Service Starbuck's Style - Case Study Example

The Marketing of Service Starbucks’ Style In analyzing the problems facing Christine Day is an internal marketing problem. She has to sell the board on the idea of investing a large amount of money to increase customer service. In talking about services we have to deal with something that is intangible, whose buying does not necessarily result in the ownership by means of a physical transfer of the object but still creates benefits during (or after) a particular interaction and experience. (Kasper, Helsdingen, and Vries 9) In this case, Miss Day has identified from the research which the company has done that customers are waiting too long to get their coffee. She proposes to ``invest additional $40 million annually in the companys 4,500 stores, which would allow each store to add the equivalent of 20 hours of labor a week.`` (Moon and Quelch 2006) Customers who were surveyed noted that the length of time they had to wait was too long, and the research also found that the typical customer base was also changing. The team also learned that, although the companys most frequent customers averaged 18visits a month, the typical customer visited just five times a month (see Figure A below). This is a key element for marketing that the customer base is changing. The most frequent customers are less affluent and spend less money per visit. Therefore, to accommodate this change, Starbucks needs to do two things: provide faster service and increase the visits from the new customer base. According to the graph above, the new base comprises 80% of the traffic, but visits fewer than eight times per month. Since this base is less affluent, they contribute only 40% of the total transactions for revenue. However, the waiting time for service may be contributing greatly to the fewer visits, since the less affluent base is likely to have less leisure time. As long as Starbucks continues to provide high quality beverages and a welcoming atmosphere, their affluent customer base will continue to visit up to 18 times per month, and their contribution of 60% of the revenue in stores will continue. It is the new customer base that has to become more pleased with the service, and increasing the throughput will likely increase this base also as word gets around that waiting time is short. Lessening the waiting time for service will make the entire customer base happier, so will not cause any harm to the 60% transactions. Considering the information from the polling of customers, the two major factors in service which concerned them were speed of service and friendlier more attentive staff. By allowing the stores to increase the hours of employees will address both of these concerns, because more staff at key times will allow for faster service without stressing the staff, since there will be adequate help to keep service flowing. The main reason which Starbucks must concentrate upon raising the service level and not particularly on providing less expensive beverages, even though the customers polled did mention this, is that Starbucks is still working upon its original model, which is to provide a superior experience to customers. As Shultz said, "Were not just selling a cup of coffee, we are providing an experience". (Shilling and Kotha 1997) While Day surmised correctly that the speed of service and the friendliness factors are key to increasing customer satisfaction and that the corporation has, indeed, lost sight of the customer, it is equally true that the major reason for this is that the customer base has changed. They have not lost their original customer base, but they have acquired a new middle class customer base. It is incumbent upon their marketing to make the most of this expansion in order to grow the business. A closer look should be taken at this new customer base and plans need to be made for securing their loyalty. If the less affluent customer is going to Starbucks and paying higher prices for their beverages, there must be a reason. Since speed of service has fallen, the is not likely a factor. While Day is correct that speed of service needs to be addressed. A second factor shows up in the research. Customers said they would like some kind of bonus. This could be accomplished using the SVF (Starbucks Value Card). If the added employee hours increases throughput a plan for adding a bonus for frequent visits could be added to the already installed Starbucks stored-value card (SVC). This card has been shown to increase new users through gifts and decrease transaction time. Since the cards are capable of storing a lot more information, they could be used to grant bonuses to customers who visit more frequently. The analytics gathered from the cards already contribute to the market research. By making these cards even more attractive, they can reach even more customers, and having more customers use the cards to get bonuses will decrease service time. This could easily result in an expansion of the new customer base through distribution of the cards and also in the amount of visits per month, thereby increasing the spending of this base. They may not opt for more expensive beverages, but will likely visit more often in order to get the bonus cup. According to