Starbucks experienced enormous growth from 1998 to 2002, mainly due to two factors: retail expansion and product

innovation (Moon and Quelch, 505-506). Retail expansion caused their total number of stores to nearly triple during this time period (Exhibit 2, 500), and they were able to provide their customers with more menu and payment options by introducing new types of drinks and their smart card. The combination of these two factors caused their net income in FY 2002 to be more than three times what it was in FY 1998 (Exhibit 1, 499). However, the main consequences of this expansion were that some drinks took longer to make, creating longer wait times, and surveys showed that overall customer satisfaction was no longer up to company standards. Many people felt that Starbucks was more concerned with making money and opening more stores than with keeping customers satisfied (506-507). An additional consequence was that their traditional customer base of affluent, well-educated, white collar females was evolving in certain regions to instead be predominantly Hispanic or Cuban-American, for example (507508). While many of their regular customers remained loyal, Starbucks particularly needed to reevaluate their service approach toward new customers, in order to make them want to repeatedly return to their stores. Customer service was considered to be one of the three major brand components at Starbucks, so the company especially needed to improve this aspect in order to keep up the status of their brand. Even though their Customer Snapshot scores increased in 2002, further surveys and studies showed that customers were not fully satisfied, and most notably, 34% felt that improvements to service would help make them feel more like a valued customer (Exhibit 11, 510). Of the options to improve service, 19% wanted

friendly, more attentive staff and 10% wanted faster, more efficient service (Exhibit 11, 510). These studies proved that Starbucks needed to change their operations in order to improve customer satisfaction. I believe that Starbucks should remedy these issues by making the proposed $40 million labor investment in the stores. Christine Day, SVP of Administration for North America, points out that they need to move away from seeing labor as an expense to seeing it as a customer-oriented investment, [thereby providing] a positive return. (509). Even though this investment will increase their expenses and will most likely lower their revenues in the short run, in the long run this investment should help attract and keep more customers, thereby increasing their overall sales and revenues. Providing their customers with attentive staff and faster service can only be achieved by hiring more staff, particularly during peak hours in their stores. By doing so, they will be able to provide full attention to all customers and the wait time will decrease, since more baristas will be on hand to fulfill orders. Once Starbucks begins improving customer satisfaction with this additional labor, they will not only be able to keep their regular customers, but will also encourage new customers to come back and hopefully recommend their experience to other prospective customers. Exhibit 9 proves that highly satisfied customers tend to spend more, and also visit far more frequently than satisfied or unsatisfied customers (508). By investing in labor, Starbucks will potentially be able to move some of their unsatisfied or satisfied customers into the highly satisfied bracket. Furthermore, it is important to note that an increase in staff members (a.k.a. partners) will be an adjustment for already existing staff, so Starbucks needs to make sure

that all managers are properly trained for the transition period and that employee morale is kept at its normally high level. As the founder, Howard Schultz, is known for saying, partner satisfaction leads to customer satisfaction, so maintaining partner satisfaction must be a key factor of this labor investment plan (501-502). Even though this plan will be an expense to the company in the short run, provided it is carefully planned and carried out, the investment will be well worth it in the long run, as satisfied customers will want to frequently return to Starbucks, thereby increasing company revenues.

Source: Moon, Youngme and John Quelch, Starbucks: Delivering Customer Service. Services Marketing: People, Technology, Strategy. 6th ed. Christopher Lovelock and Jochen Wirtz. Upper Saddle River: Pearson Prentice Hall, 2007. 498-510.