The six biggest brand disasters of the last decade

Company perception can make or break a brand. We take a look at some of the biggest disasters to have taken place over the last 10 years

 
Byron protestors
UK food chain Byron faced protests earlier this year after taking part in a sting operation to arrest restaurant staff who were allegedly working without proper papers 
Author: Laura French
October 19, 2016

In July, protestors gathered in their masses to attack British burger chain Byron following an immigration sting that saw at least 25 migrant workers deported. According to some claims, the workers, who had shown false ‘right to work’ documentation, had been lured in as part of a trap by the company before the Home Office arrived.

What impact the protests had on the company’s bottom line remain to be seen, but they gave a telling glimpse into the power of social media (the hashtag #boycottbyron quickly spread its way through Twitter) and the growing importance of both brand image and company ethics.

That’s especially true among Millennials – Byron’s key market. The group’s scepticism of big corporations has been touted many a time, and it’s not without evidence: a recent Deloitte study found 25 percent of those surveyed considered ethics, trust and integrity the biggest factors in ensuring long-term business success, and 54 percent believed businesses around the world had “no ambition beyond making money”.

Gus Sellito, Managing Partner at Byfield Consultancy, said of this cultural shift: “Millennials generally have much less trust for companies than previous generations.” And with the advent of social media, it’s no longer within the powers of the company to control its corporate message. This means that establishing – and maintaining – a reputation for transparency, social responsibility and integrity is becoming more important than ever, and with it the need for clear, no-nonsense communication with consumers.

But sometimes things go wrong, whether intentional or not. From questionable crisis management to customers in dismay, here are some of the biggest brand catastrophes to have occurred over the past decade.

Deepwater Horizon cleanup
Workers try to capture the oil washing on to Fourchon Beach following the Deepwater Horizon oil spill

BP
Oil giant BP had spent years trying to establish itself as an environmentally responsible brand. In 2000, the company launched its $200m global PR and advertising campaign, Beyond Petroleum, to improve its brand image, which resulted in the creation of today’s green and yellow, nature-inspired logo. It worked: brand awareness leapt from just four percent in 2000 to 67 percent in 2007, according to a survey conducted by BP at the time. Furthermore, CoreBrand found BP’s brand power increased to an all-time high score of 50 by 2008.

But all that work was undone in one fell swoop when, in 2010, the Deepwater Horizon rig in the Gulf of Mexico exploded, killing 11 workers, causing untold damage to surrounding wildlife, and destroying fishing and tourism businesses en masse. The eruption, which continued for 87 days and saw more than three million barrels of crude oil released into the ocean, according to a US federal judge, has since become infamous as one of the biggest environmental disasters in American history.

BP reported a $5bn loss in 2011, marking the first time it had been in the red in nearly 20 years

Unsurprisingly, BP’s reputation took a battering. The impact on business was immediately felt, with BP gas stations in the US witnessing a drop in sales and share prices tumbling 55 percent that year – from $59.48 to $27 per share. The company reported a $5bn loss in 2011, marking the first time it had been in the red in nearly 20 years, and by 2015 it had spent $28bn on cleaning up, settling claims and responding. The oil giant became the butt of criticism from far and wide; Greenpeace UK even launched a logo contest “to depict the real image of the oil company”.

BP responded with a multimillion-dollar ad campaign stating “we’re sorry”, reiterating that no oil had been spilt since the repair and promising to fund $500m in scientific research. Owning up to the disaster went some way towards easing the pain, with BP witnessing a significant improvement in its reputation between 2011 and 2013, according to Harris Interactive.

But some believe it wasn’t enough, and controversial comments from the company’s CEO, Tony Hayward, underplaying the spill didn’t help matters. “The company was slow to communicate in the immediate aftermath of the disaster and tried to pass the blame on to third parties”, said Sellito. “Its CEO came across as arrogant and aloof in broadcast interviews, and BP showed little empathy to the accident victims.”

And indeed, the impact on consumer perception was still evident several years on: a HuffPost/YouGov poll in 2013 found that 43 percent of Americans had an unfavourable view of BP, and 59 percent hadn’t changed their opinion since seeing the adverts.

