A brand crisis can take many forms, which can linger differing lengths of time depending on the survivability of the brand. Every corporate brand crisis is unique; each has a starting point when the CEO becomes responsible for the survival of the company. BP's bumbling management of its Gulf crisis, its seemingly endless decision-making process, not to mention post-crisis effects that will last decades, make this crisis unprecedented.
Tyco, Texaco, Dynegy, IBM, Enron, Worldcom, and Citigroup are a few of the crises we've studied. Some survived, not only intact, but emerged stronger than ever. Others were destroyed, or forced to merge. A handful limped on, weakened but not ruined.
In 2002, Tyco's CEO and CFO were accused of theft of over $600 million. With negative press around the scandal, brand familiarity increased dramatically, while brand favorability plummeted. The speed and magnitude of this brand's collapse indicates a brand catastrophe. Even after management had been changed and the company got back to business, the Tyco brand continued its downward slide for years.
Nationwide attention spotlighted Texaco for racial discrimination in 1995. The tremendous media exposure immediately heightened brand familiarity, while perceptions reduced favorability in the eyes of influentials. Texaco's immediate, focused response by senior management helped mitigate an adverse environment. Still, it took Texaco nearly five years to fully regain its previous brand strength, at which time management decided to merge with Chevron.
In 2002, Dynegy was the subject of an SEC fraud investigation of its Project Alpha, a multiyear natural gas transaction from which Dynegy took an illegal tax benefit resulting in an earnings restatement for 1999-2001. The company was also involved in round-trip energy trades with CMS Energy, which artificially drove up the company's trading volume. However, Dynegy handled the crisis in a straightforward manner.
CEO Chuck Watson resigned; the company fully cooperated with the investigation and agreed to pay a $3 million fine. While nearly following Enron into oblivion, Dynegy's brand actually grew both in familiarity and favorability following the scandal. The crisis helped raise familiarity of the company and management's handling of the crisis, which positively affected their favorability rating.
By contrast, Enron is the classic case study of a complete brand catastrophe. It was a systematic and well-planned accounting fraud, coupled with massive media coverage and public outrage, that doomed the Enron brand. In late 2001, financial transactions that were intended to take unprofitable entities off Enron's books were discovered. The scandal not only destroyed the company, but also accounting giant Arthur Andersen. The negative "goodwill" that Enron created, as shareholders lost everything through made the angled "E" that stood outside its corporate headquarters a symbol of corporate fraud and corruption, proved too much for the brand to endure.
In the early 1990s, IBM's inflexibility in the face of industry evolution diminished its leadership position. Unrelenting focus on core business lines in the midst of dynamic industry changes yielded decreased brand favorability, and IBM's brand valuation plummeted in 1993 as concerns about its ability to adapt to a changing market grew.
Louis Gerstner, brought in to awaken this sleeping giant, recommitted to the business with a focus not only of survival but growth. His significant involvement and determined communication support helped IBM to achieve an almost complete recovery of favorability in a very short period of time.
Some brand crisis situations are self-imposed. The cause is with the best of intentions but is generally executed by poor management. Such was the case with Citicorp's merger with Travelers in 1998 to form Citigroup. The merger took place with little communication support from Citigroup. There was virtually no spending to introduce Citigroup as the new corporate entity. As a result, brand familiarity with the new brand plummeted as key audiences became confused. Perceptions of the company were unchanged among customers who were very familiar with the brand.
Citigroup lost many followers who did not deal with them on a day-to-day basis but were supportive of the company, many being retail investors. This brand loss resulted in a significant decline in brand equity, which could have been avoided with a relatively small investment in corporate communications. I contend that some of the lingering doubts about. Citigroup's ability to survive go back to this crisis of confidence that started in 1998 with a poorly communicated merger.
BP's crisis makes these examples appear tame by comparison. Despite their best intentions, BP's mismanagement of their crisis communications team seems to be unavoidable since the media is determined to drill them a new one. Until that well stopped gushing oil, any effort to manage the brand crisis was more about damage mitigation rather than proactively trying to restore the company image.
BP's projected loss of brand equity is severe. In 2007, after years of carefully building their brand image through corporate advertising, BP's brand equity amounted to 9.8 percent of their market cap -- or $20 billion in brand equity value. This compares to the industry average of 6.4 percent -- or $13 billion in brand equity. In 2009, at the height of the recession, BP reduced their corporate advertising from $75 million (2007) to $33 million (2009), and their brand equity dropped significantly to 8.6 percent -- or $14 billion, compared to the industry average of 5.6 percent -- or $7 billion. At this point, the decline of BP's brand equity was in relation to the decline of the industry in a recession.
When BP's brand equity drops $6 billion due to the recession, it undoubtedly will collapse with the dramatic increase in negative media coverage the spill has created. I estimate the brand equity value of BP by year's end will be approximately $5 billion (down from $20 billion in 2007). BP will not be able to regain any brand equity, as the burden of the crisis will weigh on them for decades.
Can BP's brand ever be fully restored? Not in my opinion. The most likely outcome is that once BP gains control over the well, the company will become an acquisition target -- preferably by a competitor with a better safety record.