Companies Should Worry More About Details, Less About Catastrophic Failures

4
391 views

Share on LinkedIn

One of the most widely broadcast stories of 2017 was about an airline passenger who refused to give up his seat when demanded by airline personnel. After a few moments of arguing, the passenger dragged off the airplane.

The story quickly went viral, with video and images popping up on every conceivable outlet. The airline lost nearly $1 billion of its stock value overnight. That consequence made sense with our understanding of how the natural world works. The impact of the story was so catastrophic that the airline was certain to be sunk.

However, when we checked back a few months later, the airline’s stock price had not only rebounded, but was up a further 10 percent from its pre-incident level. Aside from a couple of months of news stories and internet memes, there was virtually no financial repercussion.

But what exactly happened to change the airline’s fortunes? Was it clever PR and branding? Insightful new leadership? Was the market rewarding negative — and potentially criminal — behavior?

As it turns out, this airline debacle was just another proof point that catastrophic failures are not as damaging as we expect.

How our perception works
Humans are actually quite good at pattern detection. We subconsciously and routinely search for patterns everywhere we go. When we detect an anomaly in a pattern it seizes our attention. Think Neo and the girl in the red dress in the Matrix.

Ultimately, though, unless anomalies become routine and therefore part of the pattern, we simply observe, analyze and dismiss. When catastrophic service failures happen to us, we end up forgetting and ignoring them. Even in cases where we do remember them, they hardly impact on behavior long-term. Not because they didn’t have an impact on us, but because they are outside of our expectations.

An average person probably couldn’t tell me much about the details of a trip to the grocery store three months ago. They won’t remember if it was easy to find a parking space, if there was a line for the pharmacy, or the general appearance of the cashier. Our memory simply does not retain those details.

However, if asked to describe experiences with that store in general, most people would be able to comment on its convenience, whether or not it carries the products they need and if pricing is reasonable. In the study of customer experience, we usually refer to this as “residual memory,” and residual memories can be more powerful predictors of future behavior than instantaneous evaluations of a single customer experience without any other context.

One catastrophic failure vs. a pattern of little failures
Imagine stopping by Kroger to grab your favorite drink, and as you are checking out, the cashier behaves in a curt, dismissive manner, or even a little bit rude. That would be an anomaly. You would likely dismiss this as someone just having a bad moment or a bad day, especially if you see the same cashier another week and that behavior was absent.

However, if I go to the same Kroger on several occasions and each time they are out of the specialty dental floss I need, that is a pattern of failure. Again, humans are really good at spotting patterns.

The outcomes of those two scenarios differ greatly. In the first case, you blow off the poor experience with the cashier and largely forget about it. In the second, your residual memory tells you that Kroger doesn’t carry what you need.

Perhaps Kroger was out of my dental floss because of a simple logistics delay. But I, the customer, don’t care about the why. All I will remember is that the business does not have what I wanted and I should go somewhere else next time to buy my dental floss. In this way, ordinary, daily failures are almost always the foundation of negative residual memory.

In this case, all Kroger has done is given me a reason to spend more money with a different pharmacy store, like Walgreens. Being forced to go to Walgreens, I now notice that some other things I get at Kroger are cheaper at Walgreens, and my share of wallet shifts.

Simple, ordinary service failures shifted my behavior when a catastrophic one didn’t. That’s because the rude cashier feels very off-brand for Kroger.

Creating experiences that stick
Companies can promote positive residual memories by creating a highly detailed process around delivering services, and then completing that process with the utmost attention and authenticity. It’s not just declaring cashiers should smile at customers. It’s not even training every employee to smile, all the time.

Instead, companies are better off honing their hiring, coaching and employee morale practices to actually have authentic employees who are happy, and who want to make the customer happy. Customers then build residual memories of smiling faces, and the store gains a reputation for always having friendly people. Before long, customers have built a strong emotional tie to the brand.

