Starbucks:Delivering Customer Service

Starbucks:Delivering Customer Service

1. Starbucks:Delivering Customer Service Merve BEKTAŞ Didem ŞAHİN Sara OSMANOĞLU

2. Vision :become America's third place ,a place that would be separate from home and work . Mission : establish Starbucks as the most recognized and respected brand in the world . In 1971 opened by G erald B aldwin ,Gordon B owker & Zıev Sıegl . In 1982 Howard Schultz joined the marketing team. Set up an espresso bar at downtown shop. Schultz took over and began opening new atores In1992 140 stores in northwest and Chicago Competed against Gloria Jean’s coffee and Barnie’s coffee & tea In 2002, sales rose by 40%,earnings by 50% serving 20 million customers in 5,ooo stores around the glob .Opening 3 new stores a day. Starbuck’s Background

3. Have you ever wondered where the Starbucks logo came from ? Take a look at it . What do you see? Starbuck Corporation: Logo

4. In 1987, the original Starbucks Logo which was a UPS brown and featured a two - tailed mermaid, also known as a siren . The siren is a mythical creature whose stories tell of luring fisherman through song . Starbucks is using the lure of female sexuality to draw customers attention to the coffee. Starbuck Corporation: Logo (cont’d)

5. Kitchen appliance salesman Hired by Starbucks in 1982 Trip to Milan in 1983 Left the company in 1985 Bought the company in 1987 Howard Schultz

6. Starbucks failed to meet customer expectations and deliver satisfaction thereby losing customer loyalty Potential to lose loyal customer in the near future due to the increased of number unsatisfied customers Problem Statements

7. Rough brand image of primarily making money and building more stores. Insignificant perceived differentiation between Starbucks and competition coffee chains. The changing customer leads to the changing of its behavior, perceptions, and expectations toward brand Complexity arises due to hundreds of combinations of drinks in its portfolio: resulted to low speed-ofservice and satisfactory service of Partners Why Customer Satisfaction Declined?

8. Declining Customer Satisfaciton Imperfect tool for measuring customer satisfaction :Customer Snapshot Mystery shopping program third in a quarter Rated based on 4 criteria-service,cleanliness,product quality & speed of service Legendary services-behaviour that created memorable experience for customers Despite high Customer Snapshot scores,Starbucks was not meeting expectations in terms of customer satisfaction. Exhibit 9 Starbucks' Customer Behaviour,by Satisfaction Level     Unsatisfied Customer Satisfied Customer Highly Satisfied Customer Number of Starbucks visits/Month 3.9 4.3 7.2 Average Ticket Size/Visit $3.88 $4.06 $4.42 Average Customer Life(Years) 1.1 4.4 8.3

9. The ideal customer from a profitability standpoint is; The loyal customer who visits the store 18 times a month Service time in all stores not exceed 3 mins Improve customer througput Reach as close to $20.000 level in terms of weekly sales Ideal Customer & Satisfaction

10. Core Value Proposition Highest quality coffee from the Africa,Central and South America and Asia-Pacific regions. «Our goal is to create an uplifthing experience every time you walk through our door» Encourage lounging and layouts that were designed to provide an upscale yet inviting environment

11. Product Mix

12. Financial Statement Exhibit 1 Starbucks' Financials, FY 1998 to FY 2002 ($ in millions )     FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Revenue Co-Owned North American 1.076,8 1.375,0 1.734,9 2.086,4 2.583,8 Co-Owned Int'l (UK, Thailand, Australia) 25,8 48,4 88,7 143,2 209,1 Total Company-Operated Retail 1.102,6 1.423,4 1.823,6 2.229,6 2.792,9 Specialty Operations 206,1 263,4 354 419,4 496 Net Revenues 1.308,7 1.686,8 2.177,6 2.649,0 3.288,9 Cost of Goods Sold 578,5 747,6 961,9 1.112,8 1.350,0 Gross Profit 730,2 939,2 1.215,7 1.536,2 1.938,9 Joint-Venture Income a 1,0 3,2 20,3 28,6 35,8 Expenses: Store Operating Expense 418,5 543,6 704,9 875,5 1.121,1 Other Operating Expense 44,5 54,6 78,4 93,3 127,2 Depreciation & Amortization Expense 72,5 97,8 130,2 163,5 205,6 General & Admin Expense 77,6 89,7 110,2 151,4 202,1 Operating Expenses 613,1 785,7 1.023,8 1.283,7 1.656,0 Operating Profit 109,2 156,7 212,3 281,1 310,0 Net Income 68,4 101,7 94,5 181,2 215,1             % Change in Monthly Comparable Store Sales b North America 5% 6% 9% 5% 7% Consolidated 5% 6% 9% 5% 6% Net income grew from 68.4million in 1998 to 215.1 million dollars in 2002.

