(THE DOROSIN ISSUE)

1. Was Mr. Dorosin a ‘Voicer’ at any stage? If yes, narrate the actions of Starbuck’s management, leading him to become a

‘Terrorist’.

Voicer: The consumer who believes that complaining is positive for both the consumer and the company. They feel that complaining helps the company to improve its service, and they give the company the opportunity to recover from its service failures. Voicers can develop a positive attitude towards the company, if the company responds to the complaint in an appropriate manner.

The following instances shows Mr. Jeremy Dorosin ‘s behaviour as a voicer:

• Experienced problems and complained against the faulty Estro Vapore Espresso machine at Barkley, California store.

• Was provided a Loaner, until replacement.• Liked the loaner well enough to purchase another one, an Estro 410 for a friend for $189.• Complained about the faulty loaner and non receipt of free coffee along with the loaner.

Terrorist: A consumer who can become obsessed with what he believes to be the company’s

inadequate response to their complaint. Theses alienated consumers publicize the service company’s failures through Newspaper advertisements and other media. They encourage the other unhappy consumers to complain, and by generating considerable amount of negative publicity in the media, can damage the company significantly.

The following instances converted Dorosin from a Voicer to a Terrorist:

• The Estro Vapore Espresso that he purchased from Barkley, California store was a faulty one and he encountered some problems with it.

• The Loaner he purchased as a wedding gift for his friend was not in a good working condition and he was also not given half pound of free coffee that goes along with the purchase of a machine.

• Despite several telephone calls to various people at both the retail store and Starbucks corporate offices, Mr. Dorosin felt that the problem remained unresolved.

• The company persuaded Mr. Dorosin to accept a $269 replacement for his $299 machine. Starbucks would apply the $30 difference to their cost on upgrading the bride's $189 machine for a $269 model.

• Mr. Dorosin when told Starbucks that if they wouldn't listen perhaps others would, and that if necessary he was prepared to take out an ad in the Wall Street Journal soliciting other "Starbucked" customers to call in on a toll free line. Starbucks said they were "Sorry he felt that way.”

2. Critically evaluate the service recovery system of Starbucks. Identify the fail points

and suggest remedial measures.

SERVICE RECOVERY SYSTEM OF STARBUCKS

Urgent effort

• Urgent effort was made by the store to replace Mr. Dorosin’s faulty Estro Vapore Espresso machine with a loaner, until his machine replacement .

• Agreed to send a machine of a ‘better quality’ to Dorosin’s friend.• Offered a refund, when Estro 410 was also found defective. Apology

• The store manager apologized and said to come in for the manual, the ½ lb. of coffee and a free cup of coffee, when he forgot to give these things.

• Corporate Customer Service Supervisor, Bill Stein called and apologized Dorosin for his frustration, after knowing the whole incident from district manager.

Compensation

• Stein offered Dorosin & his friend both $269 machine as compensation.• Reese offered replacement of both machines, steaming pitchers & free coffee.

Fail Points: Dorosin from VOICER TO ACTIVIST

• When he found both his machines turned out to be defective.• When he was not given ½ lb of free coffee, to which he was entitled.• New machine should have been given with great care, when already one of the machines

bought earlier by Dorosin was defective.• Repeated telling of story to the store manager, then district manager and then customer

service supervisor may have irritated Dorosin.• Store manager failed to give Dorosin a good compensation when the second machine turned

out to be defective.• Bill stein didn't the terms of Dorosin at the first instance when He asked to give the

advertisement in Wall Street Journal. Remedial Measures

• “Doing things right the first time”: Stringent Quality measures should be adopted before the product is delivered to the consumer so that minor problems are resolved at the initial phases itself thereby saving Time, Cost and Reputation of the company.

• Complaint should be considered as a gift: Successful Complaint Handling Mechanism should be adopted because according to a RECIPROCITY PRINCIPLE, even if I had a problem with your company and if you do something nice for me, I will be more likely to give you more of my business and tell others, what a great company you are.

