Starbucks: Delivering Customer

Service

By
Allen Thomas Kannattu
Jai Malhotra
Nitish Sahay
Paras Madan

Starbucks in 1992
Service: Great service
was defined as
customer intimacy.
Give each customer a
sense of belonging by
personalizing the
experience as much as
possible

Brand
Perceptions
Best coffee;
classy,
upscale; a
third place

Service
philosophy

Physical
Environment

Premium
Coffee

Coffee: Sophisticated
selection of the highest
quality coffee
(Arabica) in the world
formed the core of a
highly differentiated
value proposition

Consumption
Physical Atmosphere: Starbucks is a place Patterns
where people can enjoy their social interactions,
Tendency to linger;
relax, or just spent sometime by themselves
ritualistic
Starbucks
idea Customer
changed the norm from buying
Target
consumption;
coffeeAffluent,
as a drink
to the experience of enjoying
well-educated,
looking to selfcoffee white-collar patrons
Starbucks
strategy
was
to open only companyindulge
(skewed
female)
between
owned stores
andofavoid
franchising
which
the ages
25 and
44
enabled the company to keep full control of
quality of its products and services

Starbucks in 2002
New Acquisitions
Less sophisticated
in a hurry, more
pragmatic
Service
philosophy
Different
Consumption
Patterns

Physical
Environment

Premium
Coffee

Established
Customers
Sophisticated affluent
coffee lover,
embracing the live

Different Brand
Perceptions

Market Research
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

Key Challenges for Starbucks

Customization of
drinks was slowing
down serviceTension between
product quality and
Customer focus

Failed to meet
customer
expectations and
thereby losing
customer loyaltySpeed of service
was low

Customer base was

evolving- young,
less well educated
and lower income

Invest $40
million to
increase labor
hours in each
store?
Impact on
sales and
profitability?

Competition from
regionally
concentrated small
scale coffee chainsVery little product
differentiation
perceived by
customers

Lack of strategic
marketing groupGap between
collecting data and
decision making

t of customer satisfaction on Revenue of Starbucks

Number of
Starbucks
Visits/Month
Number of
Starbucks
visits/Month
Average ticket
size/visit
Average
customer life
Revenue/year/customer

Satisfied
Unsatisfied Custome
Customer
r

Highly
Satisfied

3.9

4.3

7.2

$3.88

$4.06

$4.42

1.1

4.4

8.3

$ 181.58

$ 209.5

$ 381.9

Total lifetime value of a loyal customer is = (4.42*18*12*8.3) = $

7924 dollars
Total lifetime value of a highly satisfied customer is =
(4.42*7.2*12*8.3) = $ 3169 dollars

Improving Customer Service

The installation of the labor-saving verismo machines
The SVC prepaid cards
Speeding up the service :Bringing the service time down to 3
minutes, regardless of time of the day.
Its also seen that the women segment is decreasing, hence
some special offer for them.
Free cups: reduce the perception that Starbucks is only
obsessed with expansion and money making
Additional partners in the stores
Better training of partners to treat customers better

roposal to investing $40million reasonable to be accepted?

40 million/3496 stores = 11.4k investments per store.

Diff btw annual value of high satisfied vs satisfied is 172$
In order to make it viable $ 11.4k /172= 67

Existing store average =$ 759 k ,avg ticket size =4.06 $

759k/4.06 = 187 k transaction per yr / store.
Avg customer 5 visits a month and 60 visits a yr
187k/60= 3117 customers per year.

So its ideal to invest $ 40 million.

Thank You!