Starbucks : Delivering Customer Service

A. Background Of The Case

The Starbucks history began in 1982, when Schultz join the Starbucks marketing team;
shortly after, he traveled to Italy, where he became fascinated with Millan's coffee culture, in
particular, the role of the neighborhood espresso bars played in Italians' everyday social lives.
Upon his return, the inspired Schultz convince the company to set up an espresso bar in the
corner of its only downtown Settle shop. The bar became the prototype for his long-term vision.
Howard Schultz managed to transform a commodity into an upscale cultural phenomenon.
A few years later, Schultz bought Starbucks company and immediately began opening
new stores that sold whole beans and coffee-price premium beverages by the cup and catered
primarily to affluent, well-educated, white-collar patrons (skewed female) Between the ages of
25 and 44. In 1992, when Starbucks coffee was successfully competing against other small-scale
coffe chains in the Northwest and Chicago, Schultz decided to take the company public.
Although his idea raises a lot of criticsm, Schultz forged ahead with the public offering, raising
$25 million in the process allowed Starbucks to open more stores across the nation. By 2003, the
company had served 20 million unique customers in well over 5000 stores around the globe.
Starbucks company was ranked 47th in the Fortune magazine list of best places to work.
Starbucks called all its employees as “partners”. When a partner was hired to work in in one of
Starbucks’ North American retail stores, he or she had to undergo two types of training. Each
type focuss on hardskill and softskill. The training ended up being a self-selection process. Most
barista turnover occurred within the first 90 days of employment. The complexity of Barista’s
job had also increased overtime because there are literally hundreds of combinations of drinks in
the portofolio.
This job complexity was compounded by the fact that almost half of Starbucks’
customers customized their drinks. This created a tension between product quality and customer
focus for Starbucks. Then, everytime Starbucks customize for the heaviest users who always
demanding, it slow down the service for everyone else.
The company had focused on increasing barista efficiency by removing all non-value-
added tasks, simplifying the beverage production process, and tinkering with the facility design
 to eliminate bottlenecks. In addition, the company begun to install automated espresso machines
which decreased the number of steps equired to make an espresso beverage, improve
consistency, and generated an overwhelmingly positive customer and barista response.
Starbucks tracked service performance by using a variety of metrics, including monthly
status reports and self-reported checklists. It also took the “Customer Snapshot” program which
rate on four basic service criteria, consist of service, cleanliness, product quality, and speed of
service. Stores were also rated on “Legendary Service” which was defined as “behavior that
created a memorable experience for a customer that inspired a customer to return as often and
tell his friend.”

B. Product Information

Brand : Starbucks
Founded : 1985
Company : Starbucks Coffee Company
Type : Public

Industry : Restaurant, Retail coffee and tea, Retail beverages,

Entertainment
Market Share (2005) : 50%
Number of Locations : over 5,000 stores around the globe
Product Innovation : Whole bean coffees, rich-brewed coffees,
Italian-style espresso beverages, cold blended beverages, a
variety of complementary food items, coffee-related
accessories and equipment, a selection of premium teas and
a line of compact discs
Number of Employees (2005) : 60.000 employees

Starbucks Corporation (together with its subsidiaries, ""Starbucks'' or the ""Company''),

formed in 1985, purchases and roasts high-quality whole bean coffees and sells them, along with
fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of
 complementary food items, coffee-related accessories and equipment, a selection of premium
teas and a line of compact discs, primarily through Company-operated retail stores. Starbucks
also sells coffee and tea products and licenses its trademark through other channels and, through
certain of its equity investees, Starbucks produces and sells bottled Frappuccino coffee drinks
and Starbucks DoubleShot espresso drink and a line of superpremium ice creams. All channels
outside the Company-operated retail stores are collectively known as "Specialty Operations.''
The Company's objective is to establish Starbucks as the most recognized and respected brand in
the world. To achieve this goal, the Company plans to continue rapid expansion of its retail
operations, to grow its Specialty Operations and to selectively pursue other opportunities to
leverage the Starbucks brand through the introduction of new products and the development of
new channels of distribution. Starbucks has two operating segments, United States and
International, each of which includes Company operated retail stores and Specialty Operations.
C. Business / Industry Situation
The coffee industry is well developed and rooted in society with 54% of the overall
United States adult population drinking coffee, that’s 400 million cups of coffee consumed
everyday. Though the coffee industry is highly developed and competitive; the demand for
speciality coffee is growing every day across the nations. In September 2003, the Council
approved an Action Plan designed to achieve a substantial increase in world coffee consumption.
The Plan focuses on market development with activities tailored to the geographical areas of
coffee producing countries, emerging markets such as Russia and China and traditional markets.
Since Starbucks was the largest specialty coffee chain, many other chains competed directly with
Starbucks, and many other chains could at any time enter retail specialty coffee sales e.g. Dunkin
Donuts, convenience stores, and many similar retail food stores.

