- A market research report found that Starbucks was not meeting customer expectations in terms of service. To increase customer satisfaction, Starbucks plans to increase labor in stores to speed up service, though this may increase costs by $40 million. - Starbucks was founded in 1971 by three coffee enthusiasts in Seattle. It grew to 140 stores by 1992 when it went public, raising $25 million. - Since going public, Starbucks' sales have increased at a compound annual growth rate of 40% and net earnings have risen at a compound annual rate of 50%. It now has over 5,000 stores globally and opens about 3 new stores per day on average.

2. At the Outset
• A market research report indicates – not meeting customer
expectations in terms of service
• To increase customer satisfaction, company plans to increase labour
force in stores thus increasing speed of service
• However, this cost ($40m) could hit the bottom line
Where it all began…
•
•
•
•
•
3 coffee fanatics – Gerald Baldwin, Gordon Bowker & Ziev Siegel
Specialized in selling „arabica‟ beans
Create the 3rd home – Home, Office & Starbucks Coffee Shop
By 1992, 140 stores
In 1992, decided to go public & raised $25m

3. Benefits of going public
• By 2002, sales climbed at CAGR of 40%
• Since IPO, net earnings risen at CAGR of
50%
• Now serving 20 million unique customers
• 5000 stores around the globe
• On an average, it opening 3 new stores a day
• Spent almost nothing on advertising:
– Focused on point-of-sale branding
– Local-store marketing

4. Store Statistics
FY 1998
Total North America
(Stores)
Company Operated (%)
Licensed Stores (%)
Total International (Stores)
Company Operated (%)
Licensed Stores (%)
FY 1999
FY 2000
FY 2001
FY 2002
1755
2217
2976
3780
4574
92.42
7.58
91.93
8.07
82.19
17.81
78.60
21.40
76.43
23.57
131
50.38
49.62
281
34.52
65.48
525
32.95
67.05
929
31.75
68.25
1312
29.27
70.73
# Total North America: Steady rise in number of Licensed stores
# Total International: Steady rise in number of Licensed stores
North America Company Operated Stores (FY2002)
Details
Average
Average hourly rate with shift supervisors & hourly
9
partners
Total Labour hours per week, average store
360
Avg. weekly store volume
15400
Avg. Ticket
3.85
Average daily customer count, per store
570
Unit
$
Hours
$
$
People

5. Starbucks Value Proposition
• Creating an „experience‟
• An experience that could weave into the
fabric of their daily life
• Their ‘Experiential Branding Strategy’
– Part 1: The Coffee (The Product)
– Part 2: Service (Customer Intimacy)
– Part 3: The Atmosphere (Ambience)

6. Channels of distribution
• Philosophy – To reach customers where they
work, travel, shop & dine
• Channels
– Starbucks Coffee Shops
– Specialty Operations (Retail channels)
Product Mix, North America
Company-Operated Stores FY2002
Retail Product Mix
Coffee Beverages
Food Items
Whole-Bean Coffees
Equipment &
Accessories
% of Sales
77
13
6
4

7. Starbucks Partners
•
•
•
•
Employees called „Partners‟
Hourly-wage employees called „Baristas‟
60,000 partners worldwide
Partner satisfaction leads to customer
satisfaction
• Lowest employee turnover rates
• Company encourages promotion within its
own ranks

8. Delivering on Service
• Partners had 2 types of training
– Soft Skills
• Welcome customer to store, to smile, remember their names
etc.
– Hard Skills
• Use Cash Register, Mix drinks etc.
„Just Say Yes‟ Policy
• Empowered partners to provide best service possible, even if
it meant going beyond company rules
• E.g. Customer spills drink & asks for a refill, we give it!
• E.g. Customer doesn‟t have cash & wants to pay by check,
then we give drink as a free sample
• Don‟t want to win argument & lose customer

9. Delivering on Service
• Train Baristas
– The complexity of the drink required them to be
trained to make it in a given time
– But if a customer walks in & asks for
customization then the barista must be able to
finish it soon without hampering other customer
orders
• Challenging Role of partners
– In early days, easy to strike a conversation with
customer & keep them engaged
– But today long queues of customers at the door
gives less time for a customer interaction

10. Measuring Service Performance
• “Customer Snapshot” – A Mystery Shopper program done 3
times a quarter
– Speed of Service
• How long did the customer have to wait? (Goal was to serve in 3
minutes from back of line to drink in hand)
– Product Quality
• Was the order filled accurately?
• Was the temperature of the drink within the range?
• Was the beverage properly presented?
– Cleanliness
• Was the store clean? The counters, the tables, the restrooms?
– Service
• Did the partner verbally greet the customer
• Did they make eye contact & say thank you?

