Negative Goodwill: The Law Of Unintended Consequences

Today, I’ll address a concept in business that I’ve labeled negative goodwill. An important concept in trademark law and business, goodwill is that intangible benefit a business derives from its reputation for providing quality products and services that consistently deliver the value promised.  An added feature of the branded product or service is the goodwill associated with the trademark serving as its source identifier.  On the other hand, negative goodwill occurs when that brand is damaged through the actions or neglect of its owner. The BP oil spill is a clear case in point. A toxic spill resulting in massive damage to the businesses and tourist industry of the Gulf of Mexico resulted in a loss of goodwill for BP, so much so that we are continually being inundated with advertisements from BP telling us the “Coast is clear” and “Come on down” in addition to praise for its clean-up effort. However, BP did exacerbate the situation by failure to initially accept full responsibility for the spill and own-up to the amount of oil that was uncontrollably spewing out of the blown-out well. Of course, having their CEO appear for damage control only worsened their predicament when he appeared “put out” by having to manage the crisis. But clearly BP recognized the risk of oil exploration and drilling in the Gulf and the nature of a spill being a calamitous event having an impact on its goodwill.

There are other scenarios where negative goodwill is not the result of a horrendous event such as an oil spill, airplane crash or drug tampering scare, but rather a result of a calculated risk. When Coca-Cola shot itself in the foot with its introduction of “New Coke” to replace the old Coke drink that was rebrand “Coca-Cola Classic” in the 1980’s, the consumer backlash was staggering. And it wasn’t as if sales for Coke were flat. As an old saying goes, “If it aint broke, don’t fix it.” Clearly loyal Coke drinkers were offended by this unwelcome tampering with their beloved drink. Other successful brands suffering consumer disdain include Miller’s brief fancy with clear beer and Clairol’s decision to put the names of food in its hair shampoos “Look of Buttermilk” and “Touch of Yogurt.” Of course, no one of age will forget the short-lived automobile called the Edsel. However, there are many more situations where the marketing folks for the major consumer brands are quite successful in the introduction of new products. These unintended consequences were more or less the downside result of brands’ calculated risks, probably taken only after focus groups and considerable study, so while their failure does not sully them in the consumer’s eye, the same cannot be said of the next group.

The negative goodwill resulting from some of the coupon and loyalty programs that major brands offer consumers is quite appalling. Rather than achieving loyalty, they often result in frustration, diminishing brand reputation, which is clearly an unintended consequence. Of a particularly galling nature is the Gas Rewards Loyalty Program currently run by the grocery chain, Super Stop & Shop in the Northeastern U.S. For every $100 spent, the consumer is awarded $.10 off the price of a gallon of gasoline at the nearby Shell Station. Spend $200, you get $.20 off per gallon and so on. However, the points expire within a certain period of time, so that my average award was $.20 while my best was $.40. Initially, the price per gallon at Shell was fairly comparable to other brands. However, the last month or so, I’ve noticed as much as a $.25 higher price per gallon at Shell. Imagine the negative goodwill for a branded loyalty program that clearly implies its customers are fools, not able to understand that Shell must be underwriting part of the program and therefore needs to charge higher prices, having the net effect of no gain for your effort to find a Shell station and swipe your loyalty card. Other examples include the brands that stuff the papers full of coupons that are almost impossible to redeem. Or when the automobile dealership where you purchased your vehicle sends you a free oil change coupon for a different model. Of the online variety, Groupon is a service that promises more business sales, but seems to be more trouble than it’s worth. A client recently complained of the effort to serve her Groupon customers and lamented the fact that none had any interest in considering her other products and services. Coupon customers paying half the freight of regular customers while detracting from the ability to serve all customers is hardly a way to increase goodwill. Lately, I’ve been flooded by junk email from an online news aggregator begging me to use their tools and website. While their model didn’t work for me, I might have been inclined to recommend it to a friend, but for the junk mail.

Goodwill does have enormous value in business as an intangible asset. Registering brand names of products and services as trademarks can enhance reputational goodwill while serving as a source identifier of your goods and services to the consumer. While reputation for having consistent quality products and services priced for value in the marketplace does not come overnight; however unfair; the reality is that customers can be offended and lost in an instant. Most goodwill involves an arduous process of marketing and delivering value. Don’t sacrifice the hard earned goodwill of your business on short-sighted programs and gimmicks that may offend more than reward.