Why do Some Businesses Succeed Inspite of Their Response to a Debacle Where Others Fail?
In September of 2015 allegations came to light against Volkswagen that they were using software specifically installed to cheat emissions tests done by agencies such as the EPA. A staple of automotive engineering and “the people’s car” of Germany has since faced massive fines, penalties and no shortage of bad press. This led to a massive fall in share price of ~30% in 2015 and €23 billion being set aside by Volkswagen, of which $4.3 billion was paid in fines to the US alone, to cover settlements, legal fees and restitution. However, instead of damaging car sales or profit margins, Volkswagen went on to sell 10.3 million automobiles in 2016 and posted revenue of €217 billion, up from €202 billion (7.4%) in 2014. 1
How do we account for this disconnect between investor and consumer confidence? How is it that inspite of the way that Volkswagen handled this fiasco that they have gone onto succeed in subsequent quarters? I have a theory that would explain this phenomenon based primarily upon my personal experiences on the frontline for multiple major brands, and research that I have dubbed the “Well of Goodwill”.
The Well of Good Will
The basic characteristics of any well are that there is a shaft dug down into the earth typically to at least the water table. These can be as deep as 100 meters, though most older wells are closer to 5-10 meters in depth. At the top of the shaft is a means for removing water. Modern systems use pumps, but for this theory/analogy we will use a bucket and pully system as it is likely what most picture. The well has a baseline for the amount of water it contains based upon the local water table and any underground streams or rivers. To rise above this baseline typically the area needs to receive a great deal of rain and/or snow melt runoff.
For the Well of Goodwill theory, I propose that for every action and interaction a brand has with their customers there is an amount of goodwill added or removed from the brand’s well. Over time with no interaction the goodwill built up in the well will slowly drain down to the base level or watermark line which would be the same for other business/competitors within your industry. Some brands have deeper wells to fill, mostly due to negative perceptions amongst consumers of industries. For example, companies within the Oil & Gas sector likely have much deeper wells to fill in respect to having a lower overall perception amongst consumers as compared to other industries. 2
Another characteristic of the theory is that it is much easier to drain the well than to fill it. Typically, positive actions by brands in which they interact with and provide value toward their customers target a large segment of their customer base, much as rain falls in a wide area. Over time with concerted effort, consistency, and value creation, a brand can and will fill its well. While targeted, individual interactions with brands can provide increased value to the customer there is often a delicate balance struck between the cost (and for cost I am including time spent by the brand/social media/front line team) of the interaction to the business and the benefit. Some companies such as my former employer giffgaff (a UK based telecom under the Telefonica umbrella) or the construction equipment company Caterpillar have attempted to bridge this conundrum by empowering customers to be brand ambassadors towards their fellow consumers. If done well, as I believe giffgaff and Caterpillar have, this can reap massive benefits for both the business and the customer through the creation of value for both parties and a mutually beneficial arrangement. It is a delicate balance however between control and consistency of the brand message and reach/scope, and for many companies if your internal culture is not built around customers I would recommend sticking towards more traditional means of brand proliferation and value creation for customers.
The final characteristic I’d like to mention of the Well of Goodwill Theory is that there is a maximum level of goodwill that can be built up between your brand and customers. A well can only hold so much water, and even before reaching this point you will begin to see diminishing returns on your efforts. Not everyone can or is willing to become an advocate for your brand. Perhaps they don’t have the time, the interest, or are already an advocate for one of your competitors. This brings me to another theorem which I am also researching which I am calling the Brand Advocacy Ladder. I will write a blog post dedicated to this theory at some point in the near future, however for this piece all you need to know/understand is that for every rung of the ladder towards advocacy there is a diminishing number of customers who are able to make that journey. What this equates to is that as a whole, there is a finite amount of goodwill you can build on average with your customer base. It also means that for any negative action you as a brand partake in, price increases, bad publicity, failed marketing campaign, etc. the impact is amplified and there will be customers who have minimal loyalty towards your brand that become a high churn risk.
The Theory Applied to Volkswagen
Let’s return to our example of Volkswagen from earlier. How were they able to maintain strong sales and revenue numbers in the face of waning investor confidence and a deluge of negative press? The answer is relatively simple on the surface but complex when you dig deeper, they had more goodwill built up in their well than was being removed throughout 2015 & 2016.
Volkswagen literally means “people’s car” in German and the company has been positioned as a company of the people for decades. You have the iconic VW bus that brings to mind strong images of movements in the 60’s and 70’s and tends to be prevalent in any film or TV show produced about those decades. The VW beetle is also an iconic design and has had strong marketing campaigns for decades. During a time when cars and engines were getting larger and faster, Volkswagen launched the “Think Small” campaign of the late 50’s and early 60’s. They stood out from the pack and positioned themselves as the car for the average commuter. Definitely not the fastest (they advertised a top speed of 72 MPH) but a car for those who wanted something a bit different, more fuel efficient and practical. It was about the experience and the place of the automotive in the life of a family.
This idea of a car purchases being about the experience of the car, long after it has left the lot is important to this story and the theory of the well. Volkswagen were honest about the car the consumer would be purchasing, its strengths weaknesses, and set clear expectations in contrast to their competitors. While Volkswagen has had missteps, they have also had decades of clear, consistent messaging, moderately reliable automotives at a moderate price (my family had a Scirocco in the early 80’s that broke down repeatedly), and a series of overall positive interactions with consumers. This led towards a reservoir of goodwill for the company as they grew into one of the largest manufacturers in the world. This of course does not mean they are in the clear at this time. Further missteps will continue to push those with low advocacy towards Volkswagen away from future purchases and it is important for any brand post-debacle to take steps to ensure they are adding back into the Well of Good Will.
Final Thoughts for Part 1
As this blog has gone on longer than I intended I am going to break it into three parts. Please continue reading to part 2 - Measuring the Well where I speak about understanding customer perception towards your industry, the place of your business within that industry and the impact of customer journeys on the Well of Good Will.
Thanks as always for reading.
References:
1- https://www.ft.com/content/51537baa-26a3-11e7-8691-d5f7e0cd0a16
2- http://www.ey.com/us/en/industries/oil---gas/ey-us-perception-of-the-oil-and-gas-industry-2017