the promise” “ Making the promise” Source : Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

8. Starbucks Video

10. Perceived Value = Quality Perceived Cost (Perception - Expectation) (Acquisition Cost) + (Perceived Price) Perceived Value =

11. In the 1990’s In the 2000’s Expansion into Retail Locations Individual Storefronts (Quality) (Acq. Cost) + (P. Price) (Same) (Decreased) + (Same) = Increase in Perceived Customer Value

12. Teller ATM Phone/ Computer Movies via mail Movies online Potential Changes in the Value Equation Traditional Rental Stores Traditional Carriers Discount Carriers Quality Acquisition Costs Perceived Price Multiple languages Time Historical Reliability Ease of Use Competitors Availability Convenience Demand for Funds

15. www.progressive.com and the Customer Respect Group http://www.forbes.com/2008/02/20/service-consumers-retail-biz-cx_tvr_0220service_slide_8.html http://businesstravel.about.com/od/airlineinformation/a/ontime_stats.htm Southwest United On-time arrival 80.5% 71.6% Lost luggage per 1000 (# of passengers) 4.55 (104,758,285) 5.24 (54,114,611)

17. Loyalty Unsatisfied Satisfied Very Satisfied 3.9 visits /month 1.1 year loyal 4.3 4.4 7.2 8.3

20. Source: economy of customer loyalty: “The Loyalty effect” Reichheld Source: The Service Profit Chain by Haskett, Sasser & Schlesinger New customer Defection Rate 1. Acquisition cost 2. Base Profit 3. Cost savings 4. Referral 5. Price Premium Time Customer inventory Percent increase in Customer Value Auto service 30% 85% 75% 25% Bank Credit card Credit insurance Profit increase resulting from 5% inreases in customer loyalty

21. True Friends Butterflies Barnacles Strangers High profitability Low profitability Short-term customers Long-term customers

22. Yearly revenue $ Unsatisfied Satisfied Highly satisfied 0 100 % of total customer base % of starbucks transactions Source: Figure A Customer Visit Frequency Source: from Exhibit 9 Starbucks customer behaviour by satisfaction level True Friends Butterflies Barnacles Strangers High profitability Low profitability Short-term customers Long-term customers 42 37 21 11 27 62

32. Thank you! The service profit chain