Volkswagen’s US Nightmare – Strategy With RS

Volkswagen (VW) is the world’s largest car company – measured by the total number of cars sold – is facing a nightmarish Reputation Management crisis. It is alleged that the German automaker faked the result of diesel emission test in USA.
Result: VW has got hit from all sides.

(Photo Credit – Photo thanks to Flickr user jiazi)

• Tangible: Market Cap – Almost $25 billion has been wiped off from the Market Cap. since the news broke.o Top Line: The tainted car models have been withdrawn from market. And the dark shadows are being cast on non- tainted cars due to which its sales too may be slowing down.o Fine: It is estimated that the US Government is likely to fine VW $ 18 billion!

• Intangible: German auto companies pride themselves on engineering excellence, reliability & safety. The sheen of these pillars of pride seem to be have been tainted.

In India Nestle has been reeling under a reputation management issue for months now, which has seen its market Cap slide ever since the news broke; its top line has slowed down because Maggi 2-minute contributed handsomely to it & its profit is under tremendous strain … so much so that it declared a loss for the 1st time in 3 decades.

If It can happen to Nestle, VW then it can also strike your brand / business too & it has the power to cripple the company. No company is immune form the throes of Reputation Management issues. Therefore it would be prudent for you to understand what constitute Reputation Management issue so that you are proactively prepared to face them, in the unlikely event it strike your brand / business. Armed with this knowledge you can then attempt to limit the damage caused the extent possible & more importantly recover from it with your reputation enhanced significantly.

If you wish to gain an understanding into what causes Reputation Management issue; how to deal with them, then I would recommend my article published earlier titled, ‘Reputation Management: What To Do When Your Brand Is Hit By A Scandal’. The article also has a video, which will crisply reinforce the key point high lighted in the article.

I look forward to hearing from if you found this article useful?

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rajesh-srivastava-insideiim

 

In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here

Comments

13 comments

Sajal Singh

Great article. So i m vw and i have recalled units, market is punishing me, top line is thinner. But i have to recall. Now what can i do once all this is over? You quite rightly talk about apologizing, but as a customer if i have invested a good amount of money and take my family in that car, will an apology suffice to make me feel secure about driving that car again? Theres got to be somethjng else i need to do reinforce customer belief. Dont you think?

Rajesh Srivastava

Sajal Singh I would recommend you to read my article that I have embedded in this post on Reputation Management. This article was published earlier on this platform. It will give you insight into what a company should do more than merely apologising.

Sajal Singh

In other words, while i totally see the point from a company perspective to do damage control and mitigate market, investor and brand impact, i m not sure the customer perspective is covered in vw’s appraoch. Would like to hear about your views on that.

Rajesh Srivastava

Sajal ‪Singh, I am sharing a post I had done some weeks back on IKEA which will give you an insight into strategies, companies follow to win back customers perspective after they have got embroiled in a reputation management issue:
#‎IKEA‬ released this advertisement (reference below) in ‪#‎GulfNews‬ in a prominent location. The head line read, ‘IKEA recalls ‪#‎PATRULL‬ nightlight due to electrical hazard’ & the body copy went on to read as follows:
‘In co-ordination between the Minister of Economy – Department of Consume protection & IKEA Home furnishings, and taking on board the Ministry of Economy’s interest in conducting an ongoing review of all products in the UAE market in order to protect consumers, IKEA has received 1 report of an electrical accident related to the PATRULL nightlight which was caused when the product lid was dislodged.
Therefore as a precautionary measure IKEA requests customers who have PATRULL nightlight bearing articles nos, 902.588.68 / 702.588.69 / 502.588.70 to immediately stop using the product & bring it to their nearest IKEA store for a full refund.
In keeping with the highest-level of customer protection, IKEA has also removed the product from its shelves, even though a detailed investigation confirmed total safety compliance. Customers are advised to contact Exchange & Returns department at IKEA store to return the product. Proof of purchase is not required for the refund.
For more information call IKEA (800 4532) or visit our website – http://www.IKEA.ae
IKEA has demonstrated to us the correct way of responding to a reputation management when it hits our brand / company:
1. Accept it.
2. Take immediate decision to safe guard the interest of your customers. No harm should come to them, no matter what is the cost to you.
3. Come out with all the facts – your side & the authority / other party.
4. Put these facts in public domain. And that too prominently.
5. Proactively self-penalize yourself.
6. Work to resolve the issues as quickly as possible.
Most companies believe erroneously that by putting out facts into public domain there reputation will get tarnished. That is a wrong belief. In todays’ age companies have to be transparent. In fact if they are then there ‘reputation’ will go up.
Take the case of IKEA. Has your ‘trust’ in IKEA gone up or down?
IKEA by putting out this advertisement has communicated that it values its customers & their well being ahead of its interest & profit.
Against this, evaluate ‪#‎Nestlé‬’s response to the reputation management issue it is facing, which has dented its reputation & its bottom line severely!

Sajal Singh

Thanks sir. Indeed i see the point now. I read your maggi post and was thinking what one could do in such a case. I have been following nestle’s twitter handle and they have posted a video trying to associate themselves and products to the spirit of india (https://twitter.com/nestleindia/status/645141728949702656 ). It seems that they are trying to create an emotional association which leads to nostalgia. Sort of like an estranged family member who is fighting all odds. And from the responses i see to this tweet, it seems to be working. However, i feel nestle is trying to hide behind all this nostalgia and distract people from the main matter. Since public memory is short, it might work. Your thoughts.

Sajal Singh

One more question. What about my suppliers. Im sure they must be following the news and will anticipate drop in vw volumes which will trickle down to parts suppliers. How should vw manage them?

Rajesh Srivastava

Sajal Singh I would recommend that we should be transparent with our vendors – in fact when there is crises we should be more transparency.

Rajesh Srivastava

Sajal thanks for taking so much time out to share your thoughts in such details. I really appreciate your effort as well the questions you raised. Do keep on sharing your thoughts.

ramji yahoo

a brand is also like a human being, so as a customer i understand its mistakes and also appreciate its greatness, as long as the intention was not wrong. If vv has acknowledged nd rectified its wrongness, i will patronize again

Sajal Singh

But as a customer will it be wrong to think that if these guys can put faulty emission devices, why could they not put a non complying moving part? I remember deferring my decision on totyota when they had worldwide recalls. i mean we are talking about cars that will do 110 miles on american highways. Im not entirely sure if a heartfelt apology will give me the confidence. Think malaysian airlines. They have been forced to lay off people and get a new ceo to change things even though the ukraine crash wasnt their fault.

Rajesh Srivastava

Ramji in this case it seems that the intention was not honourable. It is alleged that the German automaker faked the result of diesel emission test in USA. Therefore they are being penalised. Already there sales are slowing down. There market cap has taken a hit…they have kept aside billions for legal charges.
But if they follow theIKEA strategy – read the content posted for Sajal – they can emerge with there reputation enhanced.