Starbucks Is Handling Crisis Right, Says Mays Business School Expert

Article ID: 693162

Released: 19-Apr-2018 11:05 AM EDT

Source Newsroom: Texas A&M University

Expert Pitch

Newswise — Starbucks did it right, says Marketing Professor Venky Shankar, who studies crisis management. To rebuild trust and restore shareholder value, firms should voluntarily admit fault, apologize, and implement remedial actions quickly, says Venky Shankar at Mays Business School, who is director of research for the Center for Retailing Studies at Texas A&M University.

There has been public outrage over how two African Americans were treated and arrested recently at a Starbucks in Philadelphia. Such a discriminatory act is morally repugnant and has no place in a civilized society. It also marks the onset of a product-harm crisis for Starbucks.

How did Starbucks respond? Its CEO apologized swiftly, dismissed the errant employee, directly reached out for a face-to-face meeting, and announced a one-day racial bias training for all employees at all its locations.

Shankar’s research on crisis management shows that to rebuild trust and restore shareholder value, firms should voluntarily admit fault, apologize, and implement remedial actions quickly. Starbucks's initial reaction to the crisis is consistent with this strategy. It contrasts with those of Facebook, Experian, Carnival cruises, BP, and United Airlines – which all suffered losses in customer trust, brand equity, and shareholder value because they followed the wrong crisis management strategy. Facebook's CEO was silent for a full five days (leading to a drop of $75 billion in its market capitalization) and United CEO initially defended the dragging of its passenger only to do a volte face and when it boomeranged on it. Research also shows that social media exacerbates the negative effect of such harmful events, underscoring the need for firm to adopt the right crisis management strategy. It remains to be seen how Starbucks follows through with its initial reaction.

Learn more about Shankar at venkyshankar.com. Reach him at vshankar@mays.tamu.edu or at venkyshankar on Skype, Linkedin, and Twitter.


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