That fact hasn’t necessarily been felt on the bottom line – the company, of course, remains one of the biggest players in the market, perhaps in part because consumers are unlikely to outright reject an essential like petrol on moral grounds. However, share prices have failed to reach the highs seen before the spill, averaging $44 between August 2010 and August 2014 – down 27 percent from the peak – reflecting a continued lack of investor confidence.

Communication and a commitment to sustainability have played their part in reputation recovery, but in a case like this they can only go so far. According to Sellito: “For those with longer memories, the green and yellow sunburst of the BP logo will always be tainted by Deepwater.”

Volkswagen factory
Volkswagen factory in Wolfsburg, Germany. The company’s sales tumbled as a result of 2015’s emissions scandal

Volkswagen
In September 2015, the US Environment Protection Agency claimed Volkswagen, responsible for 70 percent of the US diesel car market, had been cheating on emissions tests by installing ‘defeat devices’ on its vehicles. These devices, which switched cars to a separate, higher-emission mode when they weren’t being tested, meant that on-the-road nitrogen oxide emissions were being released at up to 40 times higher than the federal limit.

Public perception of the brand was dealt an immediate blow. According to YouGov BrandIndex UK, the company’s ‘buzz’ score fell from between 10 and 11 to -2 shortly after the news broke, while perception of its overall health plunged.

And time didn’t heal things: a survey by Autolist in February 2016 found public willingness to buy a Volkswagen had fallen by 28 percent, while perception of the brand’s environmental consciousness had tumbled almost 50 percent. A quarter of those surveyed considered the scandal as bad as – or even worse than – the BP Deepwater Horizon catastrophe.

Public willingness to buy a Volkswagen had fallen by 28 percent, while perception of the brand’s environmental consciousness had tumbled almost 50 percent

Social media seemed to perpetuate the damage; Amobee Brand Intelligence reported that over 16,000 negative tweets had been posted in the four days following the accusations, while on Facebook the company found itself targeted with a flurry of negative comments. One user wrote: “As someone who has owned, driven and loved Volkswagens for more than 40 years, because of your criminal actions, I will probably never buy another.”

That loss of trust led the company’s sales to tumble, especially in the US, where they were down by a sixth in July 2015. Volkswagen’s market cap plummeted, falling by more than a quarter between September 2015 and June 2016, and the company subsequently revised its plan to become the world’s biggest automaker by 2018. It is also now paying the highest company fee in history for breaches under the Clean Air Act ($14.7bn), setting aside $10bn to buy back or repair the 11 million vehicles affected in the US alone.

In response, the company appointed former Porsche Chief Mathias Müller as CEO, who has already set about creating a new corporate strategy – one that includes putting all the brands under a profitability review and potentially halting the production of certain models.

Only time will tell what impact Müller’s actions will have, but many believe Volkswagen’s tarnished reputation will take a long time to repair. “These customers feel cheated”, wrote Steve Morris, Founder and President of brand strategy agency the Mth Degree. “Audi and VW owners who have been directly affected by this scandal are dismayed… How VW and Audi made drivers feel will have repercussions for years to come.”

For a company once known for its promotion of ‘clean diesel’, public perception in this case could have a very real impact on the business’s bottom line – and not just in the short term.

SeaWorld protest
PETA campaigners protest against SeaWorld in Long Beach, California

SeaWorld
In 2013, the documentary Blackfish sparked a global backlash against SeaWorld – one which was to have an unprecedented impact on the theme park operator’s reputation. The film revealed the violent behaviour of orca whales held in captivity at the park, focusing on the death of trainer Dawn Brancheau, and was broadcast to a CNN audience of 20 million people.

SeaWorld responded with a statement that objected to the central premise of the documentary, concluding the words used “reveal Blackfish not as an objective documentary, but as propaganda”. It stated: “To make these ultimately false and misleading points, the film conveys falsehoods, manipulates viewers emotionally and relies on questionable filmmaking techniques to create ‘facts’ that support its point of view.”

