By Tricia McKinnon
I have long wondered how Starbucks has been able to consistently provide such great customer service. The Baristas are always engaged and happy no matter which Starbucks you are in which is a difficult feat given that Starbucks’ has more than 30,000 stores around the world. While everyone understands the importance of great customer service in reality it is extremely difficult to achieve even if a retailer only has one store.
As the largest coffee chain in the United States Starbucks’ strategy has set it apart from other competitors. Its strategy for success has centred around a progressive investment in its employees, a world class customer experience, a focus on technology and innovation and an aggressive store expansion. As you will learn Starbucks’ excellent customer service and exceptional long-term growth is not a coincidence. It is a result of forward-looking strategy that turned a small chain of coffee chains in Seattle into a global juggernaut.
1. A progressive investment in employees. Have you ever wondered why your Starbucks’ Barista is always so happy while he is serving you a tall Frappuccino?Starbucks’ employees are more engaged and happier compared to many retailers. And it is not a confidence. Starbucks is a progressive employer.
In 1991 Starbucks was the first private employer in the United States to offer both full and part time eligible employees stock options.That means that the happier the customer the fatter the employee’s pocket book.Since the company’s IPO in 1992, Starbucks’ stock has generated a return of more than30,600% as of January 4, 2023to investors.Even Warren Buffett would be impressed with those returns.
Stock options are not the only perk. Since 1988, health care has been offered to all full time and part time Starbucks’ employees including coverage for their partners.In2014Starbucks introduced a complete tuition reimbursem*nt program for employees located in the United states who worked at least an average of 20 hours per week.
A champion of diversity, in 2018 Starbucks achievedgender and race pay equityfor all staff in the United States. This is a feat not many companies can say they have achieved.
Part of Starbucks’ focus on its employees stems from the fact that Howard Schultz’s dad was injured badly while working on his blue-collar job.His dad received no health care or worker’s compensation and it ruined his ability to achieve the American dream.That “scarred” Schultz and then motivated him to create a workplace his dad would be proud to work at.
When you make a meaningful investment in your employees they invest in you. Starbucks has much less employee turnover than any of its competitors allowing it to develop relationships with its customers that have a deeper degree of intimacy.
2. A world class customer experience. Long before it became en vogue Starbuck focused on the customer experience.For anyone who has tried it is not easy to turn a commodity into a premium priced good.But Starbucks has done that with its coffee, a result of its superior customer experience among other things.
Walk into any Starbucks in your city and around the world and it feels the same.The Baristas are smiling. They ask for your name. There’s a place where you can sit and stay a while without the pressure to buy anything. Free WiFi, which has been available long before it was common place to do so invites you to stay even longer. There is a strong sense of community. Even the music which sometimes sounds good and other times leaves you impatient for the next song feels familiar. Starbucks likes to call its stores a third place between work and home. All of these details when taken together provide a world class customer experience. One of the details you may not think about but it is quite powerful is that each and every time you go to Starbucks the Barista greets you, asks for your name and writes your name on your order.That is very rare, especially for a retailer like Starbucks which serves more than100 million customersper week.
Details matter and at a time where communication is often more generic than personal Starbucks provides a personalized level of service each and every time.That effect is compounded when the Baristas get to know you and greet you without even having to ask you for your name.While personalization is a buzz word for many for Starbucks it's old news.While it sounds fairly basic to greet a customer by name, over the next week as you go into various retail establishments take stock of how many times someone asks you for your name. The ability for Starbucks to do this should not be understated.It’s not a mom and pop store or your local bookstore.It is one of the largest retailers in the world and it has figured out a way to take a personal level of service personal to the masses.
Starbucks elevates its customer experience with unparalleled execution.Imagine having over 30,000 stores around the world and providing all of your customers with the same feeling.A great customer experience is always about a feeling. The last time you were out shopping how did you feel as soon as you entered the first store on your trip?How did you feel when you walked around the store? Now looking back how did that experience make you feel?There is a saying that goes you may not remember what someone said but you will always remember the way they made you feel.
