Identifying and Assessing Starbucks' CRM Program - Case Study Example

Starbucks’ CRM: A Personal Experience CRM from the First-Person Point of View: As a customer, I can tell the difference between ‘customer service’ and ‘customer relations’ when the service is personalized. I visit Starbucks at frequent, regular intervals, usually four or five mornings per week, and two or three afternoons or evenings. The average amount spent at each visit is not much, perhaps three or four dollars, but over the course of two years I have been visiting Starbucks has added up to a considerable sum. The products offered by Starbucks – coffee and snacks – are the primary reason the relationship continues. Starbucks, however, does not have a monopoly on good coffee and pastries, and they are certainly not the lowest-priced coffee shop, but they give themselves an edge in my choice by being conveniently located, and providing a comfortable atmosphere. Even though it is certainly part of a carefully-designed program, the people at Starbucks give the impression of being genuinely happy to see me; they remember my name, and generally remember what I usually order. I can get polite and efficient service in other places, but the feeling is different: in other places, the people appreciate me as a customer, in Starbucks they appreciate me. That difference is what separates customer service from a customer relationship, from the customer’s point of view; after all, it is difficult if not impossible to have a relationship with someone whom one does not know. Identifying and Assessing Starbucks’ CRM Program The key to Starbucks’ being able to have an effective CRM program is the uniformity and efficiency of the stores. The physical layout and appearance of a Starbucks store, the fixtures and furnishings, and even the music that is played to entertain customers is all of a consistent, uniquely recognizable style that can be found in any of the company’s several thousand locations. There are slight differences from store to store, but each one makes the same clear “I’m in a Starbucks” impression to a customer. This is important for CRM, because the customer will instinctively expect the same comfortable, personalized service in any Starbucks as in the one he visits most often. Typically, a Starbucks store operates with a crew of four or five people; sometimes more in particularly busy locations, but based on observation, the CRM process seems to be optimized for the four or five person staff. Three of these workers will be in the counter and production area, while one or two (one is usually the manager or shift supervisor) handle other tasks such as tidying up the customer area. If the customer has not already been greeted by the “floor” employee upon entering the store (which is the case more often than not), the employee on the opposite side of the glass display where pastries, juices, and other snacks are kept, will be the first point of contact between the customer and the staff. This employee will greet the customer, suggest a purchase from the case, and usually take a preliminary drink order. If the store is not very busy, this employee will usually announce the order to the one at the back who makes most of the drinks, but not in busy periods. This may seem counter-intuitive, since the purpose of taking a “pre-order” would seem to save time. The real object of this, however, is not to expedite orders but to keep customers’ attention; the rationale is that once a customer has actually given his order to an employee, he feels some obligation to stay patiently in line and wait for it. (Spolsky, 2008) The whole point of the process is to “hook” the customer. The consistent, step-by-step procedures followed by Starbucks’ workers – including the peculiar, specific verbal shorthand they use to order drinks from the barista – makes it easy for them to memorize simple details about regular customers: their names and their drink preferences if they order the same thing regularly. Thus the customer develops a personal connection to a particular Starbucks store; he feels as if the people at “his” Starbucks actually know him, and that going anywhere else will result in the disappointment of not getting exactly what he wants. It’s good for the particular Starbucks store, but it’s also good for Starbucks as a whole; the customer has formed a very favorable impression associated with the Starbucks brand, and is likely to carry a fair amount of goodwill with him should he decide to visit a different Starbucks store. Observations from the Relevant Literature Most of the literature about CRM that addresses specific industries seems to focus on those which are technology-dependent, such as phone service providers, with the research directed at the integration of information technology into the management of CRM. The more generalized, theoretical literature addresses two basic areas: the kind of CRM strategy adopted, and its degree of integration into the overall enterprise. CRM strategies can take one of two forms: an acquisition strategy or a retention strategy. An acquisition strategy is most useful to a new company just starting out, or for companies who do not face much competition for their products or services, whereas a retention strategy is more useful to companies that have a number of competitors. (Syam & Hess, 2006) Between the two, a retention strategy, that is, a CRM strategy designed to prioritize keeping existing customers over seeking new ones, is the more profitable in the long run for the following reasons (Ryals & Knox, 2001): Acquiring new customers is costly. Advertising and promotions to attract new customers’ attention must be produced, with the result being that an individual customer might not be a profitable one until he has been retained for some period of time. Retained customers purchase more over time, so revenue increases. As companies learn about their customers through a longer-term relationship they become more efficient at serving them, so costs decrease. Retained customers can refer other customers. The relationship becomes valuable to the customer as well, so that retained, satisfied customers become less price-conscious. In the case of Starbucks, it is easy to trace the evolution of its CRM program. For the first years of Starbucks’ existence, the company would have pursued an acquisition strategy; the concept of a coffeehouse on the scale of Starbucks was at one time a novelty, and the company had no competition. As more competitors were started, Starbucks shifted to a retention strategy. While most CRM ideas focus on some aspect of “customer satisfaction”, another factor that must be considered as part of a CRM program is customer dissatisfaction. In