Starbucks:Delivering Customer Service

After evaluating each alternative (Exhibit 2), we recommend that Starbucks invest $40 million

per year to increase labor hours per store in order to solve the problem with the quality of service.

Starbucks should also set up an internal strategic marketing team. This will allow Starbucks

to have a proactive feedback of customer satisfaction and hence faster improvement. We also noticed

that labor cost is high for Starbucks' North American operations. To keep labor cost at reasonable

level, Starbucks should reduce waste in making drinks, keep consistency in drinks, and improving

productivity. We recommend the company invest more money in automated espresso

machines. Currently, sales of coffee beverages account for 77% of total sales, and therefore, we

recommend Starbucks increase its sales on food items and whole-bean coffees, and develop

non-retail sale channels, which do not require as much special training as making coffee beverages. We also suggest Starbucks capture the new customer base to be its second permanent loyal segment.Rationale for the Proposed Actions Due to an increase in number of Starbucks' customers and highly customized drink demand, the workload per worker is very high. This fact results in a decrease in service time and conversation between Starbucks baristas and the customer, and more stress on baristas. Moreover, the research found that a large number of customers emphasize that "treated as a valuable customer", "friendly staff" and "fast service" are the most important factors in creating customer satisfaction. Investing $40 million annually will help eliminate the problems of service time and customer satisfaction by reducing the bottleneck of labor time and increasing customer satisfaction at all levels.

CASE ANALYSIS FOR STARBUCKS CORPORATION 

I. Case Profile/ Company History 

Three Seattle entrepreneurs started the Starbucks Corporation in 1971. Their prime product was the selling of whole bean coffee in one Seattle store. By 1982, this business had grown tremendously into five stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. Howard Schultz, a marketer, was recruited to be the manager of retail and marketing. He brought new ideas to the owners, but was turned down. Schultz in turn opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed Starbucks coffee. By 1987, Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $4 million. He changed the name of his coffee bars from Il Giornale to Starbucks. His intention for the company was to grow slowly with a very solid foundation. He wanted to create a top-notch management by wooing top executives from other well-known corporations. For the first two years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks' expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1991, Starbucks' sales increased by 84% and the company was out of debt. Starbucks grew to 26 stores by 1988. By 1996 it grew to 870 stores with plans to open 2000 stores by the year 2000. 

II. Situational Analysis 

Strategic Analysis 

Business Level-Strategy: 

The business strategy of Starbucks' is identical to the corporate level strategy since the company is a single business company, focusing on only coffee-related products and retail stores. 

Corporate Level-Strategy: 

Starbucks corporate strategy has been to establish itself as the premier purveyor of the finest coffee in the world, while maintaining their uncompromised principles as the grow. The firm principles of the company are seen with its maintenance of a great and proven work environment for every staff member in its retail stores. It upholds diversity and promises the highest standards for its products. The company satisfies customers and gives back to the community and the environment. Also, Starbucks persists to be profitable and it is. They live by a strict, slow growth policy completely dominating a market before setting its sights further abroad. This strategy has gained them the advantage of being one of the fastest growing companies in the country. 

Structure and Control Systems: 

Starbucks believes that their employees are one of their important assets in that their only sustainable advantage is the quality of their workforce. They have accomplished building a national retail company by creating pride in the labor produced through an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. The culture towards employees is laid back and supportive. Employees are empowered by management to make decisions without management referral and are encouraged to think of themselves as a part of the business. Management stands behind these decisions. Starbucks has avoided a hierarchical organizational structure and has no formal organizational chart. The company has both functional and product based divisions. There is some overlap in these divisions with some employees reporting to two division heads. 

III. SWOT Analysis 

Starbucks has become a well-known company for selling the highest quality coffee beans and best tasting coffee products. It was one of the first companies to realize that the real money to be made was in beverage retailing, not just coffee beans. Starbucks created a coffee for the coffee connoisseurs and go to great lengths to acquire only the highest quality of coffee beans. They have set new precedence by outbidding the European buyers for an exclusive crop of coffee beans, which produces one of the best coffees in the world. Roasters of Starbucks coffees are extensively trained for one year. Starbucks has the distinction of being the public's educator on Expresso. They have also recently started to expand to packaged and prepared tea in response to the growing demand for this product. There are no other national coffee bar competitors in the same scale as Starbucks. Starbucks is the only competitor in the coffee bar market that has a recognized brand image. The difference between Starbucks and other coffeehouses is that they own all their stores and do not franchise. Starbucks stores operates in most metropolitan areas of the United States and also has a direct mail business to serve customers in every state. They have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean coffees for the faithful coffee drinkers. They have also added light lunch fare to their menu. Starbucks had recently expanded its emphasis internationally. There are opportunities waiting in possible joint ventures with other corporations to design new product associations with Starbucks' coffee. 