• Putting People First: There should be a group of employees, who should go out of their way to satisfy consumers. Moreover, staff should be empowered to handle complaints and track down the complaint numbers each week without setting a goal to reduce them.

• More authority should be given to lower level managers to act quickly ,so that this kind of situations could be handled confidently.

• The employees or staff should be trained to empathize with the customer’s problem.

3. Study the ‘Product Mix’ of Starbucks Retail Stores. What proportion of their business is,

‘Hardware and Equipment’? How important is it for Starbucks?

PRODUCT MIX

• The product mix in each store varied and was dependent on the size of the store and its location.

• Larger stores carry a revolving selection that can include any of the Company's more than 50 varieties of whole bean coffees and a range of coffee related products, including exclusive, high-quality coffee-making equipment as well as accessories bearing various Company trademarks, such as coffee mugs, coffee grinders, storage containers, coffee filters, and finely packaged gourmet food products.

• The smaller stores and kiosks usually sell a full line of coffee beverages, a limited selection of whole bean coffees and a few hardware items, mostly logo mugs and small equipment items.

• Starbucks product-mix expanded from 30 varieties of whole bean coffees to eco-friendly cappuccino, coffee makers, and other Starbuck paraphernalia. Its product offerings have also expanded beyond pastries and coffee to oatmeal, smoothies, and wraps to keep up with the competition and satisfy more customer needs.

• The company has also been constantly introducing new products, such as "Instant via Ready" and "Full Leaf Tazo Tea Lattes" and "Tazo Tea Infusions". The Instant via Ready is an instant coffee that the company claims is indistinguishable from its regular brewed coffee (Jargon). Full Leaf Tazo Tea Lattes and Tazo Tea Infusions are the company's new tea offerings through which it hopes to attract tea drinkers (Edwards). The company also offers Starbucks coffee and cappuccino makers for consumers who wish to replace their existing home coffee makers.

• In recent years, the company began selling special jazz and blues CDs, which in some cases were special compilations that had been put together for Starbucks to use as store background music.

As per the case:

The company’s mix of merchandise as a percentage of retail sales was approximately• 55% coffee beverages,• 21% whole bean coffees,• 14% food items, and • 10% coffee-related hardware and equipment.

Retail sales mix for Company-operated stores: (source: annual report)

FISCAL YEAR ENDED 2007 2008 2009

Beverages 75% 76% 76%

Food 17% 17% 18%

Coffee-making equipment and other merchandise

5% 4% 3%

Whole bean coffees 3% 3% 3%

IMPORTANCE OF PRODUCT MIX

• This line of product mix has very keen and really prominent role in bring about image of their services in all aspects.

• A company can use this product mix line in proving their quality of service and this is

front way of appearance which they can prove that they are best in service and quality.

• The company can only take this as opportunity to prove their quality. • Customer service was a key ingredient to Starbucks’ success. One of the five guiding

principles of the company was “Develop enthusiastically satisfied customers all of the time.”

• The larger Starbucks retail stores carried a range of coffee-related products, including high quality coffee-making equipment. Which they can prove by using these mix strategy.

4. Study the competitive scenario in their ‘Coffee related Products Division’. Apply Porter’s

model of Competitive Advantage and detail a strategy for the Starbucks

COMPETITIVE SCENARIO OF STARBUCKS FOR COFFEE PRODUCTS

Coffee and coffee products

Specialty coffee at retailers•Nescafe

•Folgers(P&G)•Maxwell House

( Kraft foods)

Specialty coffee Shops

•Coffee Bean & Tea Leaf

•Costa Coffee

•The company’s coffees and coffee products competed directly against specialty coffees sold at retail through supermarkets, specialty retailers, and a number of specialty coffee stores.

•The company believes that its customers chose retailers primarily on the basis of quality and convenience, and to a lesser extent, on price.