Exhibit 8 (Appendix A), new customers (during the past year) are comprising 27% of the customer base. By cultivating this new base, Starbucks can hang on to its current customer base and expand the revenue attained from new visitors. If they have a bonus card, new customers are more likely to return. If use of the card also decreases wait time, these same customers, who have less leisure time, are more likely to return. In order to cultivate this segment, we need to understand it. The chart below represent the way Kasper et al suggests the customer base be analyzed. The affluent base cultivated over the years, and representing 60% of the revenue would be identified as friends and sympathetics. These customers are not only the major revenue, but they identify with the organization. The new customer base is almost too new to be categorized, except that many have acquired the SVC and have returned to purchase again. Since they are 40% of the revenue, these customers would fall into the functionalist segment. By cultivating this customer segment, their number of returns can be increased. Their loyalty is not as easy to cultivate, and this is really not as important as cultivating their perception of value. Considering that this base is less affluent, they are not likely to change their purchasing behaviour. That is, they are not likely to purchase more expensive beverages. However, the frequency of purchases can be increased, especially if the customer perceives extra value. The psychology of this customer base is likely that of enjoying a luxury previously accorded only to the more affluent. This behaviour will be encouraged by maintaining the high quality of beverages and not creating more low cost beverages. A new marketing slogan could be developed which emphasizes the idea that anyone can indulge in a great cup of coffee in wonderful surroundings now and then. It is one small luxury which can make life better. Kasper et al (1999) emphasises that for this customer base it is not necessary to cultivate particular brand loyalty, but to their bonds of calculated commitment, that is bonds as a matter of contract. The SVC can be used as a more tangible symbol of this perceived contract if buyer bonuses are attached to it. (Kasper, Helsdingen, and Vries 347) "In most businesses innovation is regarded as the key to corporate success. In todays rapidly changing environment a company cannot long maintain its market share or profits unless it is innovative. " (Doyle and Bridgewater 1) Leveraging the power of the SVC (Starbucks Value Card) is possibly the most valuable innovation which this firm can apply. They have added the availability of wireless access in recent years, often partnered with local wireless providers. By adding Internet access amounts to the card increases its value. In truth, as contrasted with many other food and beverage related retail outlets, the longer a customer stays in the store, the more they will spend. If they are busily surfing the web or doing email, and they run out of something to drink they will get a refill, especially if it is speedy and does not distract from the activity. By providing for more staff hours, a little extra service can be added for these customers. Their order might be delivered to the table. Starbucks has a history of innovation, and because of its company structure, including the partnership with employees via stock options, it remains agile. That is, it is able to make dynamic changes in response to changing market conditions. Baker and Bass say, ``The agile organization creates competitive advantage for itself by being able to adapt its people and processes to the continually changing needs of the marketplace, increasingly with the support of technical innovation. The challenge for consumer-serving companies is to fuse people and process approaches in order to achieve cost-effective value delivery.`` (Baker, and Bass 132) In this case, adding employee hours will not just enable better and faster service, but will create an opportunity to leverage their most recent innovation, the Starbucks Value Card. It can be used to increase the perceptions of value for the new customer base, which is not really loyal to Starbucks, but will continue to return if they perceive a contract, of which the SVC can be a symbol. So by combining the increased employee hours with the addition of a bonus on the SVC, the corporation could easily see an increased bottom line due to the cultivation of the new customer base. In any case, using the SVC will allow this to be tracked to see if this is so. Appendix A Works Cited Baker, Susan, and Margrit Bass. New Consumer Marketing: Managing a Living Demand System. Chichester, England: Wiley, 2003. Doyle, Peter, and Susan Bridgewater, eds. Innovation in Marketing. Boston: Butterworth-Heinemann, 1998. Kasper, Hans, Piet Van Helsdingen, and Wouter De Vries. Services Marketing Management: An International Perspective. New York: John Wiley & Sons, 1999. Moon , Youngme and Quelch, John . 2006 . Starbucks: Delivering Customer Service . Harvard Business School Publishing, Boston, MA Schilling, M. and S. Kotha. Starbucks Corporation: Going Global, Case Discussion for the University of Washington, Business School of Administration, 1997. Read More