By January 2015, SeaWorld shares had fallen 33 percent, profits had dropped 28 percent and CEO Jim Atchison had stepped down from the helm

But whichever side was speaking truthfully, it appeared to be too late to change public perception. In 2014, a poll by Consumerist named SeaWorld one of America’s worst companies, and what followed was a dramatic and painful crash: STA Travel and Southwest Airlines stopped working with the theme park (the latter the result of mutual agreement, according to SeaWorld) and by January 2015 shares had fallen 33 percent, profits had dropped 28 percent and CEO Jim Atchison had stepped down from the helm. By May 2015, the company had already been sued four times, and by August that year profits had plunged 84 percent.

The theme park spent $10m on marketing, with a cross-media campaign that focused on the 23,000 creatures SeaWorld had rescued, launching a website dedicated to showing how it looked after its animals. While that may have gone some way in improving the brand’s image, SeaWorld continues to feel the effects of the controversy today: the company cut its full-year profit forecasts at the end of 2015, from $370m to $360m, in part due to “continued SeaWorld brand challenges”, according to current CEO Joel Manby.

Prospects are looking rosier than before, however: in March this year, SeaWorld announced the end of its orca breeding programme and orca shows, in a move that was celebrated by animal rights activists across the world. Share prices soared to over $20 following the news.

Although it’s still suffering lower visitor numbers than pre-Blackfish, Dennis Speigel, President of International Theme Park Services, believes the brand is slowly on the way to recovery. “The perception of SeaWorld among the public hasn’t gone away, but it’s not at the [poor] level it was 18 months ago”, he told the New York Post in August. “The imagery issues have not had enough time to go away. This is a 10-year turnaround.”

Target store logo
Point of sale machines at discount retailer Target were hacked in 2013, exposing the details of 150,000 customers

Target
In 2013, discount retailer Target became – somewhat aptly – the target of one of the biggest data breaches in US history, when 110 million credit and debit card numbers and other pieces of personal data were accessed over the Black Friday weekend. The news sent customers running and earnings tumbling, and the retailer predicted the breach would cost it at least $148m. Share prices fell eight percent in the second half of the year, profits dropped by 46 percent in the final quarter, and CEO Gregg Steinhafel was ousted.

Target hack

110m

Pieces of personal data accessed

150,000

Customers exposed

$148m

Predicted minimum cost to Target

According to some, Target’s mistake lay in not communicating the problem quickly enough – the disaster was only revealed several days after it had been discovered, with news site Krebs on Security reporting a week earlier that it believed the retailer was investigating a problem. “The company moved quite slowly on this breach”, wrote TechCrunch Reporter John Biggs after Target’s official announcement.

When it did own up, customer service was reportedly poor, packing a further punch to Target’s brand image. The retailer then admitted to “limited incidents” of fake communications to customers, damaging its reputation further. Where Target did go right was in its eventual transparency: Steinhafel apologised, giving customers discounts across the store and providing a year of free credit monitoring.

It is this upfront communication that is at the forefront of reputation recovery, at least according to James Brooke, Managing Director of Rooster PR. In the case of the recent hack of UK telecoms company TalkTalk, which saw the personal records of over 150,000 customers exposed, instant and open communication limited reputational damage, with fewer customers than expected ending their subscriptions. According to Brooke: “The CEO was very front foot in front of the cameras, reassuring and educating customers while informing customers that they needed to change their passwords.”

Had Target taken a similar approach right from the start, the profit losses might have at least been curbed, and the brand image salvaged from a shadow which, some would argue, continues to hover over the retailer today.

Michael O'Leary
Former CEO Michael O’Leary’s confrontational style ultimately put passengers off Ryanair

Ryanair
Low-cost airline Ryanair made stirring up a storm its go-to marketing strategy under CEO Michael O’Leary, whose controversial and often insulting words generated free column inches for the carrier. Comments such as, “If drink sales are falling off, we get the pilots to engineer a bit of turbulence. That usually spikes sales”, and “We don’t want to hear your sob stories. What part of ‘no refund’ don’t you understand?” became the norm for O’Leary. Standing seats and charging customers for using the toilets were just a couple of his suggestions, while in 2006 candidates for the position of Ryanair pilot were reportedly charged £50 for an interview.

