I’m continuing the discussion I began in my last post about when a crisis hits a brand. Geoff Dodds, Julie Schwartz and I brainstormed the different responses customers can have to a crisis and the steps you can take to address the problems.

Breaking the promise
When a crisis hits, customers make a decision about whether the promise of a brand has been broken and whether the relationship can be repaired. There are some important factors that will influence their decision and that should be considered in any brand decisions:

Existing brand image. Well-known brands have built up trust with customers and have farther to fall when a crisis hits. Coca Cola’s disastrous introduction of New Coke nearly destroyed the company because it broke the promise of continuity and reliability that had been built up with customers over the course of decades. Meanwhile, when startup airline ValuJet suffered a series of safety problems and a fatal crash in the late 90s, it quickly changed its name to AirTran. ValuJet’s lack of widespread recognition in the marketplace meant that the switch happened with little fanfare. Today, few people remember that AirTran (while certainly not a household name, either) was once ValuJet. (ITSMA’s Brand Equity Index provides a model for understanding a brand’s current image.)

Association of blame. In the court of public opinion, customers make a decision about whether the company as a whole is to blame for the crisis or whether the crisis was the work of a few rogue individuals acting outside the norms of behavior. When Computer Associates’ CEO Sanjay Kumar and some of his senior financial managers were indicted for securities fraud in 2004 for overstating company earnings in the late 90s, customers viewed the problems as the work of a few individuals rather than a sign of corruption throughout the company.

Collateral impact. If the crisis radiates widely beyond the company and damages other companies, the impact on the brand may increase. GM’s brand reputation has suffered as its missteps have affected its many suppliers, adding fuel to critics’ assertions that GM is bringing down the U.S. auto industry as a whole.

Ethical and moral impact. If the crisis is seen as being morally averse, or causes harm in ways that seem ethically and morally averse to the average person, it will affect the pace and depth of losses. When Enron management hid the company’s losses from the public and employees—even as managers cashed in their stock—and employees’ life savings evaporated, the company became permanently associated with greed and corruption. Similarly, when executives from Enron’s auditing firm, Arthur Andersen, refused to accept full responsibility for Andersen’s role in the scandal, trust in the company imploded—along with the company itself.

Speed of response. If companies are seen to be reluctant to respond to a crisis or its complications, it could have a negative impact on customer retention. For example, when certain models of Ford’s Explorer experienced tire blowouts, Ford delayed taking action with customers, blaming the tire supplier for the problems. But customers had not bought their Explorers from a tire manufacturer; they had bought them from Ford. They expected Ford to respond immediately to their requests for help. When Ford did not respond right away, it caused serious damage to the company’s reputation with customers.

Scope of response. Customers have a tendency to “forgive” brands that take more steps to resolve a crisis than the average person can envision or may even think necessary. When Johnson & Johnson responded to the Tylenol crisis by swiftly removing all bottles from the shelves (rather than just those in the areas where tainted bottles were discovered) and promising protective packaging to prevent that kind of crisis from happening again, it actually enhanced J&J’s reputation for safety and enhanced the brand’s position with customers.

Striking the right tone. Customers become highly sensitive to a company’s marketing and advertising messages in the aftermath of a crisis. If, for example, a company responds to a crisis by aggressively marketing itself to replace lost business without addressing the crisis or its impact, the company’s brand image will suffer. Marketers need to persuade the marketplace through the media that the crisis is being dealt with professionally and properly and there is clarity around the governance of the organization. Marketers should focus on getting that message out, not directly but through the media in as controlled a way as they can.
For example, when Oracle was found to have overstated its revenues in 1991, it removed its head of finance and brought in a new CFO, who announced that the company was changing its sales practices. Always known as an aggressive sales company, Oracle changed its practices for recognizing revenues so that salespeople would not be tempted to sell software before its official delivery date could be confirmed. Meanwhile, the company kept up its emphasis on research and development so that customers would see that it was still committed to offering leading edge products. The company took a different approach with customers and prospects, saying, “We’re a new Oracle.”

