STARBUCKSDelivering Customer Service

Steve MalloyBrian Nothacker

Bhumik ParikhHeidi Utley

Class Discussion

Coffee drinkers? Regular or occasional drinkers

Brew at home vs. buy If buying, where and what type? Brand loyalty?

Reasons for or against Customer service

Evolution of Economic Offerings

Commodities

Goods

Services

Experiences

Commoditization

Customization

Adapted from J.R. Meredith and S.M. Shafer, Operations Management For MBAs, John Wiley & Sons, Inc, 2007, p. 15.

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

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

1992 – Completes IPO (SBUX) and continued expansion (165 total stores)

1993-1995 – Enters into partnerships/alliances with various organizations

1995 – Product innovation Begins serving Frappuccino® blended beverages Begins selling CDs Ice cream

Company Background/History

Company Background/History 1996-2000 – 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

Statement of Problem

Starbucks must determine whether (and how best) an active investment in

customer satisfaction will provide a positive return and increased loyalty.

Starbucks Branding Coffee

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

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”

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.

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

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

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

Can You Guess Where This Is?

Forbidden City – Beijing, China

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

Brand Differences

Trendy Good for a quick drink Convenient Consistent Predictable

Intelligent Artsy Inclusive Welcoming to lounging Appeals to youth

Bad Trends on the Rise

“Starbucks cares primarily about making money”

“Starbucks cares primarily about building more stores”

Evolving Trends in Demographics

Loyal Starbucks addicts Average customer

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

11% of transactions

27% of transactions

62% of transactions

Are from: 42% of customers

37% of customers

21% of customers

11% of transactions

27% of transactions

62% of transactions

Are from: 42% of customers

37% of customers

21% of customers

What kind of risk might this data indicate?

Customer Satisfaction Dips

Feelings of: Lack of attentiveness by the Baristas Too much going on in the store Long lines

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 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?

Alternatives

What are the advantages / disadvantages of a order kiosk?

QUESTIONS?