Toyota Destroys Customers’ Trust and Potentially Billions in Market Value as Well

Update 2-9-10:

The bad news keeps on coming for Toyota, including the newly announced recall of 2010 Priuses and some Lexus models.  Last weekend’s Wall Street Journal had a terrific feature story, too, on how Japan’s national culture contributes to the secretive corporate cultures of firms such as Toyota.

Update 2-2-10

Here’s the latest on this total fiasco as reported by the Wall Street Journal:  all Toyota hybrids are now being investigated.

We can hardly be considered biased against the Japanese automakers, even though we both used to work for GM.  We’ve put our money where our mouths are over the years, and own a 2006 Honda Civic Hybrid and lease a 2009 Toyota Camry Hybrid.  I love my Honda (Karen doesn’t like it).  Karen likes her Camry, and it’s been a good sedan to transport our kids and take on vacations.  Nonetheless, I’m darn glad we leased the Camry, as we’ll be turn it back to Toyota when the lease is up based on the company’s horrific response to its defective brake system/electronics.  The news gets worse every day for the largest automaker in the world, and it’s not over yet, according to the Wall Street Journal:

Toyota Motor Corp.’s quality crisis deepened Tuesday, as U.S. regulators accused the company of dragging its feet on fixing defective gas pedals and threatened civil penalties and further reviews of Toyota products.

The move means that Toyota’s efforts to address its biggest-ever safety and public-relations mess are far from over. Last week, the administration indicated it had no issues with how Toyota had responded to the sudden-acceleration reports, which led the company to recall about six million vehicles and have been linked to at least five fatalities.

“While Toyota is taking responsible action now, it unfortunately took an enormous effort to get to this point,” Secretary of Transportation Ray LaHood said Tuesday in a statement. “We’re not finished with Toyota and are continuing to review possible defects and monitor the implementation of the recalls.”

Mr. LaHood said Transportation Department officials flew to Japan in December to meet with Toyota executives and remind the company “about its legal obligations.” The agency, he said, “followed up with a meeting at DOT headquarters in January to insist they address the accelerator pedal issue.”

The  highly respected journalist, Forbes magazine columnist, and one of my favorite writers on the automotive industry, Jerry Flint, had this to say:

Toyota’s accelerator problem is the costliest car safety issue–and corporate disaster–in automotive history. It certainly dwarfs the sudden acceleration issue that hit Audi long ago, or the Firestone tire problem that destroyed the sales of Ford’s Explorer or those long-ago issues that created Ralph Nader’s book, Unsafe at Any Speed.

And there will be a great cost: incentives to get customers buying Toyota’s again when the problems have been solved at the factory; money to keep the wounded dealers alive, and money to pay for the recall work. We’re probably talking about a cost in the billions–not millions–counting those incentives. That’s money that won’t go to developing new models, new hybrids, new electric cars. And we’re not talking about the lawsuits, which will go on for years.

I may be wrong, and I do prefer my Honda over Karen’s Toyota, but I can’t believe that Honda would act in the same poor manner in which Toyota has.  Honda in my opinion is a nicer, and in this case, definitely more trustworthy car maker.

Aneil

Superbowl Ads a bust…

Superbowl Sunday is my favorite time of year, because I teach advertising and I love to watch the ads.  This year, I watched the game more than usual because the ads were nothing to write home about.  There were a couple, however, that caught my eye.

My favorite ad overall was the Snickers ad with Betty White.  Probably because I love anything with Betty White, but it was humorous and told the message of how “you’re not you without snickers.”

I also enjoyed the Google search ad for Paris, ending with a search for a crib.  It told a love story in 52 seconds, reminding us why we need Google in our life.  Very effective.

I did enjoy the Dave, Oprah and Leno bit, even though none of them are my favorite people.  Whoever thought this up was pretty savvy about lightening the late night tension.

As a NY Times reporter mentioned today, none of these ads were very daring, which I find surprising considering the price tag of $2.5-$3 million for a 30-second spot.  At this price, and with this audience, it is your opportunity to say something big and amazing, not something safe.  In addition, CBS spend a lot of time selling us their programs, which is not what I was hoping to see.

-karen

Toyota acknowledges trust is more important than profits…

The New York Times today reports that Mr. Toyoda, the grandson of the founder, finally had a news conference yesterday where he used the word trust twice.  The first time, he said,

“I deeply regret that I caused concern among so many people,” Mr. Toyoda said. “We will do our utmost to regain the trust of our customers.”

Then later in the conference he added that he takes

“the situation we are in very seriously.” Toyota, he vowed, would “put restoring trust before profit.”

Of course, we agree that trust should come before profits if Toyota wants to succeed and be a successful car company in the long run.  The difficulty with trust is that you cannot just say “trust” and hope that people agree with you.  You have to demonstrate your trustworthiness in your actions so that people understand your intentions to be trustworthy.

