STARBUCKS:- Delivering Customer Service

1. STARBUCKS:-
Delivering Customer
Service

2. INTRODUCTION
- Founded in 1971.
- Founded by:Gerald Baldwin, Gordon Bowker & Ziev Siegl
-The founders sold the entire business to Howard Schultz who joined the marketing team in 1982
-By 2002, it served 20 million unique customers in 5000 stores across the globe
-Sales had a CAGR of 40% , while Net Earnings had a CAGR of 50%
Key people in the CASE:
-VP of Administration in North America: Christine Day
-CEO: Orin Smith (A Harvard MBA who joined 1990 )

3. 1. What factors accounted for the extraordinary success for Starbucks in
the early 1990s and what was so compelling about its value
proposition?
1. Atmosphere:- Starbucks is the place for
people where they wanted to be at
because the environment and layout was
such inviting. It was all about the
experience of enjoying coffee.
2. Specific Target Audience:- Attract
affluent, well-educated, white collar
people and providing them superior
service.
3. Coffee Quality:- Directly working with
coffee growers to keep the quality high.
a. [Coffee Growers- Africa, South
America, Asia- Pacific region]
4. Partner Satisfaction:- They Consider their
Employees as their partners and they are of
belief that if their partners are happy it would
lead to higher Customer satisfaction.
5. Attractive market condition:- In 1990’s, the
concept of turning drinking coffee to a social
experience was new and unexploited, so
Starbucks did not face any fierce competition.
6. Distribution:- Focused on high traffic and
high visibility.

4. continued..
CORE VALUE PROPOSITION:-
1. Starbucks is more focused on the
service associated with drinking coffee.
2. It was not about just having coffee but
to live that experience.
3. Starbucks brand strategy gave
importance to keeping the national
coffee culture alive.
COFFEE

5. continued..
Brand Image of Starbucks in 1990s:-
Their Brand strategy was not just drink coffee but to LIVE COFFEE.
Their strategy was to built a chain that would become the third place in lives of
Americans. The first two places are home and work. Starbucks wanted to create a place
where people come together to relax and enjoy others as well as themselves.
It would have meaning for different for different people.

6. 2. Why has Starbucks customer satisfaction scores declined? Has
the company’s service declined, or is it simply measuring customer
satisfaction the wrong way?
● Lack of appropriate tool to measure customer satisfaction: Customer Snapshot mystery
shopper program. Inconsistency in generating results.
● Breakdown of customers by number of visits per month. Few assumptions went wrong
in the way the Starbucks is measuring the customer satisfaction.
● Growing customer base: less satisfied customers are the new customers. While,
established customers appear to have a better overall opinion about Starbucks.
Customers expectations have increased due to competition in market.

7. continued..
● 150% increase in retail stores from 1998 to 2002 and beverage customisation led to
harmful effect on three components (quality, service, atmosphere) of value
proposition of Starbucks.
● Other value proposition i.e. service was also hurt. Lack of customer intimacy.
Adding more beverage on menu led to complex process and more time consumption,
which causes partners to lose on their soft skills with customers.
● Competition from small, specialty stores increased. They offer better services.
● Changing Image of Starbucks: Many think that retail expansion is a way to make
more money.

8. 3. How does the Starbucks of 2002 differ from the Starbucks of
1992?
Changing Landscape
● In 1992, they have 140 stores in Northwest and Chicago. And, ten years later they
had 4500 stores globally. Number one coffee store in U.S. by following “expansion
strategy”, by allowing retail expansion.Th
● Establishment of smaller coffee stores without lounging areas had also taken away
the core component of the value proposition that the Starbucks of 1992 had built on.
● In 1992, half of company’s sale (50%) came from sale of whole-bean coffees, while
in 2002, 77% of sales are from beverages. Starbucks also followed menu expansion
and drink customisation. Adopting “Product Innovation” strategy.

9. continued...
● In 1992, there were less drink combinations available as compared to 2002. So, in 2002, the
drink preparation process becomes complex and time consuming.
● 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”. While in 2002, they shifted their
customer base to younger, less‐educated and with a lower income demographic profile.
● Image: In 1992, Starbucks was consisted of a place which is called as “third place”, where
customers get best quality coffee and can relax. But in 2002, this image has changed and now
it’s regarded as “convenient place”, where people meet and coffee is just good.

10. 4. Customer Satisfaction:
● Large portion of sales came from loyal customers.
● 21% of the customers contributed to around 62% of all transactions; 19
transactions per customer.
● Customer lifetime value per customer proves that a highly satisfied customer is a
source for higher revenue.
● A new customer accounts for about 15 coffee cups/ week.
● An established customer accounts for 19 cups/ week.

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● Established customers demanded customization, increasing labour content and
slowing down service.
● New loyal customers have similar revenues but lower labour content in the coffee,
hence are more profitable customers.
● To ensure satisfaction of new customers, Starbucks must:
○ Have faster and attentive service,
○ Have appropriate prices
○ Use more labour saving and product standardizing techniques like verismo machines
○ Have increased ergonomic optimization, if necessary more labour.

12. 5. $40 million investment in the stores:
Starbucks can go forward with the proposal because of following benefits:
● Increasing customer count
● Customer satisfaction
● Customer retention
● Partner satisfaction