What should Goldman Do?

 

What does Goldman Sachs need to do to save its brand? In a word, nothing.

 

A strong, powerful, leading brand is practically bullet-proof.

 

It’s not what you do wrong that determines if your brand will survive a scandal. It’s how strong your brand is in the mind that determines if your brand will survive. Strong brands survive even the worst catastrophes, while weak ones can easily be destroyed by minor ones.

 

Goldman may have cheated a few clients and Tiger definitely cheated on his wife but it doesn’t really matter. As long as Goldman makes money and Tiger makes good golf shots, neither brand is likely to suffer any long-term damage.

 

Is that fair? No, but that’s life. And that is why it is so important to build a brand in the first place. And even more important to build a brand that dominates a category.

 

When you dominate a category, your existence is crucial to that category. The category needs you and will support you. Investment banking needs Goldman in the same way the PGA needs Tiger Woods.

 

What made the Goldman brand so special? Goldman is the gold standard. It is the world’s largest and most respected investment bank. The “culture of success” is how the firm is described.

 

So while Goldman Sachs stock dropped on Friday after the SEC charges, it was back up again on Monday. Why? People saw it as a buying opportunity. Buying a strong brand at a discounted price. Not unlike the situation at Toyota.

 

After its cars were found to have unintended acceleration problems, the Toyota brand was hit with a huge crisis. Even worse, it seems that the company knew about the problems and delayed reporting them and delayed recalling the vehicles.

 

Will this destroy the Toyota brand in the long term? Nope. Toyota is the largest auto maker in the world and owns “reliability” in the mind. Consumers will give Toyota the benefit of the doubt and a second chance to make things right.

 

This wasn’t the case for poor Audi. After 60 minutes accused the car maker of the same unintended acceleration issues (which were eventually proven false), Audi’s sales plummeted. Audi was a weak brand in the mind. So the negative news took over and that was all people ever thought of when they hear the name Audi.

 

I’m not saying that Toyota or Goldman should do nothing. I’m just saying that neither needs to do anything to save their brands. For a leading brand, getting back to business as usual and giving the crisis enough time to blow over is pretty much enough to save the brand.

 

In the case of Goldman, it would definitely be a good idea to apologize and solemnly swear to do better in the future. Firing the mastermind of the Abacus deal, Fabrice Tourre, who calls himself “Fabulous Fab” wouldn’t be a bad idea either. Bringing in a respected outsider to help advise the board is another good idea. Someone like Warren Buffet whose firm is already one of Goldman’s largest investors.

 

Saying sorry, showing actions and following through with future reforms are all the classic ways to survive a crisis. Unfortunately, these work a lot better and a lot easier if you have a strong brand. If your brand is weak, you can hold as many press conferences, run as many ads, fire as many people and it won’t matter.

 

What ensures that Toyota, Goldman and Tiger will survive the scandals is the strength and dominance of their brands.

 

Bad press and scandals can happen to anyone. Your best defense is to build a strong brand to begin with. That and praying for another volcano to erupt and take over the front page of the papers.

 

Comments

[Yaacov Weiss]

I beg to differ. Tiger Woods stands for good golf- and that hasn’t changed. Toyota stands for reliability- and that hasn’t changed. If Volvo, which stands for safety, had the very same safety problems as Toyota, they’d be finished, despite their years of brand building.
Goldman Sacks or any investment firm for that matter, stands for trust in making sound financial decisions for its clients. If that trust is violated, they are also finished. Goldman Sacks is ok for now because they stood their own during their grilling in senate and emerged looking allot smarter than the senators did.

[Stephen Denny]

Laura, Toyota will obviously survive (if GM can survive, anything can survive). The brand has taken a serious hit, though. A brand that stands for "reliability" that is then shown to be "unreliable" - willfully - has a problem.

Audi is a different story. This was a small, niche brand not unlike Saab in its early days in the US when this happened - not the luxury performance sedan it is today. They've grown by leaps and bounds with strong products and sharp, consistent marketing.

But to Goldman - I think they need to lop off a few heads and move on. Investment banking is a high stakes, trust-based business. They need to show the world that any breach of trust is isolated and easily removed. If, of course, this is as far as the problem goes. That's for others to decide.

Regards.

(PS: And yes, Tiger's brand has a basketball sized hole in it - it ain't good when people are laughing at you. Ridicule is something that even a strong brand can't withstand).

[Ramiro Roman]

Laura, I partially agree with this post.

Yes, the best defense is a brand building effort pre-catastrophe. And yes, a strong brand can wither a storm better.

But, no, I don’t agree that marketing can do nothing but apologize. I do believe that trust building messaging and positioning – along with other marketing tactics - can speed the time to recovery. In the case of Toyota, beyond messaging and positioning rebates, dealer incentives and service commitments are well beyond the apology. Marketing efforts cannot be sustained without product performance, so that clearly has to be re-established, but they are efficacious on easing customer trust and brand reputation.

Thanks for the blog!

[Stephanie Ries]

I agree with Laura. I just bought a new Toyota. When buying it I did not even think about the recall. All I thought about was that I wanted a great and reliable car.

[Laura Ries]

Thanks! Toyota has dented its reputation, but as a strong brand it is much easier to repair.

Byron, you need to study history. The evidence is clear on Audi.

I didn't think I needed to spell it out. But here it is.

In 1985, Audi was accused of the same “unintended acceleration” problem that has now hit Toyota.

Audi sales immediately dropped. From 74,061 units in 1985 to 12, 283 units in 1991.

It wasn’t until the year 2000 that Audi finally recovered. That year they sold 80,372 units in America, the first time in 15 years that they were able to top 1985 sales.

What’s the difference between the Audi brand and the Toyota brand in the American market?

According to many independent studies, Toyota is widely perceived as the most “reliable” car on the market.

On the other hand, Audi is perceived as just another German luxury car without the cache of Mercedes-Benz, BMW and Porsche. (As a matter of fact, Audi is a bad-sounding name in the English language.)

As a result, Toyota is far more popular than Audi. Last year, for example, Toyota sold more than 18 times as many vehicles as Audi. Toyota sold 1,496,211 Toyota vehicles vs. Audi’s 82,716 vehicles.

In other words, Toyota is a strong brand in the American market and Audi is not. Strong brands are more likely to recover sooner and faster from a disaster than weak brands.

Nevertheless, the Toyota brand, at least in the short term, has been damaged. No doubt about that.

According to a recent Advertising Age survey, 66 percent of consumers now consider the brand to be “reliable,” versus a near-universal 92 percent before the recall.

But because of its strength, if they fix the problems, the Toyota brand is likely to make out just fine over time.

[Byron Sharp]

But Audi is currently growing share. Where is the evidence that Audi has suffered more than Toyota? Many of the posts on this blog seem to suffer from a lack or evidence, or highly selective evidence. As always, reader discretion is required.

[Amit Kacker]

Hi, I agree with most of it but not all. With no disrespect, I am a great admirer of your work and I consider you as my Guru in field of Branding. I am just a newcomer in the field of Branding who just finished his MBA. I don't agree with the Toyota and Audi example that you gave. I feel Toyota has been hurt and this will seriously dent its reputation as the most reliable car.

[RA_Whipple]

Right on, Laura. It needed to be said. PR is not about tree hugging, weepy artistry or is it 100% flaking and spin. It's about brand building and bullet proofing. Good comment!