Starbucks: Delivering Customer Service

In 1982 Howard Schultz, an employee of a small coffee-bean store called “Starbucks” was enlightened while sipping an espresso in a coffee shop in Milan, and the rest is history. He envisioned America’s “third place” next to home and work, where coffee-connoisseurs could linger and relax in a classy, pseudo-European atmosphere while enjoying their favorite bean beverage. After buying the company a few years later, he vigorously pursued his vision of selling a wide-selection of hand-crafted brewed espresso of remarkable quality along the extensive line of coffee beans from all around the world. This was provided at a price well above industry standards, with a cup of coffee costing twice as much as that offered at any similar venue. Though initial skeptics where dubious regarding the product’s breakthrough success, customers found the price a small drawback next to great service and friendly ambiance and gladly cashed out upwards of a dollar for a single cup of coffee. The product line was simultaneously evolved, with a new warm beverage hitting stores at least once every holiday season.

Over the years, the Starbucks experience was adopted by a far wider range of customers than the initial upscale 25-44 female white collar coffee lover. This is in part due to Starbucks’ universal appeal, since the soothing atmosphere provides a safe haven for anyone wanting to take a break. Also, the vast range of beverages paired with the high-level of customization gives way to a mind-boggling variety, served fresh on location and available to suit almost anyone’s taste. As a result, sales of beverages have escalated to 77% of total sales while a decade earlier the distribution was equal to that of coffee beans.

Generally, Starbucks is proud to have a high approval rate among employees and “partners” (with 80-90% claiming to be satisfied with their employment). They firmly believe that a satisfied partner is the key to having satisfied customers. This has mostly paid off, with consumers appreciating the high quality of the products, service, and atmosphere. However, more recent market research shows a decline in customer satisfaction, with speed of service being the main issue in most cases. As a result, an extra $40 million is planned to be injected to make sales quicker and more efficient. As of now, it is still debated if this would be a sane and profitable course of action to follow, and whether it would truly add substantial customer value in the long run.

PEST Analysis

The factors influencing the market for coffee should be carefully investigated before moving on to more advanced, in-depth analysis. By doing so, we will get a good general overview of just what the most significant political, environmental, socio-demographic and technological factors might be.

Political

The issue of taxation regarding coffee plays a large role on the level of profitability. Although fairly modest in the USA, the amount of tax levied on coffee can be decisive as to whether the given country will be seen as profitable. Generally speaking, legal regulations regarding sale and consumption (e.g. possible age restrictions like “not to be sold to minors”) are not expected to change, though recent government-funded studies in the US established the “healthy” coffee consumption at two cups per day and not more, this is more likely to have an effect on the self-moderation of heavy coffee-drinkers than actually provoke any sort of governmental or legislative proceedings.

Environmental

It can be said that in Metropolises and large cities people find a fast-serving coffee shop extremely appealing, as large crowds and rush hours demand convenient service, and for many customers is a prerequisite to their visiting places like Starbucks. In places that are not of central or key location, fast service might not be ranked as highly as friendliness of staff, and customers might also spend a longer time in a store than one on the way to the office. Furthermore, it can be safe to assume that in areas or seasons where or when it is cooler, a warm cup of coffee or other beverage might be especially inviting, more than somewhere where it is unusually warm year-round.

Socio-demographic

With coffee drinking being conceived as an indulgence of the socially elite, it nowadays enjoys widespread appeal which is supported by the fact that today every other American drinks coffee while just a few years back consumption was declining steeply. Though coffee houses throughout Europe have a self-explanatory function of meeting point, discussion area and recreational facility, this concept has only been explored recently in North America, and is gaining in popularity and social recognition as we speak, and is only expected to increase over the course of the next few years.

Technological

Recent developments in coffee-brewing resulted in machines such as the Nespresso, Senseo or Illy café, which allow consumers to make espressos quickly and efficiently. They deliver high quality (at least in the case of ones like Nespresso) single-portion pellet coffee, comparable to that received from an espresso machine in a coffee shop. Although this will probably not affect the sales of coffee shops drastically, it can start a trend where offices purchasing such machines will have employees less motivated to grab a coffee on the way to or during office hours. On the other hand, machines developed like the venture model can help coffee shops increase efficiency and product quality, resulting in turn in an increased level of customer satisfaction.

3Vs

Valued Customer

Starbucks primarily focuses on affluent and well educated people, in the age of 25 and 44 that would eagerly pay a bit more for enjoying a specialty /
gourmet coffee before going to work or anytime they need to relax.

Value Proposition

A high quality coffee originating and directly purchased from various regions as Africa, Central & South America, Asia Pacific, provided to the customers in a convenient, trendy and pleasant ambience, with the best, customer intimacy service.