Use research to understand the context

In times of crisis, research with the following groups is especially important:

Customers and prospects. Research needs to be done with customers to get an aggregate sense of the degree of continued faith in the company and its ability to deliver.

Employees. Sales and delivery people are excellent barometers of the crisis because they talk directly to customers and prospects about their fears about doing business with the company in the wake of the crisis.

Analysts and influencers. Industry and financial analysts will likely have differing opinions about the current and future prospects of the company. But companies also need to find out what is being said about the company through other channels, such as the blogosphere and in customer forums.

Make choices about a brand’s future

We see B2B companies have three choices to make for their brands in the aftermath of a crisis:

1. Retain the existing brand as is. In this case, marketers work to restore faith and credibility in the company through other means than a brand change, such as customer outreach, a change in management, change in processes, or other steps.
2. Alter the brand enough to signal a new era. In the aftermath of its accounting scandal, Computer Associates decided that shortening its name to CA and changing its logo was needed to demonstrate that the company had recovered and was taking a new direction.
3. Create a new brand identity and position. Going this route takes longer and costs more, but may be unavoidable if the crisis runs too deep.

A brand in crisis can be rescued—even enhanced
Customers and prospects are better informed than ever, thanks to the Internet and global connectivity. Companies in crisis need to act quickly. They need to act with absolute integrity and transparency in the wake of the crisis so that customers and prospects understand that the crisis was an anomaly that will be fixed. They need to do research to understand the impact of the crisis on key stakeholders and the business and prepare a response that goes beyond the expectations of these stakeholders. Through these steps, companies can rescue—and perhaps even enhance—the brand image they have so carefully cultivated.

Timing is important in making brand decisions in the wake of a crisis. Providers need to be able to predict the point at which the brand is beginning to erode irrevocably and intervene before that happens. But gaining the ability to be predictive requires research.

I had a great conversation recently with two of ITSMA’s brand gurus, Geoff Dodds and Julie Schwartz. We put ourselves in a hypothetical situation that some of you may have faced for real: when something bad happens that involves your company–think Tylenol poisonings, accounting scandals, etc.–what do you do to protect the brand image you have spent years building up from crashing down around you? And perhaps more importantly, should you let the brand crash–i.e., start fresh with a new name and image?

We agree that there are a few steps that you have to take right away before making any drastic decisions about the ultimate fate of the brand:

1. Respond quickly. Everything that a brand stands for is up for grabs during a crisis. Customers and prospects will be anxious to hear whether they were right to place their trust in the brand. And they won’t wait long before making up their minds. Quick response is critical to making sure that the perceptions attached to the crisis don’t become permanent. Before making any drastic brand decisions, it’s important to clarify what will be done to rectify the crisis and to understand the impact of the crisis on the business.

2. Be transparent. As soon as you have an action plan in place for the business, communicate it. Be open and honest about what happened and what is being done to fix the problem.

3. Assess the pace and depth of customer losses. The most important vital signs for companies to monitor in the wake of a crisis are the pace and depth of customer losses. Factors that will impact the pace and depth of losses include the following:

• Low switching costs. If the costs of switching to another provider are low, customers may panic and try to switch in the immediate aftermath of the crisis, increasing the pace and depth of losses. If switching is difficult, the pace of loss will likely be slower.
• Dire predictions from analysts. If Wall Street and/or industry analysts are outspoken in predicting that the crisis will have a substantial impact on the provider’s ability to do business now or in the future, it could precipitate a stampede.
• Level of commoditization. If the provider’s offerings are not substantively different from those of competitors, brand loyalty may be slim and customers will be vulnerable to aggressive poaching by competitors.
• Length of the crisis. If the crisis is something that can be resolved relatively quickly, press and analyst attention will likely die down quickly too, perhaps decreasing the long-term pace of customer losses. However, if the crisis results in a lengthy public investigation, the long-term impact could be severe.

Have we left anything out? Please let me know.

Next time, we’ll get into some of the specific customer reactions to a crisis.