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How reputation management helps companies to meet new customer expectations - and to create sustainable demand

Last week, Interbrand published their 2019 Best Global Brands Report1, the world's most prestigious ranking of big players' brand values. An analysis of the most interesting developments shows that the zeitgeist prevailing in society is reflected in a critical evaluation of the reputation of some brands and thus also in their brand value.

Customer expectations are developing faster and faster, big brands feel the pressure. At the top of the ranking of the most valuable brands in the world, there has not yet been any significant change, with Apple and Google leading the ranking for the seventh consecutive year. However, their gains are in single-digit percentages only. But here, there are several reasons besides the growing customer expectations for these findings.

Facebook loses USD 5.3 billion in brand value

The results become more interesting and concrete when taking a closer look at the former growth champion of recent years. Facebook has been in the Best Global Brands ranking since 2012, recording constant growth rates of up to 54 percent (in 2015) over the first five years. This year, though, Facebook slipped from 9th to 14th place after a twelve percent decline and is therefore no longer in the top ten.

“Apparently, more and more people are questioning the influence that Facebook as a platform has on current social developments,” says Simon Thun, CEO of Interbrand CEE, about the weak performance of the former shooting star - and hits the mark. The public debate about the socio-political role of major technology brands such as Google (with YouTube) and Facebook is becoming more critical, and the demand for regulation is becoming louder.

Empty promises of Facebook and Google

While Facebook in particular claims to meet these demands for stricter controls on content in the future, the reality is completely different. Facebook’s monitoring algorithm may find graphic elements such as swastikas and runes or linguistic terms such as “foreigner” and “home country” and can bring them into a socio-political context. However, the search algorithm cannot read between the lines. Even if questionable statements in critical posts are determined electronically and checked by human intelligence in a second step, the sheer mass of postings, comments, photo and video uploads worldwide remains so immense that control and regulation is in fact simply impossible.

Finding and, above all, classifying e.g. hate speech in social media content in all countries, languages, and cultures of the world would require an army of neutral experts. The involvement of the community which can report dubious content does not make a significant contribution either since neither expertise nor neutrality is given. In this respect, authorities and politicians worldwide reveal huge naivety that goes hand in hand with equally inadequate digital competence - leaving experts from the digital industry speechless for years.

Facebook and Google / YouTube will never be able to keep their promises. And that brings us to reputation management as we understand it - or to the diametrically opposed understanding of it. Reputation management starts at the very core of a company, not just where messages are conveyed to the outside world. The good reputation of a company and a brand is increasingly based on credibility and authenticity. As one of the world's leading brand consultancies with more than 40 years of experience, our industry colleagues from Interbrand have no difficulty in drawing the right conclusion: “In a world where customer expectations will continue to move faster than businesses, brands can no longer be considered separate to businesses,” says Charles Trevail, Global CEO of Interbrand. “Today, more than ever, brands will be judged on what they do, not just what they say.”

Has the German automotive industry really understood the warning signs?

The contradiction of “being” and “appearing” applies to the troubled German automotive industry, too. While Mercedes-Benz, BMW, VW, Audi, Porsche and MINI recorded growth rates of up to 18 percent in previous years, the brand values of the six German car brands currently grow by an average of only five percent (between Porsche’s nine percent and BMW’s one percent). Volkswagen, for example, assures that the proportion of electric cars in their fleet will increase to at least 40 percent by 20302, but this promise comes - if I may say so - at least ten years too late. During the last decade, the German automotive industry has lost its credibility through Diesel-gate and fraud on the consumer and, hence, lost accordingly in the growth of brand value.