COMPETITIVE SCENARIO OF STARBUCKS FOR BEVERAGES

Coffee Beverages

Restaurant

Beverage outlets:•Green Mountain Coffee Roasters•Dunkin Donuts•Costa Coffee

Express stands,

Carts and stores

•The company’s coffee beverages competed directly against all restaurant and beverage outlets that served coffee as well as an increasing number of espresso stands, carts, and stores.

• The specialty coffee segment is a very lucrative segment and the company believes that any company with substantially greater financial, marketing, and operating resources than the company could enter this market at any time and compete directly against Starbucks.

PORTER’S COMPETITIVE ADVANTAGE MODEL

STARBUCKS: COMPETITIVE ADVANTAGE STRATEGY

Focused Differentiation

• Starbucks sustains competitive advantage by constantly looking for new ideas, new products, as well as new experiences for guests.

Example: the company hires designers to come up with artwork for commuter mugs.

• Costly or difficult for multi-segment competitors to meet specialized needs of target customers.

• Starbucks’ forte is incorporating differentiated features such as their different flavored coffees that no other company offers

• They believe that customer chooses retailers on the basis of quality and convenience not on the basis of price.

• Market trends are constantly being monitored by Starbucks as well. They study every city’s personality and how their products can best fit into the community.

STARBUCKS STRATEGY

Product Line

1. Rapid store expansion strategy• Domestic store expansion• International store expansion

2. Coffee purchasing strategy

PRODUCT LINE STRATEGY

Wide range of products choices

•The introduction of its Crème Frappuccino line of drinks is one example of how Starbucks strives to stay fresh and innovative•The rollout of Starbucks Double Shot espresso drinks to answer the energy drink trend. •The infusion of Tazo tea drinks into its product line is further evidence of Starbucks' desire to be viewed as different and unique.

High quality coffee making equipment

Joint ventures PepsiCo

Dreyer’s Grand Ice Cream Jim Beam Brands

Starbucks CardsThe Starbucks Card, a sort of "fancy gift certificate," is another one of Starbucks' successful innovations.

RAPID STORE EXPANSION STRATEGY

Domestic store expansion− clustered in high traffic and visibility area− “Starbucks everywhere” approach

International store expansion- Created a new subsidiary, Starbucks Coffee International for its international ventures.

− Company-owned and company-operated stores or licensing

COFFEE PURCHASING STRATEGY

• Relationship building with growers and exporters.

• Using fixed-price purchase commitment and purchasing coffee future contracts.

• Contributing to the sustainability of coffee growers.

• Purchasing and marketing Fair Trade Certified coffee.

• Promoting coffee cultivation methods that protected biodiversity and maintained a healthy environment.

5. Were the demands of Dorosin justified at any stage? How can now he be handled to save the

company, money and reputation?

• No, the demands of Dorosin were not justified at any stage.

Why his demands were not justified:

• He was demanding a top-of-the-line replacement worth $2500 for machines worth $299 and a $189 in the initial phases itself.

• When he got fame and publicity after giving an ad in Wall Street Journal, his demands changed and he started demanding a shelter for runaway juveniles, which was again an unacceptable demand. There was no correlation between the problem and the demand.

• If these demands would have been accepted, then it may lead to unjust demands from other consumers also.

Some Steps to handle Dorosin to save company, money and reputation:

• MEDIA : Use media in a way to portray the right image of Starbucks through various celebrity customers (whom they trust) and other satisfied customers.

• IMPROVEMENT CAMPAIGN: Pamphlets, brochures with tag lines such as ‘help us improve’ or ‘we don’t want to lose you’ should be served along with every service.

• CUSTOMER HELPLINE: A separate 24*7 customer helpline should be installed to handle all sorts of complaints.

• LEGAL ACTION: The company can sue Dorosin after his persistent efforts to tarnish the company’s image ( Legal consultants to tackle this issue).

Reference: Interaction with a lawyer.

THANK YOU