RISK AND CRISIS MANAGEMENT STARBUCKS FACED SOCIAL BOYCOTT IN PHILADELPHIA

DIPLOMATIC ACADEMY OF VIETNAM FACULTY OF INTERNATIONAL COMMUNICATION & CULTURE RISK AND CRISIS MANAGEMENT CASE STUDY: STARBUCKS FACED SOCIAL BOYCOTT IN PHILADELPHIA AFTER HAVING POLICE ARREST TWO BLACK CUSTOMER Student:​ Nguyen Tung Lam Student code:​ TT44C-086-1721 Teacher in charge:​ Ph.D Do Huyen Trang Hanoi, 2019 CONTENTS FOREWORD OVERVIEW COMPANY SWOT ANALYSIS SWOT MATRIX TIMELINE EVENTS Thursday, April 12 Friday, April 13 – Saturday, April 14 10 Sunday, April 15 10 Monday, April 16 11 Tuesday, April 17 11 SCOPE OF INFLUENCE 12 Spread of crisis: 12 Reputation 14 Image 15 Relationship 16 Black community: 16 Press and Communication Agencies: 17 Governments: 17 Consumer: 18 Customer: 18 Shareholder 19 KEY STAKEHOLDERS MATRIX Key stakeholders matrix analysis 20 20 CAUSES 22 STRATEGIES 24 GOALS AND OBJECTIVES 24 Motto 26 Message 26 The spokesperson of the crisis: Starbucks’ CEO Kevin Johnson SOLUTIONS Branding: Social Media 27 27 27 a Immediate (In the first 24 hours) 27 b Short-term (12/4/2018 - 12/6/2018): 28 c Long-term (6/2018 - 12/2018) 28 Relationships: a ​Immediate: b ​Short-term (1/5/2018 - 1/8/2018) 29 29 29 c ​Long-term (5/2018 - 11/2018) 30 Task Management: 30 a ​Immediate: 30 TIMELINE SOLUTIONS 31 b ​Short-term (13/4/2018 - 13/7/2018) 30 FOREWORD For every industry, especially businesses, the crisis is inevitable A scholar also once said: “There are only two types of businesses One is that the business has been through a crisis Secondly, businesses are about to be in crisis ” Therefore, crisis is an essential factor associated with the working process of every business, and a driving one for future development Because with every crisis, along with a great challenge, there is also a huge opportunity, the opportunity for brand development, reputation, and public relations if we know how to handle crisis and have an appropriate management strategy Recognizing the characteristics that exist in tandem with such an enterprise, a team with crisis management expertise and knowledge of crisis management is needed Crisis management is a process that always requires learning and continuous improvement, so that the crisis is reduced in a strategic way, linked to the necessary goals that have been identified to recover Crisis management is a process that not only ends when the crisis is extinguished, but also the process of restoring and repositioning a brand and continuing to develop further after a difficult period As noted above, crisis management is a process that requires continuous learning In the context of my essay, I will use the knowledge I have learned to handle a crisis of a well-known global beverage brand Starbucks, in situation that an African-American customer was arrested at a store in Philadelphia, USA, caused a wave of boycott of the brand, which led to disturbing consequences A OVERVIEW The beverage market is active and has grown for about two centuries now However, it is also very competitive and potentially problematic, especially with the brands associated with customer service Starbucks is a major global coffee brand Since its inception in 1971, it has so far transformed itself into a brand loved by the public around the world, a symbol of urbanization and urbanization In early 2018, with just one incident at a store in the US state of Philadelphia, the brand witnessed a wave of boycotts because of the inappropriate behaviour of an employee to two customers On Thursday, April 12, 2018 two black men, Donte Robinson and Rashon Nelson, went to the Spruce Street Starbucks location in Philadelphia, Pennsylvania to talk about real estate opportunities “They had asked to use the restroom but because they had not bought anything, an employee refused the request” They remained seated inside the coffee shop waiting for another friend to arrive before ordering any items off the menu The Starbucks manager asked the two men to leave After refusing his request, the manager proceeded to call the police Nelson and Robinson were arrested by the Philadelphia Police Force and taken out of the store in handcuffs However, Starbucks did not press charges and the men were released That same day a video of the event went viral on Twitter and Starbucks began to receive backlash for racial profiling This led to a week of protest, accusations of racial discrimination and Starbucks commitment to better With the “Black Lives Matter” movement sweeping the nation in 2015 and ongoing police brutality in the United States, many Americans took offense to Starbucks racial bias discrimination that elevated the already tense social justice climate B COMPANY SWOT ANALYSIS Strengths ● The company has experienced a steady revenue growth over the course of multiple years, resulting in the strong financial position they encounter today “The company's revenues increased at a compound annual growth rate (CAGR) of 10.8% from US$14,866.8 million in FY 2013 to US$22,386.8 million in FY 2017” (Starbucks Corporation SWOT Analysis, 2018) ● Starbucks also offers a rewards program as an