Reputation management – Brand equity’s new paradigm

We seemed to have reached the end of an era with the VW emission fixing scandal in the last few weeks. The unfolding of events around the scale and impact of the scandal impacts the holy grail of corporate reputation and its management. Not only is the image of VW taken a severe hit (among existing and would be customers, in the stock market, in terms of company valuation and also brand equity), but it has also led to related ramifications for the “Made in Germany” brand. Brand strategist Hendrik Kühl, who I closely follow on LinkedIn, wrote a brilliant piece on why positioning a brand on a “country of origin” platform is not always a good idea. At this stage, we don’t have any viable cause to believe that DaimlerChrysler and BMW should start to get worried about their “Made in Germany” heritage.

The key question that every brand marketer should ask themselves everyday is “whether my brand’s positioning and equity” strong and resilient enough against the internal and external forces that drive fragmentation, cause reputation crisis, maligns credibility and damage trust. Going back to the VW crisis, the key question is whether the VW brand will ever recover? I believe it will, but how long it will take will depend on the organisation’s top management intent and serious proactivity towards the cause.

Developing and strengthening brand equity has always been a long-term task. It involves identifying and establishing threads (of positioning, credibility, experience) across the different stages of a brand’s life cycle. It requires a deep understanding of the brand’s alignment with the organisation’s goals and values and the brand’s relevance in a consumer’s life. Equity is not a standalone, point-in-time entity, but an evolving one. It does not evolve like a “chameleon”, but more like a flower bud that slowly blossoms and blooms. There are numerous examples of organisations that have carefully developed brands with strong equity through a careful nurturing process. Equally, on the other hand we have numerous examples of organisations who have rushed into the process, made their brands stand for everything or have constantly evolved them, leading to an untimely death of the brand or an irreparable damage to its reputation.

So, in reality, can brand equity be protected against internal or external forces that threaten reputation and trust? Yes you can but it requires a conscious and continuous effort that is separate from building efficiency, enhancing profitability or driving revenues from the brand. It is about building a brand that remains constantly in touch with its consumers, is quick and humble enough to apologise for its mistakes, goes out of the way in creating and developing excellent customer service and gives the consumer enough reasons to “forgive and forget”. I am not going to go into the debate of whether Maggi noodles are healthy or not, but will the Indian consumer embrace the brand as deeply as it always has after the brand comes back to retail shelves in a year’s time? They definitely would in my perspective.

The circumstances behind Nestle’s Maggi delisting in India and VW’s global reputation crisis are different but they have some interesting parallels. For Nestle, the reputation crisis was enforced from outside, which is true for VW. Nestle initially resisted the idea of apologising but eventually did. VW has apologised right from the onset. For Nestle, the reputation damage is localised. For VW it is global. What are the learnings from these two different crisis situations experienced by two global organisations? We can draw out a few interesting aspects:

Apologising is probably not enough: Owning up to the mistake is probably just one step in managing the crisis, but an equally important aspect is immediately initiating activities that start the process of rebuilding customer trust (Can VW learn from Toyota on this? It surely can). Consumers want to see honest, impactful and credible actions from brands in crisis and they want to see these actions fast enough so that they can talk about it. We all know word-of-mouth is a potent channel for developing brands. It is an equally potent one for getting your brands out of a crisis situation. Organisations need to use this channel more often. If stars on Amazon reviews can push up sales of products, then positive engagement with customers during low points in a brand’s life should surely have beneficial impacts

Reputation management is ground-level work: Reputation crisis cannot be resolved by launching global PR campaigns or by taking a 30,000-feet view. Most effective ways of re-instituing customer trust needs to happen at a ground level. For VW, this means every dealer. For Nestle, it probably means every distributor and every shop that sold Maggi. For VW, there seems to be a recognition of this at a senior level. New CEO Matthias Müller has already announced that any investment that is not critical will be halted for the company to focus on the massive recall programme (estimated to cost the company around $90 billion). For this programme to be effective, VW needs to work effectively with its dealers at a ground level to make sure recalls / replacements / compensations are handled in a transparent and efficient manner.

Reputation crisis cannot be ring-fenced: Corporate history has enough facts and evidence that a crisis engulfing one brand can quickly tarnish the reputation of the whole organisation. For both VW and Nestle, the ring-fencing scenarios are different. For VW, it is the brand. The crisis is not for the Golf, or Passat or the Polo, it is for VW. For Nestle, the crisis is for Maggi and not for Nestle. Regardless of the brand architecture, reputation crisis and its impact don’t follow brand architecture frameworks and its relationships. Organisations need to be cognisant of this in their crisis management plans. Invariably, the ultimate damage is to the organisation’s name. In 2006, Unilever faced a similar crisis for its Persil detergent brand. Their unsuccessful attempt to limit the crisis to Persil resulted in P&G gaining significant equity for Ariel at Unilever’s expense.

For VW, the challenge is bigger. It is a crisis engulfing the whole VW Passenger Cars Division, with multiple marques impacted. From a VW perspective, reputation management should focus on VW as a brand, and should not be about assuaging each and every Golf, Beetle and Passat owner. Every VW owner has the legal right for compensation and vehicle replacement, but the clear and coherent message they should get is that their “VW car is safe and roadworthy and now meets each and every emission norm”.

For Nestle, the focus has been on Maggi as a flagship brand. In reality, the crisis for them is more watertight and to their advantage. This is because of the differences in product makeup, formulation, format and characteristics even within the whole Maggi range. Unfortunately, VW does not have that advantage because emission control is applicable for any marquee the organisation manufactures and sells.

Getting into a crisis is an uncontrolled and unmanageable process, but getting out of it should not be: No organisation can manage the speed at which a reputation crisis evolves or grows, but getting out of it can and should be a controlled and managed process.

Appointing global PR firms is an essential exercise but individual level integrity and honesty from senior management is critical. Matthias Müller has a reputation for guiding organisations through difficult times, which made him an obvious choice for the embattled VW CEO role. He is known to be a man who “loves cars and loves those who make cars”. Does he need to create the way of VW’s recovery from this crisis? He definitely does. He actually needs to lead the recovery programme, even if global PR firms are there to give expert guidance. CEOs who have guided their organisations through extreme crisis situations have always done it via humility and a strong sense of acceptance.

PwC published a very interesting and insightful piece on CEO apologies. They categorised apologies into two categories but the emphasis was on ‘being ethical’. You can read more here:

An apology is just the start and in majority of instances is not enough. If the crisis is a direct breach of the organisation’s values by its own employees (VW’s case) then it is a critical failure on the organisation’s part. Apologies need to be supported with accountability. VW still hasn’t been transparent enough in terms of the actions they have taken against employees who had a direct involvement or tacit awareness of the emissions control rigging. Why is this important? This is not only important to repair the damage from the crisis but also to manage the organisation’s market value and volatility on stock exchanges (share values are more emotionally driven these days than by Monte Carlo simulations).

No one wants a crisis. But effective handling and management of reputation damaging events needs to become core tools of brand equity management. Because reputation is an organisational level factor, it is increasingly becoming more and more important for CEOs to have a deep understanding of the equity, value and perceptions of an organisation’s core brands.

You can only apologise humbly and ethically when you know the extent and depth of what you are apologising for.


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