Intro

Starbucks is the worlds leading marketer and retailer of specialty coffee. The
company was founded in 1971 in Seattle, USA.
Starbucks has about 191,000 employees across 21878 captive & licensed stores in
78 countries.
From its humble beginnings as a coffee store around the corner, to essentially being
the third place after home and office in a city dwellers life , Starbucks has come a
long way.
Starbucks product portfolio includes more than 30 blends of coffee, handcrafted
beverages like Frappuccino , coffee and non coffee blends, various types of teas
,ready to drink beverages and fresh /packed food.
They also sell a variety of coffee and tea products and license their trademarks
through other channels such as licensed stores, grocery and national foodservice
accounts. Starbucks had total revenue of $16.45 billion as of September 28th ,
2014.

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual
http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf
Starbucks like any other single brand retailers, strives to provide its customers with
a g experience and superior products across all its channels. It constantly seeks to
bring innovative offerings to its customers so as to hold its novelty while at the
same time trying to maintain brand loyalty
In this research we try to identify ways to increase service productivity by gauging
customer service levels through secondary research and borrowing from the
existing literature on Starbucks productivity measures and broaden the
understanding to propose the creation of a new customer experience drawn from
increased productivity.
MASS SERVICE
Starbucks can be classified as a mass service as it obeys the mass service
description in the 4 archetypes described by Lashley.
Intangibility- is the core feature of services. From an intangibility perspective, a cup
of coffee at Starbucks is about the whole experience taste, beautiful dcor, polite
staff etc. not just the cup of coffee. The source of enjoyment is intangible.
Service Offer- The operations are highly standardized in terms of the menu, staff
uniforms, packaging and with a low degree of customization possible.
Operational Offer- While one may be tempted to bracket Starbucks with a
McDonalds as a Service Factory, given the high degree of standardization and very
low degree of customization but Starbucks falls into the Mass service category

because in Starbucks there is a remarkably higher degree of customization. The

customer gets to choose, the size of his order, which flavor he requires to go with
his Cappucino- for e.g. Hazelnut or Vanilla, how much sugar he wants in it etc.
HRM- The participation of the baristas in customization of the drinks for the
customers point to a certain autonomy within the job. The training required is
simple and evaluation of performance is based on the customer satisfaction. Hence
the above coupled with standardization qualify Starbucks as a mass service

Hence the operation strategy chosen by Starbucks has to take into product and
service differentiation given the fact that competition has increased from other
coffeehouse chains like Costa and bakery caf chains like Dunkin Donuts and
McCafe , the latter being the largest retailer of coffee drinks in Australia and New
Zealand . http://www.businessrevieweurope.eu/leadership/340/Top-10:-GlobalCoffee-Shop-Chains
This points to the fact that the consumer will purchase coffee based drinks from
other bakery cafes which are not coffeehouses given the availability. Herein lies the
opportunity and the challenges. This industry is in a mature stage with a medium
level concentration
STRENGTHS
Undisputedly Starbucks is the No 1 coffee chain in the world both in size and sales
figures. There lies a very unique value proposition which contributed to its meteoric
growth. Some of the factors were :
1.
2.
3.
4.

Branding
Quality Coffee
Reach
Customer Service

The Starbucks experience was created by changing the way people looked at a
cafes from that of luxury to being a third place between the office and home. A
place where one could socialize over a cup of coffee. Hence by changing the
perception of cafes from traditional to contemporary, Starbucks succeeded in
wooing its customers. This was their competitive strategy.
Hence the entire operations was built around their competitive strategy wherein
Starbucks outlets created a sense of connect and intimacy with its customers with
superior products thereby establishing legion of loyal customers. The utilization of
the resources and the construction of the processes was a subset of this fact.
Being the most recognized coffeehouse in the world, gives Starbucks some unique
advantages
http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf

SERVICE PRODUCTIVITY- PAST EXPERIENCES

SPEEDY PREPARATION
In an article in WSJ, a comparative study between Starbucks, Dunkin Donuts and
Caribou Coffee was done to measure the average time taken to make the basic
coffee and their respective signature drinks.

Source: WSJ
It was discovered that for their signature drinks the time taken to prepare the drink
was far greater than their competitors. At 90 seconds, it was approximately twice
the time it took to get a similar one in Dunkin Donuts and Caribou.
Upon examination it was found that the baristas or Starbucks employees had to
dig their scoops into the ice bucket twice, to fill the drink thereby adding valuable
seconds to the overall total. Starbucks overcame this situation by building scoops
which were stronger and deeper, reducing the no of dips in the icebucket from 2 to
1. This seemingly innocent change shaved 14 seconds from the total preparation
time.
ELIMINATING WASTE
During the course of another study, it was identified that payment processing was
the longest component of credit card payments. It took a total of 30 seconds to
complete the transaction. After Starbucks identified this as a bottleneck, an
innovative solution was found albeit it shaved only 8 seconds of the total time. It
was decided not to ask customers for the signature on credit card payments for $25
or less.
From the above case studies it is clear that improving service quality is a game of
numbers. The more they are tortured, the more they seem to reveal.
http://articles.chicagotribune.com/2005-04-13/news/0504130351_1_chain-of-coffeeshops-starbucks-blended

