HBS Case 9
Starbucks: Delivering Customer Service
In 1971, Starbucks started as a small coffee shop which targeted a specialized market of coffee purists. Howard Schultz, who later owned the company and initiated the high growth period, joined Starbucks’ marketing team in 1982. Main concept of Schultz marketing strategy was too make Starbucks “America’s third place” considering home and work the two other places where Americans spend most of their time. In 1992, Schultz acquired Starbucks and made an initial public offering. Despite Wall Street’s doubts about the IPO, $25 million was raised by Starbucks.
By 2002, Starbucks had opened over 5,000 stores and average three store openings per day. In 2002 Starbucks experienced its 11th consecutive year of 5% or more sales growth. Despite continued sales growth, market research had shown that in the first two years of the 21st century customer expectations of service were not being met. The company had a mystery shopper program which provided evaluations called “Customer Snapshots”. These were a very important tool in Starbucks’ market research. Christine Day, senior VP of administration in North America, proposed a plan to invest $40 million in the company’s 4500 stores to be used for adding 20 hours of labor for each store. The goal of this investment is to improve customer service. This is based upon the premise that adding hours for employees will allow speed of service to improve. Indirectly this creates some extra time to be used to build rapport with the customer and as an opportunity to strengthen customer intimacy. The Starbucks brand has always been dependent on customer service at its coffeehouses and was a major component of the coffee experience which Starbucks continuously sought to provide and improve. Value
Starbucks had three components to its brand strategy of creating a unique coffee experience. The first component was the coffee itself. The company prided itself on providing the highest quality coffees even if it needed to be imported from remote places in the world. This added value to the coffee and customers were more than willing to pay a little more than for an average cup of coffee.
Service is the second component of Starbucks value strategy. Either by customizing each customers drink just the way they like it or knowing customers by name, Starbucks believed that these were key facets of providing excellent customer service.
HBS Case 9
The third component of Starbucks value strategy is the atmosphere. One of Starbucks main goals was to create an ambience that meshes with coffee drinking. A social but comfortable setting is what Starbucks was looking to create. This type of setting entices customers to stay and take their time drinking their coffee and also make repeat visits. Repeat customers make up a great portion of Starbucks sales and it is crucial to maximize the satisfaction of each and every Starbucks customer.
Value of a highly satisfied customer
As shown by Exhibit 9, when customer satisfaction level increases from satisfied to highly satisfied, the number of customer visits per month increases 67% (from 4.2 visits/month to 7.3). Since this is a significant increase, Starbucks is probably very aware that there is a great difference between “satisfied” and “highly satisfied” customers. Exhibit 9 also shows a greater average ticket size per visit and a greater average customer life. These factors are all very crucial to increased sales to profitability as well.
By comparing estimates of sales amounts for the satisfied customer as opposed to sales amounts for the highly satisfied customers it is obvious the level of satisfaction is very influential on sales for Starbucks. Using the statistics from Exhibit 9 , including average number of visits/month, average ticket size,...
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