Customer experience practitioners refer to that emotional tie as “affective commitment.” Every company in the world would like to create affective commitment with their customers, because people do crazy things when their emotions are wrapped up in a brand. More specifically, it is where the most irrational spending behavior occurs and greater profits can be won. When someone rants and raves about a brand, evangelizing everywhere they go — that person doesn’t pay attention to a $1 increase in price. And if they do, they justify it. Their money isn’t going anywhere except to you.

Keep in mind that a negative affective bond can have the reverse effect. If they have the worst image of a brand, it doesn’t matter how much you up their game. They hate your brand. Their money is going elsewhere.

The advantage of affective commitment
An emotional, affective commitment is created in a variety of ways. Sometimes it’s driven by a higher core mission, as companies celebrate and elevate the causes of people they want to serve. Sometimes it is an aspirational brand, and customers mentally self-identify with the vision of the company.

Patagonia is a brand with high affective commitment. They have aligned with their customers’ core values, and subsequently, people will demonstrate “irrational” shopping behavior with Patagonia products. For example, a typical puff jacket retails on Patagonia’s website for $199. A similar jacket that will provide equivalent heat-retention in the vast majority of use cases retails at Walmart for less than $20.

Given that disparity, why would someone choose the Patagonia jacket? Customers (affectively committed, it goes without saying) will argue the more expensive jacket is very well made, and if they ever damage it, Patagonia will repair or replace it, for free.

This is an enviable position for Patagonia, to say the least. Not only do people rarely send merchandise back for repair, but for the cost of the Patagonia jacket, a customer could buy five or six puff jackets in different colors from Walmart and still have money for a night at the movies. That is the power of an emotional brand affiliation.

Although Patagonia is careful to avoid catastrophic blunders, they would certainly survive one because their customers draw from a long pattern of positive residual memory.

Sweat the small things
As I reach out to companies about improving their customer experience programs, I proselytize that they need to spend more time worrying about core missions, first principles and small details. It is too easy to develop a pattern of minor service failures because they are common, and easily explained away — but the customer never forgets. Understanding what truly ties people to a brand enables companies to build strong emotional links with their customers, increasing affective commitment and sales.

4 COMMENTS

  1. I think companies should sweat over catastrophic risks. I don’t doubt that consumers may dismiss or ignore heinous transgressions committed by vendors. I certainly have. But not always. I will never buy a Volkswagen, Porsche, or Audi. The same for Bentley, Bugatti, and Lamborghini – not that I can afford one – since these are also Volkswagen brands. Before 2015, I didn’t hold this extreme anti-VW bias. At that time, VW was just another brand. Now it’s a brand I’ll never consider buying. While Volkswagen might survive their widely-publicized scandal, it doesn’t take bankruptcy or financial collapse to make something a catastrophe.

    I think companies that have high customer commitment and loyalty are especially vulnerable to catastrophic failure. If Patagonia were involved in a scandal where it was discovered that their supply chain practices were not as impeccable as their corporate communications suggest, or that their CEO was found to be a major investor in companies known to despoil the environment, I think it would be hard for their customers to turn a blind eye. The company might not go out of business, but it’s unclear whether they would ever “recover.” How do you assign a value to future revenue you’ll never have?

    Still, the list of companies that have succumbed to catastrophic failure is long and familiar to many: Enron, WorldComm, HealthSouth, The Weinstein Company, and Takata, to name just a few. The actual list is much longer. What about Equifax and Theranos? Time will tell . . .

  2. I have to agree with Andrew on this one, although you have made some really good logical and rational points in your column. The problem is that customers are by no means logical or rational, even though we’d love it if they were.

    The two things that stick in the top of my mind about United are “United Breaks Guitars” and the incident with the 70-year old doctor. They are bullies, and I will never risk a similar incident in my life. Andrew brings up some excellent examples, and now we can also add Apple to the list of companies not to be trusted.

