Starbucks: Delivering Customer Service

Case Study 18 - Starbucks: Delivering Customer Service

April 1st, 2013

Summary:

Starbucks, like most companies, started as a vision by a true entrepreneur. Howard Shultz took his vision and belief that if the partners were satisfied, then the customers would be as well. He also had the idea that Americans had two places in their lives and they needed a third, a place where people could go and relax and enjoy others or just be by themselves. After buying Starbucks from the founders, going public, and raising $25M in the process, he was able to open even more stores.

Fast forward to 2002 and Starbucks is facing the question "do we make a $40M annual expense investment allowing each of our 4,500 stores an additional 20 labor hours a week". The question is: will the investment pay off in terms of increased speed and customer satisfaction and, if we deliver, what will be the impact on our sales and profitability?

Starbucks has a Brand strategy that has three main components.

First is the coffee and ensuring superior quality through the control of the supply chain.

Second is what they call "customer intimacy" or what the customer experiences once they walk through the door.

Third is the atmosphere. The coffee brings them in but the ambience is what makes them stay.

When it comes to their distribution philosophy, it is pretty straight forward, "reach customers where they work, travel, shop, and dine". This sometimes requires several different approaches to reach customers such as company owned stores, co-owned operations, joint ventures, and specialty operations.

When the term partner is used it typically describes a business partner but at Starbucks, the term partner is used to describe the employees. Their belief is that if they are satisfied this will lead to customer satisfaction. With generous benefits, low turnover, and promotion from within Starbucks is one Fortune's "Best Places to Work". Along with this philosophy and delivering on their service, when a partner is hired they are put through "hard training" (learning to be a barista) and "soft training" (connecting with customers). With the increased complexity of the ever expanding menu, this training is critical to Starbucks overall success. One of the measurements used to track the customer experience is the "Customer Snapshot". This is where an anonymous shopper visits each store three times per quarter and then rates the store on four "Basic Service" criteria:

Service

Cleanliness

Product quality

Speed of Service

Starbucks overall objective is to be the "most recognized and respected brand in the world." The two drivers of company growth were retail expansion and innovation. These optimistic growth plans were based on several considerations:

Coffee consumption was on the rise

Still had eight states without a Starbucks

They believed they were far from saturation in many existing markets

When Starbucks talks about innovation they give consideration to two categories, product and service innovation. New products are launched on a regular basis. Starbucks management knows that the success of a new beverage depends on the partners' acceptance. They have learned that no matter how great the drink is, if the partners aren't excited about it, it will not sell. On the service side, they also launched the stored-value card (SVC) and wireless internet access.

One thing that was strange is that a company the size of Starbucks doesn't have a dedicated marketing department. As the demographics changed and this exponential growth started Starbucks, I feel there was a loss of customer focus. There was little differentiation between Starbucks and other specialty shops. During 2002, Starbucks conducted several customer surveys to better understand how to ensure