STARBUCKS: DELIVERING CUSTOMER SERVICE PACADI ANALYSIS Problem Definition Vice-president Day states, “according
STARBUCKS: DELIVERING CUSTOMER SERVICE
PACADI ANALYSIS
Problem Definition
Vice-president Day states, “according to the data, we’re not always meeting our customer’s expectations in the area of customer satisfaction.” Research, particularly mystery shoppers, show the Baristas are not serving the customers in a timely manner. The expectation is customers should get their drink within 3 minutes. The target times are not being met.
The customer base of Starbucks has changed. Starbucks’ value proposition, which was developed back in the late 80’s and early 90’s, was based on meeting the needs of a very narrow audience and a very different type of customer than the one they serve today. In the early 90’s their focus on the affluent, well-educated, white collar consumer allowed them to hone in on providing superior service and quality which are the attributes that those particular individuals valued most. These customers wanted hand crafted drinks which were complex and time consuming to make. They also wanted to make Starbucks their third place, stay, and linger.
Today however, Starbucks’ new customer are a diverse group of people from a lower socio economic group, wanting less fancy and less complex drinks, and interested in getting their coffee and leaving. While they may still value good service, the time and effort that employees were encouraged to put in developing customer relationships and establishing rapport, are no longer necessarily what Starbucks’ new average consumer require. The major concerns of today’s customer appear to be convenience, price and of course good tasting coffee.
The problem is customer service needs to be improved to increase customer satisfaction scores and have Baristas serve the two different customer bases within 3 minutes.
Alternatives
Invest $40 million by adding 20 hours per week of new Barista’s per Starbucks store. Starbucks is considering this as an option.
Alter the product mix by reducing the number of different types of drinks customers can choose from. This simplification can speed-up the drink preparation time.
Build a store nearby to the focal stores with problems so as reduce customer waiting times.
Criteria
Financially sound, payback within two years. This is an important criterion with high weighting, 60%. Incremental margin has to exceed incremental expenses.
Reduce customer waiting time. This option has to reduce customer waiting time and therefore increase customer satisfaction. Weighting is 20%.
Must be able to satisfy both customer types, the coffee aficionado who wants specialty hand crafted drinks and the grab-and-go person who wants a simple cup of coffee. Weight is 20%.
Analysis
Each option is analyzed using each criterion. Then a weighting analysis is conducted.
Criterion 1
Meets Or Exceeds Financial Requirements
Alternative
Coffee Aficionado customer
Grab-and-go customer
Add 20 hours of labor per week
Yes, payback in 14 months. Incremental income exceeds incremental expenses. See Exhibit I.
Yes, payback in 14 months. Incremental income exceeds incremental expenses. See Exhibit I.
Reduce Product Mix
While this might speed up service, this could lose up to 20% of coffee aficionado customers who love their specialized drinks.
Minimal impact since these customers want basic coffee or minimally specialized drinks.
Open Nearby Store
High start-up costs, will improve waiting times but has the potential to cannibalize other stores business. Estimate of cannibalization of 20% to 25%.
High start-up costs, will improve waiting times but has the potential to cannibalize other stores business. Estimate of cannibalization of 20% to 25%.
Discussion. Adding 20 hours of labor will allow Starbucks to help upgrade lesser spending customers to become higher value customers by improving service.. Reducing the product mix has the issue of turning off high value coffee aficionado customers who like their unique type of product. While opening a nearby store will relieve some of the longer wait times, the incremental cost and cannibalization make this option a problem.
Criterion 2
Reduce Customer Waiting Time
Alternative
Coffee Aficionado customer
Grab-and-go customer
Add 20 hours of labor per week
Will reduce waiting time.
Will reduce waiting time.
Reduce Product Mix
Will reduce waiting time.
Will reduce waiting time.
Open Nearby Store
Will reduce waiting time.
Will reduce waiting time.
Each option here has the potential to reduce waiting times.
Criterion 3
Satisfy Both Customer Types
Alternative
Coffee Aficionado customer
Grab-and-go customer
Add 20 hours of labor per week
Yes, will satisfy this type.
Yes, will satisfy this type.
Reduce Product Mix
No, will not satisfy this customers who wants choices.
Yes, will satisfy this type.
Open Nearby Store
No, will not satisfy this customer type who goes to a specific Starbucks in part because the Baristas’ know what he or she wants.
Yes, will satisfy this type. This customer type has no relationship with store Barista.
Discussion: The coffee aficionado is at the core of the Starbucks business. This type comes to the store, buys expensive coffee, and lingers. They know the Barista and the Barista knows them and what they want. Anything done to reduce the value of these customers will hurt Starbucks.
Decision Options
100 Points Available
Add 20 hours of labor per week
Reduce Product Mix
Open Nearby Store
Meets financial criteria, maximum 60%
Yes, 60 points
No, risks losing customers, 40 points
No, incremental cost and cannibalization issues. 15 points
Reduces waiting time, maximum 20%
Yes, 20 points.
Yes, reduces waiting time but will lose aficionados. 15 points
Yes, 20 points.
Satisfies both types of customers 20%
Yes, 20 points
No, will lose customers or customers forced to trade down to lower priced offering. 15 points
Yes, but some aficionados will not like going to a store where the Barista does not know them. 18 points
Total
100
70
53
The decision analysis allocating 100 points and awarding a maximum of 60% to financial, 20% to reduced waiting time and changing product mix reveals the option with the most points is to add 20 hours per week.
Decision
Adding 20 hours per week per store at a cost of $40 million seems reasonable given the financial analysis in Exhibit I. Incremental income is greater than incremental expenses achieved by providing customer service that can increase customer loyalty and move them up to spend more per drink.
While simplifying the product mix will reduce wait time, the risk is too great in upsetting the large core of aficionados who like custom made coffee drinks made to their order. The grab-and-go coffee drinker is neutral to this option.
While opening a nearby store will relieve the wait times, the financial do not make sense. Moreover, it will cannibalize the existing store and is therefore not a viable alternative.
Implementation
This is an important project for Starbucks since it has cost and customer service implications.
Starbucks should test the impact of adding additional 20 hours per store.
First, when to add the Barista’s needs to be determined. Is it needed most in the morning, on weekends, during lunch?
Once this is determined, then a large panel of stores with defined customer service timing problems will be identified and have 20 hours added to staff. These stores will be measured against other stores who have problems but did not receive the 20 hours and stores that do not have customer service issues.
Once a 3-6 month test of store volume and customer satisfaction is completed, a decision will be made to roll out the program nationally. Results should be monitored to measure the overall value of the program.
In addition to testing the additional 20 hours, a panel of stores will be selected for additional testing as follows:
Panel A will get a reduced product mix, Panel B will get a reduced product mix and 20 more hours, and Panel C will be a control. Sales and customer satisfaction will be measured for each panel.
We will bring in an efficiency expert to advise on store layout, work flow, process and procedures, and other efficiency measures. The basic store layout and work flow has not changed since store inception and it is time to review these.
Following the results of the efficiency expert, if there are ways to improve customer service and store efficiency, then a training program for Baristas will be initiated.
Situation Analysis
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Financial Analysis
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