http://www.kellogg.northwestern.edu/course/opns430/modules/process_analysis/Rea
dings_ProcAnal/Module2Starbucks2005WSJ.pdf
SERVICE PRODUCTIVITY RECOMMENDATIONS - Present
NEED FOR SPEED
The line of thinking and approach taken by Starbucks in the past motivates one to
approach productivity recommendations by looking at service as the process itself
and therefore by bettering it, productivity can be increased.
Using similar time and motion analysis, we try and uncover the observations on the
basis of which recommendations can be arrived at. The central theme adopted is
how to decrease resource utilization? Coffee chains have multiple peak hours during
the day which includes, mornings and evenings. The sudden flurry of customers can
add presuure on the resources , increasing waiting time and as a result having
negative consequences on Customer satisfaction.
Let us now look at an ideal process of buying coffee at Starbucks:
IDEAL PROCESS :
Lets us consider 2 outlets, where every 2 minutes a customer walks in and the ideal
processing time of each order is 2 minutes.
In outlet 1, Customer 1 walks in at time 0, - at the end of time 2, customer 1 leaves
and customer 2 joins who leaves at time 4 .
Here the throughput- is 0.50 customer per minute.

ARRIVAL TIME
0
2
4
6
8

START TIME
0
2
4
6
8

COMPLETION TIME
2
4
6
8
10

Consider example 2 wherein Customer 1 arriving at time 0 leaves the queue at time
3 because of a delay. Customer 2 who joined at time 2, has to wait for 1 minute
caused by the delay to the previous order.
Here the throughput- is 0.45 customers per minute.
Therefore as the waiting time increases, the throughput decreases. In other words
inefficiencies leads to decrease in sales.
ARRIVAL TIME
0
2
4

START TIME
0
3
4

COMPLETION TIME
3
4
7

WAIT TIME
0
1
0

6
8

7
8

8
11

1
0

From the two examples we can conclude that :

STATISTICAL FLUCTUATION + DEPENDENT EVENTS = QUEUES.
(https://en.wikipedia.org/wiki/The_Goal_(novel ))
In the 2nd example, a customer who comes second cannot receive his service until
the customer prior to him has been served. In this example since the 1 st customer
took longer than the average time to process the first customer- this is a statistical
fluctuation
Dependent Events is the percentage utilization of the resources/barista. Assuming
they are busy 100% of the time, any changes in the statistical fluctuation will result
in Queues. Therefore as the level of utilization goes up, the waiting time increases.
The average waiting time in queues can be calculated as follows
Ti = ( 1/Rp) x(/1-) x {(Ci^2 + Cp^2)/2)}
Where
Ti

- Waiting Time

1/Rp

- Mean Service Time

/1-
- Utilization Effect - For Eg 2, the utilization is 50%, then (0.5/1-0.5)=1
min. waiting time
Ci^2 + Cp^2)/2

- Variability effect

Recommendation 1: Reducing the utilization to say between 75% - 80% will help
to absorb shocks to the process created by Statistical Fluctuations, thereby
eliminating queues and ensuring customer satisfaction. Therefore the safety
capacity of the system is 25% which means that the process can take a variability of
25% of the Statistical Fluctuation or in other words the resources are idle for 25% of
the time.
Recommendation 2: Reduction of utilization by shifting demand to nonpeak hours. Every walk in customer is a statistical fluctuation , hence is beyond
control. What is controllable though is the regular customers, usually residents of
offices or apartments in the area. These regular customers can be incentivized to
shift their buying from peak hours to non peak hours or by limiting their walk in. For
eg, free delivery can be arranged during peak hours within a specific radius of the
store or the same customers can be encouraged to place their orders online 15
minutes before they walk in to the store so that upon arrival they can proceed to a
collection counter to pay and collect the order.

Signature drinks can be sold at discounted rates during off peak hours. Since
signature drinks, require a high degree of customization, it leads to higher utilization
rates and therefore more waiting times.
Recommendation 3: Localization. While major fast food chains like McDonalds,
KFC , Subway etc have localized menu catering to the tastes of the local population,
Starbucks has continued to operate within their successful mould of the Starbucks
Experience. While in the U.S., it is a very integral part of the community it operates
in, outside the U.S., it still has no localization to its service plans. Essentially
representing the American/European coffee culture might not be to its advantage
depending on which market it operates in and the geo political context of that
country in relation to the West.
Given the increasing competition from traditional coffeehouses and bakery chains
and other Multi- Nationals, Starbucks cannot afford to not innovate. It will have to
come up with products and style of services which find resonance with the local
population.

Leaning on the concepts discussed in the core readings , I propose a model, in

which we begin by understanding the 5 dimensions of Starbucks service quality
and how it impacts customer experience.

I would like to take a holistic view, in which we look at the past strategies by
Starbucks to improve its queues in stores and propose that in store customer
experiences have a direct correlation with brand switching. Previous research has
concluded that situations where strong relationships between brand and its
customers leads to amplification of customers unfavorable responses to bad service
situations. (http://link.springer.com/article/10.1007/s11747-007-0054-0)

CONCLUSION

Therefore the recommendations are linked to improving service innovation and

product innovation which has a direct bearing on customer satisfaction and has to
be approached from a strategic perspective by focusing on issues such as how and
to what extent an experience-based changes can create growth.