In today’s hyper-competitive business environment, the success of companies will be determined by small details. With nearly identical products and services being produced by companies, it will be attention to minute details that gives your company the slight edge over competitors. One of the most important ingredients to a success is customer loyalty. With that as the foundational assumption, we must candidly face the most important question: not if, but when your company has a blunder, how will you respond? Your answer to this question will determine whether your company rebounds and flourishes or crashes and burns like so many others.

There are five important steps to a successful recovery in the wake of your company’s mess-up. Looking at real-world examples of companies that have either flourished or failed in each of these steps will provide us evidence of their validity. First, lets check out some companies that have prioritized loyalty (or not) and the effects that that decision had.

In 1912, a young man named Leon Leonwood Bean began designing and selling rubber hunting boots out of his brother’s garage. He made clear that each pair he sold came with a 100% satisfaction guarantee and return policy. 90 out of the first 100 boots he sold were returned a few weeks later because the upper sole was coming off. He fully refunded each customer without question and got to work refining his design. 104 years later, his company, L.L. Bean, grossed $1.4 billion in annual sales. L.L. Bean still offers the 100% satisfaction, money-back guarantee today that made the company so dependable from the start.

In contrast, U.S. Airways has consistently been ranked as one of the worst companies in America when it comes to customer satisfaction. This is due to a host of factors including poor flight attendant service, frequent cancellations and delays, and an overall conveyance of apathy towards customers. This declining customer loyalty (and subsequent decline in revenue) was the main reason that U.S. Airways merged with American Airlines in 2013; in order to stop the bleeding.

Clearly, caring for your customers leads to customer loyalty, which in turn leads to consistent earnings in the long run. With that in mind, let’s look at the five crucial steps to take in the aftermath of your company’s inevitable blunder, as well as examples of companies that demonstrated what works and what does not.

Step 1: Be Honest and Transparent with the Public (Even When It Hurts)

The reward for successfully sweeping a blunder under the rug rarely outweighs the risk of being caught lying about it. Owning your company’s mistake ensures that there will be repercussions, but it significantly reduces how harsh the backlash could be if your company is caught lying.

We find an example of what not to do in Wells Fargo’s latest blunder. As soon as the evidence of its false-account scandal began to surface, the company brass should have come out with a statement taking responsibility for the mistake and addressing how they were going to fix it. However, by pointing fingers and denying claims, they enraged customers and brought a firestorm of criticism onto themselves. The lawsuits that they have accumulated will far outweigh the cost of simply fessing up to the mistake, returning all the funds, and losing a few customers.

Inversely, we see a prime example of what to do in Patagonia Clothing Co.’s latest news. Patagonia was shocked to find that there were workers living in deplorable conditions at some of the company’s Tier 2 suppliers in Taiwan during one of its recent audits. Patagonia could have very easily ignored the problem and swept it under the rug. Instead, Patagonia’s global director of PR publicly announced, “We quite frankly discovered modern slavery in our supply chain. For Patagonia, it became an urgent priority to fix it.” While this statement may have created a minor backlash from some customers, the transparency and honesty apparent in this move cinched loyalty even tighter for many customers.

Step 2: Formally Apologize

Humans are generally empathetic creatures and the masses will often forgive a sincerely apologetic company. After demonstrating transparency and owning up to a mistake, the next step is to apologize without reservations. This will settle the matter in the public’s eye and people will begin to forget about the blunder.

Lululemon Athletica, a Vancouver-based clothing company, demonstrated how not to follow this step. After a recall of sheer leggings that were apparently too transparent for some customers, Lululemon should have formally apologized to all affected customers. Instead, CEO Chip Wilson made a formal statement that “plus-size” women should not wear Lululemon in the first place. Lululemon experienced severe criticism from the press and public, saw steep declines in sales, and it still recovering from the backlash of this comment three years later.

On the other hand, the New York Times handled a recent blip very well. The NYT meant to send out an email to 300 subscribers offering discounted subscriptions. However, the email went out to eight million subscribers. Despite a brief backlash due to the discrimination in the offer, the NYT quickly sent out a sincere, formal apology and did not suffer any major losses in customer loyalty or subscription numbers.

Step 3: Overcompensate in Order to Win Back Customers

The public generally has a short memory regarding minor details, but has strong and lasting impressions about how an event made them feel. In today’s hyper-stimulated world in which we are constantly bombarded by the latest news update, people do not remember the details of a scandal for very long. However, people’s impression of a company as either a stingy, selfish company, or as an apologetic and generous company, can last decades. The cost of overcompensation for a blunder is always worth it in the long run.

One company that experienced this negative effect is Chipotle. In the wake of Chipotle’s E.coli scandal, the public expected some sort of compensation—maybe a free burrito or two—in order to return back to the restaurants. However, most of the public realized that the offer that was produced had been clearly spun into a money-making scheme for Chipotle that did not afford the customers much benefit at all. Chipotle stock is still struggling to climb back to where it was before the scandal.

However, as we saw earlier, L.L. Bean has seen the long-term benefits of generosity.  Since its inception, L.L. Bean has made a point of showing that it is a company dedicated to its customers. L.L. Bean’s return policy and impeccable warranty have enamored customers for over a century, as the company makes clear that it is truly looking out for the customer’s best interest. Any blunders over the years have been addressed in a professional and generous manner, and L.L. Bean has watched its stock steadily rise over the years.

Step 4: Clearly State How Your Company Plans to Fix the Problem

A crucial step in the process of winning back customer loyalty is clearly addressing the issue and stating how you intend to fix it. This demonstrates to customers that you genuinely care about the quality of your product and stand by its functionality.

A recent blunder that was not handled well was made by Takata, one of the world’s largest producers of vehicle airbags. News emerged that for the past 15 years the company had been knowingly producing airbags that were faulty. When the evidence surfaced this year, Takata should have released a statement outlining how it was going to fix the issue. Instead, it denied the claims for months, digging itself into a hole of mistrust that will take years to climb out of.

On the other hand, Samsung recently employed step number four well to combat their cell phone blunder. Following the “exploding phone” scandal involving their new Note 7 phones, Samsung quickly addressed the issue. Samsung released a statement outlining the problem as faulty battery packs, and made it clear that they were finding new battery suppliers. The backlash on Samsung has nearly faded 6 months later.

Step 5: Keep Doing Business as Usual

Unless your company has made a mistake which is likely to send it into bankruptcy and there is simply no recovery (very rare) your best option is to just keep doing business as usual. People spend money on the product that offers the best value. Even after a scandal, people will still likely purchase your product if it is a good value.

Some companies that constantly fall and scrape their knees but get back up are car manufacturing companies such as Ford, GM, and Nissan. All three of these companies have experienced embarrassing customer loyalty breaches as their products malfunctioned and were forced to be recalled. However, they paid their dues, continued to make quality products, and currently have positive customer ratings.

Mistakes are a part of life, and the business world is not exempt from them. However, how we choose to respond to our mistakes is what determines the type of person we are and the type of company we work for. These five steps are not bullet proof, but they rely on integrity and taking responsibility, and any company built on those two principles is bound to be successful no matter how many mistakes are made.

William Stevens – Content Creator

 

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