It used to be that a company’s reputation was based on the overall quality of the products or services it delivered, the value it provided, and the customer service it conveyed. Gaffs were generally forgotten over time. Sometimes, customers never even heard about minor issues in quality or service.
That is no longer the case. Television and radio made it easier for customers to become aware of any major company defects in quality, value or performance. Computers, the Internet and social media added to the public scrutiny of most any company’s brand and reputation. Today, companies must be exceedingly careful in protecting their reputation and brand.
Brand reputation is an integral part of a company’s strength or weakness. In some cases, a badly dinged reputation can add the final ‘f’ that turns an ailing brand into a failing brand. But a bad reputation does not always lead to brand death. Some companies have succeeded in redeeming badly damaged brands while other companies are able to sail through major corporate blunders with barely a scratch to its Teflon reputation. What makes a company’s brand either vulnerable or impermeable to reputation problems? Why do some corporate reputations end in ruin while others can be revived and still others are simply impervious?
Let’s start by defining ‘reputation’ and ‘brand’. According to Merriam-Webster,
In the case of a company, its reputation is its fame, name or perceived character. Related to that,
It originated from the concept of firebranding, in which an object is marked by burning it with a hot iron to attest to the manufacture or quality or to designate ownership such as branding cattle. Today, servicemarks and trademarks are the modern equivalent of firebranding.
Since a company’s brand is generally tied to its name and character – basically its reputation — a company’s reputation and brand thus typically rise and fall together. If the perceived character or quality of a company is stained, generally it is the brand that carries that tarnish. Often, a badly blemished reputation is enough to finish off the brand. Think of Enron, Worldcom, and Imclone as but a few recent examples.
When a brand’s reputation is hurt – whether by accident or misdeed — what can a company do? If a company does something illegal, immoral, or unwise that damages its reputation and its brand is compromised, it can basically do one of two things. It can either:
1.) separate itself from its damaged brand or
2.) it can accept its brand and reputation – flaws and all – and focus on doing better.
Today we will look at option 1. Dumping a damaged brand is a strategy that many companies try. Corporate rebranding is the equivalent of a person changing his name to escape a bad reputation. There are many major current companies that once existed under a different – somewhat less reputable — name. For example, WorldCom became MCI which then became part of Verizon. While logic dictates that in a world of intense public scrutiny such a strategy should never work, sometimes it does and sometimes it doesn’t. But the effort to rebrand is seldom a smooth one.
Rebranding: the Good, the Bad, the Ugly and the Really Expensive.
ValuJet assumes AirTran’s name
In 1996, ValuJet Flight 592 crashed in the Florida Everglades. All 110 passengers died. Due to the location of the crash, collecting the remains proved to be a notable challenge. The airline received a lot of negative publicity over that incident and its reputation was badly tarnished. While the FAA’s investigation concluded that ValuJet’s maintenance contractor, SabreTech, was responsible for the dangerous cargo conditions that led to the accident and while ValuJet never faced charges, ValueJet’s reputation suffered… perhaps deservedly so given their poor safety record at the time. SabreTech, on the other hand, faced both criminal and civil charges for the incident and ultimately went out of business in 1999. A short year later, ValuJet conveniently merged with AirTran in 1997 and logically gave up its sullied name in favor of AirTran’s unblemished one.
Ironically, AirTran’s recent safety record has been noteworthy. For the last three years, AirTran has ranked the safest carrier of 25 airlines reviewed. This is due, in part, to AirTran’s extremely young fleet, the youngest all-Boeing fleet in the U.S. Newer planes result in fewer mechanical issues. AirTran’s rebranding was so successful that Southwest Airlines – the carrier with one of the best reputations in the industry – is looking to purchase AirTran. Clearly, rebranding sometimes works.
Philip Morris rebrands to Altria
Divesting of a damaged brand is a tricky business. Just ask the executives at Phillip Morris, whose reputation and brand are inextricably tied to the manufacture of cigarettes. In reality, the company had divisions that put out other products besides cigarettes, including owning 84% of Kraft Foods. Yet the company was rebranded Altria in 2003, the same day that it was cleared of charges in a smoking-related wrongful death case. They may have won that case but ultimately lost the reputation war. Most people saw the name change as what it was… a dismal attempt to escape the company’s tarred reputation. Indeed, in an effort to disassociate its food brands, Altria successfully spun off Kraft Foods to its own company. But the Altria brand itself continues to languish. Altria, which was ranked #11 on the Fortune 500 list in 2003, has steadily declined since, ranking #137 on Fortune’s list in 2010 and #156 in 2011. The rankings are based on revenue and profits. Did the rebranding effort work? Altria’s slow but steady decline seems to indicate that the rebranding is unable to outrun its flawed reputation.
Blackwater rebrands to Xe and then re-rebrands to Academi
Blackwater, a private security/military company hired by the government to help in the Iraq war, found itself in hot water after a September, 2007 incident left 17 unarmed Iraqi civilians dead. In February, 2009, the company tried to escape its association with the incident by changing its name to Xe (pronounced zee). That name change was completely ineffective. The state department refused to work with the company or the company’s founder, Erik Prince, who himself was accused of serious wrongdoing.
In light of the 2009 rebranding failure, the company realized it would take more than a name change to fix Xe’s problems. Company founder Erik Prince resigned, sold his stake in Xe and moved to Abu Dhabi in 2010. In 2011, the company overhauled its leadership, hiring a new Chairman of the Board, new CEO, new Governance Chief to oversee ethical and legal compliance and new Chief Regulatory and Compliance Officer. All were individuals who had formerly been in top positions in the government, military or intelligence community. Having cleaned house, Xe then changed its name again to Academi in December, 2011 to further disassociate itself from its past brand, reputation and actions. Keep in mind that the services that Academi provides today are exactly the same as it did when it was named Blackwater and Xe. The purpose of the rebranding was purely to fix its reputation. Whether this second rebranding effort will work remains to be seen. Blackwater’s desire to rid itself of its ruined reputation and tarnished brand remains a challenge.
Andersen Consulting to Accenture
Accenture had the fortune of rebranding itself just before something bad happened. In 1988, Andersen Consulting broke its business relationship with the Andersen Accounting Group. Under their agreement, the company could keep its name, for a set period of time. In 2000, the company was required to change its name and chose Accenture, meaning an “accent on the future.” Although many critiqued the new name as a generic corporate word, the company spent $100 million rebranding their company. Many considered their effort the worst rebranding campaign in corporate history. Still, it ended up being better than their old name Andersen Consulting Title since the Andersen Accounting Group went down in flames for its part in the Enron debacle. Timing is everything.
Rebranding can work if the issue which damaged the company’s brand is something that can be eliminated, improved upon or fixed, as did ValueJet with its safety record. But if the name change is just a smoke-screen for a company that will continue to do the very things that ruined its reputation in the first place, then rebranding will not work. Putting lipstick on a pig does not make it a beauty queen. That may explain why ultimately many companies undergoing a reputation problem prefer to take their lumps and keep their name and brand intact, even if it is marred. Next week, we’ll take a look at some corporations that bounced back from the brink of reputation ruin.
© 2012, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.