Starbucks Coffee Company Teaching Note

Overview
The Starbucks Coffee Company case offers students an opportunity to explore the tradeoffs between a successful business strategy (in this case, its focus on the purchase of the highest quality coffee, which is at the heart of this business) and the companys interest in maintaining and enhancing its reputation as a socially responsible company. The case focuses on the CEO, Orin Smith and his decision whether to purchase and offer fair trade coffee after being pressured by the Global Exchange, an NGO responsible in the 1990s for Nikes difficulties in relation to unfair labor practices in developing nations.

Questions to Begin the Case Discussion

Students can approach this complicated case from many different angles, so questions should be tailored to the individual needs of the course you are teaching. Possible successful approaches include the following: 1. Focus on the factors in the environment affecting Starbucks decision. This allows you to explore comparison between Nike in the 1990s and Starbucks today. The company faces the risk of overexposure because of its incredible rate of growth. And, like WalMart, the company has been seen as a destroyer of smaller main street type businesses. It also represents American culture in distant lands in the same way that McDonalds did in the 1970s and 1980s. Its interest in presenting itself as a socially responsible company also makes it an easy target for antagonists like the Global Exchange. 2. Focus on Starbucks image and identity specifically. How will this decision affect Starbucks reputation? Students will be able to see quickly that the companys focus on quality may suffer if it chooses to sell fair trade coffee unless it is able to maintain a consistent level of quality. This can get into discussions of what drives the Starbucks brand and how much a part of that brand is the quality of the product itself. 3. Focus on what constituencies would be most affected by Smiths decision. Smith had to consider how all of his constituencies would respond to this situation. So, while some internal managers (see Mary Williams, who is in charge of the coffee business, in particular here) might not want to compromise quality, and some customers might not like fair trade coffee, the upside with a very young, and very activist-oriented employee base might be worth the tradeoff. In addition, Global Exchanges power to disrupt a companys relationship with constituents has been well documented in the Nike case.
Source: This teaching note was prepared by Alison Stanley, T02, under the direction of Professor Paul A. Argenti. 2003 Trustees of Dartmouth College. All rights reserved. For permission to reprint, contact the Tuck School of Business at 603-646-3176.

Starbucks Coffee Company Teaching Note

4. Focus on what kinds of corporate mistakes the company is likely to make depending on Smiths choice. For example, if he chooses to support fair trade, what will happen to relationships the company currently has with suppliers? If he decides to support Global Exchange, will other NGOs come after the company (for example, to sell nongenetically modified milk, or some other cause-related activity). 5. Focus on how this might play out in the media. What is the headline likely to be depending on Smiths decision? How will this affect each of the companys key constituencies? What kind of damage did Nike suffer at the hands of the adept Global Exchange in its attempt to depict the company as an employer of child laborers in developing nations in Asia? 6. Focus on what kind of corporate communication strategy the company should develop no matter what its decision in this case. Students need to focus on how the company can communicate its strategy once the decision has been made. Some constituencies will be happier with one decision more than another. The company should develop a strategy in advance of its decision to minimize the impact with angry constituents and maximize the impact with happy constituents.

How to Analyze this From a Crisis Communication Perspective

One way to think about this case is that you need to prepare for the worst, as a follow-up to the last question discussed above. So getting students to think about what you might do to prepare for the possibility that things can go wrong will generate a very rich discussion and help prepare the company for a potential crisis. Here are some of the potential steps the company could take:

Communicate directly and frequently with all employees by memos, webcasts, emails, etc. Develop a crisis response team to craft responses to different scenarios. Provide consumers and employees with a number to call for additional information about the situation. Add substantial content to the website on this topic. Nike did a good job of communicating through its website on labor issues (albeit a bit too late). Appoint a team to synthesize information gathered from consumers and determine whether the companys actions are having the desired effect. Analyze the reception of the messages developed and the channels through which they were delivered. Watch what your competition does in this situation. Keep them from taking advantage of the situation and stealing market share. Visibly push the companys case in the national media

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Starbucks Coffee Company Teaching Note

In addition discuss with students the following crisis preparation plan: 1. Assess the organizational risk. As Nike discovered, even the most socially minded companies are at risk (maybe more risk because they have set themselves up to be examples) from a smear campaign by the Global Exchange. While Starbucks has a very impressive philanthropic/community track record, this only mitigates the risk slightly. Starbucks should engage in a cost-benefit analysis and worst-case scenario simulation to determine the appropriate commitment of resources to the situation. 2. Set communication objectives, targets, and channel choice. The company must determine what objectives it hopes to achieve with its PR campaign, what constituencies it is targeting, and how best to communicate its message along these lines. 3. Assemble the team and centralize responsibility. The company has to put a team in place for any eventuality. Preferably, this team should include cross-functional senior managers, the CEO as well as representatives from particular stores since they will be on the front lines with customers and perhaps best suited to identifying issues as they develop. 4. Leverage Starbucks goodwill. The company has earned a great reputation over the years through delivering quality products in a socially responsible manner. This will carry it a long way no matter what decision management makes relative to fair trade. 5. Use third party advocates. The company must make use of third party endorsements to pre-empt any attacks from constituencies. The company has many powerful supporters, many with immediate media presence who could go a long way to make Starbucks case. 6. Get whatever you can on the Global Exchange. The company needs to do its homework on this incredibly adept antagonist. The public, by the time of the case, had seen the havoc that anti-globalization marchers caused at WTO rallies and other similar events. While the case predates 9/11, today there is a pronounced public backlash against antiAmerican groups that pursue radical agendas through disruptive means in the United States (may look very different abroad).

What Really Happened

Starbucks decided to sell fair trade coffee, and meet many of Global Exchanges demands. Almost immediately, Global Exchange backed off and started to pursue other larger companys in the industry, like Proctor and Gamble and Kraft General Foods. Internally, the company had some difficulties, but the culture was strong enough to survive such a challenge. Mary Williams found a way to buy the best fair trade coffee, and the company found ways to market the product to support the companys positioning as a socially responsible purveyor of the highest quality coffee.

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