Companies in Crisis

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Will Wells Fargo’s attempt at damage control work?

By Pawan Naidu

Virtually every day at least one company goes through a public relations (PR) headache and they have to temper public outrage. Sometimes there are scandals that gets ahold of the public’s attention. That is the case for Wells Fargo, one of the oldest banks in the US, which recently came out with a national commercial taking responsibility for a scandal.

Wells Fargo, which dates back to the pony express, found itself in hot water in May. After an audit discovered that employees had opened as many as 2 million deposits and credit accounts in customers’ names without their consent, the bank had to pay over $185 million in penalties to regulators.

It took months for the initial firestorm to calm, but when it did Wells Fargo did something you rarely see. The bank created a national commercial acknowledging they mistreated their customers, and vowed to make the company better and not repeat past mistakes. People might be cynical saying Wells Fargo’s intentions aren’t genuine, but companies don’t usually do what the bank did. No one likes to acknowledge their mistakes and that is what makes Wells Fargo’s actions unique.

Looking back how other companies handled a crisis, did Wells Fargo make the correct decision?

Coca-Cola’s “New Coke”

“New Coke” is a prime example of how a company’s reaction to a crisis can be worse than the actual crisis itself.

Coca-Cola has always been the titan of the soda industry, but in the 1980s Pepsi was right on their heels. At that time Coca-Cola held 32.3 percent of the non-alcoholic drinks market and PepsiCo held 24.8 percent. In 2017 it was 17.8 percent to 8.4 percent, with Coke holding almost more than double Pepsi’s market share.

The first spark to the Coca-Cola PR nightmare was when the company did a blind taste test and the results weren’t what the company expected. People overwhelmingly preferred the taste of Pepsi over Coke.

After this, Coca-Cola executives panicked and poured millions into market research to develop a new formula for Coke. It was heavily marketed as “the new taste of Coke”. What resulted after that will live in infamy.

The change in taste of the signature Coca-Cola product resulted in a public outcry. People started buying old Coke in bulk. The company received hundreds of thousands of phone calls and a national petition started circulating for signatures. The company was forced to bring back traditional Coke only 77 days after the release of the “New Coke.”

Even though the company did an aggressive campaign for, involving “New Coke”, following the results of the taste test, the rebranding campaign didn’t work. While it might initially seem like the campaign was a failure, it actually might have helped Coca-Cola take back their throne as the king of the industry. After New Coke, Coca-Cola saw gains in market-shares.

“The events of 1985 changed forever the dynamics of the soft-drink industry and the success of The Coca-Cola Company, as the Coca-Cola brand soared to new heights and consumers continued to remember the love they have for Coca-Cola,” said Coca-Cola in “The Real Story of New Coke” 30 years later.

The United Scandal

A more recent example is United Airlines. An overbooked flight made news in April 2017, when a video of how the flight crew treated and escorted a passenger out went viral. When it was announced the flight had been overbooked, the airline company requested for volunteers to give up their seats and be placed on a later flight. No one was willing to do so and United randomly selected passengers to be taken off the flight.

Dr. David Dao refused to leave his seat because he was scheduled to perform an operation in Louisville, Kentucky. After it became clear Dao wasn’t going to leave on his own accord, officers were called to remove him. What happened went viral, as the doctor was dragged off the plane kicking and screaming. Later it was reported the doctor suffered a severe concussion and a broken nose.

Oscar Munoz, United Airlines CEO, issued a formal apology and set new guidelines to train staff. Two officers were fired because of the incident. However, United produced no formal campaign to quell the public outrage. So how did that decision affect United?

Surprisingly, the scandal might have helped the company.

United carried 12 million passengers the month following the incident, a 7.6 percent increase from the previous month, the airline reported. The number of revenue per passenger miles, which is calculated by multiplying the number of paying passengers by the distance traveled, grew 7.4 percent to $17.5 billion. The percentage of seats filled on each plane, known as the load factor, increased by 2.6 percent to 83.1 percent.

Both Coca-Cola and United seem to have thrived because of these scandals, no matter how they handled them. Maybe it was because both companies were in the news and got a lot of media coverage.

Wells Fargo’s brand is on par with Coca-Cola and United Airlines and should be able to bounce back after the scandal regarding creating fake accounts without customers consent. Maybe they’ll even see market gains because of it. Now, this doesn’t mean companies should be looking to find themselves in the news for the wrong reason, but as the saying goes there is no such thing as bad publicity.

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