United’s Rough Treatment Of A Passenger Highlights The Importance Of Trust

It’s remarkable how often businesses forget the importance of trust. Last week United Airlines summoned airport security to drag a passenger off an aircraft when he refused to give up his seat to accommodate a United employee. The passenger, a 69 year-old doctor from Kentucky, was visibly bloodied and suffered a broken nose. It now appears this will land in the courts. Regardless of who wins there, United has lost already, because millions of United passengers are likely to wonder if this could happen to them, and more broadly, if they can trust United with their vacations, their business schedules, and their lives. A study published yesterday indicates many passengers would pick American over United even if the price is higher and a connection is required. United has spent decades and millions promoting itself as “The Friendly Skies”. That rings hollow now, and I suspect United’s ad agency is already thinking about a new brand positioning.

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The best businesses are built on trust. When customers trust your company, they rely on your products, services and advice; they make you part of their business or personal lives; they share important information; they allow you to hold and manage their assets and they keep coming back for more with little need for sales or marketing. They are likely to ignore competing offers at lower prices. As a result, revenues are more predictable and margins are higher for trust based businesses. And, on a modern note, trust-based businesses are less vulnerable to disruption by robots.

The cost of losing trust is high. In recent years Volkswagen and Wells Fargo Bank were each forced to admit they had abused customers’ trust. VW sold a half million cars in the U.S. that it represented to be legal to drive, when in fact they did not meet legal standards for tailpipe emissions, because VW had cheated on the government tests. Wells Fargo opened millions of new accounts for customers without their consent or knowledge, causing them to pay additional fees, and it intimidated employees who protested. Soon after these scandals broke into the public domain, the CEOs of both companies were fired, and stock prices took a major hit. Wells Fargo’s stock price has since been up and down; VW’s price is still far below its pre-scandal level.

Stock price movement for Wells Fargo and VW during first month after scandals broke.

Automobiles, airlines, and financial services are among the businesses in which trust matters most. Customers entrust their lives to airlines and car manufacturers and their fortunes to banks and other financial businesses. These businesses make large investments in customer loyalty. Airlines offer elaborate, even Byzantine frequent flyer programs. Car companies give loyalty discounts to repeat buyers. Banks give free checking and interest holidays to acquire accounts. This is justified on the basis of lifetime customer value, which only exists if the customer relationship is maintained. Still, leading companies forget the importance of trust.

How does this happen? In the Wells Fargo case it’s clear that bank executives put severe pressure on employees to achieve growth goals and ignored the unethical/illegal behavior that resulted. Why the VW and United situations occurred is less clear, but I speculate that overly “by-the-book” culture, operational pressure, and the sense of invulnerability big businesses engender were contributing factors. In his statement to employees following the Chicago “re-accommodation” incident, United CEO Oscar Munoz said: “Our employees followed established procedures … I want to commend you for continuing to go above and beyond to ensure we fly right.”

[UPDATE: On the April 27 Marketplace Morning Report Podcast, United CEO Munoz explained: “We allowed following policies and procedures to overcome common sense and doing the right thing.” He went on to describe new operating procedures including raising the maximum “give up your seat” bounty to $10,000, and not calling law enforcement unless safety or security are in jeopardy.]

These companies were too concerned about a short term objective — a revenue goal, a cost goal, or an operational requirement — and lost sight of a strategically vital objective, keeping the trust of customers, and also regulators who act on customers’ behalf. United compounded its problem when it gave control of the situation to Chicago Aviation Security, which it turns out has no protocol for use of force. Three of its burly, young officers were far too ready to beat up a 69 year-old man.

Entrepreneurs face the same issue, although in my experience it takes a slightly different form. Small businesses are less likely to mistreat customers in routine operations, as Wells Fargo and United did, because top management is closer to the front lines and hence better positioned to balance the importance of immediate operational goals and relationship goals. But small businesses striving to grow and establish reputations are apt to overpromise results to customers and investors, and if they fall short too many times, they can be hard pressed to recover.

CEOs can reduce the risk of trust breach by taking these steps:

  1. Educate employees to understand the strategic importance of earning and maintaining customer trust. Show them what kinds of actions build trust versus destroy it. Help them understand the importance of treating customers with sincere respect in every interaction.
  2. Give front-line supervisors authority to do what their heads (and hearts) tell them makes sense in the situation they face, versus following the book by rote. Delta did this when it gave local supervisors ability to pay up to $10,000 to clear seats. This was both smart policy and a big PR win.
  3. Create metrics for customer relationship strength and put them alongside metrics for operational success. Relationship metrics include customer retention, net promoter score, quality of customer feedback, etc. Managers who achieve high scores on both dimensions should earn the greatest rewards.
  4. Gather feedback from front-line customer facing employees and consider it carefully: they will know if customer relationships are in jeopardy. Wells Fargo had many warnings from employee protests.
  5. Set the example at the top. Make visible decisions that reward honoring customer trust over seeking advantage, and praise managers and employees who do the same.

Like charity, trust starts at home. If your employees trust management to make the right call when company and customer objectives conflict, they will be empowered to earn customer trust.

First posted @ blogs.forbes.com on April 19, 2017.

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