incentive for their customers to return with the promise of free products in the future Their financial position and loyalty program both contribute partially to Starbucks strong customer loyalty and brand recognition ● With more than 29,000 locations worldwide, Starbucks customers come from different countries and cultures to amalgamate a diverse customer base (Statista, 2018) Weaknesses ● Starbucks can credit their success to the fast-paced work environment However, through quick, impersonal interactions with consumers, the company may neglect and undermine the customer experience This can translate to the company valuing quantity over quality Considering racial bias, this immediate, distracting environment could allot for name misspellings or misunderstandings on coffee cups, or hasty responses when talking to a customer ● Another weakness Starbucks encounters is its high prices which reduce the affordability of their products It’s “a weakness because it limits the company’s market share, especially in areas with relatively lower disposable incomes” (Lombardo, 2018) It also encourages customers to try products from their more affordable competitors ● There have been previous incidents of racial insensitivity within the company which were sparked by Starbucks “Race Together” campaign and other individual incidents in locations across the country This affects customers and employee perceptions on the company Opportunities ● The company has strong international presence, but expanding into developing markets could help raise the annual revenue growth to maintain a strong financial position ● Another opportunity is to develop inclusive campaigns targeting minority groups to further expand their customer base Considering unconscious bias, Starbucks has the opportunity to impact different cultures and races through their international presence ● With tasteful campaigns or thoughtful corporate social responsibility motives, Starbucks has the global power to change a community through their financial resources, large customer and employee base, or vast range of products ● The company launched Starbucks Reserve Roastery and Tasting Room— a series of upscale stores that offer unique coffees and a premium experience These stores can be found in select cities, and have quickly gained popularity The expansion of Starbucks Reserve Roastery and Tasting Room is an opportunity for the company to target a different segment of customers Threats ● Competitors to the company, such as Dunkin Donuts, The Coffee Bean, fast food restaurants and smaller independent stores offer more affordable prices which might appeal to the public Imitation of products and their business model is another threat that the company must be aware of ● Protests and boycotts from activist have been, and continue to be, a threat to the company’s reputation In 2015, activists were outraged by Starbucks superficial, “Race Together,” campaign, in which, baristas were encouraged to spark conversations of race with customers and write “race together” on cups (Shah, 2015) ● When it comes to races in America, it is very sensitive and it requires careful attention and behaviour, from the citizens and officials (the police) Numbers of campaign provoking for the rights of different ethnicities other than white have been carried out in the last decades, one significant is the Black Lives Matter movement SWOT MATRIX STRENGTHS WEAKNESSES ● Have a strong financial position ● Through quick, impersonal due to steady revenue growth interactions with consumers, the ● A rewards program as an company may neglect and incentive for their customers to undermine the customer return experience ● Starbucks has strong customer ● This can translate to the company loyalty and brand recognition valuing quantity over quality ● With more than 29,000 locations ● Its high prices reduce the worldwide, Starbucks customers affordability of their products, come from different countries and “limits the company’s market share, especially in areas with cultures to amalgamate a diverse customer base relatively incomes” lower disposable OPPORTUNITIES THREATS ● Expanding into developing ● Competitors to the company offer markets to help raise the annual more affordable prices which revenue growth might appeal to the public ● Develop inclusive campaigns ● Imitation of products and their targeting minority groups to business model is another threat further expand their customer ● Racial matters in America are base very sensitive A large number of ● The expansion of Starbucks campaigns and movements have Reserve Roastery and Tasting taken place to take the rights for Room is an opportunity for the the colored people in USA company to target a different segment of customers C TIMELINE EVENTS Thursday, April 12 Twitter user Melissa DePino posted the video of the two men being taken away in handcuffs "@Starbucks The police were called because these men hadn't ordered anything," she wrote "They were waiting for a friend to show up, who did as they were taken out in handcuffs for doing nothing All the other white people are