    So while it is true that United’s stock price may have gone up, (and there could have been many other factors that affected this, including record-breaking indices,) it is going to be that much harder for them to do business in future. For example…

    – From all reports I’ve seen, customers have bailed out of doing business with them by the thousands.
    – Customers who have to, (or choose to,) fly with them will go on board looking for trouble. This makes it much harder for front-line staff.
    – They will have to offer increasingly better deals and offers to attract new and existing customers. Not good for long-term profitability
    -There will be hardly any positive word of mouth – even from loyal customers whoever they may be – because customers will fear being made to look stupid if they even dare to praise the airline in front of others.

    The consequences are just too expensive, and as Andrew pointed out, time will tell. Some catastrophes are easy to recover from – a crash, or a hijacking as happened on 9/11, for example – but when a company inflicts pain on their customers through arrogance, cynicism, greed, stupidity, or negligence, it’s abit harder to recover from that.

    Lovely debate!

  3. Hi, gang! First and foremost: thank you for the thoughtful comments as they are thought-provoking and bring up some points not made in this article (see a webinar coming up on CX Myths from Qualtrics – already recorded – which address some of the above). So, some notes of reply and open for discussion…

    *There are definitely some exceptions to the research literature, namely that when a sequence of catastrophic failures occur then it becomes part of the pattern. Brands with a series of service failures can see rapid and drastic defection as a result! Airlines seem to be a little less hit by this – save Malaysian Airlines – likely due to significant barriers within the industry. For example, if you fly out of Newark, NJ (as I do) you’re flying United whether you like it or not.
    *There are definitely brands that struggle with catastrophic failures that are revealed once but, in fact, have been ongoing fallacies which give us pause and force us to re-evaluate the company’s “first principles”… cheating exhaust tests or ignoring ongoing signs of sexual violence are two obvious cases. If, instead, it was just some random VP at Weinstein’s company it may not have had the same effect.
    *There are obvious contrarian examples to both… cars see this same sort of issue. Bridgestone is still selling tires despite a massive tire recall in the 2000s. Toyota is still selling cars despite their bad press on accelerators. Honda is still selling cars after issues with its airbag partnership. Certainly these brands had built up lots of social capital – and spent a lot of to survive – but they survived.
    *Once the opportunity slips away from a firm to deal with a catastrophic issue it can be exceptional difficult to recover, no question.
    *The last note that I would emphasize – and is emphasized in the Q&A of the upcoming webinar – is that companies have to gear up for catastrophic issues… of course, they do… but the amount of time being spent by firms on primary customer experiences should vastly outweigh the amount of energy required to deal with a catastrophe of rare or aberrant nature.

    More debate, please! Love it!

  4. Hi Luke: this is an interesting conversation. Thanks for your comment. In an age when corporate social responsibility (CSR) has increasing importance, companies must broaden their definition of a catastrophe (“an event causing great and often sudden damage or suffering; a disaster”) beyond their own – or their company’s – financial outcome. Sadly, this myopia is not unusual. Every year I compile a list of the worst offenders (see any of my articles titled Announcing the 201X Sales Ethics Hall of Shame). We must do better than this. Just because a risk is considered rare or aberrant does not, by itself, justify ignoring it.

    The Takata air bag scam was a catastrophic service failure that eventually brought down the company. Had Takata continued on, it would not be any less a catastrophe. People were severely injured and killed in Honda vehicles when Takata air bags deployed and exploded. I agree that in some instances “when catastrophic service failures happen to us, we end up forgetting and ignoring them.” But that observation does not apply to the survivors of those who were killed by Takata’s defective product. Nor does it apply to the dead victims of Chevrolet’s flawed Cobalt ignition system. GM is still in business, but the survivors of those individuals do not have the choice of forgetting and ignoring.

    At socially responsible companies, corporate risk officers consider the safety of their customers and employees among their top concerns. They examine both likelihood and impact (or consequence) of events. The assumed rarity of a risk would never be the sole reason for not planning for it.

LEAVE A REPLY

Please enter your comment!
Please enter your name here