When companies say sorry

Coca Cola environmental campaign / Photo: From Youtube

When failures happen, long-term reputation counts for more than apologies.

Many companies have a lot to apologize for. First of all, there are companies that market products that consistently cause damage, such as cigarette and soft drink manufacturers, which cause damage to consumers, and gas and oil companies, which cause damage to the environment. Then there are companies that need to apologize for one-off technical failures and health or environmental damage, such as Samsung, which pulled its Galaxy Note 7 from the market in 2016 because of overheating that led to the device exploding, or British Petroleum, which was responsible for one of the ecological catastrophes of our time with the Gulf of Mexico oil spill in 2010. Finally, there are companies that need to apologize for significant service failures and for violating their customers’ trust, for example, United Airlines, which in 2017 dragged a randomly selected passenger off one of its planes after discovering that it had overbooked the flight, or Apple and its serious managerial and ethical failure in the way it employed workers at its factories in China - which led to several suicides among the workers.

If we ignore (we shouldn’t - but just for a second) the companies that consistently cause damage, which need to revise their business model rather than see forgiveness, what is the best approach for companies to ask for forgiveness following a failure, and how do customers respond to such efforts?

Marketing experts emphasize the need to respond quickly to failure, apologize, listen carefully to customers whose trust has been damaged, understand in depth and analyze the failure, and learn from it. However, a comprehensive study in the consumer goods space reveals that taking the blame for the crisis does not always help the company. In fact it has been found that both advertising and price reduction do not help a company after it takes the blame for the crisis. At least not in the short-term. Surprisingly, negative media coverage will help a firm's advertising gain more attention (in line with the idea that "all publicity is good publicity"). Also, taking the blame will make it easier for the product category as a whole - including the company’s competitors - to cope better with the crisis. In the case of United Airlines, the company’s first reaction was to back its employees and policies, and only after about three days was a "deep apology" conveyed to the customer.

In addition, it has been found that a positive brand reputation and consistent corporate socially responsible behavior can protect a company from the negative ricochets of the crisis. This of course requires systematic work over a long period of time and ahead of the crisis. Marketing efforts to recover the positive perception of the failing company will work better when it holds a significant market share, and will be more effective among loyal customers.

Some consumers respond more favorably to companies' apologies and efforts to improve. For example, it has been found that more religious consumers, who are more open to the idea of forgiveness, are more susceptible to these efforts.

In summary:

  • Mistakes and failures happen. Companies and executives must be prepared to manage the crisis. Respond quickly. Be perceived as sincere.
  • It is impossible to detach a response to a crisis from the history and reputation of the company. Managers and companies should do their best to conduct themselves responsibly and ethically - it will serve them well during a crisis.
  • Unfortunately, however, experience suggests that consumers have short memories. With time, most companies recover well from their mistakes and failures. A notable example is Volkswagen, which was caught falsifying the emission data of its diesel vehicles in 2015, but is now the largest carmaker in the world. To the firm's credit, it issued an apology fairly quickly and its CEO was immediately fired.

Professor Amir Grinstein studies and teaches pro-social marketing and entrepreneurship at Northeastern Universities in Boston and VU in Amsterdam. He writes on Twitter about behavioral research @AmirGrinstein

Yana Shechterman is an organizational consultant, executive coach, and part-time lecturer at Northeastern University in Boston. yanashechterman.com

Published by Globes, Israel business news - en.globes.co.il - on October 18, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Coca Cola environmental campaign / Photo: From Youtube
Coca Cola environmental campaign / Photo: From Youtube
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018