wondering why it's never happened to us when we the same thing."" Friday, April 13 – Saturday, April 14 ● National outrage over the viral video began to mount Many took to social media to call the incident racist, while the hashtags @boycottStarbucks and #StarbucksWhileBlack become widely used ● Police Commissioner Richard Ross took to Facebook, expressing his points that the arresting officers did nothing wrong ● Philadelphia’s Mayor Jim Kenney on the other hand released a statement that said the incident "appears to exemplify what racial discrimination looks like in 2018," He said: "For many, Starbucks is not just a place to buy a cup of coffee, but a place to meet up with friends or family members, or to get some work done Like all retail establishments in our city, Starbucks should be a place where everyone is treated the same, no matter the color of their skin." ● On April 14, the Starbucks Twitter account uploaded an official apology, saying that they are “disappointed this led to an arrest” and “take these matters seriously” Sunday, April 15 ● Black Lives Matter protester Asa Khalif led a protest at the Starbucks at 18th and Spruce Streets where many demanded the firing of the employee who called police About 75 people attended ● A photo of Khalif armed with a bullhorn inside of the store, taken by Inquirer photographer Michael Bryant, would later be widely used on Twitter as a meme 10 E KEY STAKEHOLDERS MATRIX Key stakeholders matrix analysis Target Audiences Level of influence Priority order resolved Solutions victim customers Directly influenced in the situation They can have a significant effect on the crisis, as they can mitigate the influence of the crisis or increase such influence Immediately contact the two men to send face-to-face apology from Board of Directors Have discussion about appropriate compensation for the two men The Community leaders in Philadelphia One of the front of the story that everyone is taking care about These protestors and leaders basically have the same Give face-to-face apology from the company’s spokesperson Contribute sponsorship to some local activities 20 influence as the two victim customers The Public In the past and in the future they have and will always contribute to the growth of the company because if the public perceive reputation of the Starbucks as well-presented, the company will continue to survive * Make official apology and take responsible publicly Continue to develop the image as to be well-behaved, friendly and globally recognisable Starbucks internal employees They are to confront and provide service to the customers everyday during the crisis If these employees give another bad behaviour or false statement about the situation, the crisis will get worse Give announcements to the employees about the incident and give employees the following directions: First is to stay confidential to the press, to not give any statement Second is to remain proper behaviour if there are to protests Government Officials They have direct authority to the company and the problems, and can contribute capital to the company as well as the right to request explanation, figures and policies of the company Work with the government authorities, in this case are the Philadelphia City Council and the Philadelphia Police Department to both resolve the arrest Starbucks Influences on the customers and company’s revenues and consumers is a part of the public However, at this time the customers are not yet heavily affected by the incident’s results Need to consolidate trust and satisfaction for this group Manager at Discipline Has little influence on 21 Philadelphia Store the situation because this was resulted by his false behaviour If the popular demand is high, need to fire this manager Shareholders Shareholders are the capital contributors to develop the company Have the right to vote and veto decisions of company, and have the ability to dismiss the company’s governance apparatus Provide immediate information, explanations, authentic details and commitments to effective handling, especially the cost of recovering the aftermath of the crisis Partners Long-term contributors to the success of the company Provide information, commit to resolve quickly so as not to affect mutual partnership and maintain workload, benefits Press and Communicatio n Agencies Give updates on the situation to the public and managers Be an effective tool to resolve crisis because of its ability to navigate public opinion Need to have close relationship with the media Provide news coverage in the recovery phase for positive reactions Competitors Competitors can take advantage of opportunities to worsen the image of the company Affect reputation and sales Collect information about competitors’ current moves in order to deal with possible competition in the future F CAUSES Issues Risk Crisis Stakeholders 22 Branding: Social Media Negative comments on Unable to stop the ● The Public social networks (esp negative news ● Customers and Twitter) and wave of from spreading consumers boycott ● Press and communication agencies Relationship