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Prof Myers-TierneySpring 2011
StarbucksDelivering Customer
Service
Dolan’s Schematic of Marketing Process
2CMM Prof Alexander & Myers-Tierney
Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to satisfy customers.
CMM Prof Myers-Tierney 3
Business Decision?Increase Hours/Store/Week 20 hours
Meet Customers expectations 20 hr/week store for 4,500 stores Goal: Improve speed of service and
increase customer satisfaction Will excellent service increase sales? Concerns:
Labor is already biggest expense Cost of added labor $40mm Every $6mm is 1 penny/share
CMM Prof Myers-Tierney 4
Starbucks Success
11 years of 5% or more CAGR (Same stores)
Serving 20 million customers in 5000 stores
Starbucks value proposition Premium coffee Physical environment Service philosophy
CMM Prof Myers-Tierney
Starbucks in 1992
5
Service philosophy
Physical Environment
Premium Coffee
STARBUCKS
Consumption Patterns
Tendency to linger; ritualistic
consumption; looking to self-
indulge
Target Customer
Sophisticated, affluent coffee lover, embracing the “live
coffee” lifestyle
Brand Perceptions
Best coffee; classy,
upscale; a “third place”
CMM Prof Myers-Tierney 6
Starbucks Value
Offer “live” coffee = Unique Experience1) Best coffee highest quality – control supply chain2) Service = customer intimacy ÷ recognize customer,
remember their drink3) Ambience – Atmosphere – Come for coffee then lounge –
upscale environment According to Schultz:
“It’s based on the human spirit, it’s based on a sense of community, the need for people to come together.”
Company Overall Objective To establish Starbucks as most recognized and respected
brand in the world.
CMM Prof Myers-Tierney 7
Competition
Caribou Coffee –Minneapolis –Alaskan Lodge 200 stores, 9 states
Peet’s Coffee + Tea –Freshest Coffee -70 stores, 5 states
Diedrich Coffee – 400 Stores Independent Coffee shops Donut + Bagel Chains
Dunkin Donuts -3700 stores, 38 states
CMM Prof Myers-Tierney
The Competitive Landscape When Starbucks was Introduced
8
Starbucks
Dunkin’ Donuts,corner coffee shops
CMM Prof Myers-Tierney
The Competitive Landscape in 2002
convenient, high-quality coffee
in a clean, comfortable setting
an increasing number of flavored coffee alternatives
9
Starbucks
Dunkin’ Donuts,corner coffee shops
Starbucks’ Customers‘Old’ vs. ‘New’
drink Starbucks is part of a self-indulgent ritual
drink Starbucks is part of a pragmatic routine
tend to linger at Starbucks tend to rush at Starbucks
see Starbucks as a sanctuary to escape from the ‘real world’
see Starbucks as a place to pass through on the way to work
find Starbucks desirable for the social ambience and atmosphere
find Starbucks desirable for the convenience
Old customers… New customers…
Who does this sound like? Who does this sound like?
CMM Prof Myers-Tierney 11
Growth Drivers – Retail Expansion and Product Service Innovation
Product 1 new hot beverage every holiday season NPD takes 12-18 months Introduced Frappuccino – coffee + New coffee
Service Starbucks stored value card 1 yr. 6mm cards with $160mm in sales Used as gifts = new customers Used to collect customer information Added T-Mobile Hot spots
CMM Prof Myers-Tierney 12
Research Results (1)
No chief marketing officers Marking in 3 departments
1. Market Research2. Category Group3. Marketing group –Promotion plans
Marketing is everyone’s responsibility
Correct research very focused, No Big Picture
CMM Prof Myers-Tierney 13
So What’s the Problem? New market research indicates customer dissatisfaction
New customers are more dissatisfied
Little differentiation from competitors
61% agree strongly that “Starbucks cares primarily about making money”
55% agree strongly that Starbucks cares primarily about expansion
42% of respondents view Starbucks as “corporate”
Are we focusing on the right things? Are we clearly communicating our
values?
So What’s the Problem?
CMM Prof Myers-Tierney
Starbucks’ Service Deterioration
14
Too little Experienced
Labor
Baristas Have No Time to
Chat
Grumpy Employees
Employee Turnover
Lots of New Customer
Acquisitions
Tendency to Order Hand-Crafted Drinks
+Desire for Customization
Long Lines
Grumpy Customers
New Product Complexity
Complex orders
Leave before ordering
Don’t come back (as often)Less of a “Third
Place” attachment (diminished brand
loyalty)Order something
simple rather than complex (lower ticket
value)
CMM Prof Myers-Tierney
Starbucks in 2002
15
Different Consumption
Patterns
Established Customers
Sophisticated affluent coffee lover,
embracing the “live coffee” lifestyle
Different Brand Perceptions
New Acquisitions
Less sophisticated in a hurry, more
pragmatic
Service philosophy
Physical Environment
Premium Coffee
STARBUCKS
MBA 8520Starbucks
What happened?
