Monday Mornings with Madison

Brand Reputation: Ruins, Revivals and Damage-Resistant Part 2: Brand Redemption vs. Teflon Brand

A company’s brand is the class of goods or services identified by name as belonging to that particular company. Like an invisible branding iron, a company’s brand is the personification of its reputation and public cache. A positive brand can be leveraged – much like cash reserves – to take a company to new heights. A negative brand is like a ball and chain around the company’s every move.

Sometimes, when a company’s reputation takes a beating – usually due to their own mistakes or wrongdoing – they opt to dump their brand and start fresh. As we saw last week, sometimes it works. But if the problems that caused the brand to tarnish continue, then rebranding is futile. That is why some companies choose to stick with their brand – troubles and all – and work to restore the brand’s reputation and image. It is usually not an easy task.

Interestingly, not all corporate wrongdoing causes brand damage. There are companies that do wrong or cause harm and yet their reputations and brands continue practically untouched. For marketers, it can be puzzling to grasp why some brands are more easily damaged than others. To get a better picture of how brands can rise from the ashes or manage to go through a firestorm unscathed requires analysis. Let’s take a look at two companies that were caught doing wrong. For one company, its reputation plummeted and it took a lot of time and effort for the reputation to be restored. For the other company, its reputation was hardly affected.

Ford: Brand Redemption

Some companies refuse to part with their brand even when they’ve been caught doing wrong. They believe that just because the brand has experienced one or even multiple problems does not mean it is beyond redemption. That is often the case with family brands… brands named after a family and the family still runs the company.

Consider U.S. automobile manufacturer Ford. Founded in 1903 by Henry Ford, the company was the first major manufacturer of automobiles in the U.S. The name became practically synonymous with ‘car.’ Yet, by 1978, the Ford brand was sagging. Then it was discovered that flaws in Ford’s design of the Pinto’s fuel tank made the car susceptible to fires and explosions from even minor collisions or rough bumps. The design error allegedly led to three deaths before Ford recalled 1.5 million vehicles. The Pinto never recovered from its tarnished reputation, and the car was permanently scrapped from Ford’s lineup in 1981.

At that time, Ford’s reputation as a car manufacturer amounted to little more than a funny acronym for its name. FORD = Fix Or Repair Daily. Over the next two decades, Ford manufactured some popular cars, yet its reputation was still weak. Then, in 2000, Ford became embroiled in a legal fight with tire maker Bridgestone and its Firestone unit. Ford and Bridgestone blamed each other over safety problems that allegedly caused a spate of rollover related crashes that resulted in 174 deaths in the U.S. Bridgestone claimed Ford’s design was at fault and refused to recall all the tires Ford wanted off the road. Ford ultimately paid $2.1 billion to recall 13 million tires. The recall did little to help its reputation. Ford’s reputation for shoddy workmanship, unsafe cars and less than stylish models was pervasive. The company also had other management problems, but the negative publicity hindered it further. By 2005, Ford’s corporate bonds were downgraded to junk status and by 2006 its market share had dropped to just 17 percent.

Yet, today Ford is enjoying a reputation renaissance. According to a survey by Consumer Reports in 2011, Toyota scored 147 points in the 2011 Car Brand Perception Survey while Ford received 144 points, a margin that is considered a “statistical dead heat” and far above the scores of most other competitors. Consumer Reports said Ford had made strides in safety, quality, and value, three key parts of the survey. Customers benefited from higher resale values and fewer warranty repairs. The stylish, latest generation Ford Fiesta was Europe’s best-selling car for the first quarter 2010. Ford also became a leader in eco friendly cars. Indeed, in Interbrand’s annual survey identifying and ranking the 100 Best Global Brands, Ford ranked #50 in 2010 and again in 2011, with a 4% positive change in brand value year-over-year.

Ford shows that a company can redeem its reputation, even a badly charred and mangled one. Ford proved that brand renewal – in lieu of rebranding – can work. Brand rejuvenation can be effective, despite the fact that the World Wide Web ensures that any and every mistake, misstep and misadventure by a company is recorded and remembered… forever.

Merck: Teflon Reputation

If Ford’s brand redemption seems impressive, then consider brands that do wrong yet their brands haven’t a need for brand redemption because their reputations weren’t affected. Case in point. Merck & Co is a multi-multi billion dollar U.S. drug corporation and one of the largest pharmaceutical companies in the world. The company currently has 86,000 employees in 120 countries. Yet, Merck has been involved in incident after incident of wrongdoing over the last dozen years yet its brand and bottom line seem none the worse for it.

How so? Prompted by two whistleblowers in 2000, the U.S. Justice Department initiated a fraud investigation which led to two separate lawsuits under the False Claims Act. It was alleged that Merck failed to pay proper rebates to Medicaid and other health care programs and paid illegal remuneration to health care providers. Ultimately, Merck agreed to pay over $650 million to settle charges that it routinely overbilled Medicaid for its most popular medicines. The settlement, in 2008, was one of the largest pharmaceutical settlements in history. Merck made the settlement without an admission of liability or wrongdoing, yet the size of the settlement was widely seen as an admission of guilt.

If medical billing fraud was not enough to mar its reputation, in 2004 (while the False Claims case was still ongoing), Merck pulled Vioxx, an arthritis drug, from the market amid reports that it led to over 27,000 stroke and sudden cardiac deaths. It was suggested that the final death toll may have been ten times this but the claim wasn’t universally supported. Still, Merck’s responsibility for 27,000+ deaths made Ford’s 177 deaths from the Pinto and Bridgestone fiascos combined pale by comparison. The scandal resulted in claims – later upheld – that the corporation sat on data for three years and suppressed it, all the while knowing the drug was unsafe. Merck later settled a class-action lawsuit for £3 Billion.

Despite all this, Merck’s name in the pharma industry continues virtually unscathed. Merck is as dominant as ever in the pharma sector. Customers have not boycotted their products. Their reputation is intact. In fact, in 2009, when Merck merged with Shering-Plough, it was the Merck brand that took the lead in an unusual reverse-merger. Currently, Merck ranks #57 on the 2012 Fortune 100 list, behind Pfizer which ranked #40 and Johnson & Johnson which ranked #42 in the Pharma category. Indeed, Merck generated over $48 Billion in revenue in 2011 and had over $105 Billion in assets. If Merck’s reputation had been truly damaged, they wouldn’t be in such a strong financial position.

Why was Merck’s reputation so impervious to damage by its acts of wrongdoing? In part, it is because Merck manufactures drugs, many of which are patented. Patent protection ensures that competitors cannot manufacture a generic version of their products. This lock on the market ensures that customers continue to buy their products despite their misdeeds. It should be noted that most of the other major pharma companies are in the same ‘sinking patent-expiration boat’ as Merck. But not all of them have been accused of such misdeeds as Merck. It should be interesting to see what happens to Merck over the next decade as the patent on some of its most popular drugs – including Singulair, its asthma medicine which generates $5 Billion in revenue annually – expire and their customers are able to buy generic versions. Will Merck’s customers remain loyal or will their Teflon-coated brand expire along with their patents?

Every company – whether it is in the automobile, pharmaceutical, real estate or financial sector – must worry about the quality of its brand and the health of its reputation. A company’s brand, just like a tangible asset, has value and worth to the organization. It must be protected and carefully invested to ensure that it delivers a good return.

Quote of the Week

“You can’t build a reputation on what you are going to do.”
Henry Ford


© 2012, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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