Howard Schultz on the Importance of Social Media for Business

Starbucks is a compelling case study proving the power of social media for business when used correctly. CEO Howard Schultz’s new book Onward is more than an engaging business turn-around story. It is a personal story. Howard Schultz pours his soul into his business, his books and his public appearances. I was fortunate to attend Mr. Schultz’s appearance at the Drucker Business Forum on April 5th. I was particularly struck when he began talking about the value of social media. Here is a highly credible, successful man at the helm of an enormous enterprise – and he gets it. Since social media marketing is the world I live in, I excitedly whipped out the only video recording device in my possession at that moment, my iPhone 4.

onward book image photo by Ray Gordon

Howard Schultz led into talking about the importance of social media for business by summarizing key factors that have changed in the business environment over the last two years including:

a. The recession has changed the way consumers make financial decisions. Beyond cost comparisons, those decisions can be influenced by the customer’s feeling of connection to a company.
b. There is no longer any doubt as to whether social media is essential for your business or your organization.

“The issue of social digital media – that train has left the station. It is a runaway train, and it’s not coming back. And as a result of that the understanding, the capability, the insight that goes along with emotionally engaging with people through these channels is mission critical to any enterprise.” – Howard Schultz

Starbucks was able to initiate social media programs in 2008 that acknowledged the company’s role in their customers’ lives, listened to their opinions and engaged them in an authentic way.

“With regards to the things we are doing in digital media, especially with regards to Facebook, Foursquare and Twitter – here’s the thing: people are looking at these channels as an opportunity to sell something, as an opportunity to create more revenue. That is a manifestation of these channels but should not be the primary reason for them to exist. The primary reason they exist is to share and engage with customers in a way in which you are making a deposit in the reservoir of trust as opposed to a withdrawal.

In a withdrawal, every time you try to sell something or ask someone to do something, it is not building authenticity. So these channels for us have given us the ability to engage with customers in a very, very powerful way.” – Howard Schultz

In the book, Howard Schultz lists “igniting the emotional attachment with our customers” as a critically important element in their transformation. Social media is an essential ingredient in achieving that attachment. In spite of internal executive resistance to getting negative feedback, in March 2008 Starbucks launched MyStarbucksIdea.com, inviting customers to tell them what they needed to change. Over 250,000 registered members have submitted 100,000 ideas. Successful loyalty programs were among the 100 initiatives launched in response to these customer ideas.

Starbucks now has more than 27,000,000 Facebook fans globally, more than one million followers on Twitter, and very strong monthly traffic to their website. In the past 90 days, payment by smart phone has been successfully introduced in the USA. Howard Schultz was explicit that social media platforms played an important role in launching this program.

“In less than 90 days, Starbucks became the number one company in America in terms of revenue and frequency of people paying for something on their smart phone at Starbucks. However, we were able to create significant awareness and relationships with our customers as a result of using social and digital media to explain it, to talk about it, and it had a life of its own.” – Howard Schultz

The addition of two new board members – Facebook’s COO Sheryl Sandberg and Jupiter Networks CEO Kevin Johnson – is further evidence of Starbucks’ current love affair with technology. Broadly embracing tech is relatively new and important for the company. A part of the turn-around was dealing with out-of-date back room computers and obsolete point-of-sales systems (electronic cash registers) in the stores.

Overall, the book is a good read. In this article, I have focused on the social media success story for Starbucks. The scope of the book is far broader. Howard Schultz shares his discoveries of what went wrong at Starbucks and what was required to return it to health in a way that is readable, inspiring and useful to anyone who runs a business or organization, large or small.

Complete video transcript for your reference:
In any endeavor that you are engaged in, the issue of social digital media – that train has left the station. It is a runaway train, and it’s not coming back. And as a result of that the understanding, the capability, the insight that goes along with emotionally engaging with people through these channels is mission critical to any enterprise.