Although Starbucks has enjoyed tremendous success in the past few years, there are a few obstacles looming. Since the popularity of the coffee house idea has grown, some cities wish to issue regulations on the coffeehouses due to complaints of late night patrons becoming uncontrollable. The cost of coffee beans is expected to rise in the future due to lower supply, which may tighten the margins on coffee merchants. The higher costs have cut into markets, which have heightened the competition in a crowded market. There is an enthusiasm of health consciousness growing in the United States. People are cutting down on caffeine but the consumption of decaffeinated coffee has not seen an increase. Although Starbucks does not have major national competitors, they do have regional ones. Tourists become confused when ordering, since they cannot simply order a cup of coffee. Although Starbucks is interested in gaining recognition and growth in Europe, they will not be pioneers in the European coffee market as they were in the United States. 

Internal Strengths and Weaknesses 

Strengths Weaknesses 

Brand name recognition Non-pioneer in global market 

Quality Products Narrow Product line 

Potential Internal Strengths Complicated Products 

Good Marketing Skills 

Well Developed Corporate strategy 

Location 

Visionary leader 

Distribution 

Manufacturing competencies 

Exclusive marketing rights 

Environmental Opportunities and Threats 

Opportunities Threats 

Expand into Foreign Markets Change in consumer tastes 

Widen Product Range City regulations 

Diversify into new Growth Businesses Increase in domestic competition 

Apply brand name capital in new areas Changes in economic factors 

Downturn in economy 

IV. Recommendation Analysis 

Starbucks has become a great successful company in the coffee bean and beverage business and its strategy has been very effective. From the beginning, Schultz, the company's owner, has professed a strict, slow growing policy. He feels it is also important to keep all the stores company owned to improve and grow the business further. To further grow, Starbucks will need to expand further in other areas of the United States as well as internationally. Future joint ventures will expand the products into grocery and convenience store shelves through bottled beverages and ice cream flavors. Other joint ventures will allow further expansion into the brewery business, which will produce beer with Starbucks' coffee beans. Other partnerships will bring new products for Starbucks, such as jazz CDs, and tandem units with bagel bakeries. As the company expands, the culture and corporate strategy must be maintained for success. This will ensure the health of the organization throughout any future expansion. 

ADDITIONAL: 

ADDITIONAL RESEARCH: 

Wake up and smell the coffee -- Starbucks is everywhere. The US's #1 specialty coffee retailer, Starbucks operates nearly 4,000 coffee shops in a variety of locations (office buildings, shopping centers, airport terminals, supermarkets)

in some 20 countries worldwide. Starbucks sells coffee drinks and beans, pastries, and other food items and beverages, as well as mugs, coffeemakers, coffee grinders, and storage containers. The company also sells its beans to restaurants, businesses, airlines, and hotels, and it offers mail-order and online catalogs. Starbucks has expanded into coffee ice cream (with Dreyer's) and makes Frappuccino, a bottled coffee drink (with PepsiCo). 

Starbucks Corporation 

NASD : SBUX 

Sector: Consumer/Non-Cyclical 

Industry: Food Processing 

STARBUCKS BUSINESS SUMMARY 

Starbucks Corporation 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 pastries and confections, coffee-related accessories and equipment, and a line of premium teas, primarily through its Company-operated retail stores. In addition to sales through its Company-operated retail stores, Starbucks sells coffee and tea products through other channels of distribution (specialty operations). Starbucks, through its joint venture partnerships, also produces and sells bottled Frappuccino coffee drink and a line of premium ice creams. The Company's objective is to establish Starbucks as the most recognized and respected brand in the world. 

Company-Operated Retail Stores 

As of the fiscal year ended October 1, 2000, Starbucks had 2,619 Company-operated stores in 34 states, the District of Columbia and five Canadian provinces (which comprise the Company-operated North American retail operations), as well as the United Kingdom, Thailand and Australia (which comprise the Company-operated international retail operations). Company-operated retail stores accounted for approximately 84% of net revenues during fiscal 2000. All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, including at least one "coffee of the day," a broad selection of Italian-style espresso beverages, cold blended beverages, a selection of teas and distinctively packaged, roasted whole bean coffees. Starbucks stores also offer a selection of fresh pastries and other food items, sodas, juices, and coffee-making equipment and accessories. 

