As the economy slows, companies are being forced to make tough decisions such as cutting costs and even staff. As brand expert MICHEL HOGAN reports, these decisions can undermine your brand if you don’t take steps to protect it.
By Michel Hogan
In today’s economic climate, businesses have a myriad of tough decisions to make on a day-to-day basis. Increasingly we are seeing embattled companies reducing staff numbers, cutting costs, raising prices, reducing service levels and closing facilities.
There are usually sound operational reasons for these strategies, but at what point does the impact of these decisions bubble over and start to affect a company’s brand?
In several of the high-profile cases that have hit the front pages lately, the affects are becoming visible to everyone. Qantas, Fairfax, Starbucks, Ford Australia and Don Smallgoods are just some of the companies to see their brands take a hit in recent months.
Indeed, in a couple of the most notable cases, the impact has been mounting over a long time – you could call it death by a thousand cuts.
Short-term shareholder gains delivered through cost cutting more often deliver long-term brand damage. Once lost, the reputation and trust that are intrinsic to brands are expensive and often impossible to recapture.
Keep in mind that a brand is the combination of what you believe to be true and what your actions show, so there is little a company does that doesn’t have the potential to affect a brand – both good and bad, and from boardroom to front desk.
Qantas has long made safety a pillar of its brand. On its web site it claims to “have built a reputation for excellence in safety,operational reliability, engineering and maintenance, and customer service.” But over recent years, the company seems to be systematically tearing its reputation for safety back down again.
Its actions speak volumes about what it truly values.Ongoing cost cutting, outsourced maintenance agreements and ongoing disputes with personnel have all served to undermine not only Qantas’s reputation for safety and engineering excellence, but also confidence in the airline as a whole.
When the industry watchdog CASA notes that “maintenance performance within Qantas is showing some adverse trends and is now below the airline’s own benchmarks”, and when your on-time arrival and departure figures start to fall, then it is time to look at the broader impact your decisions are having.
And once a weakness has begun to show, every incident that follows can serve to reinforce and magnify that perception to the point where people might start to wonder Qantas is safe to fly.
Unfair perhaps, but you can only slide by on past perceptions for so long before your current actions become visible to everyone– and so do the cracks in your brand.
Qantas is far from alone. Fairfax Media has also been chipping away at its brand. The business drivers for its decision making may be different, but the same fundamental lack of respect for the foundations the brand was built on are in evidence.
The failure of leadership to see the writing on the wall for their long-term business model, and the dearth of ideas about how to plug that gap, has been dogging Fairfax Media and in particular its newspaper mastheads for several years now.
Predictably, the response has been to cut operational costs,especially personnel, to offset falling revenue. As evidenced by the latest round of job cuts and outcry by journalists, questions are now being asked about what that will mean for the long-term impact on integrity of the news reported in those publications.
However, the Fairfax Media brand does have a somewhat unique situation. As a “parent” brand, the bulk of general awareness and connection lies with its masthead brands (The Age, Sydney Morning Herald, etc). So the impact of the personnel cuts and resulting questions and perceptions mostly affects those mastheads rather hitting Fairfax Media directly.
However, given that the market value of Fairfax is heavily tied to those mastheads, even the deferred effect is not good news.
The sum result is still consumers openly questioning whether Fairfax publications will provide less scrutiny and lower quality information, which in turn could lead to a loss of trust in the integrity of the newspapers. The ripple effects of that loss of trust have the potential to affect every aspect of the masthead brands, including the ad revenues they depend on.
Turning overseas, the recent woes of coffee juggernaut Starbucks have been attributed to many things, from over-expansion to a loss of focus on the core promise. In its case, the job cuts and store closures are probably necessary to undo the damage being inflicted on the brand.
Newly returned CEO and founder Howard Schultz is quoted in Business Week magazine as saying that Starbucks had lost for many customers “the romance, warmth, and theatre” of visiting the retailer’s stores.
“Much of the problem we have is self-induced,” he conceded. “We are going to fix it. There’s going to be a comprehensive focus that hasn’t existed around here for a long time. We have to get back to what has made this company great.”
Starbucks forgot its brand was about selling the experience and community of their cafés and started trying to sell units of coffee. Part of the equation that made the early stores so successful was a ruthless focuson location – being in just the right place helped it build a loyal following,which in turn attracted others who wanted to share the warmth and community that spending time in one of the cafés inspired.
Coffee was the entry fee in many ways, but that isn’t what got people coming back. In many cases, thousands of Starbucks stores turned into virtual offices for their patrons, further layering the connection of place, not product.
It remains to be seen whether the store closures and corporate reshuffling can return the brand to its former luster, or whether the damage was too deep, consigning Starbucks to being just another player fightingfor the transaction cost of its customers’ next cup of coffee.
Marrying the day-to-day reality of doing business with the promise and beliefs of your brand can be a minefield of conflicting interests. There is no part of your business that your brand doesn’t touch, and likewise every decision you make has the potential to affect your brand.
As Schultz from Starbucks says above, losing sight of the reason you are in business in the first place – the passion that got you started – is a surefire way to make short-sighted decisions and destroy your brand.
Being profitable is important, but it should be the result of your actions as a business, not the sole reason to be in business. If you want your brand to stay strong and help you weather tough times, then you must know why you are in business and always make decisions that support and protect that promise.
However, the fact remains, that despite all care and conscienciousness there will be times when you have to make decisions that ripple out and affect your employees, customers and other stakeholders.
How you communicate in those situations is an opportunity to strengthen your brand, even in the face of bad news.
The really surprising thing is how long and hard you have tol ook to find examples of companies handling bad news in a good way. It seems that our natural aversion to dealing with things that aren’t going well extends to corporate offices as well.
And while it is true that media and sharemarket responses can make things significantly more complicated for large corporations, the majority of organisations don’t have those concerns.
The basics are pretty simple:
This is particularly true when dealing with job cuts. News of upcoming cuts will have leaked on the office grapevine long before you have had a chance to confirm it, or even notify the people who are to be let go.
On this issue your brand is less of a guide than basic common sense, and unfortunately whether you tell the whole company what is going on and then the people directly affected – or vice versa – there will be fall-out inside your organisation.
However, what that fall-out is will be tied to your brand and culture – if your company is known for fairness and treating its people well, things will go more smoothly.
As soon as you inform people on the inside, you should beprepared to communicate with partners and customers, especially any who will be directly affected; any lag time will allow the rumour mill to take over.
And most of all, be consistent in what you say, don’t have different “stories” for each group – they will talk to each other.
Whether the company is big or small, public or private,local or global, the basic rules of brand apply. You have to do what you say, say what you do and tie it together with what you believe. There is no amoun tof marketing hype or PR spin that will undo the long-term damage that short-term decision-making can inflict on a brand.
It remains to be seen what the ramifications will be for the brands discussed in this article and for others who could easily have been part of the story. No one can predict whether the effects currently in evidence will be reversible.
But it is safe to say that unless the companies start showing respect for the foundations and value of their brands and modify their actions accordingly, their problems will grow.
Alignment is Michel’s passion. Through her work with Brandology here in Australia, and Brand Alignment Group in the United States, she helps organisations align who they are, with what they do and say to build more authentic and sustainable brands.
Smart Company is a sister publication to The Mandarin, catering to Australia’s entrepreneurs, small and medium business owners and business managers.