Now having said that, the question was: what we trying to do and why. In the book I write about the fact that I sat down with Michael Dell in talking about what he did and how he came back and he shared with me something that became a primary tool for us. We basically launched an interactive website called MyStarbucksIdea.com and it may sound kinda trite but all it was at the time was an opportunity to break this feedback loop between our customers and ourselves about what we were doing wrong and ideas that we had.

You should understand that inside the company, senior people were very threatened by this. They said you’ll be opening yourself up to tremendous criticism and were not going to be able to respond. The irony is that’s exactly what we needed to do. We were talking to ourselves and we needed to have the confidence and the faith that this kind of dialogue would be helpful to us. Secondarily, we created the same situation internally where we allowed 200,000 people to also give us their ideas, and complaints, and concerns. This created a series of understandings about all these things.

Now with regards to the things we are doing in digital media, especially with regards to Facebook, Foursquare and Twitter – here’s the thing: people are looking at these channels as an opportunity to sell something, as an opportunity to create more revenue. That is a manifestation of these channels but should not be the primary reason for them to exist. The primary reason they exist is to share and engage with customers in a way in which you are making a deposit in the reservoir of trust as opposed to a withdrawal.

In a withdrawal, every time you try to sell something or ask someone to do something, it is not building authenticity. So these channels for us have given us the ability to engage with customers in a very very powerful way. A great example is the phone. Less than 90 days ago, we launched digital payment on your smart phone at Starbucks. Now we’ve been observing this in Korea and China for two years now, where in these countries the smart phone is their digital wallet. And over the next two years we are going to see that most of the commerce that is going to be done by all of us is going to be done on your phone.

Now in less than 90 days, Starbucks became the number one company in America in terms of revenue and frequency of people paying for something on their smart phone at Starbucks. However, we were able to create significant awareness and relationships with our customers as a result of using social and digital media to explain it, to talk about it, and it had a life of its own. And it’s a benefit to the customer.

The idea that I think is important here is that we are a big company, and what I was trying to do all along through the transformation is to remind people about the entrepreneurial DNA of the company. What I would say is, the role of the entrepreneur, whether you’re a startup or a large organization, is to maintain significant curiosity, to try and see around corners, to anticipate and understand what is coming – and then having the courage to execute.

I think innovation is monumental to the story that I described in the last two years. Even though we are a coffee company, and are a physical bricks and mortar business, we must understand the sea-change that is going on with the consumer. We must be as relevant as any tech company, because the consumer is not bifurcating what is a coffee company and what is a technology company – they are just living their life.

The question is: how can you be as relevant to them as a company such as Google or Facebook? They don’t discern one from the other, they just want to do business and communicate the way they’re living. As a result of that, we felt very strongly that we must be as relevant with regard to technology and how our consumers are living their lives as any technology company.

People thought we were crazy two years ago, but that’s one of the reasons that we have done so well this past year.

About Linda Sherman

International, multicultural marketing pro, Linda brings a distinguished background of international subsidiary CEO/CMO to her Social Marketing expertise. These include CEO Club Med Japan, Barilla Japan and CMO Wal-Mart Japan. Linda Sherman has been featured and quoted in Forbes, The New York Times, Christian Monitor and other leading publications. She devised and implemented an innovative guerrilla-marketing plan for ZIMA in Japan that produced a lasting, profitable success. Linda has hands-on technical skills in building and search optimizing WordPress websites and an influential on-line presence. Linda teaches social marketing for business at the University of Hawaii. Her company, The Courage Group, provides websites, digital film, branding and social marketing strategy and training.

Connect with Linda Sherman on Google+

  • http://www.brucesallan.com Bruce Sallan

    Excellent article once again reinforcing how Social Media IS changing the world we live in, work in, play in, and drink coffee in! Well done Linda Sherman!

  • http://Shermanpianoman.com Richard Sherman

    Very informative and insightful. Recently I watched an interview where Mr. Schultz discussed how he brought Starbucks back to life and your article captured additional information above and beyond the interview.

