Starbucks: the reputation conundrum

24 January, 2013

After the recent Starbucks tax row, British Baker investigates how brands have no hiding place in the social media age – and what companies can do in terms of damage limitation.

ETHICAL: Starbucks aims to be a sustainable company

Pre-internet, a consumer or customer had to be very upset in order to write a letter about a shoddy product or poor service.

However now, in the internet age, the consumer is armed with the power of mass communication, and we have seen a number of brands suffer at the hands of this power.

When it was revealed recently that the US coffee shop giant Starbucks had not paid any corporation tax since 2009, the internet was alight with condemnation. “I will never, ever, ever give my business to @StarbucksUK again”, was among some of the milder statements flung across social media sites such as Twitter, Tumblr and Facebook.

Kris Engskov, managing director of Starbucks UK, has admitted how shocked he was by the public outcry at the company's use of complex tax arrangements. He has now pledged to make the payments to HM Revenue and Customs over the next two years, even if the global brand fails to make a profit.

So how exactly did the little man on the street manage to make the company say it’s sorry? The @StarbucksUK account currently has 186,197 Twitter followers compared to Costa’s 24,286, and with 757 stores across the country, it is the second-largest coffee chain in the UK. However Costa chief executive Andy Harrison wasted no time in capitalising on consumer criticism of Starbucks, saying on 11 December: “Costa has always been the nation’s favourite coffee shop and now it’s the taxman’s.”

If customer satisfaction is not achieved by Starbucks, a coffee consumer will take to the online outlet and say so. He or she perhaps feels that it is their duty to do so, to warn others of the brand’s mistake, so that they, too, do not waste valuable time and money in that particular outlet. The comment could be read by not only the brand’s followers, but by thousands of others by a simple search, or a quick re-tweet. The concluding months of 2012 have confirmed we live in a technological world that is making it increasingly difficult for brands to hide from their errors.

SORRY: Kris Engskov announces Starbucks will pay its share

The online outburst is arguably a response not only to the chain’s monetary decisions. This is a groan of annoyance from consumers who still choose to spend their income in the coffee chain, despite potential financial hardships. Recent reports published by Allegra Strategies, which includes a national survey of 25,000 consumers, show that 49% say they are maintaining their coffee shop visits compared with last year.

One in five consumers surveyed now visit coffee shops daily, compared with one in nine in 2009, with visitors on average consuming three cups of coffee per week in shops. Despite economic troubles, loyal customers continue to spend, developing a relationship as consumers gravitate “to brands they enjoy and trust”. As many recent tweets will show, this trust, where Starbucks is concerned, has been tainted.

At an event held on 15 December at the Natural History Museum, home to Starbuck’s sponsored ice-rink, the brand was once again embarrassed via the social media tool. Using the hashtag #spreadthecheer, a live feed was broadcast on to a wall of the museum, with Twitter users encouraged to participate. Unfortunately, messages were not checked before they were displayed.  One tweet called Starbucks “tax dodging”, while another opted for the very direct message: “Hey Starbucks, PAY YOUR ------- TAX”. Within half an hour, the messages had been spread across the internet, and the Daily Telegraph had a piece on the incident online later that day.

In response to the Natural History Museum escapade, Hannah Perry, product manager of YouGov’s social media analysis tool, SoMA, said: “Starbucks provided a ready-made weapon for consumers to vent their anger. While social media can enable brands to engage with consumers, and be elevated by their positive energy, it can also empower them to kick back directly and, ultimately, damage the perception of the brand overall.”

Better Brands

Despite this episode, Starbucks is actually considered one of the better brands for engaging with customers. According to Marketing magazine’s website, it considers the brand’s #FreeStarbucks campaign the second best use of social media to engage with consumers this year, beating Dairy Milk and Coca Cola. The publicity stunt, held in March 2012, saw Starbucks give away free lattes to promote the launch of its new stronger coffee drink. However, the chain has also managed to achieve third place on the website’s ‘Top 10 Marketing Mishaps of 2012’ because of the damaging tax scandal.

This damage, and the power of today’s consumer to determine the success of a brand, can also be seen in YouGov’s BrandIndex score. Over a short period of time it measures negative and positive comments consumers have concerning a particular brand, and produces a total. Last year, the chain was sitting at a comfortable +3.1, compared to -45.7 during December’s highest point of controversy. On 19 December, they had scrambled to -38.5.

Perry adds: “When done well, social media can enhance a brand’s image in the eyes of the consumers, enabling them to engage and create buzz on a brand’s behalf.”

In comparison to the fluctuating success of Starbucks’s use of Twitter, Perry compares the chain to dominant high street retailer, John Lewis. Via Twitter, it has managed to inspire audiences to discuss their positive impression of the brand’s Christmas advert. On the 2012 advert’s release day, it was “trending” on the social media site within minutes.

“A stark contrast to John Lewis’ success story is the impact Starbucks’ tax payments had on the brand over the same period,” Perry said. “As our social media audience measurement data shows, as soon as the company’s tax affairs came to light, the volume of tweets about Starbucks – and in turn those hearing negative comments about the brand – increased dramatically.”

According to YouGov’s SoMA, at the height of the Starbucks tax scandal “Starbucks” was mentioned on 49% of UK Twitter newsfeeds in a single day. The most frequent words heard together with the brand included “tax”, “Amazon”, “Google”, “pay”, “coffee” and “UK”.  This is a Twitter audience just 2% smaller than that reached by “Barclays” on 3 July, at the height of the Libor scandal.

Since Starbuck’s tax scandal broke on 15 October, 80% of the UK Twitter population have received at least one mention of “Starbucks” on their newsfeeds with the most frequent words heard with the brand including “tax”, “coffee” and “UK”. Despite the autumn statement taking place during this period, the second most frequent word heard together with “tax” since 15 October is “Starbucks”.

Twitter backlash

Starbucks is not, however, the first brand to experience a Twitter backlash from consumers and suffered as a consequence of using the social media site to gain publicity. In September 2012, Waitrose launched its #Waitrosereasons campaign on 17 September, asking consumers to briefly explain why they choose to shop at the supermarket chain. Data collected by YouGov showed that the campaign managed to quadruple the volume of mentions of the brand on Twitter newsfeeds. The best, and worst, was yet to come. On 19 September, The Guardian chose to publish an article on the criticisms Waitrose had received via Twitter, which was subsequently re-tweeted, reaching a far wider audience. By 20 September, 12% of the UK population had heard of Waitrose’s failures.

Prior to The Guardian’s article, the chain could almost rest assured that its ridicule on 17 September would be isolated on the social media site. Before Twitter, Starbucks would not have received such a public, and direct, outcry of disapproval, which in today’s society has become inescapable.

So, returning to the question of earlier – how did the little man in the street force a U-turn from Starbucks? Well, it turns out when the voice of the people is broadcast via social media, big businesses have no choice but to take note: the pen is no longer mightier than the sword, the keyboard is. 

Keywords: Starbucks




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