Case Study: How Starbucks Survived the Financial Meltdown of 2008

AMK/ Jan/2021

EXECUTIVE SUMMARY:

The world's largest coffee retailer, Starbucks, pulled itself out of the financial meltdown of
2008 by aligning its operations with customer demands through social media. This case
study looks at what the company did right to achieve this turnaround.

Founded in 1971 in Seattle, Starbucks is present in 50 states in the US and 43 countries. It is

one of the most respected brands, winning awards such as "Best Business", "Most Admired
Company", "100 Best Corporate Citizens" and so on. While its quality is unquestionable, its
price has always been higher than those offered by the domestic coffee houses in various
countries.

This was one of the reasons why the company took a hit during the economic slowdown of
2008 as customers opted for cheaper options for their everyday coffee. Starbucks was forced
to shut 600 shops that were not making profits. By March 30, 2008, its profit had fallen 28
per cent compared to the same period in 2007. In 2009, it closed another 300 stores and laid
off 6,700 employees.

On January 8, 2008, Howard D.

Schultz returned as CEO of
Starbucks after a gap of eight
years, replacing Jim Donald.
Schultz had nurtured the
company since 1982 when it had
only four outlets. He had served
as CEO from 1987 to 2000 and
had presided over the company’s
public offering in 1992.

Branding unlimited: Starbucks

cups on sale at a store.
Upon coming back, he found that apart from the worsening economic condition in the US,
the company's rapid expansion had distracted it from making its cafes an inviting place with
new products. In addition, Starbucks also faced competition from McDonald's, which had, in
2008, started setting up coffee bars that sold espresso.

Schultz shot off a letter to the employees on the day he took office once again as CEO. He
said, "The company must shift its focus away from bureaucracy and back to customers." He
made his objective very clear: "Reigniting the emotional attachment with customers.

"The previous leadership had blamed the economy and the higher cost of dairy products for
the slump in business. They had also stated this as a reason to hike prices. However, Schultz
took an entirely different view of the situation. He told the employees, "The company
shouldn't just blame the economy; Starbucks's heavy spending to accommodate its expansion
has created a bureaucracy that masked its problems."

In a departure from conventional strategies like "a redo of the store layout", Starbucks soon
embarked on a technology-oriented strategy. An environment where employees could think
freely about the organisation and contribute in terms of strategies and ideas was fostered. As
a result, a community involvement concept was developed.

In March 2008, "My Starbucks Idea" was rolled out for customers to exchange ideas with
each other and directly with the company. As part of this, customers were able to give
opinions on everything such as products, services, layout, advertising, corporate social
responsibility, in-store music and so on. More than 93,000 ideas were shared by about 1.3
million users on social media, and page views per month rose to 5.5 million.

After the 2007/08 crisis, Starbucks had to rebuild its customer relationships and show the
world that it cared for quality and consistency. It also had to give a leg up to the altruistic
component of the brand such as community building and care for the environment. Through
the "My Starbucks Idea" customers had a direct link with the headquarters and of course
Starbucks was listening. Soon Starbucks's ubiquity became an asset as customers from
around the world had an opportunity to connect with each other, spawning like-minded
communities like the 'free Wi-Fi group', 'soy group', 'comfy chair group' or 'frappuccino
lovers'.

Starbucks implemented over 100 ideas. Through this initiative, the coffee retailer built a
robust fan base. By giving customers a platform to voice their ideas and views on the brand
and by responding to it, it was able to reignite the brand trust.

Starbucks soon realised that it had to project its 'cool' element via social media-based
marketing. The organisation must never look desperate or too keen to increase its sales. So
the company refrained from pushing too many products, causes or offers to its followers. The
focus was more on building and engaging with the community.

One of the accidental tweets from Starbucks was just a smiley face that received a lot of
admiration from the community. Tweets such as 'keep calm and make coffee' is in line with
its idea of keeping a cool image and building a community. Starbucks's use of social media
points to the fine balance it maintained between spontaneous and well-planned posts. The
social media platforms have also helped the company swiftly mitigate and manage any
information that causes harm to its global identity. In 2009, when rumours of Starbucks's
profits being spent on Israel army surfaced, the company used the social media outlets
effectively to refute it and restore its image of a peace-loving organisation.

MOBILE APPS

The company embraced mobile apps much before its competitors. Very early in the race,
Starbucks had linked its social media strategy objectives with technology channels like
mobile apps. It was carefully designed to appeal to the masses and specifically to the segment
that made up its online community. Through its iPhone app features like store locator,
nutrition-based information and rewards programme, it integrated and enhanced its social
media community fabric. The head start in technology adoption has helped the company
come up with trend-setting ideas.
One of them was the move to help its customers personalise the company's offerings. The
initiative, 'My Starbucks Signature' allowed consumers to develop their own signature drinks
(hot or cold coffee), name the drink and share the new flavour with the community. In this
way, Starbucks informs the consumer of the wide range of product offering they have at their
stores across the world. It also shows the consumer how to order this cup and what it will
look like. The only modification a consumer can do in his or her signature drink is in the
ingredient mix and quantity. This way the supply network is only slightly disrupted at the
retail and service end. Everything else related to ingredients and distribution remains
completely untouched.

In 2008, the marketing teams had started a promotion to increase customer visits to stores
during breakfast hours. It included a free pastry with a coffee bought before 10:30 a.m. The
initiative created traction online and over one million people across the US queued up at
Starbucks outlets.

Such social media promotions were much less expensive than the company’s promotions at
its stores or putting up billboards across cities. The awareness and response was also more
than that from promotions through traditional channels like television advertisements.

Employees and baristas too were always an integral part of Starbucks online and social media
community. It has a separate page for its employees, which is used to generate and debate
ideas.

An example of employees contributing to its success is its Twitter page. The chain's voice on
Twitter is 28-year-old Brad Nelson, a former barista. In 2008, when the company was
looking for ideas to re-engage with its customers, Nelson suggested that he could begin a
Twitter handle for the brand. Today, Starbucks has 775,000 followers.

CONCLUSION

Starbucks is a great example of a brand turning around its business by returning to its roots
and reconnecting directly with its customers.

While many companies are struggling to get back to pre-2007 financial figures, Starbucks has
shown that people are willing to spend $5 or 3 pound every day on their latte and tweet about
it too.

Questions:

1. Analyse the case from your own viewpoint.

2. What are the strengths of Starbucks?
3. Do you consider the approach of Howard D. Schultz as appropriate?
4. What steps you would have taken as a CEO?
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