Insufficient relationship with the victim customers, the Police Department, City Council and the protest groups: slow response of the company’s representatives Receive ● victim misunderstanding customers between the ● Government: Police, City company and third Council parties, leading to ● Protestors, further leaders of the uncertainty community Task Management *Employee training: The public ● Starbucks criticized the employees entire brand and ● Manager at the demanded that Philadelphia Starbucks be held store accountable for the actions of one employee out of tens of thousands in the US - - Inappropriate behaviour of employees to racial matters Unprofessional handle of the situation of the store management when making calls to the police *Company revenues: The company revenue is being directly affected as the boycott wave is occurring not only in the US but also in Europe or Canada The company ● Shareholders stocks are being weakened, the company is facing an upcoming financial crisis 23 G.STRATEGIES Up to the ongoing situation and timeline, it would be best to implement these two suitable strategies: ● Correction Action: which is to take actions to mitigate the effects of the crisis on reputation, image and relationship that have been mentioned, repair any other damages and later prevent such crisis from happening again ● Full Apology: which is to present to the public that the company or organization will take the responsibilities, and ask for forgiveness H.GOALS AND OBJECTIVES Strategy Issue Bran ding: Soci al Medi a Goal Objectives Awareness Attitude Action *Press and Media: Correctio Effective n Action cooperation and increased trust 90-95% of press and media are aware of the situation accurately 80% don’t have negative attitude 80% newspaper and media accept to post the official information about the crisis from Starbucks *Customers and Full consumers: Rebuild Apology relationships and regain trust - 100% loyal customers receive apology video message 5.000 likes and 1.000 shares and 90% of comments the post show positive narratives on the case The number of customer doesn’t decrease over 5-10% after the crisis - 8.000 people reach the official apology video post on Starbucks facebook page *The public: Full 10.000 people 6.000 likes Less than 24 10 Relat ions hip Task Man age ment Rebuilding the Apology perception of a trustable global coffee brand with modern quality products reach the and 1.000 negative comments apology post, shares the on every post later post on Facebook *2 victim customers: Full Be satisfied with the Apology resolutions offered by the company, in the future will publicly continue to use Starbucks Both of the victim customers receive official apology and compensation *Government Correctio Officials: Effective n Action cooperation, increased trust and positive results of the victims resolution 100% officials Work Maintain receive official cooperative relationship information ly with Starbucks in the custody resolve process *Protesters: Regain Full trust and rebuild Apology relationship 100% of the 85% of the 80% have trust and protesters in protesters will consume Philadelphia get rid of Starbucks in the receive the negative future face-to-face response apology *Employees: Have Correctio accurate awareness n Action of the situation, have trust in the company, be more well-behaved in the future 100% of the employees receive statements and further training Both are Will continue to satisfied use Starbucks with the apology and compensati on 90-95% of employees have more positive attitude good 85-90% have accurate understanding and will be more wellbehaved 25 *Manager: Well Correctio cooperate and gain n Action close relationship The manager is aware of the situation and his responsibilities *Shareholders: Correctio regain trust and n Action become more unified 100% about situation Be Well coordinate cooperative and remain close to resolve ally with the brand the problem and responsibili ties know 100% agree people leave and the on the 100% supportively solutions involve in the crisis management process Motto - Provide with clear, transparent information - Be quick and direct to avoid causing controversy, fear and mistrust in public - Thoroughly address risks that may cause crisis later - Prove that Facebook is an ethical leader in the tech world Message “Starbucks continues to create good values” This message expresses Starbucks’ determination to overcome the incident and will continue to bring service as well as bring good values to the society and to re-create the image of Starbucks and re-build trust of public 26 The spokesperson of the crisis: Starbucks’ CEO Kevin Johnson I SOLUTIONS Branding: Social Media a Immediate (In the first 24 hours) ➔ To the public and customers: ​Within the first 24 hours - Post official apologies in Starbucks media: Twitter, Website, Facebook Fanpage - Content of the message in the apology letter includes: ● Sorry to Mr Nelson and Mr Robinson and the local community in Philadelphia for letting an unfortunate incident happen The incident occurred due to a lack of staff