CASE STUDY 21: STARBUCKS: DELIVERING CUSTOMER SERVICE

QUESTION 1: What factors accounted for Starbucks’ success in the early 1990s
and what was so compelling about its value proposition? What brand image did
Starbucks develop during this period.

Many factors accounted for the amazing success of the Starbucks company in the early 1990’s.
The Starbucks nearly wanted to be the leading branding company for the coffee all around
the world. In fact, they nearly owned one third of the America’s coffee bars given that they
had the highest quality product that was widely recognized. Although the company never
spent its money in advertisements, but the product was widely known over the world from
mouth to mouth. The other factor that made the company to be more successful is the way
they were selling their products to many people and making the company to be public. There
are many factors that also contributed to the success of the Starbucks. These factors include
the variety of the products which was sold, the customer service, the reach, the experiential
branding strategy and the Starbucks transformation behaviour.

Apparently, there are three main value propositions of Starbucks Company that leads
to the key factors for their extraordinary success in 1990’s. The value propositions of Starbucks
focused on the brand strategy. The first value propositions were the special offering and coffee
that was given to the customers. The coffee was majorly sourced from Central America, Africa
and Asian-Pacific regions. This clearly shows that the product of the company offered to their
customers was most superior compared to its competitors. This is one of the outstanding
value that they can offer to their customers. The second value proposition was the service
they offered. In this context, the information showed that at least an average customer spent
18 days per month at Starbucks. According to Jim Alling, Starbucks’ Senior Service President
of North American retail “Our most loyal customers visit us often as 18 times a month, so it
could be something as simple as recognizing you and knowing your drink or customizing your
drink just the way you like it.”

During this period, the Starbucks also managed to brand their image. However, the
developed and brand image was not the best given that the company was known for being
widely available and trendy. Thus, when the company market research team found out that
the company brand image was declining, the team solved the problem by creating a good
atmosphere where different people could meet while taking hot coffee. The Starbucks brand
image was also different places that brought people together while talking a wonderful coffee
experience and a good coffee brands across the country also enabled different people to come
together. The Starbucks company also managed to build a work environment for their
customers enabling then to work from anywhere they wished to (Herlpern, 2004).

QUESTION 2: Why has Starbucks customer satisfaction scores declined? Has the
company’s service declined, or is it simply measuring satisfaction on the wrong
way?

There are several factors that leads to the company’s customer satisfaction scores declined.
The first factor was because of lost site of the initial vision making the company to lack
attention to some petty problems within the company. The company hurried in expanding
their business unfortunately it failed since there was less customer satisfaction. The Company
also declined because they paid their attention to the marketing research team who gave false
information, the results being negative from what the customers wanted. As customers are
the essential key in success of many business. The customer satisfaction is measured through
the service and product quality. The Starbucks Company failed to satisfy their customers due
to lack in terms of efficient service and the means of how quickly the customer were receiving
their coffee. For that reason, the company’s service also determines the customer’s
satisfaction side.

Starbucks team discovered that their customer satisfaction scores were declining, and
this was very crucial because satisfaction had a direct link with loyalty. The main problem was
that Starbucks was measuring customer satisfaction parameters which did not fall into the
customer satisfaction score measurement. There was a gap between Starbucks scores on key
attributes and customer satisfaction. This reflects that Starbucks is measuring those attributes
that contribute to product quality more than service quality. This was evident from the market
research which showed that people who were of the view that Starbucks mainly focused in
making money or opening new stores were increasing. Also, there was no strategic marketing
group and their customer base had also increased. Also delay in service, little product
differentiation and less customization resulted in lower satisfaction.

QUESTION 3: How was the Starbucks changed since its early days?

Starbucks has changed because of several reasons. In 1992, Starbucks was clearly in the
beginning phases of establishing themselves as a prestigious company. On the other hand,
the first reasons Starbucks changed in 1992 where they acquired 140 stores makes them
owns one third of America’s coffee bars that are more than its next five competitors. This
clearly showed in the information that the number of its coffee shops had increased and has
been known for specialty coffee. During this time, the market target of Starbucks focused on
white-collar business-type individuals, who were always on the go. Its customer base has also
widely increase and the business was sustainably roaring. Its employees are very satisfied
from the company thus the turnover rate is lowest among all competitors. Meanwhile, during
1992, most people preferences were just wanted coffee instead personalized orders. Thus,
this made it easier for partners to communicate with customers and understand the customer
on a personal level. By taking the advantage of market demand during that time, Starbucks
decided to go public and make the coffee brand accessible to everyone. Businessmen tried to
talk Howard Schultz out of the idea but nevertheless the company became a huge success.
Subsequently, in 2002 Starbucks became trendy because of the companying becoming public
over the years. Besides that, Starbucks also began serving 20 million diverse customers in
over 5,000 stores.