The feeling of being in a Starbucks always feels the same whether you are in a different city or another country and most of the time it’s a good one.Starbucks feels familiar and comfortable. That’s an incredibly hard thing to generate and it speaks to an unbelievable level of consistency provided by the retailer which is driven by robust processes.
Starbucks lack of using a franchise model has also contributed to providing a consistent customer experience.Speaking about this Schultz hassaid: “we believed very early on that people's interaction with the Starbucks experience was going to determine the success of the brand. The culture and values of how we related to our customers, which is reflected in how the company relates to our [employees], would determine our success. And we thought the best way to have those kinds of universal values was to build around company-owned stores and then to provide stock options to every employee, to give them a financial and psychological stake in the company.”
“I always viewed franchising as a way to get access to capital, because you're using other people's money to grow, essentially. And we were dealing with a premium product -- something that can be hard to learn, that you have to explain to the customer, that requires an educated staff. It would have been hard to provide the level of sensitivity to customers and knowledge of the product needed to create those Starbucks values if we franchised. You can be just as entrepreneurial and experimental in a company-owned model.”
This strategy is in contrast to the one used by most restaurants including KFC, McDonald’s, Dunkin and Subway
3. A focus on technology and innovation. Starbucks is a company that has long known that the future of retail is tied to technology.Back in 2009 it launched its mobile app.Then it began offering in app payments in2011. By2014Starbucks had rolled out mobile pre-order and pay before it was common to do so. Customers using this feature can skip line in store by placing their favourite order from the most convenient location whether that is at home or on the way to work.Barron’shas even said that: “Starbucks identified the smartphone revolution years before most bricks-and-mortar firms.”
Starbucks’ mobile payment app is so popular that it has the second most mobile payment users in the United States.At one point Starbucks had more users than Apple Pay but Apple Pay has surged ahead and had 43.9 million users in 2021 while Starbucks had 31.2 million users. That is a staggering accomplishment given that Apple users can make payments at a range of retailers while Starbucks users only have one option. By 201814%of payments were processed in Starbucks’ stores in the United States were made through Starbucks’ mobile app.
Starbucks’ mobile app is also tied to its loyalty program. With one quick scan using the app you can make a payment and accumulate rewards towards discounts on Starbucks’ purchases. The lure of quickly and easily accumulating rewards creates an incentive to use the app on a regular basis. The results speak for themselves. Starbucks Rewardsmembers have ballooned to to reach around 29 million members for 53% of companywide sales.
Starbucks’ mobile app also usesmachine learningto provide customers with personalized recommendations for additional products they may want to purchase based on their purchase history.According to Starbucks' chief technology officer it uses “a data-driven AI algorithm based on your own preferences, your own behavior as well as behaviors that [Starbucks is] trying to drive”.Starbucks has said that its personalization initiative “is the single biggest driver” of improved spend per customer it has seen.Forrester Researchsays that Starbucks: “has [delivered]possibly the most successful mobile ordering app of all time.”
The company’s commitment to being a technology leader was seen when it hiredKevin Johnson the former CEO of Juniper Networks and a former Microsoft excecutive to replaceHoward Schultz in 2017.Johnson hassaidthat that:"digital relationships drive significant long-term value to Starbucks through more frequent occasions, increased spend, improved customer retention, and marketing efficiency." Starbucks has also said in the past that:“digitally engaged customers purchase2 to 3 timesas manyproducts asthose that are not digitally engaged."
4. Aggressive store expansion. From the start Starbucks has had a very aggressive expansion strategy.After Schultz purchased Starbucks and its 17 locations in 1987 there were165locations by the time Starbucks had its initial IPO in 1992.Four years later Starbucks had 1,000 locations and two years after that it had 2,000 locations.Then between 1998 and 2008 Starbucks increased its number of locations from 1,886 stores to16,680.That is an expansion rate that is not for the faint of heart.Schultz bet big on his business idea to provide a space where customers could have a coffee and stay a while and hasn’t looked back since.
Starbucks opened its30,000thstore in 2019.This dizzying rate of expansion is regarded as one of the most ambitious expansions in retail in history. It also speaks toSchultz’s gargantuan level of belief in himself and an idea.