13. Growth Analysis Exhibit 2 Starbucks' Growth Store     FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Total North America 1,755 2,217 2,976 3,780 4,574 Company-Operated 1,622 2,038 2,446 2,971 3,496 Licences Stores 133 179 530 809 1,078 Total International 131 281 525 929 1,312 Company-Operated 66 97 173 295 384 Licences Store 65 184 352 634 928 Total Stores 1,886 2,498 3,501 4,709 5,886 Total store grew from 1,886in 1998 to 5,886 in 2002 to 4,574 in the US. Starbucks IPO was offered at $17.00 a share . Serving 20 million unique customers in over 5000 stores around the glob al and opining on average three new store per day .

14. SWOT Matrix Strong market position and global brand recognizition Number one brand in coffee house segment valued at $4 billion Products of the highest quality Largest coffehouse chain in the world Good employee management Location and aesthetic appeal of its store There was very little product differrantiation between Starbucks and the smaller coffee chains in the minds of customers. Self-cannibalization through overcrowding People think that Starbucks cares primarily about money and building more stores(negative publicity) Expansion to emerging economies:international market Expanding product mix and offerings Expansion of retail operations New distribution channels Technological advances Brand extension Increased competition Price volatility in the global coffee market Saturated markets in the developed economies Streghts Weakness Opportunity Threats

15. Porter’s Five Forces Rivalry .High/moderate . Small scale specialty .coffee chain .independent specialty .Coffee chain .Donut and bagel chains Buyer power .High .Consumer have many options of where to purchase coffee . Evolving customer base New Entrants . Entrance into this market is low however Starbucks dominates the market . Substitutes . High .other caffeinated .shops similar to Starbucks but also offering food drinks . Fast food restaurants offering specialty coffee. Supplier Power .Low . Individual suppliers of coffee bean ;paper and plastic products ;technological innovations ..

16. TOWS Matrix WO Strategies : Better training of partners to treat customers better Customer may define «great service » Maybe decreasing time for preparing beverage SO Strategies : Set up a real strategic marketing group For better management Looking big picture and making better decision WT Strategies : Free cup after x number of visits This will be a promotion strategy It will help to create correct brand image in the customer’s mind . ST Strategies : I nvesting $40 million annually into more employees Increasing customer satisfaction Retention play to keep Starbucks’ best customers happy Eliminate problems associated with f ast service and treating the customer a s value Opportunities Threats Weaknesses: Strengths

17. When a partner was hired to work in Starbucks he/ she had two types of training .’Hard Skills and Soft Skills ’ Hard Skills : Learning how to use cash register and learning how to mix drinks.Most of the Starbucks beverages are handcrafted so ensure the quality there is prespecified process associated with each drink . For example ; making an expresso beverage required seven spesific streps . Soft Skills : Learning connectting with the customers , establishing eye contact,smiling and trying to remember of the customer’s name. Baristas are also encouraged to take conversations with the customers instead of yes no questions . TRAINING OF BARISTAS

18. TRAINING OF BARISTAS

19. Proposed wayout&Dilemma To improve speed-of-service by investing an additional of $40 million annually in the company’s 4,500 stores; mostly used for getting an additional of 20 hours of labor a week . Dilemma Whether our customers are telling about what constitutes ‘excellent’ customer service Whether it will bring a positive impact on sales and profitability Proposed wayout&Dilemma

20. Cater to their needs and match/exceed their expectations Ensure service as fast as customer wants it to be Add lounging areas and more comfortable chairs and tables so that customers feel relaxed More highly-satisfied customers: more often they visit us, more money to spend, good higher profit! Moving Forward: Ensuring the Customer to be Highly Satisfied

21. Recommend the Management to make investment; however suggest to have a pilot project instead of massive investment in labor Allocate the money based on size of store, number of customers, location, and need for additional labor instead of apportioning the $40 million equally to all the stores Apart from making the investment, Starbucks need to look more into their customer base and improve their brand image and value proposition RECOMMEDATION