SERVICE MARKETING

STARBUCKS: DELIVERING CUSTOMER

SERVICE
WRITTEN CASE ANALYSIS

SUBMITTED BY : GROUP 3
Sravathi PVL 19021141075
Swagata Khargharia 19021141120
Lakshmi Lavanya Pagallu 19021141059
Akhil Dosapati 19021141010
TABLE OF CONTENTS

1. Main Problem

2. Description of case

2.1 Schultz – Starbucks

2.2 Competition

2.3 Target group

2.4 The Augmented Service Offering

2.4.1 The service concept

2.4.2 The Basic Service Packing

2.4.3 Differentiation in the offering

2.4.3.1 Customer intimacy

2.4.3.2 Service quality

2.4.3.3 Image

2.4.3.4 Innovations for ease of service

2.4.3.5 ‘Just Say Yes’ Policy

2.5 The Starbucks’ HR Policy

2.5.1 Generation of employment opportunities

2.5.2 Recruitment policy

2.5.3 Training Policy

2.5.4 Compensation policy

3. Suggested Solution

3.1 Justification for the solution

1. MAIN PROBLEM

Though Starbucks demonstrated that theirs is a recession proof product, their 2002 market
research revealed some unexpected findings that they were not always meeting customer’s
expectations in the area of customer satisfaction.

Customers mentioned ‘speed-of-service’ most frequently as an area of improvement.

Their major dilemma was:

 Whether to rely on customer feedback on what constitutes ‘excellent’ customer

service.
 As a result, make an investment of additional $40 million to improve customer
satisfaction.
 Impact of investment that would be on sales and profitability.

2. DESCRIPTION OF THE CASE

2.1 Schultz - Starbucks

Howard Schultz had an idea of creating a chain of coffee houses that would become
America’s “third place”. At the time, most Americans had two places in their lives - home and
work. He envisioned a place that would be separate from home or work, a place that would
mean different things to different people. He got this chance when Starbucks’ founders
agreed to sell the company to him.

2.2 Competition
Its primary competition was against a variety of small scale speciality coffee chains which
were regionally concentrated, along with thousands of independent speciality coffee shops
that offered a wide range of food and beverages including wine, beer and liquor, others
offered satellite televisions or Internet-connected computers. Starbucks internal research
and development team experimented with product formulations and had a variety of in-store
experiments and introduced many coffee and non-coffee based line of Frappuccino
beverages. It also provided T-Mobile Hotspot wireless Internet service which offered high
speed access to internet for $49.99 a month.

2.3 Target group

Starbucks catered primarily to affluent, well educated, white collared patrons(women)
between the ages of 25 to 44 years. They wanted to reach customers where they work,
travel, shop and dine. Hence, they reached out to the locations in North America consisting
of high traffic, high visibility settings such as office buildings, retail centres and university
campuses. They also offered a variety of pastries, sodas and juices along with coffee related
accessories and equipment, games and seasonal novelty items.

2.4 The Augmented Service Offering

In this section we are going to describe the service process at Starbucks in terms of
augmented service offering-model. This model discuss how to manage the service process
so that both functional quality, how the process functions, and the technical quality, what the
service leads to, are taken into account. Thus, the whole interactive marketing process is
included in the model. The model is divided into three phases:

1. Developing a service concept.

2. Developing a basic service packing.
3. Differentiation in the offering.
2.4.1 The Service Concept

Starbucks is providing a people processing service where customer’s presence is required

while the services are being provided. The service concept determines the intentions of the
service provider. In this case it is to provide the best coffee and services.

2.4.2 The Basic Service Packing

1. The core service is the main reason for being on the market. In this case, Starbucks
is offering coffee, but also giving importance of customer satisfaction.

2. The facilitating services which are needed so that the core service can be delivered
successfully. This could be the Partners or the Baristas who are needed to make the
coffees.

3. The supporting services that are not required for the core service but which help to
distinguish the service package from the competitors. This could be the offering of
customisation of coffee at Starbucks and also the seating areas to encourage
lounging and layouts that were designed to provide an upscale yet inviting
environment for those who wanted to linger.