Each Starbucks store varies its product mix depending upon the size of the store and its location. Larger stores carry a broad selection of the Company's whole bean coffees in various sizes and types of packaging, as well as an assortment of coffee and espresso-making equipment and accessories such as coffee grinders, coffee makers, espresso machines, coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages, a more limited selection of whole bean coffees and a few accessories such as travel tumblers and logo mugs. Approximately 15% of Starbucks stores carry a selection of "grab and go" sandwiches and salads. During fiscal 2000, the Company's retail sales mix by product type was approximately 73% handcrafted beverages, 14% food items, 8% whole bean coffees, and 5% coffee-making equipment and accessories. 

Specialty Operations 

Starbucks specialty operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks specialty operations include retail store licensing agreements, wholesale accounts, grocery channel licensing agreements and joint ventures. Starbucks specialty operations also include direct-to-consumer marketing channels. In certain licensing situations, the licensee is a joint venture in which Starbucks has an equity ownership interest. During fiscal 2000, specialty revenues (which include royalties and fees from licensees as well as product sales) accounted for approximately 16% of the Company's net revenues. 

Although the Company does not generally relinquish operational control of its retail stores in North America, in

situations in which a master concessionaire or another company controls or can provide improved access to desirable retail space, the Company may consider licensing its operations. As part of these arrangements, Starbucks receives license fees and royalties and sells coffee and related products for resale in the licensed locations. Employees working in the licensed locations must follow Starbucks detailed store-operating procedures and attend training classes similar to those given to Starbucks store managers and employees. As of October 1, 2000, the Company had 530 licensed stores in continental North America. 

Starbucks retail stores located outside of North America, the United Kingdom, Thailand and Australia are operated through a number of joint venture and licensing arrangements with prominent retailers. During fiscal 2000, the Company expanded its international presence by opening 184 new international licensed stores, including the first stores in Lebanon, the United Arab Emirates, Qatar, Hong Kong and Shanghai. At fiscal year end, the Company had 154 stores in Japan, 47 in Taiwan, 28 in China, 28 in Singapore, 27 in the Philippines, 20 in Hawaii, 15 in New Zealand, 14 in Malaysia, six in South Korea, five in the United Arab Emirates, four in Kuwait, three in Lebanon, and one in Qatar. 

Starbucks also sells whole bean and ground coffees to several types of wholesale accounts, including office coffee distributors and institutional foodservice management companies that service business, industry, education and healthcare accounts, and hotels, airlines and restaurants. In fiscal 1998, Starbucks entered into a long-term licensing agreement with Kraft Foods, Inc. to accelerate the growth of the Starbucks brand into the grocery channel in the United States. Pursuant to such agreement, Kraft manages all distribution, marketing, advertising and promotions for Starbucks whole bean and ground coffee in grocery, warehouse club and mass merchandise stores. By the end of fiscal 2000, the Company's whole bean and ground coffees were available throughout the United States in approximately 16,000 supermarkets. 

The Company has two non-retail domestic 50-50 joint ventures. The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company, a division of PepsiCo, Inc. , was formed in fiscal 1994 to develop and distribute ready-to-drink coffee-based products. By the end of fiscal 2000, the joint venture was distributing bottled Frappuccino coffee drink to approximately 250,000 supermarkets, convenience and drug stores and other locations throughout the United States and Canada. The Company formed a joint venture with Dreyer's Grand Ice Cream, Inc. in fiscal 1996 to develop and distribute Starbucks premium coffee ice creams. By the end of fiscal 2000, the joint venture was distributing a variety of ice cream and novelty products to over 21,000 supermarkets throughout the United States. 

The Company makes fresh Starbucks coffee and coffee-related products conveniently available via mail order and on-line. Starbucks publishes and distributes a mail order catalog that offers its coffees, certain food items and select coffee-making equipment and accessories, and the Company maintains a web site at www.starbucks. com with an on-line store that allows customers to browse for and purchase coffee, gifts and other items via the Internet. The Company believes that its direct-to-consumer operations support its retail store expansion into new markets and reinforce brand recognition in existing markets. 

INDUSTRY FINANCIAL SUMMARY 

SBUX purchases, roasts and sells high quality whole bean coffees, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages and a variety of pastries. For the 26 weeks ended 4/1/01, net sales rose 25% to $1.30 billion. Net income rose 40% to $81.2 million. Revenues reflect the opening of new retail stores and higher comparable store sales. Net income also reflects a higher gross margin due to an increase in sales prices.

