Assigned Case Questions 7. Starbucks: Delivering Customer Service 1. What factors accounted for the extraordinary success of Starbucks in the early 1990s? What was so compelling about the Starbucks value proposition? There were several factors that accounted for the success of Starbucks in early 1990’s. Opening more stores, Schultz decided to take the company public which raised $25 million. This helped to open more stores. This led to tremendous increase in sales without any expenditure on advertising. Value proposition: 1. Firstly, Starbucks strategy revolved around mantra “live coffee”. Which means creating the best experience for the customer so that they should come again. There were three main components to this: - Coffee itself, they made sure their coffee is of highest quality sourced from different parts of the world. Starbucks controlled the supply chain, worked directly with the coffee grower and it also controlled the distribution to the retailers. - Second component was experience which Starbucks referred as “customer intimacy” - Third is atmosphere. They focused on creating an ambience which would want customer to stay longer in store. That builds human spirit, sense of community etc. 2. Channels of distribution: they wanted to reach where the customer live, work, travel, dine and shop. So, they started to sell their product through different channels 3. Starbucks Partners: they called their employees as partners. Howard believed that the partner satisfaction leads to customer satisfaction. 4. Measuring service performance: based on cleanliness, service, quality, time of delivery. a. Why have Starbucks’ customer satisfaction scores declined? Has the company’s service declined, or is it simply measuring satisfaction the wrong way? The most important reason why the customer satisfaction declined was because of speed-of-service. Due to the customization of drinks, operational inefficiencies, increase in bottlenecks etc the wait time has increased tremendously that has led to unhappy customer. Yes, the company’s service has been declined. b. How does the Starbucks of 2002 differ from the Starbucks of 1992? In 1992, company had 140 stores in Northwest and Chicago. They were competing against other small scale coffee chains such as Gloria Jean’s Coffee beans and Barnes Coffee & Tea. At that time people were skeptical that the idea of selling $1 coffee in paper cup with Italian names would work as during that time no one was drinking coffee as much in America. By 2002, Starbucks was established as the dominant specialty coffee brand in North America. CAGR of 40%, net earning had risen at CAGR of 50%. They had more than 5000 stores around the globe. Serving 20million customers. Retail Expansion: Coffee consumption US was on rise thus increase in retail stores helped. Service innovation: They had introduced service innovations like introducing SVC, HotSpot wireless Internet service. c. Going beyond the case content, ow does the Starbucks of 2022 differ from the Starbucks of 1992? Starbucks of 2022 is very different in variety of aspects, especially in terms of wide range of products, service etc. We can say that vision of Howard to make Starbucks as third place for people after home and work has been successful. They have engrained Starbucks in day to day living of the people. Product innovation has been key to the growth of Starbucks. They introduce at least one new product each holiday season. Also, retail expansion has helped them a lot. Today we see Starbucks in every corner of the country and they have huge presence in international market. In India they have 220 stores as of April 2022. 2. More specifically, utilizing the service profit chain, as a lens, a. How valuable is a highly satisfied customer to Starbucks? Highly satisfied customer is the most important and valuable factor of their business. Without that they would not be able to gain customer loyalty and thus that would lead to decline in sales. b. Should Starbucks make the $40 million investment in labor in the stores? They should make some investment in Labor as that would lead to increase in customer satisfaction. But before doing that they should verify if what the customers are saying in survey is true. Secondly, are we going to get the return on investment. Also, explore other options by which we can increase the customer satisfaction since the customer, customer behavior has changed a lot since they have started.
