Starbucks: Delivering Customer Service

Based on Harvard Business School Case

Author(s): Youngme Moon, John A. Quelch

Description:

Starbucks, the dominant specialty-coffee brand in North America, must respond to recent market research indicating that the company is not meeting customer expectations in terms of service. To increase customer satisfaction, the company is debating a plan that would increase the amount of labor in the stores and theoretically increase speed-of-service. However, the impact of the plan (which would cost $40 million annually) on the company's bottom line is unclear.

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Starbucks prided itself in providing the highest quality product with excellent customer service and the brand strategy of shifting coffee house experience into “third place.” A place between home and work where people could read by themselves or meet with friends while drinking the best specialty drinks in the country. Nevertheless, the customer satisfaction seems not to be up to the point and Starbucks wonders on making a change by $40 million investment that would result in adding 20 labor hours in each of their 4500 stores in order to improve speed of service.

This investment should not be encouraged as it would have a negative impact on:

- employees – assuming that current employees already work max working hours, the additional labor hours would be conducted by new employees. This will mean more employees and potential risk of bigger turnover rate (as the chance for promotion will be lower). If the additional labor work would be achieved by adding extra hours to existing employees, it may as well effect in dissatisfaction and higher turnover. Lower partners’ satisfaction would translate into lower service quality and therefore negatively affect overall customer satisfaction.

- financial statements – operating expenses will go up to almost $1700 mln and therefore decrease the operating profit to $280 mln. Moreover, since Starbucks wants to expand aggressively, it will mean adding 20 hours of labor each week in each store and therefore spending more than $40 million each year and affecting financial results each year (impact on overheads should be analyzed as well).

- shareholders – there is no proof that this investment will have big enough effect on profits in order to cover and excess the investment.

- customers – is the speed of service the main dissatisfaction reason? We dispose only of satisfaction