Reference no: EM131377531

CASE STUDY - STARBUCKS COFFEE COMPANY AND STAKEHOLDER ENGAGEMENT

Starbucks, generally considered to be the most famous specialty coffee shop chain in the world, today has over 20,000 stores worldwide. Many analysts have credited Starbucks with having turned coffee from a commodity into an experience to savour. Starbucks has always felt that the key to its growth and its business success would lie in a rounded corporate brand identity, a better understanding of its customers and a store experience that would generate a pull effect through word-of-mouth. Howard Schultz, Starbucks' founder and chairman and CEO, had early on in the company's history envisioned a retail experience that revolved around high-quality coffee, personalized, knowledgeable services and sociability. So Starbucks put in place various measures to make this experience appealing to millions of people and to create a unique identity for Starbucks' products and stores.

Schultz felt that the equity of the Starbucks brand depended less on advertising and promotion and more on personal communications, on strong ties with customers and with members of the local community and on word-of-mouth. As Schultz put it: 'If we want to exceed the trust of our customers, then we first have to build trust with our people. A brand has to start with the [internal] culture and naturally extend to our customers ... Our brand is based on the experience that we control in our stores. When a company can create a relevant, emotional and intimate experience, it builds trust with the customer ... we have benefited by the fact that our stores are reliable, safe and consistent where people can take a break.'

Schultz regarded the baristas, the coffee makers in the stores, as his brand ambassadors and considered the company's employees as long-term 'partners' in making the company's strategic vision a reality. This commitment to employees is also anchored in Starbucks' mission statement which, among other things, states that the company aims to 'provide a great work environment and to treat each other with respect and dignity'.

From its founding onwards, Starbucks has looked upon each of its stores as a billboard for the company and as directly contributing to building the company's brand and reputation. Each detail has been scrutinized to enhance the mood and ambience of the store, to make sure everything signaled 'best of class' and reflected the personality of the community and the neighborhood. The company has gone to great lengths to make sure that the store fixtures, the merchandise displays, the colours, the artwork, the banners, the music and the aromas all blend to create a consistent, inviting, stimulating environment that evokes the romance of coffee and signals the company's passion for coffee.

Just as treating employees as 'partners' is one of the pillars of Starbucks' culture and mission, so is contributing positively to the communities it serves and to the environment. Each Starbucks store supports a range of community initiatives and causes and aims to be a long-term 'partner' to the communities in which it trades. At the community level, Starbucks store managers have discretion to make money donations to local causes and to provide coffee for local fund-raisers.

Because of these initiatives, consumers and members of the community in which Starbucks operate associate the Starbucks brand with coffee, accessible elegance, community, individual expression, and 'a place away from home'. Besides engaging in long-term relationships with customers, employees and communities, Starbucks also collaborates with non-governmental organizations (NGOs) promoting the production and consumption of 'fair trade' coffee. Back in 2000, Global Exchange, an NGO dedicated to promoting environmental, political, and social justice around the world, criticized the company for profiting at the expense of coffee farmers by paying low prices and not buying 'Fair Trade' coffee beans. While the company is at times still being criticized for its aggressive tactics in the coffee market, it has tried to collaborate with various organizations to promote the consumption of fair trade coffee. Starbucks has been an ongoing contributor to CARE, a worldwide relief and development foundation, specifying that its support should go to coffee-producing nations. The company also began a partnership in 1998 with Conservation International, a non-profit organization that promotes biodiversity in coffee-growing regions, to support producers of shade-grown coffee, which protects the environment. Finally, in order to appease Global Exchange, Starbucks agreed to sell Fair Trade coffee in all its stores. This decision has created a lot of goodwill from customers, industry analysts, communities and NGOs worldwide.

Despite its best efforts, however, Starbucks was recently criticized for its poor handling of two issues, which demonstrate the broader challenges for big corporations such as Starbucks to manage their stakeholder relationships in a balanced and ethical way. The first issue emerged in March 2007 when Starbucks was accused of attempting to block Ethiopia's desire to trademark some of its most famous coffees. Premium coffee is a growing market, and to benefit from the rising demand the Ethiopian government set out to trademark three coffee growing regions of the country associated with its finest beans: Sidamo, Yirgacheffe and Harar. With trademarks, the country could charge distributors a licensing fee for their use. The European Union, Japan, and Canada all approved the trademark scheme. Starbucks, however, initially objected to the trademarks and was working with its industry lobbyists (a buffering tactic) to pressure the US Patent and Trademark Office to turn down Ethiopia's trademark applications. As a result, the Office refused to approve two of the three trademarks. Oxfam took up Ethiopia's cause in a media campaign, generating some 70,000 complaints against Starbucks from consumers and the general public. In response, Starbucks launched a media counter-offensive, publicly rebuking Ethiopia's efforts. The company claimed that licensing would be more appropriate than trade marking the three coffee regions, and argued that 'the trademark application is not based upon sound economic advice and that the proposal as it stands would hurt Ethiopian coffee farmers economically'. The active blocking of the Ethiopian government led to a public relations crisis for Starbucks with the normally ethically minded company accused of acting tough with one of the world's poorest countries. To defuse the situation, Starbucks agreed a wide-ranging accord with Ethiopia to support and promote its coffee, ending the dispute over the issue.

In December 2012, Starbucks found itself in another difficult situation, when it emerged that over the course of 14 years of trading in the UK the company had paid only £8.6 million in tax and nothing in the last three years. The reason for this is that despite having revenues of over £3 billion over this period, the company's accounting scheme meant that profits were channelled to Ireland and the Netherlands where these were more favourably taxed. Customers were outraged over the issue. They in effect felt let down by the company and its pledge to care about the communities and societies in which it operates. David Cameron, the Prime Minister, also openly criticized Starbucks: 'Companies need to wake up and smell the coffee, because the customers who buy from them have had enough.' In response to the media backlash and the effect it was having on customers, Starbucks promised a further £20 million as a 'gift' for 2013 and 2014 on top of the tax that it legally owes the British taxman. UK Uncut, a group that protests against corporate tax avoidance in the UK, said that Starbucks' announcement was not enough and that they would continue to stage actions at Starbucks stores up and down the country. Politicians also branded the move by Starbucks as 'odd' and as a PR gimmick in that paying tax is not 'voluntary' but a legal requirement. Starbucks admitted in turn that the degree of hostility and emotion of customers, politicians and the media over the issue had 'taken us a bit by surprise' and that the move was an attempt to rebuild trust with its customers.

Alongside managing these specific issues, Starbucks has also started to used social media to communicate directly with stakeholders and to strengthen the brand and community ties around the company. Starbucks V2V, for example, is a social networking site that Starbucks ran up until 2008 where people were able to connect on global relief causes and community issues. The networking site was closely connected to the company; many people on the site either worked for Starbucks, or were loyal customers or members of the community. The company directly facilitated the discussion and supported the identified causes and issues. On another site that is still live (www.mystarbucksidea.com), people can suggest ideas for products, store experiences and community involvement. Most of the people on the site are loyal customers, and in this way Starbucks is able to give them a direct voice in the company. Dedicated communication staff listen to the ideas being discussed, provide customers with information on what the company is doing, and may help develop these ideas into action.

QUESTIONS FOR REFLECTION

1. Consider the importance for Starbucks of developing long-term relationships and alliances with different stakeholders. Should the company develop relationships with all of its stakeholders or only a select few?

2. What strategies and models of communication should the company use for communicating with its different stakeholder groups? What opportunities are provided by social media for stakeholder communication?