Starbucks- Delivering Customer Service lmt

Prof Myers-TierneySpring 2011

StarbucksDelivering Customer

Service

Dolan’s Schematic of Marketing Process

2CMM Prof Alexander & Myers-Tierney

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to satisfy customers.

CMM Prof Myers-Tierney 3

Business Decision?Increase Hours/Store/Week 20 hours

Meet Customers expectations 20 hr/week store for 4,500 stores Goal: Improve speed of service and

increase customer satisfaction Will excellent service increase sales? Concerns:

Labor is already biggest expense Cost of added labor $40mm Every $6mm is 1 penny/share


Starbucks Success

11 years of 5% or more CAGR (Same stores)

Serving 20 million customers in 5000 stores

Starbucks value proposition Premium coffee Physical environment Service philosophy

CMM Prof Myers-Tierney

Starbucks in 1992

5

Service philosophy

Physical Environment

Premium Coffee

STARBUCKS

Consumption Patterns

Tendency to linger; ritualistic

consumption; looking to self-

indulge

Target Customer

Sophisticated, affluent coffee lover, embracing the “live

coffee” lifestyle

Brand Perceptions

Best coffee; classy,

upscale; a “third place”


Starbucks Value

Offer “live” coffee = Unique Experience1) Best coffee highest quality – control supply chain2) Service = customer intimacy ÷ recognize customer,

remember their drink3) Ambience – Atmosphere – Come for coffee then lounge –

upscale environment According to Schultz:

“It’s based on the human spirit, it’s based on a sense of community, the need for people to come together.”

Company Overall Objective To establish Starbucks as most recognized and respected

brand in the world.


Competition

Caribou Coffee –Minneapolis –Alaskan Lodge 200 stores, 9 states

Peet’s Coffee + Tea –Freshest Coffee -70 stores, 5 states

Diedrich Coffee – 400 Stores Independent Coffee shops Donut + Bagel Chains

Dunkin Donuts -3700 stores, 38 states


The Competitive Landscape When Starbucks was Introduced

8

Starbucks

Dunkin’ Donuts,corner coffee shops


The Competitive Landscape in 2002

convenient, high-quality coffee

in a clean, comfortable setting

an increasing number of flavored coffee alternatives

9

Starbucks

Dunkin’ Donuts,corner coffee shops

Starbucks’ Customers‘Old’ vs. ‘New’

drink Starbucks is part of a self-indulgent ritual

drink Starbucks is part of a pragmatic routine

tend to linger at Starbucks tend to rush at Starbucks

see Starbucks as a sanctuary to escape from the ‘real world’

see Starbucks as a place to pass through on the way to work

find Starbucks desirable for the social ambience and atmosphere

find Starbucks desirable for the convenience

Old customers… New customers…

Who does this sound like? Who does this sound like?

http://www.picsearch.com/info.cgi?q=Starbucks&id=4PVTe3PW_ce1YEXF3CUCBQN6BAq0klMVgz1dfT50FAo&start=21

http://images.google.com/imgres?imgurl=http://basementapartment.files.wordpress.com/2008/06/dunkindonuts.jpg&imgrefurl=http://basementapartment.wordpress.com/2008/06/21/dunkin-donuts-happy-hour/&usg=__SFKO5SNGTIKp2rEYQNXWe3BphMw=&h=572&w=1650&sz=66&hl=en&start=2&um=1&tbnid=FvlTJmnRwKLtrM:&tbnh=52&tbnw=150&prev=/images?q=dunkin+donuts&um=1&hl=en&rls=com.microsoft:*&sa=N


Growth Drivers – Retail Expansion and Product Service Innovation

Product 1 new hot beverage every holiday season NPD takes 12-18 months Introduced Frappuccino – coffee + New coffee

Service Starbucks stored value card 1 yr. 6mm cards with $160mm in sales Used as gifts = new customers Used to collect customer information Added T-Mobile Hot spots


Research Results (1)

No chief marketing officers Marking in 3 departments

1. Market Research2. Category Group3. Marketing group –Promotion plans

Marketing is everyone’s responsibility

Correct research very focused, No Big Picture


So What’s the Problem? New market research indicates customer dissatisfaction

New customers are more dissatisfied

Little differentiation from competitors

61% agree strongly that “Starbucks cares primarily about making money”

55% agree strongly that Starbucks cares primarily about expansion

42% of respondents view Starbucks as “corporate”

Are we focusing on the right things? Are we clearly communicating our

values?

So What’s the Problem?


Starbucks’ Service Deterioration

14

Too little Experienced

Labor

Baristas Have No Time to

Chat

Grumpy Employees

Employee Turnover

Lots of New Customer

Acquisitions

Tendency to Order Hand-Crafted Drinks

+Desire for Customization

Long Lines

Grumpy Customers

New Product Complexity

Complex orders

Leave before ordering

Don’t come back (as often)Less of a “Third

Place” attachment (diminished brand

loyalty)Order something

simple rather than complex (lower ticket

value)


Starbucks in 2002

15

Different Consumption

Patterns

Established Customers

Sophisticated affluent coffee lover,

embracing the “live coffee” lifestyle

Different Brand Perceptions

New Acquisitions

Less sophisticated in a hurry, more

pragmatic

Service philosophy

Physical Environment

Premium Coffee

STARBUCKS

MBA 8520Starbucks

What happened?


