Starbucks: Delivering Customer Service

Name: Ahsan Bashir Gill

Roll Number: L18-3161

Section: MBA-B

ASSIGNMENT FOR SESSION 3

“Starbucks: Delivering Customer Service”

Case Summary:

        Starbucks was founded in 1971 by three coffee fanatics named Gerald Baldwin, Gordon Bowker and Ziev Siegl. Schultz joined in 1982 and traveled to Italy, where he became fascinated by the role of espresso bars in the neighborhood. Schultz started opening up new stores when the founders agreed to sell him the company. In 1992, Schultz decided to make the company public. There was a lot of criticism but Schultz successfully raised 25 million dollars in the process. By 2002, Starbucks sold coffee to 20 million customers in 5000 stores across the globe. Sales growth rate was 40% and net earnings growth rate was 50%. They had spent almost nothing on advertisement to achieve success. Starbucks wanted to create experience around the consumption of coffee. Starbucks controlled as much of the supply chain which they possibly could. Starbucks employees were called “partners” and they employed 60,000 worldwide. Hourly-wage employees were called “baristas”, who basically worked in Starbucks retail stores. They had a very low turnover rate. If a barista lasted beyond 90 days then there was high probability that the barista will stay for three years or more. To reduce the service time the company began installing verismo machines which decreased the number of steps required to make a beverage. The company used a mystery shopper program called “customer snapshot” which measured the service performance. In this program every store was visited by a mystery shopper three times a quarter and rate his experience based on service criteria. Three-minute standard was the basis for which Starbucks customers defined “excellent service”. The biggest drivers of company growth were retail expansion and product innovation. The issues faced by Starbucks are:

• A market research revealed that the company was not meeting customers’ expectations in the area of customer satisfaction.
• The company had no Chief Marketing Officer, and marketing department functioned as three separate groups.
• Starbucks was not conveying the brand’s message properly to the customers. Customers started to develop their own perception of the brand. Their brand image was not good as they hoped.
• Starbucks measurement tool has a flaw because of which they were unable to identify these results.
• Senior vice president of administration in North America, Christine Day, came up with a plan to invest an additional $40 million annually in the company’s 4500 stores would help allow each store to add 20 hours of labor a week which will improve the speed of service and increase customer satisfaction.

My Response:

• Starbucks needs to appoint a Chief Marketing Officer because there is lack of communication among the three groups which are performing the marketing functions. Executives have assumed marketing related responsibilities and without a CMO the customer or market trends could be ignored. A proper experienced individual should be hired to align the marketing objectives with the goals of the company in order to obtain desired perception and brand image.
• They were focusing on expanding too quickly because of which they started to lack customer focus. Expansion is a good strategy but it should be applicable only if Starbucks has a high satisfaction rate.
• The tool used for measuring the service quality should be changed. Flaws in that tool should be identified and fixed in order to get accurate results. Starbucks should not rely on this tool for measuring service quality. The data gathered from other tools should also be used.
• In my opinion the $40 million investment should not be done because recently new machines have also arrived which are reducing the service time. If the machines failed to reduce time or new products are introduced which are not made from that machine then the company should add 20 hours of labor in only 10 or 20 stores to check the response and results. This should be treated as an experiment or a pilot. There could be many reasons for low satisfaction which need to be identified.