Starbucks: Delivering Customer Service

All companies largely satisfy their customers, but few succeed in going beyond meeting customer expectations to building brand loyalty. Loyalty, therefore, includes not only customer satisfaction but also the overall brand experience its customers encounter and the relationships they form with the company and its employees. Presented with market research results showing a higher-than-expected number of customers not being satisfied with its services, Starbucks is considering making an annual investment of $40 million in additional labor hours (which translate to approximately 20 hours of additional weekly labor per store) to improve service speed and thereby increase customer satisfaction.

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Our analysis of the available market research results shows that customers attribute a variety of factors to creating customer satisfaction, of which speed constitutes only one part, and that Starbucks customers desire improvements to the overall services such as friendlier services and more personal treatment, not just faster services. While we have no doubt that the investment would improve service speed and consequently increase customer satisfaction, we believe that investing $40 million in additional labor to improve service speed will incompletely satisfy Starbucks customers.

Therefore, we recommend Starbucks to refrain from making this investment and instead spending the amount in other programs such as employee trainings and a customer retention tracking system to improve non-speed aspects of the Starbucks services in order to better meet customer expectations, form personal relationships, and build brand loyalty. An Anatomy of Customer Satisfaction Based on the 2002 Starbucks’s market research survey entitled “Important Rankings of Key Attributes in Creating Customer Satisfaction,” Starbucks customers consider the following factors as highly important in creating customer satisfaction: clean store (83% of Starbucks customers), convenience (77%), treatment as a valuable customer (75%), friendly staff (73%), product taste and flavor (72%), product quality (67%), and service speed (65%).

We see that these key attributes can be classified into category points of parity (POPs) that represent hygiene factors of specialty coffeehouse market in which Starbucks competes and points of difference (PODs) that distinguish Starbucks from its rivals. In this case, category POPs include clean store (#1), convenience (#2), product taste and flavor (#5), and product quality (#6). Based on Consumer Snapshot Scores conducted by mystery shoppers over seven quarters, Starbucks has been given consistently high scores on these factors, especially cleanliness. Furthermore, the 2002 survey on factors driving “valued customer” perceptions further shows that none of the customers asked for the cleanliness to be improved. Thus, Starbucks has already excelled in these attributes and need no further actions to improve these aspects.

PODs include treatment as a valuable customer (#3), friendly staff (#4), service speed (#7), atmosphere (#11), and knowledgeable staff (#12). Apart from atmosphere, all of these high-ranking attributes to customer satisfaction are considered services attributes which act as the differentiating points. To meet customer expectations, Starbucks must excel on these differentiating attributes. Services as Key to Customer Satisfaction Starbucks’s differentiating attributes per its market survey can be classified into two main categories: atmosphere and services. Because atmosphere and store ambience are beyond the scope of this report, we will focus solely on highly important factors that create customer satisfaction, which include treatment as a valuable customer, friendly staff, service speed, and knowledgeable employees.

Evidently, services encompass more than speed. This also corresponds with the 2002 survey on factors driving “valued customer” perceptions in which 34% of Starbucks consumers desire friendlier and more attentive staff, more personal treatment, and more knowledgeable staff in addition to faster and more efficient service. Improving the speed alone may not be the solution to the problem Starbucks was facing; other service-related attributes should be tackled as well.

Improving services increase customer satisfaction by not only keeping them satisfied but also exceeding their expectations with exemplar services that Starbucks called “legendary services.” This helps the firm to build and maintain good relationships with its customers and create memorable experience for its customers. We believe that it is these factors that make customers loyal to the company and thereby increase repeat purchases.

Therefore, Starbucks must consider all aspects of the services if it wishes to invest in order to improve customer satisfaction. The Pitfall of Making the $40-Million Investment in Additional Labor Hours  Because customer satisfaction involves more than meeting expectations in terms of service speed, making the $40-million investment in additional labor hours (which translate to 20 hours of additional weekly labor per store) is insufficient to increase the overall customer satisfaction and to build loyalty. Although such an investment will increase the availability of baristas and employees to service the customers and thus reduce service speed to perhaps under three minutes per patron, it would not improve other aspects of services. In other words, this investment does not directly make employees act friendlier or give customers more personal treatments.

In addition, Starbucks’s current service speed is not problematic. A Starbucks store takes approximately 3.05 to 3.20 minutes to serve one customer, which is already considered close to the corporate goal of serving customers within three minutes. While we have no doubts that additional store employment would reduce this customer’s wait time to less than three minutes, we doubt that customers would notice a fraction of a minute in reduced waiting time. Moreover, due to Starbucks’s aggressive expansion strategy, the 2002 investment of $40 million is unlikely to be maintained in the future. Keeping up with the multiplying number of stores, we anticipate a doubling or tripling of the investment within the next few years to maintain the 20 hours of additional weekly labor that this investment plans to create.

Furthermore, in most stores the counter areas including coffee machines and beverage making equipments tend to occupy limited physical space. If an additional employee is to be positioned at the front counter, this may present obstacles to the staff movement and operation. In summary, we believe that it is in Starbucks’s best interest to refrain from investing $40 million to only improve its service speed if it wishes to increase its overall customer satisfaction.