Aspects Critical to Customer SatisfactionI have been using the following method to compute a customer satisfaction metric, based on

internal data, in all the organizations to which I have provided consulting services. I developedthis system through reverse-engineering of the vendor-rating metric that manufacturers use torate their suppliers. The method is based on the five following parameters I believe are critical tocustomer satisfaction, which are tangible aspects that can be measured objectively.1. QualityQuality comes first. The dictum “customers forget the delays but not the quality” aptly states thevalue of quality. Furthermore, customers forget everything else if—and only if—the qualitydelivered is superb.2. On-time deliveryNothing irritates a customer more than not receiving a delivery on the promised date. When adelivery is late, plans at the customer’s end have to be redrawn, resource allocation has to beshifted, and all subsequent actions have to be rescheduled, causing the customer a lot ofinconvenience.3. MoneyThis refers to money the customer is paying. It is not uncommon for escalation clauses to be builtin to contracts. When the vendor chooses to apply an escalation clause and to bill more money, itgreatly inconveniences the customer. The customer must obtain sanctions and approvals for theextra payout, as well as answer quite a few questions in the process. In short, price escalationsirritate customers.4. Issue factorMost projects have issue resolution mechanisms (methods to solve problems). Some vendors, intheir eagerness to always interpret the specs accurately (and in their fear that they might in factmisinterpret specs), raise more issues. When valid issues are raised, the customer is usually morethan happy to resolve them. But when the issues raised are trivial, the customer becomesannoyed.

Five Myths About Customer Satisfaction

What you don't know about measuring customer happiness CAN hurt your bottom line, according to one expert.By By Phil Doriot, CFI Group USA11/13/2006, 12:12 PM ET

Most call centers think they get the point of customer satisfaction programs. Satisfied

customers are more likely to stay with the company beyond their contract, use more

services, and recommend those services to their friends. However, call centers often

fall into the trap of "unprofitable" customer satisfaction, which can result in higher

churn and lower margins, costing both the company and shareholders money and

negatively impacting the bottom line.

Companies with large call centers can often tell which types of customers are going to

leave for a competitor, but how can they stop them and solidify their loyalty? How can

those in charge of call center operations sift through reams of customer satisfaction

data and charts and turn that into an actionable plan that will generate increased

profitability?

Years of practical experience working with call centers in many industries and insight

gleaned from academic research on customer satisfaction have contributed to the

principles set forth in this article. Debunking customer satisfaction myths and

misunderstandings is more than just a theoretical exercise. Understanding these

simple tradeoffs can have a direct impact on the bottom line by increasing both

revenues and profitability. Will falling prey to these myths cost your organization and

shareholders money?

MYTH #1: Customer satisfaction should be maximized and customer

expectations should be exceeded.

Call centers need to optimize customer satisfaction, not maximize it. Customer

expectations should be met-- not exceeded. It is commendable if a call center

exceeds its customers' expectations, but too often, companies try to do so at a great

cost to profitability without even realizing it.

For many companies, the most frequent point of interaction between the company

and the customer is through the call center. Call centers can be both a point of

frustration for the customer and point of opportunity for the company, but the key to a

profitable call center is finding the sweet spot where expectations and delivery

converge. Minimizing call wait time may require expensive investment in new facilities

and additional staff, and exceeding customers' expectations can add significant costs

to call center operations.

CFI Group worked with one telecom company to model their customers' satisfaction

with their customer care centers and determine the optimal point for certain

operational metrics, like average speed of answer. To reduce customers' wait time

and exceed expectations, the company was considering bringing on more staff in the call center. We worked with

the telecom to understand at what point reducing the average speed of answer stopped resulting in increased

satisfaction. We were able to help the company establish the optimal wait time, which was actually a few seconds

longer than they thought their customers would tolerate. Determining that additional call center operations were

not necessary saved the company a multimillion dollar investment in new facilities. A company must have a

methodology in place that shows which improvement initiatives in the call center will drive profitable growth and

which improvements will take resources away from other important pursuits.

REALITY: Customers should be profitably satisfied, but not necessarilycompletely satisfied.

MYTH #2: Customer satisfaction can be expressed in black and white terms: People are either satisfied

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customers or unsatisfied customers.

Many companies measure the success or failure of their call centers in terms of what percentage of their

customers are satisfied. They look at assessments that report that 75% of customers are satisfied and 25% are

not. Or they look at the percentage of customers who are completely satisfied -- those who provide the highest

possible rating. The truth is that customer satisfaction is a complex metric that cannot be expressed as an all-or-

nothing percentage. Much can be learned by the degree to which a customer is satisfied.