training and management from the company as well as a lack of improvement in its policies ● Promise to have compensation for physical and mental injuries of Mr Nelson and Mr Robinson ● Commitment to perfecting policies and reorganizing the training and management of employees 27 ➔ To the Press and Communication agencies: ​Within the first 24 hours - Set up a hotline for journalists and reporters to have official information from the company - The PR department make contact to the press directly to create better relations during the case b Short-term (12/4/2018 - 12/6/2018): - Duration: months Issue a second apology for the incident on National Television Continue to provide complete and accurate information to the press to show that in the past time the company did not shy away from responsibility Contact, take advantage of relationships with the available press to prevent adverse information for the company Strictly monitoring information on social networks, analyzing and evaluating continuously to promptly deal with the occurrence of unfavorable information Always update the news on the company's website and social networks so readers can grasp the situation, avoid speculation and misunderstandings c Long-term (6/2018 - 12/2018) - - Duration: months Building a pre-crisis system: ● Establish a crisis crisis communication team This team needs a core member who is the top executive, the PR department manager, the legal department manager, etc When a crisis occurs, this team is always ready to just add the relevant personnel ● Prepare, prescribe a few spokespersons in advance in case the key spokesperson has a problem ● Regularly check the items, jobs and parts that are in danger of a crisis to promptly handle if an incident occurs ● Provide a risk prevention manual: some temporary messages, paper forms, relevant press releases, a list of what you should and shouldn't do, etc Build a new advertising campaign from June 2018 to December 2018 to regain image and attract more customers 28 Relationships: a Immediate: ➔ For two victims: - Within the first 24 hours after the incident: Legally, ask the Philadelphia Police Department to release two victims from custody - Within the next 48 hours, Starbucks representative Mr Johnson met face to face with the two victims to apologize directly and agree on appropriate compensation Expressing the expectation that the two victims will continue to use the service and drinks at Starbucks in the future ➔ For the Philadelphia Police Department and City Council: - Within the first 24 hours: Actively contact and express the willingness to cooperate in investigating and handling the law, actively providing official information from the company - Within the next 48 hours, company representatives are available to work with the custody resolve process ➔ For groups of protesters: - Within the first 24 hours, through mass media and local media, apologized to indigenous people in Philadelphia - Over the next 48 hours, the company's representative, Mr Johnson, met face-to-face with protesters at the Starbucks store where the incident took place to apologize, accept the faults and make a commitment on future policy changes b Short-term (1/5/2018 - 1/8/2018) Within month: - Conducting research, changing policies on the use of space for customers and adding rules to the code of conduct for customers Track customer feedback, reviews to get analytical data, improve the service During 2-3 months: - - Create surveys on social networking platforms so that customers can easily reflect and evaluate the quality of service, encourage customers to give advice to improve Starbucks better Contribute sponsorship to some local activities: free drinks, financial budget for public activities and festivals 29 c Long-term (5/2018 - 11/2018) - Duration: months Update fanpage to take care of customers regularly Maintain relations with the government by having Starbucks’ Senior Leaders attend events with presence of Philadelphia City Council, etc Task Management: a Immediate: ➔ To the employees:​ Within the first 24 hours ◆ Investigate responsibility for the store in Philadelphia, suspend the employee for the incident if necessary ◆ Through emails and store managers, establish an announcement to nationwide employees about the incident ◆ Give employees the following directions: First is to stay confidential to the press, to not give any statement Second is to remain proper behaviour if there are to protests ➔ To the store manager: ​Within the first 24-48 hours ◆ Have discussion to provide further suitable resolution ◆ Temporary suspension for weeks ◆ Provide an aid package if the manager is to suspended ➔ To shareholders: ​Within the first 24 hours ◆ Send emails and letters to provide overview information about the incident, further explanations ◆ By emails, give a brief crisis management plan divided into phases b Short-term (13/4/2018 - 13/7/2018) Within 2-3 months: - Conduct behavior training for employees once a week, increase the ability to solve and handle situations for the company employees Staff self-assess ability to solve and