Please read Updates about Mitsubishi, Opel, GM, VW in the comments below.
Summary: VW intends to repurchase 480,000 vehicles in the US. Estimates put the final bill in excess of €45 billion. But how much damage will this cause to their:
– image (e.g., the image of the VW or Audi brands), AND
– reputation (e.g., reputation of the brand or company)?
Volkswagen has an interesting portfolio consisting of luxury brands as well as truck and low-cost car brands, as shown below.
1. Defining the terms
In daily life we may talk about brand, image and reputation interchangeably, without drawing a line between them.
But we cannot truly appreciate the value of something, if we do not unterstand what it is we are examining. And Jeff Bezos may have thought he was talking about brand, when he was actually talking about the reputation of the Amazon brand with its clients:
Your brand reputation is what people say about you after you have left the room.
We need to define brand, brand image and brand reputation. Only then can we be sure that we share the same vocabulary, which is the basis for understanding each other.
You need a great product. Your image of offering great design or R & D does not hurt the company either (for example, Apple). Crowned with a reputation for offering great client services (e.g., your neighbourhood grocer), you should do well in the market place.
But these days, mistakes can damage a brand’s image and consumer trust in the brand may evaporate as well.
For instance, in a 2016-04-20 media briefing Mitsubishi Motors president Tetsuro Aikawa tried to take responsibility for the manipulated fuel-economy test data. It affects 4 mini-car models sold in Japan, about 625,000 vehicles since 2013.
In just three trading days, the fuel-economy scandal has destroyed 42 percent of Mitsubishi Motors’ market value.
As the above research illustrates, with increasing market complexity, consumers may fall back on such factors as price, instead of focusing on quality.
Hence, as BP’s Deepwater Horizon disaster suggests, Mitsubishi Motors can hope that people will forget that the company abused customer trust by falsifying fuel economy test data.
If that happens, customers may no longer focus on this disaster. Instead price or options offered with its cars may be most important in the decision-process to buy or not to buy a Mitsubishi Product.Advertising can be used to improve a corporate image or try to portray a greener image than one might otherwise have in the public’s eyes.
Watch this humorous VW commercial aired in the US.
Interesting: Fiske, Rosanna (2011-01-26). Image vs. Reputation: Which Reigns Supreme? Advertising Week, retrieved April 24, 2016 from http://www.adweek.com/news/advertising-branding/image-vs-reputation-which-reigns-supreme-125527?page=2
General Motors learned the temporal nature of reputation in 2014, after managing to deflect most of the blame for a 30 million vehicle recall on the habits of the old guard of the company, prior to a massive government bail-out. Never mind that GM knew all along about the ignition switch issue that caused up to 169 preventable deaths.
On February 1, 2010, Apple co-founder Steve Wozniak claimed that he had experienced a ‘software-related acceleration problem’ with his Prius, that causes the car to go wild under certain conditions when cruise control is engaged.
This and his comment that, “This is software. It’s not a bad accelerator pedal. It’s very scary, but luckily for me I can hit the brakes,” spread like wildfire via newswire, Twitter and others.
In early 2010 I wrote:
“We all remember when Audi (Volkswagen) faced unintended acceleration problems with its 5000 model in the US in the mid-1980s. Its initial response was to run advertisements of its top executives talking about its vehicles’ mechanics.
Audi was vindicated eventually but its effort to regain customers’ trust flopped amid perceptions that it built bad cars and was not taking the problem seriously. It took Audi 10 years to recover from this public relations debacle…”
Of course, one can only hope that #dieselgate will not hurt Volkswagen and its brands for another 10 years. But the share price drop as well as the compensations to be paid to US car owners whose models are affected suggest that it will be worse (see chart below for more information).
2. Bottom line
Arguing which has greater influence — image or reputation — is likely a moot point.
Nevertheless, the two are linked, as the BP Deepwater Horizon oil spill suggests. At the time, many Americans called for BP boycotts and sales took a hit despite the fact that BP was still selling the same fuel it was selling before the crisis.
In essence, BP’s negative reputation caused consumers to perceive BP’s brand differently.
Reputation, then, is best used as a way for companies to differentiate themselves from other organizations with the same brand.
It takes plenty of money and effort to build a great image. But one mistake can cost a company dearly. For instance, Nike and TAG Heuer ditched Maria Sharapova, the world’s highest paid female athlete, after she revealed she had failed a drugs test at the Australian Open in January 2016. Both brands felt it was too risky to continue sponsorship.
Although the two brands avoided a fall out from Maria Sharapova’s problems, the athlete’s marketability as an image ambassador was severely damaged.
Two intangibles VW and Mitsubishi Motors and competitors have to face.
- The effect on sales over the next couple of years, AND
- The effect of tighter regulations on future margins of car manufacturers.
How do VW car owners feel about the option of being offered a buy back or going for the fix and getting paid for it? We do not know if they will prefer getting $5,000 on top of the $1,000 they already have, or returning their car at market value. However, how owners perceive these options (positive or negative) and how VW handles European regulators and customers will affect its reputation.
As far as Volkswagen’s image is concerned? The damage may pass. However, regulator fines, compensating customers and losing sales will continue affecting the firm’s bottom line for a while yet.
Nevertheless, both VW and Mitsubishi have not had their last chance to hurt their reputation. How they handle their respective scandals from here, and whether they reform their corporate culture, will matter. Moreover, the possibility, not yet addressed, of the scale of lawsuits from aggrieved U.S. dealers and individual U.S. states for VW’s possible fraudulent advertising should worry shareholders.
What VW’s #dieselgate and Mitsubishi Motors’ falsified test results says about these companies’ internal procedures and ethics is another chapter in this saga.
3. Have your say – join the conversation
What is your opinion?
- What do you advise a company to do when a public relations disaster is in the making?
- Will people forget Volkswagen #dieselgate as they did the BP Horizon Deepwater disaster?
- Did UK and French regulators do the right thing, waiting until US regulators set the stage (e.g., how much compensation per car, fines, etc.)?
The author declares that he had no conflict of interest with respect to the content, authorship or publication of this blog entry (i.e. I neither own any of these brands’ products nor are they our clients).