    • http://ItsDifferent4girls.com Linda Sherman

      Thank you Richard. Where was that interview you saw? Was he on TV? Do you remember what show?

  • http://www.facebook.com/firststreetinc firstSTREET

    Thanks for sharing the book! Mr. Schultz certainly does have a grasp on the nature of marketing in the Web 2.0. This is certainly the way of the future as well as individual voices become connected to form large influential groups, both in the eyes of companies and authorities. Fortunately, the new level of transparency between companies and their customers forces them to increase the quality of the product or service, otherwise the whole internet world might hear about it. Starbucks is a great example of a company who has engaged successfully in social media!

    • http://ItsDifferent4girls.com Linda Sherman

      @FirstStreetInc It is exciting when executives at this level really get it, isn’t it? Thank you for your comment!

  • http://twitter.com/cmibooksguy Newt Barrett

    Linda,
    I know that Howard and his team really get social media because I wrote a blog post 2 years ago criticizing their launch of instant coffee–and got a fast, amusing, and gracious reply: http://contentmarketingtoday.com/2009/02/27/starbucks-listens-they-really-do-listen/
    On the purely practical side, was the transcript 100% accurate? Where did you place the iPhone to capture sound and video?
    I haven’t experimented much yet with Dragon Dictate, but would be hopelessly lost w/o Dragon Naturally Speaking.

    • http://ItsDifferent4girls.com Linda Sherman

      The @macspeech transcript is 100% accurate because it was manually produced. It took thirty minutes to create the transcript for a five minute video. My business partner in The Courage Group, partner on this site and husband, Ray Gordon, has been using Dragon Dictate since he broke fingers on his left hand in an accident in Africa on a World Bank mission Feb 2010. He can now use his left hand but still loves using Mac Dictate. Dragon Dictate needs YOUR voice to produce accurate copy so Ray listened and spoke the video. He gets 99% accuracy – usually proper names are the only issue. Ray chuckled when the system got “bifurcating” right.

      I was sitting in the second row to the side at The Colburn School – Zipper Hall when I recorded with my iPhone. You can glimpse the top of a banister in my video. Ray Gordon, who is a pro at video creation and editing, boosted the sound, then zoomed and reframed the video.

      After all the interest following our introduction of the concept of producing a transcript in #BlogChat Sunday night, Ray would like to write a product review. But as far as the difference between the Naturally Speaking you mention and Dictate – we will need to sort out the company’s product name proliferation before we can publish a review here on Boomer Tech Talk.

      Thanks for your comment Newt and for sharing your Starbucks Social Media story.

      • http://twitter.com/cmibooksguy Newt Barrett

        LInda,
        Thanks for the detailed reply. My experience with Dragon Naturally Speaking on a PC is outstanding. With Dragon Dictate, so far only a B- because accuracy isn’t as good. Also, I wish that Apple would let DD enter text directly into apps on iPhone/iPad rather than having to cut and paste.

  • http://twitter.com/WeisiPR weisili

    Thanks for sharing the book. Starbucks has been very aggressive in terms of launching its social media strategies. Now I can see why.
    The marketplace is becoming more and more sophisticated. People not only want products and services with high quality and reasonable price, but also expect to play some role in the decision-making process of businesses and brands they are interested in. Social media enable companies to engage and interact with people they want to reach in an effective way.
    Moreover, I think firstSTREET made a good point in his comment. “The new level of transparency between companies and their customers forces them to increase the quality of the product or service.”
    It’s also worth keeping in mind that Starbucks already had a massive brand presence and enjoyed a reputation before it got into social media. The success in social media would not be achieved in a vacuum. Social media should be considered as a new way to extend the brand presence and values based on companies’ performance and behavior.

    • http://ItsDifferent4girls.com Linda Sherman

      Excellent thoughts Weisili. I’ll be interested to hear more from you as you continue your studies.