11. Customer Snapshot Scores
Service
94.5
94
93.5
93
92.5
92
91.5
91
90.5
90
Cleanliness
93
94
94
93.5
92.5
93
91.6
91.2
91
92.1
90.8
90.5
91.5
90
89.5
89.8
89.9
89
01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q1
Product Quality
Avg. Wait Time (in
minutes.seconds)
92.5
92
92
91.5
91.8
91.5
91.2
91
90
92
91.5
92.5
01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q1
90.5
92.4
92
90.4
90.6
90.2
01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q1
3.35
3.3
3.25
3.2
3.15
3.1
3.05
3
2.95
3.3
3.25
3.2
3.15
3.1
3.09
3.1
01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q1

12. Measuring Service Performance
• Parameters of Legendary Service
– Initiating conversation with customer
– Partners recognizing customer by name or by drink
order
– Partners being responsive to service problems
• “Legendary Service”
– A behaviour that created a memorable experience for
the customer
– That inspired the customer to return
– That made the customer tell a friend

13. Legendary Service Scores
100
90
80
70
60
5*
50
4*
3*
40
1 or 2 *
30
20
10
0
01-Q4
02-Q1
02-Q2
02-Q3
02-Q4
03-Q1

14. Competition
Store Name
Caribou
No. of
Stores
No. of
States
200
9
Differentiation Aspects
Core Environment
Look & feel of an Alaskan Lodge
Fire Places & Soft Seating
Peet's Coffee &
Tea
70
5
Freshest coffee in the market
Roasting to order (Hand roasting small batches of
coffee)
Dunkin Donuts
3700
38
Flavoured coffee, Non coffee alternatives
Dunkaccino (A coffee & chocolate combo)

15. CAFFEINATING THE WORLD
Two biggest drivers of company growth

16. Retail Expansion
Optimistic Growth Plan because:
• Coffee consumption was on the rise in US
• Specialty coffee, one-third coffee
consumption outside of the home
• 8 states in US without Starbucks
• Scope for growth in existing markets

17. Retail Expansion
Strategy
• Opening stores in new geographical area
while clustering stores in existing areas.
• Resulted in cannibalization but overall
sales increased
• Demographics, Competition , real estate
• Company‟s goal to have 15000
international stores- UK, Australia, Asia,
Japan

18. Product Innovation
• Introduced at least one new hot beverage every
holiday season
• R & D team: Product formulations, focus groups,
in-store experiments, market tests
• Drink fit into the ergonomic flow of operations
• Importantly- partner acceptance
• Most successful innovation- coffee and noncoffee-based line of Frappuccino beverages

19. Service Innovation
• Store-value card(SVC)-launched Nov
2001
• Prepaid, swipeable smart card- used to
pay for transactions in any starbucks store
• Cardholders- visit Starbucks twice as often
• Card given as gifts introduced

20. MARKET RESEARCH FINDINGS

21. Starbucks‟ Brand Meaning
• Little image differrentiation b/w Starbucks and smaller
coffee chains
• Starbucks focused primarly on making money and
expansion
Brand Meaning:
• Everywhere- the trend
• Good coffee on the run
• Place to meet and move on
• On the way to work
• Accessible

22. Changing customer
• New customers- Younger, less educated, lower
income
• Less frequent and had different perception of
Starbucks brand compared to established
customers
• Historical customer profile had expanded e.g.
large Hispanic customers in California

23. Driving customer satisfaction
• Direct link b/w customer satisfaction and
customer loyalty
• Customer satisfaction gap due to service gap
b/w scores on key attributes and customer
expectations
• Poll results showed that Starbucks needs to
have friendly staff, faster service and better
offers for loyal customers etc.

24. Rediscovering
The Starbucks Customers
• Relaxing labor-hour controls, add additional 20
hours of labor, per week, per store.
• Need to bring service time down to three-minute
level
• Increase customer satisfaction and build
stronger long-term relationships
• Improve customer throughput
• Starbucks- establish connection between
satisfying customers and growing the business

25. Latte Experience
“We Listen to the customer, Acknowledge their
complaint, Take action by solving the problem,
Thank them,
and Explain why the problem occurred”

26. Creating a difference
• Microinteraction
• App

27. THANK YOU