D. Competition Situation
Starbucks competed against a variety of small-scale specialty coffee chains, most of
which were regionally concentrated. Each competitor tried to differentiate itself from Starbucks
in a different way. Starbucks also competed against thousands of independent specialty coffee
shops, some of them offered a wide range of food and beverages, including beer, wine, and
liquor, others offered satelite television or internet-connected computers. Finally, Starbucks
competed against donut and begel chains such as Dunkin Donuts and JCo which begun offering
flavored coffee and non-coffee alternatives. Several Starbucks’ whole competitors were JCo, 7-
Eleven, Dunkin Donuts, KFC, Caribou Coffee, and McDonald's.
Starbucks strategy for expanding its retail business is to increase its market share in
existing markets primarily on three ways which consist on retail expansion, product innovation,
and service innovation. Retail expansion strategy was run by opening additional stores and to
open stores in new markets where the opportunity exists to become the leading specialty coffee
retailer. The first Starbucks location outside North America opened in Tokyo, Japan, in 1996.
Starbucks entered the U.K. market in 1998 with the $83 million acquisition of the then 60-outlet,
UK-based Seattle Coffee Company, re-branding all the stores as Starbucks. In April 2003,
Starbucks completed the purchase of Seattle's Best Coffee and Torrefazione Italia from AFC
Enterprises, bringing the total number of Starbucks-operated locations worldwide to more than
6,400. Product innovation was the second big driver of company growth. New products were
launched on a regular basis; for example, Starbucks introduced at least one new hot beverage
every holiday season. The company’s most successful innovation had been 1995 introduction of
coffe and non-coffee-based line of Frappucino beverages and the bottled version of the beverage
which distributed by PepsiCo. Service innovation was conducted by launching non-product
innovation, such as Starbucks’ store-value card and T-Mobile HotSpot wireless Internet Service.
In order to make costumers easily get its products, Starbucks established relationship
with third parties that share its value and commitment to quality. Starbucks sold coffee products
through non-company operated retail channels, these so called “Speciality Operations”
accounted for 15% of net revenues. About 27% of these revenues came from North American
food-service accounts, that is, sales of whole-bean and ground coffee to hotels, airlines,
restaurants, and the like. Another 18% came from domestic retail store licenses that, in North
America, were only granted when there was no other way to achieve access to desirable retail
space. The remaining 55% of specialty revenues came from a variety of sources, including
international license stores, grocery stores, and warehouse clubs, and online mail-order sales.
Starbucks also joint venture with Pepsi Cola, to distribute bottled Frappucino beverages in North
America, as well as partnership with Dreyer’s Grand Ice Cream to develop and distribute a line
of premium ice creams. This strategy was proven to be effectively brought new customers to
Starbucks.
A. Marketing Mix ( 4P – Product, Price, Promotion, Place)
 Product
- Initially, Starbucks’ target market was affluent, well-educated, white-collar patrons
(skewed female) between the ages of 25 and 44. Today, with rapid growth and
expansion, Starbucks target market expanded rapidly to include every individual of every
age.
- Starbucks has product differentiation of specialty “live coffee”, service or customer
intimacy with an “experience”, and an atmosphere of a “third place” to add to their work
and home alternatives. This Starbucks "experience" has been the company's selling point.
- Starbucks’ service referred to what they called as “customer intimacy”. Starbucks would
recognized their loyal customers, knowing their drink and customizing their drink just
the way they like it. Most Starbucks have seating areas to encourage lounging and layouts
that are designed to provide an upscale yet inviting environment for those who wanted to
linger. Starbucks offers a variety of beverages, such as rich-brewed coffee, Italian-style
espresso drinks, cold-blended beverages, and premium teas.
- Providing wide variety of consumer products
- Starbucks has installed automated espresso machines in some stores for the customers use
to reduce wait time.

