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Group 5
Starbucks: Delivering Customer Service
Case Summary
From a small coffee shop to a chain of coffeehouses
live coffee mantra - creating an experience around the consumption of coffee
Philosophy- reach people wherever they work, travel, dine & shop
Partners (employees) satisfaction rate above, and employees turnover rate below industry
Partner trained in hard and soft skills

Objective - To establish as most recognized and respected brand in the world
Biggest drivers of growth:
Product innovation
Service innovation

Mystery customer program - Customer Snapshot
Product Quality
Speed of service
Stores were also rated based on legendary service
Invest $40 million
to increase labor
hours in each
Impact on sales
and profitability?
Failed to meet customer
expectations and
thereby losing customer
loyalty- Speed of service
was low
Customization of drinks
was slowing down
service- Tension
between product quality
and Customer focus
Customer base was
evolving- young, less
well educated and lower
Competition from
regionally concentrated
small scale coffee chains-
Very little product
differentiation perceived
by customers
Lack of strategic
marketing group- Gap
between collecting data
and decision making
Key Challenges for Starbucks
Coffee: Sophisticated selection of the highest quality coffee (Arabica) in the world formed the core of a highly differentiated value proposition
Physical Atmosphere: Starbucks is a place where people can enjoy their social interactions, relax, or just spent sometime by themselves
Starbucks idea changed the norm from buying coffee as a drink to the experience of enjoying coffee
Starbucks strategy was to open only companyowned stores and avoid franchising which enabled the company to keep full control of quality of its
products and services
Service: Great service was defined as customer intimacy. Give each customer a sense of belonging by personalizing the experience as much as possible

Value Proposition, Target Customer and Brand Perceptions in 1990s
Partners (employees) were trained on both hard skills and soft skills when hired to work for a Starbucks retail store
The soft skills were a way to teach the partners on how to connect with the customer, by establishing eye contact, smiling and greeting them
with their names when the customers were regulars.
Employee satisfaction: belief was that if the Starbucks employees were happy, then this would lead to higher customer satisfaction.
For this reason, Starbucks partners were among the highest paid hourly workers, they enjoyed health benefits and had stock options.
Target Customer: Starbucks coffee in the 1990s was targeted primarily towards affluent, welleducated, white-collar patrons (skewedfemale)
between the ages of 25 and 44
Perceptions: Place the get the best coffee in the market, third place, sophisticated, classy appeal, niche brand
Starbucks has increased its accessibility due to huge chain expansion
The earlier customer base of affluent, sophisticated customers, aged between 25 to 44 had expanded
The customer base was evolving to new younger, less well-educated, lower income customers
A greater percentage of Starbucks sales is now coming from hand-crafted beverages instead of whole beans
Starbucks new customer acquisitions have developed a different set of attitudes towards Starbucks compared to their current
established customers (Refer Exhibit 8)
When Starbucks sold mostly beans, it was easy for baristas to engage in chitchat
Today almost every customer orders a handcrafted beverage
Baristas job complexity was increasing due to increase in number of customized new drinks
This was creating tension between product quality and customer focus
A long line of commuters crowding the store during peak hours destroys the third place
Difference in service perceptions of established customers (ambience, customized drink, etc.)
and newly acquired customers (rush, rush and rush)
Changing situational factors also change the service requirements (Refer Exhibits 10 and 11)
Service Performance Metrics were not in sync with each other with respect to the current
Starbucks had recently begun experimenting with drive-throughs. Less than 10% of its stores
had drive-throughs, but in these stores, the drive-throughs accounted for 50% of all business
Little image or product differentiation between Starbucks and the
smaller coffee chains (other than Starbucks ubiquity) in the minds
of specialty coffeehouse customers
Starbucks cares primarily about making money was up from 53% in
2000 to 61% in2001 & Starbucks cares primarily about building
more stores was up from 48% to 55%
Installed automated espresso machines (Verismo) which decreased the
number of steps required in making customizable drinks
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
Product Innovations like Frappuccino beverages helped in boosting traffic
during non-peak hours
Stored Value Card (SVC) to enhance experience by service innovation
T-Mobile HotSpot wireless Internet service offered high-speed access to the
Internet in selected Starbucks stores in the United States and Europe,
starting at $49.99 a month
Should invest $40 million to add more labor to the stores
Had they decided not to invest this amount, the situation might got worse
Starbucks need to deliver the best quality service to both of their customer
segments (already established and newly acquired)
Because Starbucks need to increase the satisfaction among all of its customers
So, cater according to the customer. For e.g. Starbucks should prepare the rush
hour drinks beforehand for their regular customers
Through an online community, Starbucks take help of people in developing new
Target Colleges, Universities as most of the new customers belong there
Starbucks App Select your coffee and pay via smartphone [Click Here]. Can add an
extra feature of pre-booking
Customer adoption of SVC cards increased and Starbucks launched partnership
with Visa USA and Bank One for the first ever dual purpose card [Click Here]
In Japan, Starbucks has adopted an unusual strategy that includes
offering drive-through service and outlets in hospitals and parks. It
opened its 1,000th cafe in the country in September 2013 [Click
They believe that instead of customer coming to them, they should
reach customer and so they opened up a retail outlet on a moving
train [Click Here]
The coffee chain's new digital network promises customers free e-
books, movies and other exclusives, including free access to The
Wall Street Journal [Click Here]
Thank You
Group 5