1. STARBUCKS Delivering Customer Service
Steve Malloy
Brian Nothacker
Bhumik Parikh
Heidi Utley

2. Class Discussion Coffee drinkers? Brew at home vs. buy
Regular or occasional drinkers
Brew at home vs. buy
If buying, where and what type?
Brand loyalty?
Reasons for or against
Customer service

3. Evolution of Economic Offerings
Customization
Commodities
Goods
Services
Experiences
Commoditization
Adapted from J.R. Meredith and S.M. Shafer, Operations Management For MBAs, John Wiley & Sons, Inc, 2007, p. 15.

4. Starbucks Mission Statement
To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.
Our Coffee
Our Partners
Our Customers
Our Stores
Our Neighborhood
Our Shareholders

5. Company Background/History
1971 – First store opened
1982 – Howard Schultz joins company
1983 – Italian espresso bars serve as inspiration. He sees
Opportunity to develop similar culture in the US
America’s “third place”
1987 – Company sold to HS
Immediate expansion-17 total stores

6. Company Background/History
1992 – Completes IPO (SBUX) and continued expansion (165 total stores)
– Enters into partnerships/alliances with various organizations
1995 – Product innovation
Begins serving Frappuccino® blended beverages
Begins selling CDs
Ice cream

7. Company Background/History
– Grow, grow, grow!
International expansion
Acquisitions/Partnerships
3,501 total stores (2000)
HS transitions to chief global strategist and Orin Smith named CEO
2002 – Becomes dominant specialty-coffee brand in North America
Sales climbed at a CAGR of 40%
Served 20M customers in >5000 stores
Opened an average of 3 new stores per day
Virtually no marketing

8. Statement of Problem
Starbucks must determine whether (and how best) an active investment in customer satisfaction will provide a positive return and increased loyalty.

9. Starbucks Branding Coffee Service Atmosphere
Prided itself on being the highest quality coffee in the world
Controlled much of the supply chain and worked directly with growers, custom roasting, and distribution around the world
Service
Tried to create “customer intimacy” and an “uplifting experience”
Repeat customers are bread and butter and creating a personal experience typically creates loyalty
Atmosphere
“People come for coffee but the ambience makes them stay”
Seating areas that encourage lounging in upscale, inviting environment
“Universal appeal” building on people’s need to come together

10. Distribution
Locations in North America mostly company owned in high traffic, high visibility areas
Sell whole bean coffees, brewed coffees, espresso, cold blended beverages, premium teas.
Product mix depends on size and location
Some stores offered variety of cold drinks, juices and pastries along with novelties like games and CDs
Beverages accounted for 77% of sales
Additional “specialty” channels accounted for 15% of net revenue (hotels, licenses, airlines etc, international licenses, grocery stores)
Partnership with Kraft Foods for grocery distribution, Pepsi for Frappuccino drinks, Dreyer’s for ice cream.
Using all of these avenues to reach customers where they “work, travel, shop, and dine”

11. Employees = Partners 60,000 partners worldwide, 50,000 in USA
Mostly hourly wage employees (baristas)
Believe that if partners are happy, customers will be too.
Generous policy of health insurance and stock options led to satisfaction rates between 80-90%
47th in Fortune best places to work
Low turnover rate (70%, fast food rate > 300%)
Believe manager stability is key to decreasing turnover, which increase customer satisfaction (regular customers recognized etc)
Company encouraged promotion from within (70% of managers were once baristas etc).
All senior managers were trained as baristas before being allowed to assume position in corporate headquarters.

12. Service
Employees trained in “hard skills” (drinks and cash register) as well as “soft skills” such as communication with customers etc
“Just Say Yes” policy – allowed employees to go above and beyond in satisfying customer requests
Times changing…
Product mix and handcrafted specialty drinks making it more difficult to serve customers quickly
Customers more worried about speed than chit chat
Complexity of beverages reducing speed and making barista’s job more difficult
½ of all customers customized their drinks
Company reluctant to hire more baristas because of economy and expense so they began to remove non value add tasks, simplify beverages, and add automated espresso machines

13. Measuring Service Performance
Monthly Status Reports
Self-Reported Checklist
Mystery Shopper -> “Customer Snapshot”
Service
Cleanliness
Speed
Product Quality
“Basic Service” versus “Legendary Service” – memorable experience
During 2002, scores were increasing across all stores and was considered a reliable measurement

14. Caffeinating the World
Overall objective = Starbucks as the most recognized and respected brand in the world
Aggressive growth strategy
Retail Expansion
Open another 525 retail, 225 licensed stores in North America, eventually expand to 10,000 stores
Consumption on the rise, eight states with no stores, believed it was far from saturation
Goal of 15,000 international stores
Product Innovation
Continually launching new products like holiday drinks and blended beverages to increase same store sales and increase traffic
Service Innovation
Gift Cards
Wireless HotSpots

15. Can You Guess Where This Is?

16. Forbidden City – Beijing, China

17. Trouble Brewing Starbucks has a distributed marketing structure
Each officer was responsible for their own groups marketing
“Marketing is everywhere”
Data was taken but not used effectively
Starbucks realized this and immediately noticed trends

18. Brand Differences Trendy Good for a quick drink Convenient Consistent
Predictable
Intelligent
Artsy
Inclusive
Welcoming to lounging
Appeals to youth

19. Bad Trends on the Rise “Starbucks cares primarily about making money”
“Starbucks cares primarily about building more stores”

21. Evolving Trends in Demographics
Loyal Starbucks addicts
Average customer

22. What’s the first thing that enters your mind when somebody says, “Starbucks”?

23. 37% of customers 21% of customers 42% of customers 62% of transactions
Are from:

24. What kind of risk might this data indicate?
transactions
27% of
transactions
11% of
transactions
37% of customers
21% of customers
42% of customers
Are from:
What kind of risk might this data indicate?

25. Customer Satisfaction Dips
Feelings of:
Lack of attentiveness by the Baristas
Too much going on in the store
Long lines

26. What Changes to Make?
Goal: Lower service time below three- minutes per customer
Goal: Maintain a high-standard of friendly customer service
Initial Plan
Relax labor-hour controls
Add 20 hours of labor per store at a cost of $40M

27. What Changes to Make?
Goal: Lower service time below three- minutes per customer
Goal: Maintain a high-standard of friendly customer service
Initial Plan
Relax labor-hour controls
Add 20 hours of labor per store at a cost of $40M
What would you do with $40M to improve operations at a retail coffee shop?

28. Alternatives
What are the advantages / disadvantages of a order kiosk?

29. QUESTIONS?