What Happened? Labor program instituted $40m focused on stores w/greatest need Store sales +, cust. satisfaction + Transaction times reduced (some impact from

automated verisma machines, SVC cards)

Late 2003 launched Starbucks Visa w/points

2003 revenues up 25%, earning 35% In 2004 plan to open 1,300 more stores

long term goal 25k (10k in US, 15K intn’l)


What Happened? Feb 2007 Starbucks has 13k

stores, plan is to reach 40K worldwide

CEO Howard Shultz Feb 14, 2007 memo criticized decisions that have: “led to the watering down of the

Starbucks experience and What some might call the

commoditization of our brand”


What Happened? January 2008 Howard Schultz

returns as CEO, says: “company's rapid growth had led to

bureaucracy. Starbucks shares lost almost half

their value last year as price increases and a weak economy slowed traffic at its U.S. locations,

and a lack of appealing new products dulled demand.


What Happened? A few days after his return, Mr.

Schultz: shuffled a handful of top management

positions plans to close weak stores and slow the

number of store openings in the U.S. as well as refocus the chain on coffee.

Starbucks plans to close all of its company-operated stores in the U.S. from 5:30 p.m. to 9 p.m. local time to retrain 135,000 store workers, in part to teach them how to better make espresso drinks.


What Happened? Jan 29, 2009: Starbucks Corp., posting a

69% drop in quarterly profit, said it will close another 300 stores and cut 6,700 workers as it continues to reel from overexpansion and a sharp sales slowdown amid the recession.

Will close an additional 200 locations in the U.S. and 100 locations internationally by this fall, on top of more than 600 store closures the company announced last year. The chain currently has nearly 17,000 outlets and 167,000 workers.

Starbucks plans to lay off 6,000 store workers


Take Aways?


Take Aways Difficulty of maintaining brand

“experience” with rapid growth. “Exclusivity”

Importance of positioning in rapidly developing market (DD, McD)

Decision trade-offs (Brand vs Operational Efficiencies)

Higher price based on Starbucks “experience”

Diluted “experience” = diluted brand, customer satisfaction and profits…..

Focusing on multiple segments is difficult


Extra Slides


Starbucks History1971

Founded by Gerald Baldwin, Gordon Bowken, Ziev Siegl Opened small coffee shop in Seattle Specialized in whole bean Focused on coffee purists

1982 Howard Shultz joined Starbucks Marketing Team Travel to Italy Observed espresso bars in neighborhoods Convinced management to set up an espresso bar in Seattle downtown shop

1984 Schultz bought out founders Began opening stores Sold whole bean premium-priced coffee Target affluent, well educated, white collar, 25-44, skewed female

1992 140 stores in northwest + Chicago Went public

2002 Schultz –COB, Chief strategist, Orwin Smith – CEO


Starbucks Channels Company owned most stores in U.S. Stores in high traffic, highly visibility

Sold beans, rich brewed coffee, Espresso, Teas Retail Mix

Specialty Operations 15% of Sales

Goal: Reach customers where they work, travel, shop, dine

Coffee Beverage 77%

Food 13%

Whole Bean Coffee

6%

Equipment/Accessories

4%North America food service Hotels, airline, restaurants

27%

Domestic Retail stores 18%

Int’l Stores, grocery, clubs Pepsi Frappuccino 55%

100%


Growth Drivers Stores (1) Retail Expansion

Starbucks owned 1/3 of U.S. Coffee Bars Next biggest Diedrich only 400 stores Starbucks PGN (2003)

Why: Coffee consumption increasing 109mm people drink every day 52mm people occasionally drink coffee 1/3 of coffee drink outside home –work, restaurants, coffee shops 8 states no Starbucks Starbucks only in 150 of 300 Metropolitan Statistical Areas

Pick New Location Right demographics Level of Consumption Competition Attractive Real Estate

525

New Company owned stores

225

New Licensed Stores

750

Total new stores


Starbucks Partners Partners (Employees)

Compensation / Benefits Paid Hourly Health Insurance Stock Options

Turnover Starbucks: 70% ROW: 300% Highest T.O. is in 1st 90 days

Experience 70% of Store mgrs ex-baristas 60% of District mgrs ex-store managers All Senior mgrs – Train + Succeed as baristas

Howards DNA Training

Hard Skills – Mix drinks, Register Soft Skills – Connect w/ customer, Just say Yes

USA 50,000

ROW 10,000

Total 60,000


Research Results (2) How could Starbucks make you feel

more like a valued customerService

Improvements 34%

Friendlier 19%

Faster 10%

Price Incentives 31%

Free cup x visits

Reduce Price

Other Total 21%

Don’t know already satisfied

28%


Measuring Service

Customer Snapshot Mystery shoppers 3 times/quarter/store

Basic Service1. Service –Greet customer, eye contact2. Cleanliness –store, tables, restrooms3. Product Quality –Fill order accurately, Right

temperature4. Speed of Service –waiting time, Goal: 3 minutes

Legendary Service Memorable experience –customer returns, tell

friends

Starbucks- Delivering Customer Service lmt

Documents