9. American Airlines
“Is American the Worst-Managed Airline in America?”–Time Magazine (2/6/12)
American Airlines has been destroying its brand — and not just with consumers. Probably the least important to customers but most important to investors is the fact that parent AMR filed for bankruptcy protection on November 29 of last year. While airlines have effectively been using Chapter 11 for years to shed debt, American Air had been the exception. As the flag carrier for the U.S. and the largest domestic based airline until 2007, American was the industry leader.
After destroying its brand with investors, American moved on to consumers. It had only been in Chapter 11 for five months when the 22-year-old U.S. airline customer satisfaction, “Airline Quality Rating,” rated American next to last among the large national carriers, after United. It also ranked its regional carrier, American Eagle, dead last among all of the carriers rated. American fared poorly in several of the areas that customers find most important. On-time arrivals fell from 79.8% in 2010 to 77.8% in 2011. Denied boardings worsened from 0.86 in 2010 to 0.92 in 2011.
American may be about to destroy its brand with yet another group. It will try to get the bankruptcy court handling its case to void its labor contracts.
“Software Glitch Mars Nokia’s U.S. Re-Entry”–Wall Street Journal (4/12/12)
Nokia had 40% of the global hand set market in 2007. Its three challengers — Motorola, Samsung, and Sony Ericsson — had less market share combined. Research in Motion sold its BlackBerry at the time, but almost all of its customers were large companies. Apple did not release the first iPhone until June 29, 2007. Google’s Android OS, now so popular, was not commercially available.
In less than four years, Nokia went from being the top mobile phone company in the world to a company whose future is questioned by Wall Street. Nokia’s share price is down 80% from its price five years ago. It was time to act. In an attempt to correct the company’s slide, CEO Stephen Elop, a former Microsoft executive, decided to form a partnership with his old employer. The world’s largest software company had no success getting its Windows Mobile OS widely adopted.
The two companies decided to attack the market together by combining their hardware and software to make smartphones. Leveraging Microsoft’s massive marketing and R&D budget, together the companies had a chance to challenge Apple and Google. When announcing the partnership, the Finnish company company said, “Nokia plans to form a strategic partnership with Microsoft to build a global mobile ecosystem based on highly complementary assets. The Nokia-Microsoft ecosystem targets to deliver differentiated and innovative products and have unrivalled scale, product breadth, geographical reach, and brand identity.”
The flagship of the new venture is the Lumia smartphone, which was built to challenge the Apple iPhone and high-end products from Samsung. Nokia set an alliance with AT&T in the U.S., and the earliest sales figures were impressive. Nokia said it sold more than 2 million units of all its Lumia smartphone models in the quarter that ended March, up from over 1 million in the overlapping November-to-January period. But analysts had expected an even faster uptick in sales. Mikael Rautanen from research firm Inderes said he was expecting twice the sales volume.
Following the muted success of early versions of Lumia devices overseas, the Lumia 900 was launched in America. Nokia announced the most recent model had a software bug that could cause the smartphone to disconnect from data networks. The news was a public relations nightmare and it was widely assumed that U.S. sales would plummet. In response, Nokia said it would issue $100 rebates to owners of the handsets, which is a penny more than what they paid for them. The phone may be broken, but it’s free.
“Netflix continues downward spiral amid backlash”–AP (9/20/11)
Netflix made it look so easy — growing for so many years. The company started to deliver DVDs by mail in 1999. It effectively competed with industry behemoth Blockbuster, which had more than 4,000 stores until its business started to fall apart in 2009. That same year, Netflix reached 10 million subscribers and offered almost 100,000 titles.
Netflix’s management decided that people would rather get their DVDs by mail instead of driving to a store, and, as was often the case at Blockbuster, paying late fees. The inventiveness of Netflix did not end there. Broadband Internet made it possible to stream movies and TV shows. Netflix set up a streaming service and essentially knocked the DVD players off the tops of many TV sets across America. The product was such a huge success that by early 2011 it had well over 21 million subscribers.
Just as it seemed impossible for Netflix to lose its edge it did what competition could not — it alienated its own customers and caused hundreds of thousands of them to cancel their service.
The company had made a simple and awful misstep. It sharply raised prices, probably on the theory that its service was well loved and irreplaceable. The size of the increase was remarkably large — 60%. The negative reaction was so overwhelming that Netflix divided itself into two services: one for online DVD rentals and the other for streaming customers. Those who subscribed to only one service would not face the price hike. The new service — Qwikster — lasted only a few weeks. As tech site AllThingsD wrote at the time, “Qwikster Is Gonester: Netflix Kills Its DVD-Only Business Before Launch.“
The damage to the company’s customer reputation was so bad that it may never entirely recover. Just after the debacle, a prominent research firm reported a breathtaking drop in Netflix customer satisfaction. When research firm ForeSee released its annual Holiday E-Retail Satisfaction Index on December 28, 2011, it wrote that “Today’s report provides the first scientific quantification of customers’ experience with Netflix since its missteps earlier this year. With its satisfaction decline, Netflix has gone from satisfaction superstar to merely average.”
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