So far, the promises of the automobile brands are still only promises. Relevant deeds are still to be delivered. However, it is not yet too late for a “reputational turnaround”. To achieve this, these so-called “best global brands” must now actually invest tens of billions in the (their!) future, - in the development of alternative forms of drive, but also in infrastructure. Mind you, per year, and without an investment quotas brake. The planned investments of the automotive industry are only peanuts in relation to their possibilities - and in view of the investment gap, they have created for at least ten years. They now need to act quickly and decisively. If the industry only fixes what was missed in the last ten years and continues like this for another ten years, the big investment in development will be accompanied by steadily increasing costs for the “reputational turnaround” - and the longer the more difficult it becomes. Because even if the first steps are done, the industry will continue to be criticized by the public for a long time, as it has badly lost the consumers’ trust.

In the situation of Facebook and YouTube on the other hand, a “reputational turnaround” is even more difficult to achieve, as control mechanisms for critical content as shown would devour enormous sums. Here it is probably easier and much cheaper for the company to keep a social media platform “somehow alive and running” for as long as possible and at the same time to look for an alternative platform with a (still in the medium term!) intact reputation (a rogue, who thinks of Instagram now - and the consequent question, what’s next?).

So, what can good reputation management do?

Let’s go back to the damage that actually can be repaired. Even the best reputation management in the world cannot turn a desert into a blooming landscape. However, in prioritizing communication measures, it may highlight the positive content that corresponds to customer expectations - thus helping companies in twofold respect.

First, communication shows that the signals from society and customers’ expectations are being understood (in this context, the claim of another car manufacturer also very widespread in Germany, "We have understood", from 1994 (!) suits perfectly - and unintentionally takes on self-ironic traits). Here too, however, the messages and claims must, of course, be followed by verifiable, tangible actions.

Second, communication with the aim of promoting “quick wins” in reputation management can make its contribution in order to actually generate a genuine, sustainable reputation management in the long term. Targeted communication for the above-mentioned measures, such as those promoted relatively offensively by Volkswagen, can have a positive impact on consumers and society in general, even if these are only peanut investments for the company. By demonstrating the relevance of these peanuts, these contents, by evaluating the success of the communication measures, a rethinking within the company can be driven forward. Positive customer feedback will point the management in the right direction, away from greenwashing, hesitation and empty promises, towards change - ultimately convincing companies to turn peanut investments into relevant investments.

After all, the motivation for this development could be purely economic. Demand will grow with growing confidence in the company and in technology, just as the number of e-cars sold will grow with the number of charging stations. Here, the trench must be overcome, the chicken or egg dilemma has to be solved - if not by politicians, then by the manufacturers themselves. Good reputation management does not aim at trends to satisfy hipsters and appear in a good light at short-term goals but to turn trends into sustainable developments and ensure a positive reputation for the company over time. Once a company's damaged reputation has been credibly restored through real performance and investment, sustainable demand and long-term profit will result.

By: Mats Wappmann, Berlin

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Sources

1 https://www.interbrand.com/best-brands/best-global-brands/2019/ranking/

2 https://www.volkswagen-newsroom.com/de/pressemitteilungen/volkswagen-plant-22-millionen-e-autos-in-zehn-jahren-4750

The Facebook-Cambridge Analytica Scandal

The scandal erupts

 

The rise of Facebook seems to be one of the most successful stories ever. What began in 2004 as a platform for Harvard students became popular and conquered the world in a very short period of time. Within 15 years, Facebook has become one of the most powerful corporations in the world, playing a major role in shaping the online environment. Although the company has had to deal with criticism again and again, nothing hit it as hard as the (un)voluntary cooperation with Cambridge Analytica. Most likely the most famous data scandal the world has ever seen, the aftereffects and reputational damage are still very difficult to assess.

2018 did not start well for Cambridge Analytica and its CEO Alexander Nix. In February – just one month before the bomb dropped – Mr. Nix told the British parliament that CA did not receive data from Facebook, which very soon turned out to be a lie. Only days later, several news outlets published a secretly taken film where Nix talked about “beautiful Ukrainian girls” to discredit political opponents in Sri Lanka. This was not the first secret recording in which Nix boasted about CA's (illegal) activities.

