Does negative publicity matter?

If you’re a big corporation, it now seems more likely than not that you’ll get caught up in a major public scandal. The convergence of 1) rapidly changing cultural norms, 2) increased transparency, and 3) a media climate that values outrage as the most potent currency, means that it’s really a matter of “when”, not “if” your 15 minutes of shame rolls around.

We all remember the trials of Starbucks, Uber, Pepsi, United; these are just some of the most memorable corporate sinners of recent times. The full list of course is far longer and growing daily.

Faced with such an inevitability, businesses would do well to pre-plan their responses. When the bell tolls for thee, how are you going to handle it? The answer to that question is kind of dependent on one thing – whether the bad publicity matters at all.

By “matter” I don’t mean whether a sinning company should change its ways or not – that is a separate moral question that needs to be evaluated on a case by case basis. No, what I mean is whether it matters to the bottom line. Whether these scandals actually negatively affect the company they embroil.

What I’m going to suggest is that – assuming the publicity doesn’t violate the “Congruency Rule”, more on which later – then no, it doesn’t really matter at all.

To illustrate this point, let’s look at the evidence – of which these days we happily have no shortage. Have big sinners actually seen their results take a hit following their missteps?

Clearly, this is quite a tricky thing to establish, since company performance is obviously dictated by a number of factors, and it’s near impossible to isolate the effect of a scandal within them. If their performance is bad, how do we know that isn’t because of unfavourable market conditions, or poor strategic decisions, rather than bad PR? And if their performance is good, how do we know that it wouldn’t have been even better without the criticism? Precisely speaking, we don’t know. What we do know however is whether the scandal had such a negative effect that it made a marked and obvious difference to their performance – for example, a sudden drop in sales following the media storm, or a sudden downwards trajectory with that as the inflection point.

Judging by this standard, the results have been pretty clear – bad publicity has not noticeably damaged these companies. Sure, you’ll find some reports detailing an increase in negative opinion, but ultimately we must judge people on what they do rather than what they say – and in action if not in word, the public seems pretty forgiving.

In some cases the companies in question have had difficult times, such as Starbucks following their numerous tax scandals, but have attributed their difficulties to other factors. This is plausible since in the same period that Starbucks recorded a 3.4% drop in sales in the UK, Amazon, equally reviled for their tax trickery, enjoyed a 12% rise. Given that Starbucks is clearly at the plateauing stage of the product lifecycle, it doesn’t seem reasonable to blame their decline on tax practices employed by many other businesses – and it probably won’t be reasonable to blame the inevitable upcoming poor performance on their more recent service-related troubles.

More commonly, however, reviled businesses actually see positive performance in the wake of the scandal. Pepsi happily reported an uptick in revenue and profit following their Kendall Jenner embarrassment, and Uber enjoyed an acceleration in growth during a string of accusations that even included a boycott campaign. As for United Airlines, explored in detail before, the quarter after dragging David Dao off their plane saw them record their best sales ever. No matter how you cut it, the damage accrued by these companies seemed to range from negligible to arguably beneficial.

To what can we attribute the failure of these attacks? There is partially just a lack of symmetry at play – a classic media condition wherein the squeaky wheel gets not only the grease but the column inches. If you have a population of 1,000 people, of which 2 are angry about something, and 998 don’t give a damn, you can be sure that their news cycle will be dominated by that issue. Indifference isn’t interesting. Because of this, businesses can always be comforted by knowing that no matter how loud the condemnation, it will almost never represent the majority opinion (unless their sin is truly terrible, in which case all bets are off and they presumably have bigger things to worry about).

The other factor is the “Congruency Rule” I mentioned earlier. This dictates that the only time bad publicity really hurts you, is if it directly contradicts the value you claim to offer to the market. So for example when Malaysia Airlines suffered the tragic losses of MH370 and MH17, clearly the publicity undermined a basic element of any airline’s offer: namely that you will be safe. Passengers swiftly deserted the carrier, ushering in financial ruin. By the same token, the recent pummelling of Facebook’s value also occurred through bad publicity that breaks the Congruency Rule. Judicious handling of private data and giving truthful information updates are core to their offering – hence negative publicity arising from failures on these fronts can be reasonably expected to damage the company.

If you compare these examples to the scandals mentioned earlier, however, you can see that in no case did the brands in question act incongruently with their value offering. Uber never pretended to be a kind company. Starbucks customers don’t frequent it primarily because of its social responsibility (far from it – it’s a corporate monster in a market that is replete with cute independent alternatives). And even in the case of United, people were frankly under no illusions as to the quality of its service – it’s famously awful; just as you would expect from what has essentially become a no-nonsense budget provider.

So, in short, did any of these companies do anything that would affect their ability to deliver value to the public? Indirectly, perhaps, but directly not at all. This, therefore, isolates all of the damage to the groups of people who care deeply about the issue at hand – people who represent an unusually engaged and conscientious form of consumer, and who in many cases don’t even overlap with the business’ core consumer base. Care about service? You probably don’t pick United. Dislike the excesses of global megacorps? You probably don’t pick Starbucks. Like companies who focus on ethics? You probably pick Lyft over Uber. And if you value authenticity? Then I don’t see you loving Pepsi.

Therefore, when the angry gaze of public opprobrium turns to you before you react simply ask yourself one question – has our sin contradicted what we claim to offer the market? Have we acted incongruently? If the answer is no then – assuming the scandal is within the normal bounds of severity – it will blow over. But if the answer is yes – well, good luck.

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