504-016: Management - Starbucks: Delivering Customer Service - Case Study Assignment Help

Subject Code: 504-016 Internal Code: 1AIFIJ

Starbucks: Delivering Customer Service - Case Study Assignment Help

Assignment Task: 504-016 Case Study Of Starbucks: Delivery Customer Service In late 2002, Christine Day, Starbucks’ senior vice president of administration in North America, sat in the seventh-floor conference room of Starbucks’ Seattle headquarters and reached for her second cup of toffee-nut latte. The handcrafted beverage—a buttery, toffee-nut flavored espresso concoction topped with whipped cream and toffee sprinkles—had become a regular afternoon indulgence for Day ever since its introduction earlier that year.  As she waited for her colleagues to join her, Day reflected on the company’s recent performance. While other retailers were still reeling from the post-9/11 recession, Starbucks was enjoying its 11th consecutive year of 5% or higher comparable store sales growth, prompting its founder and chairman, Howard Schultz, to declare: “I think we’ve demonstrated that we are close to a recession-proof product.”1  Day, however, was not feeling nearly as sanguine, in part because Starbucks’ most recent market research had revealed some unexpected findings. “We’ve always taken great pride in our retail service,” said Day, “but according to the data, we’re not always meeting our customers’ expectations in the area of customer satisfaction.”  As a result of these concerns, Day and her associates had come up with a plan to invest an additional $40 million annually in the company’s 4,500 stores, which would allow each store to add the equivalent of 20 hours of labor a week. “The idea is to improve speed-of-service and thereby increase customer satisfaction,” said Day.  In two days, Day was due to make a final recommendation to both Schultz and Orin Smith, Starbucks’ CEO, about whether the company should move forward with the plan. “The investment is the EPS [earnings per share] equivalent of almost seven cents a share,” said Day. In preparation for her meeting with Schultz and Smith, Day had asked one of her associates to help her think through the implications of the plan. Day noted, “The real question is, do we believe what our customers are telling us about what constitutes ‘excellent’ customer service? And if we deliver it, what will the impact be on our sales and profitability?” Starbucks Partners - 504-016  All Starbucks employees were called “partners.” The company employed 60,000 partners worldwide, about 50,000 in North America. Most were hourly-wage employees (called baristas) who worked in Starbucks retail stores. Alling remarked, “From day one, Howard has made clear his belief that partner satisfaction leads to customer satisfaction. This belief is part of Howard’s DNA, and because it’s been pounded into each and every one of us, it’s become part of our DNA too.”  The company had a generous policy of giving health insurance and stock options to even the most entry-level partners, most of whom were between the ages of 17 and 23. Partly as a result of this, Starbucks’ partner satisfaction rate consistently hovered in the 80% to 90% range, well above the industry norm,5 and the company had recently been ranked 47th in the Fortune magazine list of best places to work, quite an accomplishment for a company with so many hourly-wage workers.  In addition, Starbucks had one of the lowest employee turnover rates in the industry—just 70%, compared with fast-food industry averages as high as 300%. The rate was even lower for managers, and as Alling noted, the company was always looking for ways to bring turnover down further: “Whenever we have a problem store, we almost always find either an inexperienced store manager or inexperienced baristas. Manager stability is key—it not only decreases partner turnover, but it also Starbucks: Delivering Customer Service 504-016 enables the store to do a much better job of recognizing regular customers and providing personalized service. So our goal is to make the position a lifetime job.”  To this end, the company encouraged promotion from within its own ranks. About 70% of the company’s store managers were ex-baristas, and about 60% of its district managers were ex-store managers. In fact, upon being hired, all senior executives had to train and succeed as baristas before being allowed to assume their positions in corporate headquarters.  'Starbucks’ Market Research: Trouble Brewing?  Interestingly, although Starbucks was considered one of the world’s most effective marketing organizations, it lacked a strategic marketing group. In fact, the company had no chief marketing officer, and its marketing department functioned as three separate groups—a market research group that gathered and analyzed market data requested by the various business units, a category group that developed new products and managed the menu and margins, and a marketing group that developed the quarterly promotional plans.  This organizational structure forced all of Starbucks’ senior executives to assume marketing-related responsibilities. As Day pointed out, “Marketing is everywhere at Starbucks—it just doesn’t necessarily show up in a line item called ‘marketing.’ Everyone has to get involved in a collaborative marketing effort.” However, the organizational structure also meant that market- and customer- 504-016 Starbucks: Delivering Customer Service related trends could sometimes be overlooked. “We tend to be great at measuring things, at collecting market data,” Day noted, “but we are not very disciplined when it comes to using this data to drive decision making.” She continued:  This is exactly what started to happen a few years ago. We had evidence coming in from market research that contradicted some of the fundamental assumptions we had about our brand and our customers. The problem was that this evidence was all over the place—no one was really looking at the “big picture.” As a result, it took awhile before we started to take notice.  Starbucks’ Brand Meaning - 504-016 Once the team did take notice, it discovered several things. First, despite Starbucks’ overwhelming presence and convenience, there was very little image or product differentiation between Starbucks and the smaller coffee chains (other than Starbucks’ ubiquity) in the minds of specialty coffeehouse customers. There was significant differentiation, however, between Starbucks and the independent specialty coffeehouses (see Table A below).  Table A Qualitative Brand Meaning: Independents vs. Starbucks  Independents: 

• Social and inclusive 
• Diverse and intellectual 
• Artsy and funky 
• Liberal and free-spirited 
• Lingering encouraged 
• Particularly appealing to younger coffeehouse customers 
• Somewhat intimidating to older, more mainstream coffeehouse customers 

Starbucks: 

• Everywhere—the trend 
• Good coffee on the run 
• Place to meet and move on 
• Convenience oriented; on the way to work 
• Accessible and consistent 

Source: Starbucks, based on qualitative interviews with specialty-coffeehouse customers.  More generally, the market research team discovered that Starbucks’ brand image had some rough edges. The number of respondents who strongly agreed with the statement “Starbucks cares primarily about making money” was up from 53% in 2000 to 61% in 2001, while the number of respondents who strongly agreed with the statement “Starbucks cares primarily about building more stores” was up from 48% to 55%. Day noted, “It’s become apparent that we need to ask ourselves, ‘Are we focusing on the right things? Are we clearly communicating our value and values to our customers, instead of just our growth plans?’” (see Table B below).  This document is authorized for use only in Ostillio, Maria Carmela's 20145 Brand management - class 10 at Bocconi University from Feb 2019 to Aug 2019.  Starbucks: Delivering Customer Service 504-016 Table B The Top Five Attributes Consumers Associate with the Starbucks Brand 

• Known for specialty/gourmet coffee (54% strongly agree) 
• Widely available (43% strongly agree) 
• Corporate (42% strongly agree) 
• Trendy (41% strongly agree) 
• Always feel welcome at Starbucks (39% strongly agree) 

Source: Starbucks, based on 2002 survey.  The Changing Customer  The market research team also discovered that Starbucks’ customer base was evolving. Starbucks’ newer customers tended to be younger, less well-educated, and in a lower income bracket than Starbucks’ more established customers. In addition, they visited the stores less frequently and had very different perceptions of the Starbucks brand compared to more established customers (see Exhibit 8). In short, the team learned that Starbucks’ historical customer profile—the affluent, well-educated, white-collar female between the ages of 24 and 44—had expanded.  Customer Behavior  With respect to customer behavior, the market research team discovered that regardless of the market—urban versus rural, new versus established—customers tended to use the stores the same way. The team also learned that, although the company’s most frequent customers averaged 18 visits a month, the typical customer visited just five times a month.

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