A few days later, on March 17, 2018, the scandal was about to fully hit the fan when The Guardian and The New York Times simultaneously published a story, based on insider information received from a whistle-blower, about how a British consultancy firm helped the Ted Cruz presidential campaign in 2015. Within a week, the story became the perhaps biggest scandal about data mining to date, with newspapers worldwide writing about data misuse on Facebook and the manipulative activities of CA. The two main protagonists saw themselves, at least at the beginning, in the role of the victims. It took both companies several days before they finally broke their silence. CA denied to have broken any laws and also denied using the data during the US presidential election in 2016. Facebook, on the other hand, apologised to users with a letter in various newspapers but only called the scandal a “breach of trust”.

The apology came too late, though, and it didn’t address the issue in detail. As a consequence, it wasn’t perceived as honest. The public outrage was immense – Google alone listed 129 million findings addressing the term “Facebook data scandal” and 1.92 million results for “Cambridge Analytica data scandal”. The bosses of both companies felt compelled to take a public stand for the second time. Alexander Nix's was suspended from Cambridge Analytica on March 20. Next up was Facebook's CEO Mark Zuckerberg. In early April 2018, he stated that Facebook would undergo a reform in its policy to prevent a similar breach. Facebook also decided to implement the new EU data protection regulations (GDPR) in all areas of operations worldwide on a voluntary basis. Ye,t the reputational damage was severe and as it turned out not just for the short run. On April 10, 2018, Mr. Zuckerberg had to endure an uncomfortable testimony before the US Congress and one month later, he also had to stand trial before the EU Parliament.

2018: The aftermath

In late April, Facebook had to reveal its first quarterly report after the scandal broke out. Despite an immense fall in Facebooks stock prices between March and April 2018, the report showed that Facebook has had the second strongest quarter in its history, generating a revenue of $11.97 billion in the first quarter of the year. Shareholders seemed to be relieved about the fact that the share price not only stabilized, but it even reached a new all-time high in July 2018. However, the joy was short-lived when, on July 26, it became public that 3 million European users had deleted Facebook as a consequence of data abuse. Facebook was caught up by its recent past for a second time and the share price literally collapsed and plummeted by $109 billion – with no end in sight. Still in July, UK’s “watchdog”, the ICO (Information Commissioner’s Office), announced to fine Facebook with £500,000 for the data scandal, which was the maximum fine possible under the old data protection rules. “Even after the discovery of data misuse in December 2015, Facebook did not do enough to ensure that those who continued to hold the data had taken adequate and timely remedial action, including deletion,” was the verdict of the ICO. Cynics might argue that this fine was a modest price to pay – a mere  0.05% of the company’s free cash flow.

While the consequences for Facebook seemed to be very unpleasant, Cambridge Analytica and its mother company SCL Group,  were hit even harder. Within the first days of the scandal, both companies lost many clients who left as a response to the public pressure. The reputational damage was perceived as too heavy to continue operations. On May 1st, 2018, just about 40 days after the data scandal peaked, CA and the SCL Group both had to announce the closing of their doors with immediate effect. Neither Cambridge Analytica nor the SCL Group were legally convicted at this point. Once again, history seemed to prove that restoring a damaged reputation – regardless of whether a moral or legal problem arises – is in the best case a long-winded project and in the case of untrue statements and bad crisis management, a thing that often ends with the demise of the company.

Facebook-Cambridge Analytica data used

Read Part I of the Facebook and Cambridge Analytica Data Scandal

The Facebook-Cambridge Analytica Scandal
Timeline of a reputational disaster

 

The rise of Facebook seems to be one of the most successful stories ever. What began in 2004 as a platform for Harvard students became popular and conquered the world in a very short period of time. Within 15 years, Facebook has become one of the most powerful corporations in the world, playing a major role in shaping the online environment. Although the company has had to deal with criticism again and again, nothing hit it as hard as the (un)voluntary cooperation with Cambridge Analytica, which is most likely the most famous data scandal the world has ever seen – resulting in an unprecented loss of trust and reputation.

