PODs include treatment as a valuable customer (#3), friendly staff (#4), service speed (#7), atmosphere (#11), and knowledgeable staff (#12). Apart from atmosphere, all of these high-ranking attributes to customer satisfaction are considered services attributes which act as the differentiating points. To meet customer expectations, Starbucks must excel on these differentiating attributes.
Services as Key to Customer Satisfaction
Starbucks’s differentiating attributes per its market survey can be classified into two main categories: atmosphere and services. Because atmosphere and store ambience are beyond the scope of this report, we will focus solely on highly important factors that create customer satisfaction, which include treatment as a valuable customer, friendly staff, service speed, and knowledgeable employees.
Evidently, services encompass more than speed. This also corresponds with the 2002 survey on factors driving “valued customer” perceptions in which 34% of Starbucks consumers desire friendlier and more attentive staff, more personal treatment, and more knowledgeable staff in addition to faster and more efficient service. Improving the speed alone may not be the solution to the problem Starbucks was facing; other service-related attributes should be tackled as well.
Improving services increase customer satisfaction by not only keeping them satisfied but also exceeding their expectations with exemplar services that Starbucks called “legendary services.” This helps the firm to build and maintain good relationships with its customers and create memorable experience for its customers. We believe that it is these factors that make customers loyal to the company and thereby increase repeat purchases.
Therefore, Starbucks must consider all aspects of the services if it wishes to invest in order to improve customer satisfaction.
The Pitfall of Making the $40-Million Investment in Additional Labor Hours
Because customer satisfaction involves more than meeting expectations in terms of service speed, making the $40-million investment in additional labor hours (which translate to 20 hours of additional weekly labor per store) is insufficient to increase the overall customer satisfaction and to build loyalty. Although such an investment will increase the availability of baristas and employees to service the customers and thus reduce service speed to perhaps under three minutes per patron, it would not improve other aspects of services. In other words, this investment does not directly make employees act friendlier or give customers more personal treatments.
In addition, Starbucks’s current service speed is not problematic. A Starbucks store takes approximately 3.05 to 3.20 minutes to serve one customer, which is already considered close to the corporate goal of serving customers within three minutes. While we have no doubts that additional store employment would reduce this customer’s wait time to less than three minutes, we doubt that customers would notice a fraction of a minute in reduced waiting time.
Moreover, due to Starbucks’s aggressive expansion strategy, the 2002 investment of $40 million is unlikely to be maintained in the future. Keeping up with the multiplying number of stores, we anticipate a doubling or tripling of the investment within the next few years to maintain the 20 hours of additional weekly labor that this investment plans to create.
Furthermore, in most stores the counter areas including coffee machines and beverage making equipments tend to occupy limited physical space. If an additional employee is to be positioned at the front counter, this may present obstacles to the staff movement and operation.
In summary, we believe that it is in Starbucks’s best interest to refrain from investing $40 million to only improve its service speed if it wishes to increase its overall customer satisfaction.
Preferred Investment Options to Improve Services
To improve customer service, Starbucks must focus on its employees’ abilities to treat all customers as valuable patrons, be friendly and attentive, and be knowledgeable and ready to assist customers with their coffee choices. We believe that Vice President Christine Day’s proposed $40-million investment cannot capture the entire scope of services and that Starbucks can pursue other equally attractive options to improve customer services, such as extensive staff training and customer retention tracking system.
Staff training has many immediate and visible benefits to customer service. Firstly, training equips employees with the knowledge of how to best communicate with the changing Starbucks’s customer demographics, as newer Starbucks’s customers tend to be younger, less well-educated, and in a lower income bracket than its established customers, and are minorities in some places like Florida and southern California. This allows customers to feel attentive and valued. Secondly, enrolling staff in critical management classes help them become more customer-oriented and know how to handle emergency situations in serving customers, thus adding value to customer service. Thirdly, extensive training can enrich employees’ experience and make them feel more than just workers but as “partners” of the store. Treating them as valuable employees often influences them to treat their customers well. Additionally but unrelated to customer services, training can increase product quality and reduces customer’s waiting time because it allows employees to make Starbucks coffee more efficiently and accurately.
In any customer service improvement program, the firm must develop a method for quantitative measurement. Besides frequent market research surveys and quarterly Customer Snapshot Scores conducted by mystery shoppers which Starbucks is already implementing, we suggest that the firm should develop a customer retention tracking system that can effectively measure the amount, movements, and losses of its “unsatisfied,” “satisfied,” and “highly satisfied” customers. With such information, Starbucks can objectively measure how successful their customer service improvement programs are and if their financial returns justify their costs, by simply multiplying the data with the customer lifetime values (CLVs) for each customer type (now at $191 for unsatisfied customers, $829 for satisfied customers, and $2,598 for highly satisfied customers per calculations in Figure 1 below).
Figure 1: Customer Lifetime Values using 5% discount rate and data concerning Starbucks visit, ticket size, and average customer life from Starbucks survey, 2002
Therefore, it is imperative for Starbucks not only to withhold investing $40 million in a customer service improvement program that only focuses on reducing customer waiting time but also to aim at improving its overall customer service (including non-speed service factors) through extensive employee training and consider developing a measuring system through some form of customer retention tracking.
Alternative Investments
If Starbucks has a different opinion about our recommendation in investing in the non-speed aspects of customer satisfaction factors in addition to improving speed, we would like to recommend Starbucks to instead invest in improving store ambience, increasing its promotion, or developing a consolidated marketing department, but not launching product innovations.
The 2002 Starbucks’s market research survey entitled “Important Rankings of Key Attributes in Creating Customer Satisfaction” identifies store atmosphere as a key attribute in creating customer satisfaction and we consider it a POD and competitive advantage for Starbucks. The firm has allocated significant resources and effort to creating a unique Starbucks store ambience that enhances customer satisfaction. We believe that making additional investment in this area is still justified.
According to factors driving “valued customer” perceptions, price is the second biggest group of factors that Starbucks customers desire improvements. Therefore, the firm can launch promotions and incentive programs to attract new customers and satisfy established customers. We also believe that making additional investment in this area is justified.
Moreover, Starbucks may consider investing internally to strengthen its organization, especially in establishing a strategic marketing department since it still lacks one. A strong marketing division is needed in order to analyze market data and create strategic plans, which permit Starbucks to better understand its customers and place itself in a more advantageous position to capture new customers and retain existing ones. We also believe that this investment is justified.
However, we would recommend against costly investment on product innovation. Although product innovation seems to drive company growth in recent years, the 2002 Starbucks’s market research survey entitled “Important Rankings of Key Attributes in Creating Customer Satisfaction” clearly ranks new, innovative beverages second from the bottom of the list. We do not believe that Starbucks needs one new hot beverage every holiday season to stay competitive because its customers do not always look for unique products. They can be satisfied by better customer services that include not only service speed but also treatment as a valuable customer, friendly staff, and knowledgeable employees, all of which allow customers to build close relationships with the firm and thereby promoting the loyalty for which many firms today strive.