 Price
Starbucks take position itself as an upscale brand, then its products are priced
higher than most its competitors. The company also began to offer $1 bottomless 8 oz.
cup of coffee, with unlimited refills that cost approximately 50 cents less than any other
Starbucks products. The company is also implementing "value strategies" that would
emphasize more on inexpensive coffee products rather being perceived as unaffordable to
price-skittish consumers. For example, the company introduced $3.95 "breakfast
pairings," including popular breakfast items paired with a coffee, and highlights $2
brewed coffees instead of the more expensive specialty drinks.
 Promotion
 - Focusing on the word of mouth as a main media of communications by creating a unique
customer experience and is not concentrating so much on advertising. The company spent
minimal dollars on advertising to promote a brand concept.
- Providing promotions through several programs such as ‘one free coffee day' as a way to
promote its coffee.
- Offering Starbucks Stored- Value Card that offers customers the opportunity to promote
company's products through a referral system.
- Constantly introducing new products to attract drinkers. Starbucks introduced at least one
new hot beverage every holiday season.
- Selling coffee products through non-company operated retail channels

 Place
Most Starbucks’ stores located in high-traffic, high visibility setting such s retail centers,
office buildings, and university campuses.

B. Problem Definiton
Starbucks research indicated that customers did perceive many independent coffee houses
as a “third place”, but Starbucks was seen more as a convenient, quick, and consistently good
coffee provider. This is in contrast to the way Starbucks management viewed the company.
The market research data revealed that despite Starbucks’ overwhelming pesence and
convinience, there was very little image or product differentiation between Starbucks and the
smaller coffee chains in the mind of specialty coffehouse customers. Starbucks’ brand image had
some rough edges. Most respondents agreed that Starbucks cares primarily about making money
and building more stores. The market research also discovered that tarbucks’ customer base was
evolving. The new customers tended to be younger, less well-educated, and in a lower income.
They visited the stores less frequently and had very different perceptions of the Starbucks brand
compared to more established customers. In terms of measuring customer behavior, the research
discovered that regardless of the market, customers tended to use the stores the same way.
Although the company’s most frequent customers averaged 18 visits a month, the typical
customer visited just five times a month. And finally, the team discovered that Starbucks was
not meeting expectations in term of customer satisfaction. It tended to be critical issue because
the team also had evidence of a direct link between satisfactio level and customer loyalty. There
was a sevice gap between Starbucks scores on key attributes and customer expectations.
“Improvements to service” had been mentioned most frequently to answer the question about
how to make them feel more like valued customers.
However, Starbucks’ most recent market research had revealed some unexpected
findings. In conclusion, Starbucks is not always meeting its customers’ expectations in the area
of customers’ satisfaction. As a results, Christine Day -Starbucks’ senior vice president- and her
asociates had come up with a plan to invest an additional $40 million annually in the company’s
4,500 stores, which allowed each stores to add the equivalent of 20 hours of labor a week. To
increase customer satisfaction, the company is debating whether that plan would effectively
increased the amount of labor in the stores and theoretically increased speed-of-service.

C. SWOT Analysis
POSITIVE NEGATIVE
STRENGTHS WEAKNESSES

• Creating an “experience” around the • High Price

consumption of coffee • The complication of Baristas’ job that
• Highest quality coffee many products required numerous steps
• Low marketing cost to complete the order
• High profit company, with the earning • No centralized marketing program
excess of $600 million in 2004 and •
generated revenue of more than $5000
million in the same year
• Global brand, good reputation
• Wide variety of consumer products
• Starbucks is committed to a role of
environmental leadership in all facets of
our business.

OPPORTUNITIES THREATS

• Smart at taking advantage of opportunties. • Too much competitors

In 2004 the company created a CD-
burning service in their Santa Monica
(California USA) cafe with Hewlett
Packard, where customers create their
own music CD.
• Coffee fans tend to increase every year,
• Since Starbucks was a market leader,
it is possible for competitors to imitate
the Starbucks’ concept
• Customer satisfaction was declining
due to the time required to be served and
employee attitude
 this could be an opportunity for starbucks • little image or product differentiation
to expand its market between Starbucks and its competitors
• Provides opportunities to joint venture,
partnership, co-branding with others foods
and beverages manufacturer

D. Recommendation
Despite it was the largest coffee retail company in the world, Starbucks had lacked a
strategic marketing group. In fact the company had no chief marketing officer, and its marketing
functions as three separate groups. This organizational structure insist everyone to get involved
in a collaborative marketing effort.
The organizational structure also meant that market and customer related trends could
sometimes be overlooked because Starbucks were not very disciplined to use the data in decision
making. Starbucks started to loss the costumers’ sight and didn’t see labor costs as customer-
oriented investments that could bring positive return for the company.