Subject:

Starbucks $40 million Investment in Customer Satisfaction

Starbucks with its unique mission to be Americas third place, following home and work has allowed our company to have much success and notoriety for over eleven years. The customers have made Starbucks what it is today as did Howard Schultz with his vision of store growth in number, selling a quality product, and offering to a fully satisfied patron. Starbucks is established as a dominating force in the specialty coffee market, serving a unique blend of customers. Our customers have put us on the map and made us what we are today, so their satisfaction is paramount. It has come to our attention that customer satisfaction is in jeopardy. This will have a direct impact on our sales and growth. In our business, we want our customers to keep coming back and spread the word. Therefore, we need to invest in servicing our customers. But, how far should we go in this area? The following includes recommendations concerning making a substantial investment that will strengthen our service and insure continued growth and profit within for our company.

SITUATION ANALYSIS There are many factors that have led to Starbucks success in the industry. To enjoy future growth through customer satisfaction, a decision must be made about whether to invest $40 million into the hiring of more baristas. This would then hopefully improve customer loyalty and increase profits. We first need to identify if the information received regarding customer satisfaction is directly tied to the amount and quality of service provided by our baristas or if it comes from other variables. THE STARBUCKS CUSTOMER 1992 2002

y y y y

Customer considered a coffee connoisseur and well educated Customer is predominantly a professional female Customer enjoys the process of being served coffee by a professionally trained barista Customer enjoys conversing with staff and being recognized as a regular customer

2002 PRESENT y y y y Customer type is changing and broadening Customer is becoming more concerned about price, convenience, and fast service Income and education level of customer is more varied Complexity of the product ordered and the menu is more time consuming to make for the customer

I believe that customer satisfaction scores have declined because of the change in the type of Starbucks customer over the years. The problem is that our service has stayed the same. The coffee market has increased with other small caf type local businesses emerging as well as larger chains joining in to enticing our customers. Our new customers just dont seem to fit the mold. So, that brings us to what the new Starbucks customer wants. They want faster service, along with convenience, and a lower price for all of what we offer. We have made a choice to expand, and with this expansion so has our customer. Our original customer is different from the one today and we need to direct our intentions to that new customer, as we continue to develop new products and maintain and increase our service to our patrons. The following are my recommendations regarding our investment in the future of Starbucks and the steps we need to take to insure profit and growth. RECOMMENDATIONS CREATE A CENTRALIZED MARKETING PROGRAM There seems to be a lack of coordination within the marketing department. There needs to be a focus on researching the Starbucks customer of today and their needs, and the potential customers for the future. Once identified, Starbucks needs to fine tune their research to regions and quite possibly limit new store openings to save costs, and support already established

Starbucks in a particular area limiting the cannibalization of other stores. Also through this research it can be established when traffic is higher than average and additional baristas would then take up those particular hours. ADVERTISE MORE There should be an increased effort in advertising to our customers. We need to do a better job with branding. We assume that everybody just knows Starbucks and our product. Initiating a major advertising campaign once established through a better centralized marketing department will distinguish us from others in the market. CUSTOMER SATISFACTION That brings us to the real problem, improving our customers satisfaction in their Starbucks experience. Because of the increase in customers and the preparation of our made-to-order product, the workload for our baristas has increased. In order to speed up the process without losing customers and serving happy customers, this is where the bulk of our investment should be allocated. In order to accomplish this, I have listed the following initiatives. y y y y y Introduce more automation for standard drinks, thus reducing the time factor and steps involved for the baristas Reduce the number of steps in the process of making the product Provide a separate faster line for those drinks that do not require so many steps to make Continue to professionally train and encourage the baristas to interact with the customer Establish a pre-determined wait time for service keeping it to 3 minutes, providing a flow

The key to a satisfied customer these days is continuing to serve our quality product but at a faster rate. It is important for Starbucks to keep their variety of drinks because that is what differentiates us from the others. Using more automation thereby cutting out some steps; with an increased workforce at certain times of the day is the way to go. In order to break even and profit from this endeavor we need to streamline the process thus keeping the variable costs down,

so that we do not have to increase the price per unit. We are able to charge more because of the uniqueness of our stores and the superior product we serve. We have established, and have identified our problem and can now move towards the implantation of a plan to serve our customer better. Customer satisfaction is the key for Starbucks to continue on as a industry leader. We need to continue that Starbucks Experience, and the word out via advertising and our customers for future sales growth. Our $40 million investment would do just that as long as we focus in on all areas with the implementation of a centralized marketing approach, continued research, continued product development and advertising, ongoing feedback from our customers and our baristas, and continued training of our staff to provide an experience at Starbucks that is worth coming back for.

Table 1: Starbucks ideal customer

Highly Satisfied Customer Number of Starbucks Visits/Month Average Ticket Size/Visit Total Revenue/Month Total Revenue/Year Average Customer Life (Years) Total Revenue Over Customer Lifetime 7.2 $4.42 ($4.42x7.2) = $31.82 ($31.82x12) = $381.84 8.3 ($381.84x8.3) = $3,169.27 Ideal Customer 18 $4.42 ($4.42x18) = $79.56 ($79.56x12) = $954.72 8.3 ($954.72x8.3) = $7,924.18