Starbucks Delivering Customer Service

Stores located In high-traffic, high-visibility settings such as retail centers, office buildings and university campuses Along with whole-bean coffees, company- operated stores also sold rich-brewed coffees, Italian-style espresso drinks, cold- blended beverages, premium teas, pastries, sodas, juices, music CDC, games and seasonal novelty items Beverages accounted for the largest 77% of sales in stores.

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This represented a change from 10 years earlier, when about half of store revenues had come from sales of whole-bean coffees. Company encouraged promotions within its own ranks. About 70% of the company’s store managers were ex-baristas, and about 60% of Its district managers were ex-store managers Not easy to strike up a conversation with customer as before because today every customers orders a handcrafted beverage Coffee consumption was on rise in the united States.

More than 109 million populations drank coffee every day, and an additional 52 million drank it on occasion. Consumption of specialty coffee was rising and it was estimated that about one-third coffee will be consumed outside of the home New product partner acceptance Cutbacks’ customer base was evolving. Newer customers tended o be younger, less well-educated and in the lower income bracket.

Company: Dominant specialty-coffee brand in North America Cutbacks owned close to one-third of America’s coffee bars, more than its next five biggest competitors combined Serving 20 million unique customers in well over 5000 stores around the globe and was opening on average 3 stores a day Cutbacks operated over 300 company owned international stores and about 900 licensed stores across globe Marketing consisted primarily of point-of-sale materials and local-store marketing(Most fast-food chains had marketing budgets in the 3%-6% anger) 1 1 consecutive years of 5% or higher comparable store sales growth Excellent product(coffee), awesome service and lounging environments were the three components of branding strategy Cutbacks controlled as much of the supply chain as possible Lowest employee turnover rate(70%) compared to industry average of 300% Partner satisfaction rate consistently hovered in the range of 80% to 90% range Completeness: Cutbacks worked directly with coffee growers to purchase green coffee beans JP with Pepsi-Cola to distribute bottled Production beverages in North America and readership with Dryer’s Grand Ice Cream to develop and distribute a line of premium ice creams Competitors: Regionally concentrated small-scale specialty coffee chains differentiated itself on the basis of store environment and freshest coffee Cutbacks also competed against thousands of independent specialty coffee shops which also sold beer, wine and liquor. Some of them offered satellite televisions, internet connected computers. Donuts and Bagel chains like Dunking Donuts with 3700 stores also competed with Cutbacks. It has started offering flavored coffee and non-coffee alternatives SOOT

Analysis Criteria examples Cutbacks was operational in retail centers, office buildings and university campuses. Cutbacks took care of its employees through Health Insurance and Stock options. Cutbacks introduced at least one new hot beverage every holiday season Cutbacks sales were increasing at a CARR of 40% Strengths Cutbacks had company operated stores located in high-traffic, high-visibility when compared to the industry average of 300% Cutbacks invested highly on innovations. Strong financial foundations with since the company had gone public Weaknesses Customer satisfaction is decreasing and Cutbacks is losing the customer loyalty.

Self-centralization of at least one third of Cutbacks stores everyday Customer snapshot score not showing reality The perception of Cutbacks Brand Image in the Recent Findings of people’s experiences: Cutbacks cares primarily about making money – from 54% to 61%. Cutbacks cares about building more stores – from 48% to 55% Cutbacks strategy for expanding in retail business was to open stores in new markets while geographically clustering stores in existing markets. There is service gap between Cutbacks scores on key attributes and customer expectation. More than 109 million people now drank coffee every day and an additional 52 million drank it on occasion. Company was only in 150 of the roughly 300 metropolitan statistical areas in the nation.

In the southeast there was only one store for every 110000 people compared with one store for every 2000 people in the pacific northwest. Opportunities Coffee consumption was on the rise in United States. Company has the opportunity to cover 1 50 metropolitan areas in the nation. Open new stores in existing markets where saturation level was not high. It could Increasing consumer perception that Cutbacks only cared about the money. New customer perceived that Cutbacks is not so high quality brand. Very little image differentiation between itself and smaller coffee chains. Number of respondents who strongly agreed with the statement that Cutbacks cared only about the money increased from 53% to 61%.

Only 34% of new customers believed it to be a high quality against the established customers whose 51% proportion believed it to be a high quality brand. There was very little image or product differentiation between Cutbacks and the smaller coffee chains. Problems Statement: Data revealed that they are not meeting customers’ expectation in the area of customer satisfaction Complexity of Job increased because of customized demand, which slow down the service for everyone else Cutbacks lacked strategic marketing group. Organizational structure meant that market- and customer- related trends could sometimes be overlooked. Data were not used Judiciously to take marketing decisions.

Little image or product differentiation between Cutbacks and the smaller coffee chains in the minds of specialty coffeehouse customers Increased doubts over clearly communicating values Newer evolving customers visited the stores less frequently than the established one and their perceptions regarding high-quality brand, tastes, quality were also on down swing Possible alternatives: 1 . Invest additional 20 hours of labor, per week, per store, at a cost of an extra $40 million per year to improve speed-of-service and thereby increase customer satisfaction. 2. Focus on Product innovation & Retail expansion as growth strategy. Evaluation of alternatives: The company’s most frequent customers averaged 18 visits a month while the typical customer visited Just five times a month.