Monday, 19 November 2012

Tim Youngman – Starbucks, Tax Avoidance and the art of ethics and brand positioning

One of the most interesting recent stories from a brand management point of view is the current furore regarding tax avoidance. Three companies in particular have been singled out for attention, Google, Amazon and Starbucks. Senior management from all three companies last week had to face a very public grilling from the Public Accounts Committee over the amount of tax they paid. To put some numbers behind this Starbucks had UK sales of £398m but paid zero corporation tax. Google had sales of £395m and paid £6m tax and Amazon had sales of £3.3bn paying £1.8m tax.

You may well be shaking your coffee cups right now but all of this is perfectly legal, via the loopholes in our tax system. International companies can move profits around between territory bases. For example Google’s European headquarters is based in the Republic of Ireland with its advertising team based and so it pays its main tax requirements there.

This situation has highlighted a real competitive advantage global companies have. Andy Street, managing director of John Lewis stated in an interview last week regarding Amazon   “There is less money to invest if you are giving 27pc of your profits to the Exchequer,” “Clearly, if you are domiciled in a tax haven you’ve got much more [money]. They [Amazon] will out invest and ultimately out trade us. And that means there will not be a tax base in the UK.” Strong stuff but all true.

I have slightly more sympathy for Starbucks and Amazon on this than I do Google. Amazon does employ over 2,250 people in the UK and uses UK companies its fulfilment chain. Likewise Starbucks employs more than 8,500 people in the UK and plan to grow this by another 5,000 based on outlet launches. Google, with no physical product, employs considerably less. But for me the most interesting side of this once again is the impact on brand positioning.

Compared with Google and Amazon, Starbucks has positioned itself around being a fair community focussed business. Starbucks has responded to all of this by posting defences to its actions to its blog with posts by its UK MD, Its CFO and also Howard Schultz its worldwide chairman, president and CEO.

If you look at the comments against these statements many use the words “responsibility” and “community”, words used in Starbucks own mission statement. It has used these as a core part of its brand positioning and its customers in part have bought into this. Many of the posts are from customers so upset by this perceived change in ethics that they say they will not purchase again.

There is a big difference between a few people upset enough to post comments on a blog to actually loosing customers, and so sales, on a large scale but I suspect its brand image has been tainted, probably more so than Google, because of its choice of brand positioning. This is not a column about the rights and wrongs of this as you are capable of making your own minds up. However if your brand and brand following is based on certain ethics, the lesson is you better make sure your business follows them from top to bottom in all areas. I look forward to seeing Starbuck next brand marketing and PR activities with interest.

Tim Youngman is head of digital marketing for Archant follow him on twiiter @timyoungman

Wednesday, 7 November 2012

The Argos Catalogue - Branding opportunity or part of print history

As I child, I remember thoughts at this time of year turn to what you would like at Christmas. For inspiration there was one all encompassing source, the Argos catalogue. Argos first introduced its hefty tome in 1973 and at its peak 20 million copies of the biannual publication were printed. This is now set to change as part of a £300 million modernisation plan announced by its new CEO John Walden.

The announcement covers a five year plan involving spending £100 million in each of the next three years with an aim to increase sales from £3.4 billion to £4.5 billion by 2018. The plan is wide ranging and includes the closure of 50 stores and the relocation of 25 more as leases expire over the next five years. The stores themselves will change as well. The focus will still be on having a strong retail presence but used more as collection hubs and for customer service. Customers will be driven to using mobile devices and in-store wi-fi to order online instead of the laminated catalogues and little pens and paying in store after queuing up.

Argos recently announced that multi-channel sales now account for 51% of its total sales with 7% coming from mobile alone. Considering its sales figures are in the billions that is a tipping point in terms of volume coming from the web rather than the high street. Argos in my opinion is one of the pioneers and leaders of e-commerce in the UK. They were one of the first to allow customer reviews on their own product lines on its website. Its introduction of a click and collect and online reservation system again massively increased it online sales helping it to the position it is today.

So from a sales point of view I completely see why they are doing this and reacting to the change in customer activity. They will no doubt continue to innovate online and invest in digital channels and grow both the revenues and profits because of that strategic belief and investment. However I have a nagging worry from a branding point of view.

The new CEO has said it would be ‘foolish’ to pull the main catalogue now as 85% of customers still use it before buying. But he also admitted that it may decline ‘precipitously’ as sales shift online. Some commentators have said that it helps it move away from the risk of being seen outdated but I think that’s naive. The catalogue is, I’m sure, expensive and a pain to produce. Its place in our homes though is branding most retailers would kill for.

In the next few weeks you will all be inundated with glossy mags from supermarkets and other brands trying to get mindshare and table space. The Argos catalogue sits as a reminder of its place as a warehouse of everything you might need. If they stop the catalogue all together that little, albeit very weighty, reminder in your homes goes and then they have to rely on planned media campaigns and people walking past the stores to get them to use them.  Argos has already proved itself as a digital pioneer and leading e-commerce offering with incredible and growing online sales. I hope it continues though to think of its catalogue as part of its distribution and marketing mix and not part of an outdated history without benefit.

Tim Youngman is head of digital marketing at Archant follow him on twitter @timyoungman