the U.S., this takes the form of a trend of negative consumer impressions of large corporations and product proliferation. In the U.K., by comparison, it is a consumer attitude critical of limited product offerings and lack of concern for customers. (Lundstrom, White, & McAuley, 2002) This is relevant to Starbucks on both counts, but probably more significantly on the former; much of the criticism of Starbucks, which competitors have tried to use to their advantage, comes from the impression of Starbucks as a gigantic, impersonal, growth-focused corporation. Starbucks has had to take that into account, which manifests itself in the highly-personalized service each store strives to provide its regular customers. Aside from that, however, is a simple advantage Starbucks enjoys from the position of being able to use a retention strategy. Competitors are forced to rely on the less-profitable acquisition strategy to try to take Starbucks’ customers away from them. (Syam & Hess, 2006) While they might succeed in acquiring some of Starbucks’ customers, these customers will not be as profitable as the ones that stay with Starbucks. Perhaps this is why, even with the widespread criticism Starbucks receives and the growing number of competitors it faces, no other coffee retailer has come close to threatening Starbucks’ top position in the business. CRM programs can also be differentiated by the degree to which they are integrated within the structure of the organization. If the CRM program is an inseparable part of the overall business strategy, it can be said to be “strategically embedded”; whereas CRM programs that are managed with the goal of efficient selling of products and services and not necessarily integrated with the overall strategy are said to be “tactically embedded.” (Verhoef & Langerak, 2002) An example of the latter kind of strategy would be the “preferred shopper cards” given by almost every large store chain; these are primarily used as a means of tracking purchases, which help the stores maintain profitable inventories of products. A strategically-embedded CRM program, on the other hand, focuses either on operational excellence – which provides efficiency and economy to the customer – or customer intimacy, which builds value through the relationship. (Verhoef & Langerak, 2002) In real-world application, however, it is nearly impossible to go only in one direction or the other, and an effective CRM framework will consider all relevant factors of customer behavior, business processes, and external influences. (Bolton, Lemo, & Verhoef, 2002) The best result then is a CRM program that is a hybrid strategy which focuses equally on operational excellence and customer intimacy; this is the path that Starbucks has followed. Recommendations for Starbucks Verhoef & Langerak (2002) describe two ‘CRM-in-practice’ applications that are followed by most businesses, a focus on customer satisfaction and a focus on effective marketing. Starbucks follows the ‘customer satisfaction’ path, which is clear to the visiting customer in a number of ways: A high-quality, consistent offering of products which vary only slightly if at all from one location to another. A particular look and ‘feel’ to a Starbucks store, which is instantly recognizable and consistent from one store to another. A clear effort on the part of Starbucks’ employees to personalize the customer’s experience; details of regular customers’ preferences are remembered, and for even casual or first-time customers the employees handling the order will ask the customer’s name (which is mainly used to identify different drink orders), and usually address the customer by name once they learn it. The experience as a regular customer at Starbucks is very positive, so it must be said that their CRM strategy overall is effective; the evidence is in the number of ‘regulars’ one encounters on a given morning. But there is room for improvement. Syam & Hess (2006: 2) state “… a retention strategy asks the customers to trust that special services will be provided eventually.” In other words, there is an implied promise of extra reward for customers who give their exclusive patronage to a particular business, but it is an idea that Starbucks defies for the most part. Extra incentives for regular customers are not offered very often. Typically, Starbucks offers a card in the later months of the year, which allows customers to claim a ‘gift’ – usually a calendar, notebook, personal organizer, or similar item – after a certain number of beverages are purchased, with the purchases being recorded in the card. Apart from that, Starbucks does not offer extra incentives, and even that giveaway seems a bit counterproductive; the gifts are usually rather nice, but one must wonder if Starbucks would not better reinforce customer loyalty by giving away something the customers willingly pay for the rest of the year, coffee or snacks, instead of office supplies. Instead of relying on its atmosphere and product quality, Starbucks might consider adding a few aspects of what Verhoef & Langerak (2002) call the “tactically-embedded” CRM strategy, perhaps by offering a “frequent shopper card” in the same manner as most grocery stores. This would allow them to gather specific purchase data and promote items that are popular in certain locations, making them even more attractive to regular customers. A card would also allow the customer to carry his “personal relationship” with Starbucks with him into other stores he does not normally visit, further increasing customer loyalty. A program such as this would help Starbucks do a good job even better. Works Cited Bolton, R. N., Lemo, K. N., and Verhoef, P. C. “The Theoretical Underpinnings of Customer Asset Management: A Framework and Propositions for Future Research”. ERIM Report Series Research in Management, ERS-2002-80-MKT, September 2002. SSRN: . Lundstrom, W. J., White, D. S., and McAuley, A. “Customer Dissatisfaction: A Cross-Cultural Comparison”. Journal of International Business and Economics, II.1 (2002): 99-110. SSRN: . Ryals, L., and Knox, S. “Cross-Functional Issues in the Implementation of Relationship Marketing Through Customer Relationship Management (CRM).” European Management Journal, 19.5 (2001): 534-42. Spolsky, Joel. “How Hard Could It Be: Good System, Bad System.” August 2008, Inc.com: Syam, N. B., and Hess, J. D. “Acquisition versus Retention: Competitive Customer Relationship Management”. University of Houston, 21 March 2006. TechRepublic: . Verhoef, P. C., and Langerak, F. “Further Thoughts on CRM: Strategically Embedding Customer Relationship Management in Organizations”. ERIM Report Series Research in Management, ERS-2002-83-MKT, September 2002. SSRN: . Read More