Let's take a customer who loves the clothes at a certain catalog company. When a recent order is filled incorrectly,

she calls the 1-800 number to find out how she can make an exchange for the correct size. She is predisposed to

be dissatisfied with the call center from the outset, because she is calling with a complaint. Then she gets put on

hold for more than ten minutes while at work. When her call is finally taken, she finds the representative to be

extremely helpful and the exchange process to be easy and straightforward, but she is disappointed that she had

to wait so long to get an easy answer. We can't pigeonhole that customer as "completely satisfied or dissatisfied"

overall because the experience was neither positive nor negative, but one of the many shades of gray in between.

The entire experience needs to be understood in a way that will allow the company to make improvements that will

retain the customer, eager to spend more.

REALITY: Oversimplifying customer satisfaction to a black and white scenario increases a company's risk of

making decisions that may cost them money and customers.

MYTH #3: Customer complaints should be minimized.

Too many companies do not actively seek complaints about their call centers, feeling that they get enough

complaints as is! True, it can be costly to manage complaints, but listening to and analyzing customer feedback

should be viewed as a valuable opportunity to learn about flaws in products or processes so that they can be

addressed. A better relationship can be built and customers' trust and loyalty can be earned.

Imagine a large financial services institution that decides to make it easier than ever for people to complain.

Signage in brick-and-mortar locations, the website and call centers all solicit customer feedback. The company

could easily see customer complaints double over a 12-month period, and if measuring complaints is a key metric,

things will look grim. However, if staff is doing a good job handling the complaints and the company is addressing

some of the issues behind them, the company will undoubtedly see their overall satisfaction score jump even as

the number of complaints increases.

If customers don't complain, they just stop being customers without explanation and it is too late to do anything

about it. But if it is clear why they are unhappy, steps can be taken to correct the situation and preserve

customers' loyalty before they choose to leave you for good.

REALITY: Failure to solicit and adequately address customer complaints can hurt the bottom line.

MYTH #4: You only need to measure and understand the satisfaction levels of the customers who

complain the loudest.

We've established that you need to make it easy for people to complain. But you also need to guard against giving

the "squeaky wheel" the most grease.

Hopefully, only a small percentage of customers will complain about your call center in a given month. Limiting a

satisfaction program to include only customers who complain not only ignores the "silent majority" of your

customer base; it also has the potential to bias the results, providing a false picture of customer satisfaction. Does

the company do a good job addressing a complaint? Does the website provide easy to find answers to a question?

There may be people who are unhappy, but are shy about being proactive. Additionally, much can be learned from

your most satisfied customers, and you need to maintain a connection with them so you can keep them loyal and

satisfied in the future.

Finally, listening to those who complain the loudest may give you a skewed perspective of what your priorities

should be. You may get 100 complaints about wait time, making you think you should address that problem first by

adding additional call center capacity. However, satisfaction surveys show that 92% of your customers would love

to wait less but think the number of minutes currently spent on hold is reasonable; they just haven't made a point

of complimenting you on it.

REALITY: To truly affect business outcomes and increase desirable future behaviors across the customer base, a

company must survey all customers, whether they complain loudly or not.

MYTH #5: Established providers don't need to make customer satisfaction a priority in their call centers

because their customers aren't likely to defect based on a poor experience on the phone.

Too many companies make the mistake of thinking their customer will never change banks or credit cards or

phone service on the basis of call center interactions. But consumers increasingly have options, which make

customer satisfaction in call centers more imperative than ever.

If you take telecommunications as an example, the fact is that if the incumbent provider doesn't take satisfaction

seriously in all channels, customers will defect -- and in large numbers -- as soon as they see a better deal.

Perhaps more significantly, customers are disinclined to give any new business to a company that ignores their

needs in its core business. So a traditional telecom cannot expect to be a leading player in new data-driven

markets like broadband and subscription TV if it has a history of doing a poor job satisfying its customers in the

call center.

REALITY: In a converging and competitive landscape, satisfying current customers reduces defection and creates

opportunities in new markets.

So, What's The Solution?

Truly understanding the components and nuances of customer satisfaction is essential to a telecommunication

company's success, but this task does not have to be overwhelming. The key is in applying a precise, customized

methodology to identify simple, actionable solutions that will reduce the risk involved in the toughest business

decisions. When faced with many improvement initiatives and a limited budget, companies have to be certain to

choose a game plan that will produce the best return. Call centers also need to keep in mind that there is a hidden

cost to making misguided, suboptimal decisions. Customer behaviors will indicate what is important to them; the

right methodology will identify which initiatives will yield profitable growth.

When a call center relies on an actionable customer satisfaction program -- one upon which resource allocation

decisions can be based -- positive return on those decisions increases dramatically. The right customer

satisfaction methodology is one that takes steps to optimize, not maximize satisfaction -- one that will

ultimately improve the bottom line