Value Network

Starbucks stores are widely available in North America and in many international countries. There are company-operated stores, specialty operations channels (food service, hotels), domestic retail store licenses (airports) and international licensed or non-licensed stores. Research and Development focuses on the operation of a twelve to eighteen months product cycle while service is enhanced by the use of a prepaid smartcard called “Stored Value Card”.

Organizational Context

Performance Management

The vast variety of Starbucks’ products made the barista’s job very complex. In less than ten years the number of available products increased to hundreds of combinations. Therefore, strict rules and specific methods were imposed by management in order to deliver high quality results and the desired personalized service. “Hard and Soft Skills” were taught besides discipline as the crucial aspects of the Barista’s job. This also led to the lowest employee turnover rate in the industry as Starbucks recruits its administrative staff from its store and area managers. On this way Starbucks makes sure that its company leaders have a profound knowledge of the company and business.

Social Support

Starbucks has a considerable employee satisfaction rate (80% – 90%).This fact results from various points: all employees are called “partners”, the company offers health insurance, stock options and the relatively high wages. Consequently, the social support of the company provides the partners with the sense of security and trust that would prompt and enhance performance and loyalty.

The Brand Report Card

The brand report card is a tool which helps managers to think systematically about how to grade their brand’s performance on ten specific characteristics. These characteristics are shared by the world’s strongest brands (Keller, 2000). All characteristics are valued from one (inadequately) to five (breakthrough)

Delivering on customers’ desires

Eventually, Starbucks created a customer need. It became a ‘third place’ besides home and work. Research however showed that Starbucks nowadays is not always meeting its customers’ needs (Case Starbucks, 2004). Therefore we value this characteristic four out of five.

Relevance

Starbucks regularly launches new products. At least one new hot beverage is introduced every holiday season. Furthermore, the new product development process is well developed. However, as Starbucks is losing sight of its customers, the need to focus on customer needs could prove essential in keeping the brand relevant. Therefore we value this characteristic five out of five.

Value

Starbucks creates an experience around the consumption of coffee. However, research showed that the brand image had some rough edges. The company has to ask itself if it is really communicating its values well. We value this characteristic four out of five.

Consistency

Generally, Starbucks did not try to change its image since the beginning. Customers see the company as a convenient place to drink a cup of coffee. Nevertheless, the product portfolio was extended with non-coffee beverages and snacks losing track of coffee beverages. Therefore we value this characteristic four out of five.

Positioning

Starbucks positioned itself clearly by creating a coffee experience for customers. To achieve this, the company focussed on three components: the product itself, service and atmosphere. Furthermore, service is an important factor in Starbucks’ strategy. We value this characteristic five out of five.

Portfolio

Since Starbucks does not carry any other brands, we cannot value this characteristic properly.

Integrated marketing activities

Marketing is everywhere in the Starbucks organisation, however, this structure also meant that market- and customer related trends could sometimes be overlooked. As was stated: “we tend to be great at measuring things, at collecting market data, but we are not very disciplined when it comes to using this data to drive decision marketing” (Case Starbucks, 2004). Therefore we value this characteristic three out of five.

Management

For a long time, Starbucks has been an established player in the coffee shop market. However, as market research pointed out that customers are changing, management needs to adapt to this changing need of the customer. While information is already available, this should be possible. We value this characteristic two out of five.

Support

As was mentioned before, R&D plays an important role in sustaining and developing the Starbucks brand. On the other side, Starbucks in the past reacted slowly to market research results. We value this characteristic three out of five.

Monitoring

As was mentioned before, Starbucks has been an established, strong brand in the past. Nowadays, the company can no longer rely solely on this brand image. As market research made clear that the image of the brand is not as well as one thought, Starbucks has to create a differentiated image and regularly has to audit this brand image. We valued this characteristic three out of five.

In general we can say that Starbucks scores high with a 3.7, indicating that it is a strong brand. However, as the market and especially its customers change, the company has to keep track of these changes by understanding the customers’ needs and adapt the company policies according to them. Research has to take place regularly to stay in touch with the customers’ valued attributes. Furthermore, marketing activities should be integrated and structured better through the organization in order to reach full understanding of these activities.

Brand Positioning

For succeeding competition a company needs to know the unique aspects of its product and where the advantages of the product are compared to the competing product. Companies furthermore need to know where its brand is located and which features its product has in common of those of its competitors.

Efficient positioning of a brand to be successful in a competitive environment requires the identification of those three crucial aspects: frame of reference, points of parity and points of difference.

Frame of reference

Starbuck’s major frame of reference is that of a coffee supplier. But this major frame can be subdivided into two minor parts for Starbuck’s operations. For the Starbucks retail stores coffee beverage is the frame of reference, whereas coffee vendor is the frame of reference for the sales group of Starbucks trading with whole beans.