The Starbucks brand was known in North America by word-of-mouth. This marketing
strategy has increased Starbucks compound annual growth rate and net profits by 50 percent.
The company realized an increase of 40 percent of the compound annual growth rate as well
as the net profits of 50 percent. Starbucks also opening more stores every day. On the other
hand, their partners had to work more hours per week in order to serve the growing number
of customers. Thus, the partners of the company had to work for more hours each week for
them to serve the increasing number of customers. As a result, they received minimum wage
benefits such as health insurance. Furthermore, the interesting part in company success was
the people regardless any age or class became attracted to the Starbucks brand. The company
then tried their creativity and being innovated in its products and services by added a variety
of beverages and foods to their menu. In fact, the prices of these goods began to increase
over the years. The Company also used mechanized equipment to make beverages. However,
the biggest difference between the Starbucks of 1992 and the Starbucks of 2002 is the
customer satisfaction. The Starbucks of 2002 is different from the Starbucks of 1992 because
the company has grown so much and so quickly that the company has lost sight of the
customer.

QUESTION 4: Describe the ideal Starbucks customer from a profitability

standpoint. What would it take to ensure that this customer is highly satisfied?
How valuable to Starbucks is a highly satisfied customer?

From the perspective of Starbucks company, the ideal customer for Starbucks is a
businessperson who is on the go. Their ideal customer is very diverse and uses the Internet
to do business work and the atmosphere Starbucks provides while enjoying coffee. The
Starbucks also likes customers working in big offices who can pick up pastries or coffee in the
morning for their co-workers. The company’s new customer is well-rounded young, well
educated, and with a somewhat lower income (Queich & Moon, 2006).

For this customer to be highly satisfied, they required fast and consistent services staff.
First of all, they should reduce customers waiting time. Secondly, they can give free coffee to
their loyal customers after a specified number of visits. This will help in boost up customer
intimacy. Besides that, they can give sample coffee to choose among the variety of coffee
given. By implementing this kind of strategy, it will help the company getting new customers
and making existing customers more loyal. As it is mentioned in the case automated machines
were installed in some stores, so installing such machines in every store will help in gaining
customer satisfaction. The data which is available to them through cards is not being used
yet. They can use it to bring in new strategies to satisfy customers. Moreover, the data should
be translated into measurable metrics and can impact both profitability and customer
satisfaction. Product mix should be designed according to the demographics of the customers
visiting that store. Environment of the store also plays a vital role. Thus, it should be
environmentally friendly and differentiate its brand from others.

Another important factor in satisfying the customers is friendly staff. There should be
proper measures to evaluate staff and educate them this will help customers feel that they
are valued. The employees need to know them by name, especially if they are loyal customers
or know the kind of drink they get when they come. All these things can help build a better
relationship with customers. An ideal customer is those who satisfied with the products and
services because the more time they spend there, the more they will consume. In fact, they
will come again for further consumption and refer others to try Starbucks. This will result in
customer loyalty and profitability. Furthermore, they should focus more on service quality to
satisfy customers. The Company should bring service time down to three minutes in all stores.
Environment and ambience are also very imperative.

QUESTION 5: Should Starbucks make the $40 million investment in labor in the
stores? What’s the goal of this investment? Is it possible for a mega-brand to
deliver customer intimacy?

With the help of the facts derived from the case study, it can be said that Starbucks
should make the $40 million investment in labor in the stores. While Starbucks delivers
impeccable coffee every day to millions of customers, the customer service is sometimes
lacking in enthusiasm. The employees act unenthusiastic about their jobs and seem not to
care about how they treat the customers themselves. Therefore, by spending more money for
the labor budget, the on the go customer will be able to receive their beverage or baked good
at a faster pace. Moreover, customers will be happier with their coffee experience if they are
able to deal with happier employees and it will increase the customer satisfaction rate. Greater
customer satisfaction will lead to the customer returning again as frequent as they want which
will in turn lead to higher sales of Starbucks products. Everything ties into together in the fact
that employee satisfaction will also lead to better quality products and will also increase
cleanliness in the store with more employees who are happy with their jobs.

We believe that it is also possible for a mega-brand to deliver customer intimacy

because if anyone works at it, any employee can build customer intimacy. Increasing labor
in the stores will lead to less employee stress, which will allow a better work experience
employee for a better coffee shop experience.