Starbucks Delivering Customer Service case study comes from HBR. A link to the original case can be found here. The case can be analyzed from the perspectives of marketing, sales improvement, and from a strategic investment point of view. The company is contemplating a strategic investment of $40 Mn to bolster its systems and process to cater to the needs of new customers. We can also analyze Starbucks delivering customer service case study from the standpoint of future organizational vision and reinventing a brand
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Starbucks delivering customer service case study summary
In 1971, Gerald Baldwin, Gordan Bowker, and Ziev Siegl established a small shop in Seattle’s market. The company excelled at selling whole Arabica beans to coffee purists, a niche market. In 1982, Schultz joined Starbucks. A few years later, Schultz purchased the company. After he ascended to power, new stores opened. Starbucks delivering customer service Case Study also narrates the story of the owners and their vision for the organization in order to deliver a unique customer value
The organization went public. Both whole-bean coffee and coffee with a higher price tag were sold at the stores. By 1992, Starbucks had 140 stores in the Pacific Northwest and Chicago and was competing favorably with smaller coffee chains such as Gloria Jean’s Coffee Bean and Barnie’s Coffee & Tea. In 2002, Starbucks was the most well-known specialty coffee brand in North America. The company’s annual sales and net income grew at a rate of 40% and 50%, respectively. The company had over 5,000 stores worldwide and over 20 million customers.
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It focused primarily on marketing at the point of sale and in local stores. The slogan “live coffee” encapsulated Starbucks’ brand positioning. It demonstrated how vital it was to preserve the national coffee culture, which provided customers with a “experience” comprised of the coffee, the service, and the atmosphere. They were all baristas and were referred to as “partners.” They believed that if partners were satisfied, so would customers. Consequently, employee turnover was low. When a partner was hired, he or she was required to complete “hard skills” and “soft skills” training in order to connect with customers more effectively.
Several types of matrices, such as monthly status reports and self-reported checklists, were used to evaluate the performance of the service. In addition, they had a mystery shopper program known as “customer overview The shopper rated four “fundamental services.” The company’s goal was to become “the most recognizable and esteemed brand in the world.” Starbucks vice president Christine Day devised a plan to invest an additional $40 million per year in the company’s 4,500 locations. This equates to an additional 20 hours of work per week. They are unsure whether to believe what customers say about customer service and its impact on sales and profits.
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Starbucks Delivering Customer Service case study: What Contributed to the exceptional positioning of Starbucks in the Coffee Segment?
The extraordinary success of Starbucks in the early 1990s can be attributed to Howard Schultz, who added value propositions to the company by enhancing its services and adding quality to them. Schultz believed that coffee drinking creates an experience in the customer’s mind known as “the third place.”
Contributing to Starbucks’ extraordinary success in the 1990s were:
Starbucks works directly with its growers to maintain the superior quality of its coffee beans, and because all of its stores are company-owned, they are able to maintain tight control over its products and services.
Starbucks trains its partners in both hard and soft skills prior to hiring them in order to foster positive relationships with its customers. They instructed their employees on how to interact with customers by smiling, making eye contact, and remembering their names and preferences.
- The Customers: Their ‘Just Say Yes’ policy encourages partners to provide the best service possible, even if it exceeds company regulations, and their three-minute serving time enhanced customer satisfaction.
- Partner satisfaction: Schultz referred to Starbucks’ employees as “Partners,” and the company provides even entry-level employees with health insurance and company stock as a form of incentive. They believe that customer satisfaction depends on the satisfaction of their partners, which is why the company has one of the lowest employee turnover rates in the industry as a result of their promotion strategy of promoting partners within their rank and approximately 70% of the company store manager was an ex-partner.
- The atmosphere of Starbucks stores: Schultz’s intention is to create a drinking coffee experience, where people drink coffee not only for its taste and quality but also to enjoy the experience. It is a place where people come to relax and enjoy social interaction, which is why they have comfortable seating areas and the layout of their stores is inviting.
- Location of the stores: Starbucks stores are situated in high-traffic areas such as office buildings, shopping centers, and university campuses.
