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Reputation hit? What not to do
Aanand Pandey | December 10, 2008
Midway through an interview to CNBC-TV18, ICICI Bank [Get Quote] chief executive officer and managing director K V Kamath looked at once livid and bemused. It was his first appearance on news television since the big slump in the bank's stock -- down 20 per cent, termed the Friday Fall -- on October 10.
The interviewer had just recited a list of the rumours floating around -- one of them that the bank's promoters and top executives were dumping ICICI Bank shares -- and requested Kamath to respond.
"It was also heard that ICICI has approached the government for a bailout and there is a possibility that SBI [Get Quote] (government-owned State Bank of India) may buy or amalgamate the bank," the interviewer carried on. One by one, Kamath began to shoot down the rumours and, according to image managers, imparted a lesson in what not to do.
"Big mistake," pointed out a renowned public relations expert who, understandably, doesn't want to be named. "Kamath broke a public relations protocol during that programme, which says that a company chief must not directly address rumours or accusations during a crisis. That would be legitimising the rumours."
This expert's rationale is that rumours or accusations are used to force the hand of the targeted company. If the company is seen to be responding to them directly, that creates the impression that something is amiss.
ICICI Bank refused to participate in this article, but it is not alone in violating this so-called protocol. A few years ago, when the Centre for Science and Environment (CSE) said that soft drinks sold in India contained pesticide levels far above the Indian safety norms, the chief executives of the two soft drink sultans -- PepsiCo India and Coca-Cola India -- challenged the authenticity of the report.
The case of Cadbury India takes the chocolate. Six years ago, some of its Dairy Milk chocolates were found infested with worms at some outlets in Maharashtra. A few days after the reports, Cadbury issued a statement citing unhygienic storage facilities at retail stores as the likely cause. The food and drug administration (FDA) of Maharashtra, however, blamed Cadbury's poor product packaging. As Cadbury locked horns with FDA, its sales plunged.
All the companies mentioned so far are professional, efficient, and high-performing, but the way they responded to perception threats may have left them wondering if they could have done better.
Tactical or practical
One wonders whether ICICI Bank did not see it coming. Rumours surrounding the bank's financial health surfaced in August last year after a UBS Securities report said it was exposed to the US sub-prime market. Ever since, the bank's joint managing director and chief financial officer, Chanda Kochhar, had been up and about allaying fears. So had Kamath.
Still, when the crisis struck on that fateful Friday, the bank could not come up with a coordinated, definite response until the wee hours of Monday morning, when it sent emails to customers assuring them of the bank's sound financial health.
It was a sort of encore. In April 2003, ICICI Bank suffered a run on deposits for four full days before it came out with an official statement. The news reports had attributed its lack of hurry to its avowed policy of ignoring rumours or speculations. Clearly, the bank did not ignore the rumours this time. "It was different this time because the environment was tough not only for ICICI Bank, but also for the entire banking sector," says Future Brands CEO Santosh Desai.
During a crisis of such scale, any trip in communication could have set off a chain of events. At the same time, the bank can be forgiven for a delayed response. "You can say that they could have done it earlier, but their need was more to do with offering a quality statement that betrayed no sense of ambiguity," says Desai.
However, Piyush Kumar Sinha, professor of marketing at Indian Institute of Management, Ahmedabad, says delay -- in this case or any other -- occurs when the level of confidence among the company's consumers is low. For a company to respond quickly and definitively to a situation, it is important that its customers have a strong belief in the brand.
"Let's accept the fact that it requires courage to go to the customer and say that one has a problem. That courage comes only when the company has complete faith in its customers," Sinha says, and adds that consumer confidence is an attribute that companies can build before a crisis, not during it. Looking for the enemy
Companies' second reaction is to look for an adversary. Cadbury blamed the retailers, ICICI Bank accused market intermediaries, Pepsi and Coke questioned CSE's findings. This, says Desai, is a cardinal error companies commit at this stage.
"At the first glimpse of a perception crisis, companies must give a blanket assurance to the customers that they are underwriting the consequences of this situation," he says. If a company is seen to sidestep responsibility, or use a technical point to weasel out of the problem, it is automatically deemed to be at fault.
Levick Strategic Communications CEO Richard S Levick, who has followed the pesticide-in-soft-drinks issue, says a rebuttal of rumours or blaming an external force is unproductive.
"A counter-argument cannot supersede a twisted fact seen as true by the public. It can only be supplanted by an equally engaging truth." The e-mail messages sent by ICICI Bank on Monday morning and advertisements published in newspapers during the week -- which spoke of the bank's adequate capitalisation, large net worth and strong credit ratings -- would have worked better than sound bytes from executives used to dispel rumours.
Sinha says putting facts in front of stakeholders, saying the company is ready to stand scrutiny, can immediately rescue companies. For ICICI Bank and Pepsi-Coke, third-party scrutiny followed by vindication provided much-needed succour.