CMM Prof Myers-Tierney 17
What Happened? Labor program instituted $40m focused on stores w/greatest need Store sales +, cust. satisfaction + Transaction times reduced (some impact from
automated verisma machines, SVC cards)
Late 2003 launched Starbucks Visa w/points
2003 revenues up 25%, earning 35% In 2004 plan to open 1,300 more stores
long term goal 25k (10k in US, 15K intn’l)
CMM Prof Myers-Tierney 18
What Happened? Feb 2007 Starbucks has 13k
stores, plan is to reach 40K worldwide
CEO Howard Shultz Feb 14, 2007 memo criticized decisions that have: “led to the watering down of the
Starbucks experience and What some might call the
commoditization of our brand”
CMM Prof Myers-Tierney 19
What Happened? January 2008 Howard Schultz
returns as CEO, says: “company's rapid growth had led to
bureaucracy. Starbucks shares lost almost half
their value last year as price increases and a weak economy slowed traffic at its U.S. locations,
and a lack of appealing new products dulled demand.
CMM Prof Myers-Tierney 20
What Happened? A few days after his return, Mr.
Schultz: shuffled a handful of top management
positions plans to close weak stores and slow the
number of store openings in the U.S. as well as refocus the chain on coffee.
Starbucks plans to close all of its company-operated stores in the U.S. from 5:30 p.m. to 9 p.m. local time to retrain 135,000 store workers, in part to teach them how to better make espresso drinks.
CMM Prof Myers-Tierney 21
What Happened? Jan 29, 2009: Starbucks Corp., posting a
69% drop in quarterly profit, said it will close another 300 stores and cut 6,700 workers as it continues to reel from overexpansion and a sharp sales slowdown amid the recession.
Will close an additional 200 locations in the U.S. and 100 locations internationally by this fall, on top of more than 600 store closures the company announced last year. The chain currently has nearly 17,000 outlets and 167,000 workers.
Starbucks plans to lay off 6,000 store workers
CMM Prof Myers-Tierney 22
Take Aways?
CMM Prof Myers-Tierney 23
Take Aways Difficulty of maintaining brand
“experience” with rapid growth. “Exclusivity”
Importance of positioning in rapidly developing market (DD, McD)
Decision trade-offs (Brand vs Operational Efficiencies)
Higher price based on Starbucks “experience”
Diluted “experience” = diluted brand, customer satisfaction and profits…..
Focusing on multiple segments is difficult
CMM Prof Myers-Tierney 24
Extra Slides
CMM Prof Myers-Tierney 25
Starbucks History1971
Founded by Gerald Baldwin, Gordon Bowken, Ziev Siegl Opened small coffee shop in Seattle Specialized in whole bean Focused on coffee purists
1982 Howard Shultz joined Starbucks Marketing Team Travel to Italy Observed espresso bars in neighborhoods Convinced management to set up an espresso bar in Seattle downtown shop
1984 Schultz bought out founders Began opening stores Sold whole bean premium-priced coffee Target affluent, well educated, white collar, 25-44, skewed female
1992 140 stores in northwest + Chicago Went public
2002 Schultz –COB, Chief strategist, Orwin Smith – CEO
CMM Prof Myers-Tierney 26
Starbucks Channels Company owned most stores in U.S. Stores in high traffic, highly visibility
Sold beans, rich brewed coffee, Espresso, Teas Retail Mix
Specialty Operations 15% of Sales
Goal: Reach customers where they work, travel, shop, dine
Coffee Beverage 77%
Food 13%
Whole Bean Coffee
6%
Equipment/Accessories
4%North America food service Hotels, airline, restaurants
27%
Domestic Retail stores 18%
Int’l Stores, grocery, clubs Pepsi Frappuccino 55%
100%
CMM Prof Myers-Tierney 27
Growth Drivers Stores (1) Retail Expansion
Starbucks owned 1/3 of U.S. Coffee Bars Next biggest Diedrich only 400 stores Starbucks PGN (2003)
Why: Coffee consumption increasing 109mm people drink every day 52mm people occasionally drink coffee 1/3 of coffee drink outside home –work, restaurants, coffee shops 8 states no Starbucks Starbucks only in 150 of 300 Metropolitan Statistical Areas
Pick New Location Right demographics Level of Consumption Competition Attractive Real Estate
525
New Company owned stores
225
New Licensed Stores
750
Total new stores
CMM Prof Myers-Tierney 28
Starbucks Partners Partners (Employees)
Compensation / Benefits Paid Hourly Health Insurance Stock Options
Turnover Starbucks: 70% ROW: 300% Highest T.O. is in 1st 90 days
Experience 70% of Store mgrs ex-baristas 60% of District mgrs ex-store managers All Senior mgrs – Train + Succeed as baristas
Howards DNA Training
Hard Skills – Mix drinks, Register Soft Skills – Connect w/ customer, Just say Yes
USA 50,000
ROW 10,000
Total 60,000
CMM Prof Myers-Tierney 29
Research Results (2) How could Starbucks make you feel
more like a valued customerService
Improvements 34%
Friendlier 19%
Faster 10%
Price Incentives 31%
Free cup x visits
Reduce Price
Other Total 21%
Don’t know already satisfied
28%
CMM Prof Myers-Tierney 30
Measuring Service
Customer Snapshot Mystery shoppers 3 times/quarter/store
Basic Service1. Service –Greet customer, eye contact2. Cleanliness –store, tables, restrooms3. Product Quality –Fill order accurately, Right
temperature4. Speed of Service –waiting time, Goal: 3 minutes
Legendary Service Memorable experience –customer returns, tell
friends