2.4.3 Differentiation in the offering

Further, the service delivery process can be differentiated in the following terms

2.4.3.1 Customer intimacy

Baristas try to remember the names and orders of their regular customers just the way they
like it. Even though their portfolio consists of hundreds of combinations of drinks, almost
every other customer orders a handcrafted beverage and gets served what they want.
Baristas strike conversations and take feedback from the customer about the potential
variety that can be introduced into the menu.

2.4.3.2 Service quality

They believed to be having the highest quality coffee in the world. To ensure this, they
worked closely with the growers of green coffee beans in various countries to have control
over the quality of the coffee served in Starbucks. One of the company’s most prominent
service measurement tool involved a mystery shopper called the “Customer Snapshot”, who
visited the store 3 times a quarter. He had to rate the store on 4 basic service criteria which
were service, cleanliness, product quality and speed of service.

2.4.3.3 Image
Customer believes that the barista’s service can be trusted and that their coffee would be
delivered just the way they want it, which stands as satisfaction both for customer as well as
Starbuck. The frequent visits of the loyal customers is an evidence that their reputation is
undoubtedly good. This also indicates their credibility.

2.4.3.4 Innovations for ease of service

One of its non-product innovations was store value card (SVC) which allowed the users to
pay for transactions in any company operated store in North America and these customers
tended to visit Starbucks twice as often as cash customers. The verismo machines, which
decreased the number of steps required to make an expresso beverage, reduced waste,
improved consistency and had generated an overwhelmingly positive customer and barista
response.
 2.4.3.5 ‘Just Say Yes’ Policy
This policy empowered the partners to provide the best possible service, many times going
beyond the company rules to make the customer happy. If a customer spills a drink and asks
for a refill, it had to be given or they would be given a sample drink for free if they don’t have
cash and want to pay with a cheque which is usually not allowed.

2.5 The Starbucks’ HR Policy

2.5.1 Generation of employment opportunities

Starbucks was opening on average three new stores a day which means that it generated
employment opportunities.

2.5.2 Recruitment policy

All Starbucks’ employees were called ‘Partners’. The company employed partners
worldwide, majority in North America. Most of them were hourly-wage employees called
Baristas who worked in Starbucks’ Retail. Upon being hired all senior executives had to train
and succeed as baristas before being allowed to assume their positions in corporate
headquarters.

2.5.3 Training Policy

Whenever a partner was hired to work at Starbucks, he or she had to undergo two types of
training.
1. Focused on “hard skills” such as learning how to use the cash register and learning
how to mix drinks.
2. Focused on “Soft Skills” where they explicitly taught partners to connect with
customers- to enthusiastically welcome them to the store, to establish eye contact, to
smile and to try to remember their names and orders if they are regular customers.

2.5.4 Compensation policy

Howard believed that partner satisfaction leads to customer satisfaction. The company had a
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. This lead to Starbucks having one of
the lowest employee turnover rates in the industry.

3. SUGGESTED SOLUTION

To test the authenticity of the customer’s feedback on what constitutes an excellent

customer service, investment in additional labour hours in few of the saturated markets
would be a suggested option instead of making a direct investment of $40 million in 4500
stores. The remaining amount of investment can be used to increase barista efficiency by
removing all non-value-added tasks, simplifying the beverage production process and
tinkering with the facility design to eliminate bottlenecks.

3.1 Justification for the solution

Starbucks was enjoying its 11th consecutive year of 5% or higher comparable store sales
growth. This means they had the capacity to make investments and not run into extreme
losses.
They needed to bring down the service time to the 3 minute level across all their stores
regardless of the time of day which would improve their customer throughput. About 55% of
the customers felt that Starbucks primarily cared about building more stores and about 61%
strongly agreed with the statement that Starbucks cared primarily about making money.
Starbucks had reached saturation levels in many existing markets. It would be better to
invest in people that would always add value in view of internal (employees) as well as
external customers.

The cons associated with the above suggested solution would be training of the existing as
well as the newly hired employees on the process related to management and technical
improvements made. Since investment would be made, EPS would be affected in initial
stages but would gradually improve with time as customer satisfaction would result in
increase of sales.