ICICI Bank's stock rebounded within hours of international rating agencies, such as, Moody's and Standard & Poor's issuing statements that the bank's credit fundamentals were sound.
Similarly, when the CSE report caused the pesticide scare, both Pepsi and Coke took recourse to scrutiny by the UK government's Central Science Laboratory -- one of the world's most respected. "It was our responsibility to ensure that we established this truth about the safety and quality of our products whenever any doubt was expressed," says a Coca-Cola India spokesperson.
But they were not quick enough. Levick points out that the CSL results came three weeks after CSE's report appeared in the media and within that period the pesticide scare had become a national issue.
Touched by a star
Amitabh Bachchan played a lead role in Cadbury India's second coming. His endorsement not only brought consumers back, but also raised the morale of salespeople and trade partners.
Cadbury engaged Bachchan in January 2004. By October, the company claimed to have regained the pre-controversy growth figures. "Amitabh has a following among people from six to 60 years of age. His presence worked wonders for our brand," recalls a Cadbury spokesperson.
Coca-Cola roped in Smriti Irani and Amir Khan after the 2006 crisis. Khan, who had appeared in Coke ads before, took no chances. "Amir did the ad only after he had sent the product for testing and received the results," exclaims a Coke official.
The cola giant also released ads in newspapers listing the addresses of bottlers in India, inviting people to check the process. As this article is being written, Shah Rukh Khan is appearing in commercials talking about his faith in ICICI Bank. Thus far, he had been associated with the bank's efforts with non-resident Indians.
Sinha says brand ambassadors are effective because users are assured that the celebrity who they saw with the brand before the crisis stands with it even after it, conveying that nothing has gone wrong. But Bachchan's endorsement worked for Cadbury even though he entered the scene after the worm controversy. "That was an exception," says Sinha.
Desai says using celebrity endorsement for any company cannot work during a crisis. However, it is a useful way to handle the fallout of the crisis. "It is a way of acknowledging that, regardless of the content of the message, there was an issue at hand but things are improving now," he adds.
K Srinivasan, the CEO of Chennai-based Prime Point Public Relations, is of the view that celebrity endorsements are not effective in controlling a situation because, when a bank is in trouble, the customer needs an assurance that his money is safe. During such times, only a personalised mode of communication can contain the situation.
Symbiotic growth Breakneck growth, says Sinha, can throw customer relationship out of gear. Fast-growing companies, such as, ICICI Bank, Pepsi, Coke and Cadbury constantly need to incorporate new systems and processes to sustain the high rate of growth.
New systems introduce additional layers of compliance between senior executives and customer-facing executives.
"This takes away freedom from field executives, who can no longer provide tailored services to customers, suppliers or distributors, since any decision that is deviant from the policy requires concurrence from seniors," he explains. For instance, some say Wal-Mart suffers from a negative perception because of its gargantuan size, even though it offers unmatched value to customers.
The lack of customisation, in turn, gives rise to a 'suboptimal level of satisfaction' among customers. This explains why some companies complain of consumer apathy or cynicism, while some others enjoy unwavering customer loyalty at all times, says Sinha. The professor points out that Tata Motors' [Get Quote] recent decision to pull out of Singur triggered indignation because the Tata Group is seen as one that keeps consumer needs above everything else.
A recent study on consumer attitudes by Goodpurpose, a consultancy at Edelman, shows that Indian customers prefer brands that seem to be working for the overall good of society. Consumers prefer companies that employ two-way communication methods, rather than top-down.
Of the total number of respondents, 87 per cent said they preferred brands that are seen to be beneficial for the local community. Similarly, 90 per cent agreed to the statement that it is more important to buy from companies that are socially responsible. Goodman terms this phenomenon as Mutual Social Responsibility, as it represents a company's propensity to do social good through its core business activities.
The positivesCadbury, Pepsi and Coke took steps to create a positive image. Cadbury's Project Vishwas, launched just after the crisis and intended to educate 190,000 retailers, regained goodwill among the very retailers it had alienated during the crisis.
Both Pepsi and Coke launched water replenishment and community partnership programmes to win over farmers, many of whom had once emptied cola bottles into their fields as a mark of protest.
Pepsi's eco-friendly programmes -- Waste to Wealth, a waste management initiative to convert waste into organic vermin, and Replenishing Water, under which it conserves, recharges and replenishes more water than it consumes -- have improved its image. Coca-Cola India has become involved in rain water harvesting and follows a green system called 'eKO' that integrates environment management with business planning cycle.
ICICI Bank last year set up a foundation that aims to increase the earning of low-income households. The foundation website states that the ICICI group provides about one per cent of its profits to the foundation annually.
According to news reports, it has also launched customer education initiatives during the last one year. In an interview to Business Standard last month, V Vaidyanathan, ICICI Bank executive director in charge of retail, SME and rural banking, said the group had started an education series for customers and investors a year ago. The bank re-launched it six months ago in a new format.
And, of course, there is Shah Rukh.
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