The store’s value proposition is so compelling because they provide high-quality premium coffee and services to their customers as a result of their highly controlled supply chain strategy. In addition, they serve additional menu items such as pastries, soda, and juice, and they regularly launch new products. They are so focused on their services that they are familiar with their customers if they frequent the establishment, and their attributes, ambiance, and seating environment are an added value proposition.
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Starbucks Delivering Customer Service case study: What Factors led to the decline of Customer Satisfaction Scores in the Early 1990s?
The customer satisfaction rating for Starbucks has dropped as a result of a gap between the company’s primary attributes and the expectations that customers have for the brand. Paying a premium price for Starbucks did not make a whole lot of sense because the chain does not stand out in terms of either its image or its products when compared to other, smaller coffee shop chains.
Customers started believing that Starbucks had entered a money-making industry and that the company placed a higher priority on shop expansion than on their satisfaction. On many occasions, “service enhancement” and “service speed” were the areas that required the most improvement. Also shown in the presentation is the fact that 11.34 percent of people believe that improvements to the services they receive could make them feel more valued.
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• As shown in Exhibit 10, the majority of respondents (83 percent) believe that maintaining a clean environment is an essential component in achieving high levels of customer satisfaction.
• Because seventy-seven percent of customers placed a high premium on convenience, Starbucks made it a point to open multiple locations across the country.
• Seventy-five percent of customers ranked being treated as a valuable customer as extremely important for the generation of customer happiness, and Starbucks partners made certain to remember their customers’ names, welcome them, and inquire about their preferred drink modification preferences, among other things.
Because of this, asserting that the company’s service has worsened in recent years would be an exaggeration, given that consumers continue to give Starbucks high marks in a variety of other categories. However, Starbucks is becoming increasingly concerned about the lengthening wait times.
Because Starbucks is more concerned with the value of its brand, expansion, and profit than with how customers perceive its coffee, the customer snapshot is not an ideal instrument for measuring customer happiness.
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Starbucks Delivering Customer Service case study: How did Customer Transform from 1992 to the early 2000s?
The average customer in 2002 was younger than the average customer in 1992, and the average customer in 2002 had less education than the average customer in 1992.
•In 1992, Starbucks’ customers were mostly wealthy people, but by 2002, they also included people with lower incomes.
• The market research team also found that customers used stores, in the same way, no matter where they were or how they were set up.
• In the research, it was also found that the most frequent customers came in an average of 18 times a month, but the average customer only came in five times a month.
• The research team also found out that Starbucks’ customers had changed from wealthy, well-educated, white-collar women between the ages of 24 and 44 to younger customers with less education who wanted more options and took more work to please.
Is it advisable for Starbucks to Invest $40 Mn in its stores and staff? What is the rationale behind the investment and share a mathematical model to justify the investment?
The investment plan called for “relaxing the labor-hour restrictions in the stores” in order to increase the amount of available labor in each store by 20 hours per week at an additional annual cost of $40 million.
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Starbucks Delivering Customer Service case study: Breakeven Calculations
Analysis of the Profitability of the Investment Plan Investment per Store = $40,000,000 / 5886 stores = $6795.8 per store
$172 is the revenue difference between customers who are satisfied and customers who are extremely satisfied.
For each location to be profitable, $6795.8 must be divided by 172, which equals forty customers. There are 570 customers who shop at each location on a daily basis.
For the company to become profitable, 40 of its 570 existing customers must be upgraded from satisfied to extremely satisfied. Therefore, Starbucks is recommended to invest $40 million in order to increase service speed and decrease the number of satisfied customers who become dissatisfied.
As there is a direct correlation between satisfied customers and loyal customers, this would result in the consumer base’s long-term commitment.
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Starbucks Delivering Customer Service case study: The rationale behind the investment
The objective of investing $40 million in labor was to maximize customer satisfaction by converting satisfied customers into highly satisfied customers, thereby increasing revenue. This was accomplished by increasing the level of satisfaction of satisfied customers. Exhibit 10 displays the results of the 2002 consumer survey conducted by Starbucks. According to the survey, approximately 65 percent of Starbucks’ customers consider prompt service to be one of the most important factors in determining their level of satisfaction with their Starbucks coffee experience.
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