When extensive Wikipedia pages are dedicated to a “breach of trust”, and Google displays 2,690,000 results for this “breach”, it is a safe bet to say that something definitely has gone (very) wrong. And that, perhaps, there was more than just a breach of trust. In this specific case, though, it took almost three years after the first articles were published until the big media scolding and the resulting consequences occurred. Three years in which one would have had the chance to actually prevent reputational damage. This is the story behind the Facebook-Cambridge Analytica data scandal and its implications for the reputation of two of the world's most influential companies.

2013: How it all began

“This is Your Digital Life”is the innocent name of an app which Aleksandr Kogan developed in 2014 at the Cambridge University. An app that was different than others, though. It was designed to vacuum up the data of the people using it. And the data of their friends – including the data which they hadn’t intended to share publicly. Mr. Kogan provided the app to a young British political consulting firm called Cambridge Analytica (CA), which combined data mining, data brokerage and data analysis with strategic communication in electoral processes. The London-based agency had developed a profiling system using online data, such as Facebook interactions and smartphone data. As a political consulting agency, CA mainly focused on voters demographics, consumer behaviour, internet activity and other private and public sources. Cleverly combining strategic advice and new newly acquired technological capability, CA was quickly able to run a Facebook survey that silently aspirated the data of people participating – and their friends. The entire operation was mainly orchestrated and run by two key people: Alexander Nix, Director of the SCL Group – CA’s mother company – and CEO of Cambridge Analytica, and Steve Bannon, vice president of Cambridge Analytica, executive chairman of Breitbart News and former chief strategist of president Donald Trump.

2014 – 2015: Data misuse and first newspaper articles

In 2014, CA actually started harvesting data on Facebook. Data which was used in the 2014 midterm elections in the US and in 2015 for the presidential run of Ted Cruz.While Cambridge Analytica later admitted to collecting 30 million Facebook user profiles, Facebook itself estimated that around 87 million profiles were affected by Mr. Kogans App.

A Bloomberg article reported in November 2015 that CA was hired by the pro-Brexit campaign group Leave.EU, headed by Nigel Farage. As it turned out, Alexander Nix and Nigel Farage were friends, and this operation was done pro bono. It was the first time microtargeting was raised to a public level and used to influence an election campaign.

On 11 December 2015, the Guardian first published an article on Cambridge Analytica and its methods. The journalist Harry Davies was already able to show that the election campaign of the Republican presidential candidate Ted Cruz was driven forward by data from Cambridge Analytica. It was also known at the time the data was being collected via an application of Facebook, which led to the first time that Facebook had to take a public position on the issue. Their comment on this article was very general: “[M]isleading people or misusing their information is a direct violation of our policies and we will take swift action against companies that do, including banning those companies from Facebook and requiring them to destroy all improperly collected data,” a Facebook spokesman said. However, nothing in this direction was actually undertaken by Facebook – apparently this simple intervention was enough and no further media outlets caught on to the story at this stage.

2016 – 2017: Ongoing operations

2016 and 2017 was a busy year for the SCL Group and Cambridge Analytica. After the Ted Cruz campaigning team lost against Donald Trump, CA was hired by Donald Trump’s presidential campaign in 2016 to help them win the national election against Hillary Clinton. Meanwhile in Europe, another firm with close ties to the SCL Group, AggregateIQ, helped the second pro-Brexit group “Vote Leave”.

During that time, media attention lay almost exclusively on the surprising election results and not on CA and its Facebook data. The calmness continued until December 15, 2017, when CA was again mentioned in the media, this time in a Wall Street Journal report, stating that Robert Mueller, the American Special Counsel to investigate potential Russian interference in the US presidential election, had requested files from Cambridge Analytica. Once again, however, this did not get the attention of other media and neither Cambridge Analytica nor the SCL Group nor Facebook had to face any further negative press. This was about to change drastically, though, in early 2018.

Facebook-Cambridge Analytica data used:

Read Part II of the Facebook and Cambridge Analytica Data Scandal

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