Points of Parity

Starbucks faces basically two competitors: local cafes and fast food chain which are increasingly offering coffee beverages.

With the local cafes Starbucks share points of parity in quality and price. Both offer a high-quality coffee for a relatively high price Starbucks and the local coffee stores also have in common the community. At a local café a customer can also met friends or other people.

Starbucks and fast food chains have in common that it is convenient to go there. One does not need to wait for a coffee for a long time and is in a very casual environment.

Points of Difference

In contrast to the majority of the coffee suppliers, Starbucks focuses on the continuous development of its products and innovation of new ones. At the moment Starbucks offers hundreds of combinations of drinks made from the 11
basic hot coffee beverages offered.

Service is important to Starbucks and the company tries to make it a unique resource which sets them apart from its competitors. Starbuck’s service staff gets a special training to serve a customer in the fastest and best possible way, so that every single customer feels welcome. Recently Starbucks offers its customers to purchase a package offering wireless Internet access in more than 2000 stores in the US and Europe.

Starbucks in addition does not sale coffee, it sales the “Starbucks experience”. The company wants the customers not just quickly order a coffee and leave again. It has created an environment and atmosphere which invites the customer to stay longer in the store and enjoy the coffee while he or she can relax. Starbucks stores offer an experience. They are a way of life and make the customer want more. With this perception the customer will return to any Starbucks store in the world as he or she knows what to expect and get inside. Starbucks built its brand and image around the product itself.

Starbucks manages to stay on top of the highly competitive coffee supplier market. The company uses several means to differ from the rest of the industry. Although the number of competitors is increasing, so far no competitor exists operating in a global like Starbucks does. Hence, the company can profit from its reputation on a global level.

The Importance of Starbucks’ Store Growth

It is obvious from the graph, the increasing importance of Starbucks’ objective for a retail expansion, not only in the USA but in the whole world. The store growth between ’98 – ’02 in the International field has been quite remarkable. In ’98 there were only 131 stores while in ’02 there were 1312. Globalization and the increase in consumers perception that transnational companies have high quality and innovative products (78%), track new opportunities for growing, multinationals companies like Starbucks.

Dimensions of Global Brands

Brands operating on a global level are associated with three distinct attributes by customers. These are taken into account for the buying decision of the prospective customer. With 5886 stores in 37 countries Starbucks is regarded a global brand. Hence, the three characteristics can be applied to evaluate the perception of Starbucks from the customers’ point of view and how the company caters them.

Quality Signal

Customers connect quality to global brands. From their perspective global brands are more dynamic and have an emphasis on product development and improvement. Although the product will be more expensive, its quality compensates for price.

Starbucks attaches importance to high quality products. Therefore, Starbucks only purchases the best green beans available in the market. Their selection and Starbuck’s expertise in roasting are the basis for the quality and the range of coffee offered in stores. On this way Starbucks guarantees the customer to get the same high-quality coffee in every store all around the world.

Global Myth

Global brands are used by customers for creating an imagined global identity. Customers believe that global brands make them part of something bigger and give them a sense of belonging.

Starbucks tries to appeal to this sense of belonging by their unique atmosphere they call “coffee experience”. Going to Starbucks is more than just drinking a coffee. The company offers customers the opportunity to sit down and relax, to meet others or just enjoy a nice atmosphere. The unique combination of lounge-flair, music and coffee makes Starbucks a “third place”. All around the world entering a Starbucks store gives the customer the chance to seize this experience and atmosphere.

Social Responsibility

Customers all around the world demand global brands to make use of their influence and power to positively influence society’s well-being. Social responsibility is expected to be part of the company’s policy and actions. Beneficial achievements by a company can lead to increased revenues as customers appreciate the effort taken by this specific company. As Starbucks is also well-aware of this fact it has an extensive program linked to social responsibility and made it part of the company’s mission statement.

The company’s social responsibility reaches from community programs to projects for improving the conditions of coffee farmers and their families or policies throughout all of the company’s operations to minimize the environmental impact. To reach further goals Starbucks entered a partnership with the United States Agency for International Development and found The Starbucks Foundation. This foundation aims at creating hope, discovery, and opportunity in communities where Starbucks lives and works, especially in the inner-city areas.

These three dimensions of global brands are the basis for the preference of customers for Starbucks coffee. Starbucks has created and implemented polices to serve these attributes in order to enhance the sales of Starbucks products by an increasing number of customers.

Adding Value Through Creating Customer Intimacy

Starbucks’ satisfied customers, according to a recent survey, visit a store on an average of 4.3 times a month. If the customers are highly satisfied they might even visit a store up to 7.2 times a month. The most loyal customers visit Starbucks 18 times a month. The latter ones especially value the high-quality and place trust in Starbucks as a brand delivering products of the anticipated quality.