But despite the old adage, there is such a thing as bad publicity, and Ryanair bore its brunt. In 2014, it was named the second-worst brand in the world by Which? users, and a study by the Daily Mail found 38 percent of consumers would rather pay more to have a simpler experience.

Ryanair reported a £28.7m ($37.5m) loss in the three months to December, signifying its worst end-of-year performance in five years

In 2013, the airline started to feel the effects of that public perception. It reported slowed growth and, for the first time in a decade, revised its profit forecasts twice in the space of two months. The company then reported a £28.7m ($37.5m) loss in the three months to December, signifying its worst end-of-year performance in five years.

O’Leary finally recognised it was time to change tactics: “I’m learning over the last year or two that a lot of what [founder Tony Ryan] was saying was actually right – we should have been nicer to customers earlier than we have been. As I said myself, if I had known being nicer to our customers was going to work so well, I would have done it years ago.”

In response, Ryanair implemented its three-year Always Getting Better programme in 2014, as a means of improving the customer experience and enhancing its brand image. The airline tripled its marketing spend to €35m ($39.6m), cut fees, focused on its digital offering and introduced perks such as a second carry-on item and its Business Plus scheme.

It didn’t take long for the impact of the improved brand image to be felt. Passenger numbers hit a record 10.4 million in August 2015 and grew 18 percent in FY2016, marking the highest rate of growth since 2009. This year, underlying net profit rose by an impressive 43 percent, the company’s biggest margin in over a decade and giving it the highest operating margin in Europe. For Ryanair, treating customers well has paid off – quite literally.

Abercrombie & Fitch protest
Demonstrators protest Abercrombie & Fitch’s decision to open a new store in Savile Row, London

Abercrombie & Fitch
If there’s one brand that knows how to incite the wrath of consumers, it’s Abercrombie & Fitch. In February, the controversial retailer won the title of ‘Most Hated Brand in America’ in the American Customer Satisfaction Index, scoring lower than any other retailer that has ever appeared on the list.

And it’s little surprise: under former CEO Mike Jeffries, Abercrombie became known for its exclusive and outright discriminatory policies, sparking boycotts, protests and million-dollar lawsuits on a regular basis while shooting itself in the foot with an image that quickly became outdated. From releasing racist T-shirts and discriminating against non-white job candidates, to forcing employees to do press ups and barring certain workers from customer-facing roles, the list of accusations against the retailer was extensive.

Abercrombie & Fitch sales growth

8.48%

2013

-8.73%

2014

-9.06%

2015

-6.02%

2016

SOURCE: MarketWatch

But it was in 2013 that it all came to a head, when a 2006 interview with Jeffries resurfaced. He said: “We hire good-looking people in our stores. Because good-looking people attract other good-looking people. A lot of people don’t belong and they can’t belong. Are we exclusionary? Absolutely.” The comments sparked widespread anger and a 68,000-strong petition followed, further tainting a reputation already in question among an increasingly socially conscious market.

Exactly what impact these slip-ups had on the company’s finances is difficult to say, but Retail Analyst Dwight Hill believes the comments had a direct effect. “One factor [for the decline in sales] has to be the negative press [the company] received from the comments Jeffries made”, he said. The company’s results would certainly suggest some truth in that: profits plunged 77 percent that fiscal year, and some store sales fell for 11 consecutive quarters to December 2014, tumbling 15 percent in Europe alone in the third quarter.

Since Jeffries was ousted in December 2014, Abercrombie’s fortunes have improved: it posted its first quarter of comparable sales growth in three years at the end of 2016, but it is arguably too early for the company to pop the champagne just yet. In the second quarter of this year, comparable sales dropped by eight percent, and the American Customer Satisfaction Index suggests the company still has a way to go before it can repair the damage that years of controversy and exclusivity appear to have done to its reputation.

  • Thank you for mentioning Autolist’s VW survery, Laura! You’ve provided a great analysis of consumer trust, as well as the power that trust has over a company’s business performance. These six examples are fantastic as each certainly demonstrates the fragility of even the most recognizable brands! Would you mind linking back to our website within the article? That way, people can easily find us while reading your article (autolist.com). Either way, thank you again for the recognition and I’ll be sharing this great content across my network!