The Economist - USA (2020-08-08)

TheEconomistAugust 8th 2020 Business 51

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Bartleby Called to account

N

othing is more likely to sabotage a

brand’s reputation than a customer

complaint that goes viral. Social media

often blow the problem out of propor-

tion, leading television programmes and

newspapers to pick up the story, which is

invariably one that pits plucky members

of the public against some heartless

corporate Goliath. Consumer gripes—

and stories about them—have multiplied

during the pandemic as many services

were cancelled because of lockdowns.

Rupert Younger of Saïd Business

School at the University of Oxford says

that views of companies are centred on

the issues of capability and character.

Firms’ capability is expressed in the

quality of their products. The way that

firms handle customer disputes, mean-

while, speaks to their character. If that

quality is undermined, it can take time to

rebuild public confidence. Research

suggests that people and organisations

alike tend to be judged by the worst thing

they do.

One of the best-known pieces of

brand damage occurred in 2008. Dave

Carroll was travelling with United Air-

lines when he heard another passenger

say that baggage handlers were carelessly

tossing around guitars. When he arrived

at his destination, Mr Carroll found his

guitar had been damaged. After months

of fruitless complaints, the musician

made a video about his experience called

“United Breaks Guitars”. Within a few

weeks the video had received 5m views

on YouTube and United contacted Mr

Carroll to apologise and offer restitution.

The airline even pledged to use the

video for internal training. But the cor-

porate culture did not change sufficient-

ly. In 2017 United suffered another pub-

lic-relations disaster when a video

emerged of security guards dragging a

passenger off a plane to make way for a

member of its own staff. The airline’s

initial apology was viewed as ham-fisted,

sympathising more with its own employ-

ees than with the unfortunate passenger,

prompting Forbes magazine to dub United

“the world’s most hated airline”.

Managers must thus be eternally vigi-

lant when trying to protect their com-

pany’s good name. That can be expensive.

Compensating customers costs money, as

does having call centres that can respond

quickly to queries and complaints.

There is a difference, however, between

one-off complaints, which can usually be

handled by common sense and a willing-

ness to apologise, and a crisis that affects a

wide range of customers, where solutions

require extra costs on top of the complaint

infrastructure. And costly crises can in

turn be subdivided into those caused by a

company’s own failings and those, like the

pandemic, that are not its fault.

Airlines and travel companies have

been the focus of a lot of customer com-

plaints in 2020, thanks to all those can-

celled holidays. “It took a hell of a lot of

pressure to get companies to offer re-

funds, and even then it may take several

months for them to pay out,” says Adam

French of Which?, a British consumer

magazine. Customers have also faced

long delays on the phone, in part because

the pandemic has reduced staffing levels

at call centres.

Oddly enough, the poor reputation of

some airlines may have cushioned the

blow. “Ryanair has always marketed

itself as cheap,” says Mr French, so cus-

tomers don’t expect a high standard of

service. The biggest reputational hit was

to companies that had marketed them-

selves as treating customers better.

Airlines get away with more than

other companies because they often have

a monopoly on certain routes. But travel

companies that want to behave well still

have a problem. Repaying customers

quickly puts a tremendous strain on

cashflow at a time when they are generat-

ing a fraction of usual revenues.

Specialist Leisure, a British travel

group, went into administration earlier

this year; one of its main brands was

Shearings, a coach-holiday operator. Mr

French says the problem for Shearings

was that, when it received customer

deposits, it paid them to hotels where the

tourists would stay. That created a cash

squeeze when money had to be repaid. In

short, it is all very well to have a good

reputation as a prompt repayer. But that

won’t help if the firm goes bust.

The pandemic has been an exercise in

crisis management for thousands of

firms. Dealing with angry customers is

only one element. The rule of thumb for

more normal times, Mr Younger says, is

for companies to be clear about what

they are offering and then to hold them-

selves to their promises. That means, at

the very least, not breaking guitars.

Dealing with customer complaints

relief effort, from cheap loans to furlough

schemes, was more generous than predict-

ed. Firms cut costs more radically than was

thought possible. And, critically, demand

recovered faster than forecast in June. As a

result, Sweden’s gdp contracted by 8.2% in

the second quarter, year on year, compared

with a drop of 11.7% in Germany. Capital

Economics, a consultancy, now expects

Sweden’s economy to shrink by a relatively

modest 2.5% in 2020. The country, it says,

is the “best of a bad bunch in Europe”.

Many Swedish bosses put this down to

their government’s controversial decision,

which they vocally backed, to avoid the to-

tal lockdowns imposed across much of Eu-

rope. This allowed consumers to go about

their lives and workers to send their chil-

dren to schools, which remained open.

In public, ceos of big German compa-

nies generally praised their government’s

tougher policies. Privately, though, some

shared the fears expressed openly by the

bvmw, the association of Mittelstand firms

that represents 3.5m businesses with up to

250 employees. In an open letter in May the

bvmw called on the government to lift the

lockdown “before it is too late” and criti-

cised it for lacking an exit strategy.

Such calls may intensify if recent spikes

in covid-19 cases turn into a new wave of in-

fections. “A second lockdown would have

cruel consequences,” says Hans-Jürgen

Völz of the bvmw. Investors seem ambiva-

lent about which country’s strategy is pref-

erable for the long-term health of the econ-

omy. After falling more steeply than the

omx in March, the dax has rebounded at a

faster pace, too. In the past two months the

fortunes of the Hanseatic peers have once

again mirrored one another—trans-Baltic

earnings disparities notwithstanding. 7