Turning Bad News Into Good Vibes: New Siegel+Gale Simplicity Survey Finds Organizations Can Strengthen Customer Relationships in Times of Crisis

July 28, 2009

“Clarity Alone is Not Enough; Respect Trumps All”

NEW YORK, JULY 28, 2009 – During times of economic crisis, organizations struggle to communicate unfavorable news, from lower earnings and shrinking market share, to cuts in service and increases in prices. The conventional wisdom is that bad news damages customer relationships and breeds mistrust among consumers. However, a new Simplicity Survey from global strategic branding firm Siegel+Gale finds that delivering bad news is an opportunity – if done in the right way – to strengthen customer relationships and lay the foundation for increased trust and loyalty when conditions improve.

“It’s important to communicate facts clearly, but clarity is not enough,” says Alan Siegel, Chairman and CEO of Siegel+Gale. “In order to strengthen relationships with customers, organizations must commit to open, transparent communications that respect people’s intelligence by offering complete, relevant, and insightful explanations of bad news. People are tired of self-serving platitudes.”

Siegel+Gale examined a wide cross section of customer communications likely to appear in the average consumer’s mailbox, and tested four representative examples, anonymously, in an online consumer panel. The examples tested included a:

Charge card company letter – announcing an increase in late fees

Major bank letter – announcing a credit card interest-rate increase

Not-for-profit institution letter – announcing budget cuts and soliciting donations

Mortgage lender pamphlet – explaining a new mortgage summary document

“We tested communications using six criteria: comprehension, clarity, credibility, relevance, usefulness, and engagement,” says Lee Rafkin, Siegel+Gale's Global Director and Practice Leader of Simplified Communications. “We found that even though customers didn’t like the bad news they were receiving, they still respected and trusted those organizations that clearly communicated the reasons behind the bad news.”

Worst Scores

The communications that scored the lowest on measures of credibility and engagement did very little to offer comprehensive, credible, and contextually relevant explanations. For example, the letter from the bank announcing a credit card interest rate increase gave as its explanation that it was raising rates “to maintain profitability.” Predictably, it drew this comment:

“It feels like the bank wants to squeeze me for all they can. They’re not interested in me as a loyal customer; I’m just a number to them.”

The letter from the charge card company announcing an increase in late fees gave absolutely no reason at all for its change. “This is even more offensive to consumers than a dubious or incomplete reason,” says Mr. Rafkin. “In a vacuum, consumers will ‘fill in the blanks’ and invent their own, sometimes much more damaging explanation,” as represented by this comment:

“This company just wants average customers like me to compensate them for losses they’ve suffered due to their own poor business practices.”

Best Scores

The letter from the not-for-profit was both comprehensive and relevant in the detailed explanation it provided. It used 2½ pages to explain the impact of the economic climate on revenues and fundraising, detailed how and why it was cutting its budget, gave an overview of its plans, and reaffirmed its commitment to its core mission. The response from consumers was dramatic. This letter scored twice as high as the bank and credit card letters on factors including trust and loyalty. Respondents appreciated the organization’s efforts to justify their actions:

“This organization seems honest and upfront. They are forthcoming and direct with their information, which is always good.”

Respect Trumps All

Siegel+Gale’s Simplicity Survey found that when communicating in times of crisis, respect trumps even clarity and comprehensive explanations. The communication that tested best overall was the pamphlet from the mortgage lender. It explicitly stated its commitment to transparency and easy-to-understand descriptions of loan terms and costs. It was judged to be most informative, balanced, and direct, and made respondents feel most loyal to the company. One typical comment was:

“This pamphlet makes me feel the mortgage lender is being straightforward and inviting me into their financial institution. I feel very good about this company.”

Says Mr. Rafkin: “In the current climate of mistrust toward financial institutions, it’s clear from Siegel+Gale's latest study that communicating bad news does not have to damage customer relationships. The path to rebuilding trust and loyalty is through clarity, comprehensive explanations, and respect.”

“How bad news is communicated matters,” says Mr. Rafkin. “We found a strong correlation between clarity, comprehensive explanations, and respect on the one hand, and trust, engagement, and loyalty on the other.”

If customers believe that organizations are forthcoming, provide an appropriate level of relevant detail to support their actions, and show they value and respect their customers, people are not only more accepting of bad news, they are also willing to show such organizations deeper loyalty down the road.

Siegel+Gale conducted its online consumer panel survey in June 2009, with a nationally representative sample of 400 U.S. respondents over age 18; 200 respondents read and answered questions for each of the four communications.

To download a copy of the Simplicity Survey research report, click here.

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About Siegel+Gale

Siegel+Gale is a global strategic branding firm committed to building world-class brands through elegantly simple, unexpectedly fresh strategies, stories and experiences. With Simple is Smart as its operating philosophy, Siegel+Gale delivers powerful services in brand development, identity design, simplification, research and analytics, and digital strategy.

Since its founding by branding pioneer Alan Siegel in 1969, Siegel+Gale has helped drive business results for brands such as Aetna, American Express, Bank of America, China Youth Development Foundation, Dell, Dow Chemical Company, The Four Seasons Hotels and Resorts, The Internal Revenue Service, The King Abdullah University of Science and Technology, Microsoft, Motorola, Pfizer, SAP, Sony PlayStation, Yahoo! and the YMCA.

Siegel+Gale has offices in New York, Los Angeles, San Francisco, London, Hamburg, Dubai, Shanghai and Beijing and strategic partnerships around the world as a member of the Omnicom Group of companies.

To download a copy of the Simplicity Survey research report, click here.

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