behave themselves after each training Compare with customer satisfaction survey results about store services Continuous communication with the manager of the store has been suspended Send updates of crisis management effectiveness to shareholders Organize occasional meetings between crisis management leaders and shareholders 30 J TIMELINE SOLUTIONS Phase Time scale Audience/ Channel The public and customers Solution Post official apologies in Starbucks media: Twitter, Website, Facebook Fanpage The Press - Set up a hotline for journalists and reporters to and have official information from the company Communicat - The PR department reach to the press directly ion agencies: victim customers Imm ediat e The Philadelphia Police Department The first and City 24 hours Council (12/4) Groups of protestors Employees Ask the Philadelphia Police Department to release two victims from custody Actively contact and express the willingness to cooperate in investigating and handling the law, actively providing official information from the company Through mass media and local media, apologized to indigenous people in Philadelphia - Investigate responsibility for the store in Philadelphia, suspend the employee for the incident if necessary - Through emails and store managers, establish an announcement to nationwide employees about the incident - Give employees the following directions: First is to stay confidential to the press, to not give any statement Second is to remain proper behaviour if there are to protests The - Have discussion to provide further suitable Philadelphia resolution 31 store manager - Temporary suspension for weeks - Provide an aid package if the manager is to suspended Shareholders - Send emails and letters to provide overview information about the incident, further explanations - By emails, give a brief crisis management plan divided into phases victim customers Starbucks representative Mr Johnson met face to face with the two victims to apologize directly and agree on appropriate compensation Expressing the expectation that the two victims will continue to use the service and drinks at Starbucks in the future Philadelphia - Company representatives are available to work The next Police with the custody resolve process 48 hours Department (13-14/4) and City Council Groups of protestors The company's representative, Mr Johnson, met face-to-face with protesters at the Starbucks store where the incident took place to apologize, accept the faults and make a commitment on future policy changes - Issue a second apology for the incident on National Television - Continue to provide complete and accurate information to the press 12/4 12/5 Short -term - Conducting research, changing policies on the use of space for customers and adding rules to the code of conduct for customers - Conduct behavior training for employees once a week, increase the ability to solve and handle situations for the company employees - Send updates of crisis management effectiveness to shareholders 32 - Contact, take advantage of relationships with the press to prevent adverse information for the company - Strictly monitoring information on social networks, analyzing and evaluating continuously to promptly deal with the occurrence of unfavorable information - Always update the news on the company's website and social networks so readers can grasp the situation, avoid speculation and misunderstandings The next months (1/5 1/8) - Create surveys on social networking platforms so that customers can easily reflect and evaluate the quality of service, encourage customers to give advice to improve Starbucks better - Track customer feedback, reviews to get analytical data, improve the service - Contribute sponsorship to some local activities: free drinks, financial budget for public activities and festivals - Staff self-assess ability to solve and behave themselves after each training Compare with customer satisfaction survey results about store services - Continuous communication with the manager of the store has been suspended - Organize occasional meetings between crisis management leaders and shareholders Long -term 5/2018 12/2018 - Building a pre-crisis system: - Build a new advertising campaign from June 2018 to December 2018 to regain image and attract more customers - Update fanpage to take care of customers regularly - Maintain relations with the government by having Starbucks’ Senior Leaders attend events with presence of Philadelphia City Council, etc 33 34 ... cooperate in investigating and handling the law, actively providing official information from the company Through mass media and local media, apologized to indigenous people in Philadelphia - Investigate... Department and City Council: - Within the first 24 hours: Actively contact and express the willingness to cooperate in investigating and handling the law, actively providing official information... compensation for physical and mental injuries of Mr Nelson and Mr Robinson ● Commitment to perfecting policies and reorganizing the training and management of employees 27 ➔ To the Press and Communication