As the customer satisfaction decreased in recent years, Starbucks has to find new ways to attract new customers or create long-term relationships with the most loyal or highly satisfied customers forming the basis. These customers on average spend $4 per visit which makes up for $16 or $28 per month. To extend the customer life and reach the aim of increasing customer satisfaction, customer intimacy needs to be created.

Creating customer intimacy is a difficult issue for a company that serves 20 million customers in more than 5000 stores worldwide. Therefore, it is necessary to pay special attention to the customers being loyal and returning most frequently. Identifying these is the major issue. One opportunity is that the Baristas have to pay special attention and identify them. This is problematic as they have to prepare the coffee and simply too many customers enter and leave the shop during the day. Alternatively, Starbucks can further build on the idea of gift cards, extending their functions to act as “smart cards”, providing customer incentives such as “buy-ten-get-one-free” deals and free promos of new products to regular customers.

Besides boosting sales, it would also allow ludicrous amounts of customer information to be retrieved, ranging anywhere to consumption habits, frequency of visits and locations of purchase, to start. The Baristas need to be instructed to pay extra attention to return customers shopping with such cards (constituting our most valued customer base). In this way, frequently returning customers can be identified. The Baristas should be instructed in studying customer files in order to recognize the customer as well as his or her preferred coffee variation, and they should be encouraged to interact with them and offer them samples of new beverages.

This will lead to an individualized service with which Starbucks can create a more personal environment. Such a personal atmosphere makes customers feel more welcome and make them return even more often. Hence, the company can create closer links with this important customer group. This can also be seen as an extension of Starbucks’ “third place” approach.

Establishing customer intimacy with less satisfied or less frequently returning customers is more difficult. Personalizing their coffee with the huge variety of products and flavors offered is already a beginning to create customer intimacy. Increasing the satisfaction of these customers and make them return more often can only be done by an increased service. On the one hand waiting times have to be reduced and every single customer has to be treated the same way. Making them feel welcome and paying attention to their wishes is crucial for creating a “third place” to which they like to return.

Strategic Options

Starbucks is in many areas a groundbreaking company and a true pioneer in providing heightened customer service and value. Although their core product, no matter how fine and exotic, is the everyday, household coffee bean, and an expensive version at that, they do more than just brewing and selling a beverage, they provide customers with what they define as the “Starbucks experience”. This is a timeless value proposition that the company dedicates itself to, so universal in its appeal that it seams that there are people from all over the world who share a common enthusiasm regarding what Starbucks has to offer. However, Starbucks needs to be clear with several hard and fast facts of matter.

Most important of all, it has to be realized that there are consumers who the company provides high quality products and service to, and they are or should be the company’s primary concern. Getting lost in product line development, expansion policies and endless battles with competition results of losing track of actually who it was that got the firm here in the first place: the customers. Making them feel special and valued has little to do with whether or not a seasonally special coconut toffee walnut macchiato is introduced or not. Although having a large selection of choice available appeals to most people and gives way to high levels of customization, it is of mediocre importance in generating customer loyalty and will sooner or later have almost as substantial of an intimidating effect on new or prospective users. However, the idea of introducing Starbucks to consumers through retail of products such as roasted specialty beans, ground coffee or even ice-cream via food chains and such is valuable and should be expanded. This will allow people to get accustomed to the experience and basic terminology and make them feel more comfortable entering a Starbucks parlour for the first time.

Furthermore, by providing the advanced system of “smart cards” mentioned earlier, the company has a chance to prove that being multinational and providing customer intimacy are not mutually exclusive. . Thus, establishing key accounts can be made possible for Starbucks and would in turn allow them to more efficiently describe each individual consumer. Since return customers are of utmost importance for Starbucks, they should do whatever is in their power to cling on to existing, loyal ones. This would include investing the aforementioned $40 in sales force in order to speed up service.

All-in-all, it can be said that Starbucks has established itself as a successful and valuable firm capable of delivering to a wide spectrum of consumers needs. However, brand development should compose an integral part of Starbucks’ future if it wants to maintain its elegant market leading status it bears today.

Reference list

Books:

Walker, O.C., Mullins, J.W., Boyd, H.W. (2006). Marketing Strategy, New York, McGraw-Hill

Articles:

Treacy, M and F. Wiersema (1992) “Customer intimacy and other value disciplines”. Harvard Business Review: 82-93

Walker, J.O.C., J.W.Mullins, et al.(2005). Marketing Strategy: A decision focused approach, Chapter 9. McGraw-Hill Irwin

Keller, K.L., (2000) “The Brand report card”. Harvard Business review: 1-10

Websites:

www.starbucks.com

http://brandautopsy.typepad.com/brandautopsy/starbucks_tribal_knowledge/index.html

http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html