So, for Toyota to regain our trust, they will need to

1) Be Reliable: Now that he has announced a new quality committee, keep us updated about their findings

2) Be Open and Honest:  Keep us updated on any new information they have about this recall and how it will affect us and our cars.

3) Be Competent:  Announce a fix to this problem immediately and also figure out if there is something else going on besides a pedal.  Also, be sure to tell us know all models will be changed so that this problem does not recur.

4) Be Compassionate:  Listen to the stories of those who have been hurt by their vehicles and have compassion for their pain.  Prove to the public (and to the Japanese Prime Minister) that Toyota does put consumers first.

-karen

Amazon Still Plays Big Brother, Eroding My Trust

First, full disclosure:

• George Orwell’s 1984 is one of my favorite books of all time:  a great novel of what a horrible future could still await us all, and how we must be vigilant if we are going to limit it (I don’t think we can fully prevent it).
• I’ve recently purchased a Kindle DX.
• Jeff Bezos is a fellow Princeton alum.
• We are enthusiastic customers of Amazon.com, taking great advantage of its unlimited free two-day shipping through our Amazon Prime membership which costs only $79 a year.

That said (I hate this phrase now, due to its vast overuse, and Larry David did a great job skewering its use recently in his show Curb Your Enthusiasm), I am not happy one bit that Amazon has played Big Brother one more time in its dispute with the book publisher Macmillan.  According to the Huffington Post:

NEW YORK — New copies of Hilary Mantel’s “Wolf Hall,” Andrew Young’s “The Politician” and other books published by Macmillan were unavailable Saturday on Amazon.com, a drastic step in the ongoing dispute over e-book prices.

Macmillan CEO John Sargent said he was told Friday that its books would be removed from Amazon.com, as would e-books for Amazon’s Kindle e-reader. Books will be available on Amazon.com through private sellers and other third parties, Sargent said.

It’s not the first time that books have disappeared from Amazon’s virtual shelves. Last summer, Kindle users were surprised and unsettled to receive notice that George Orwell works they had purchased, including “1984″ and “Animal Farm,” had been removed and their money refunded. It was a deletion of pirated copies that had been posted to the Kindle store, but the ordeal highlighted a concern – that a book already paid for and acquired can be revoked by an e-tailer. The Kindle operates on a wireless connection that Amazon ultimately controls.

Bezos later apologized, and Amazon offered affected customers free books or $30.

Amazon later capitulated to MacMillan, and restored its books, but this is another reminder that even though I’m enjoying my Kindle DX, I can’t trust that I what I purchased for it from Amazon, which should be my property as long as I want it to be, can be taken away from me at any time.  I guess I’ll be checking out the Apple iPad when it becomes available this spring…

Using Ringtones on Your iPhone: Buyer Beware!

I downloaded a ringtone (listed in the album Ringtones & More Part. 2: Beautiful Ringers) from the iTunes store using my iPhone but neither my computer nor my iPhone would recognize it as a ringtone.  I had to spend another 99 cents to convert the “song” to a ringtone before it could get recognized as such.  In talking to the Applecare agent on the phone, I was told that it was a “song” and not a ringtone even though it was listed as a ringtone when I bought it.  I shouldn’t have to pay twice to get a file to be used as a ringtone.  Luckily, they refunded my 99 cents, but I’ll be more careful from now on.

Aneil Mishra

Rebuild Trust through the ROCC

David Brooks makes a good point today that trust is continuing to decline in government and that “Instead of building trust in government, the Democrats have magnified distrust.”  The vote in Massachusetts is indicative of this distrust.

Maybe we should send them a copy of our book to help them discover the ways that they can rebuild trust with the American people using the ROCC of Trust.

1) Be Reliable:  Be consistent in the ways that you make decisions and allocate rewards and impose taxes.

2) Be Open and honest: Be transparent in your negotiations and deliberations.  Let us know what you intend to do and how you intend to accomplish things.  Transparency will help us feel that you are being fair and just.

3) Be Competent:   Take on those issues where you have expertise and bring in experts when you don’t have full knowledge to make good decisions.  In the healthcare debate, where are the voices of those who are affected, such as physicians and patients?

4) Be Compassionate:  Look at the world through the eyes of those you represent.  There are many people hurting right now due to the recession.  Make decisions that are in their best interests and not in the interests of those who have caused these problems from the beginning.

These are simple steps that could do wonders for rebuilding trust.

-karen

A Magician Leads Pediatrics at Virginia Commonwealth University

Here’s a great write-up about Dr. Bruce Rubin, our wonderful friend, our favorite pediatrician in the world, and on the world’s experts on cystic fibrosis.  I’ve been one of his oldest “pediatric” patients for many years, and I trust him completely.  For the full introduction by VCU’s Medical School Dean, please go here.

No doubt about it. One of the first things to catch your attention when you look over Bruce Rubin’s CV is his affinity for all things magical. Not only does he work it into his patient exams, he teaches it to students, to residents and even to practicing pediatricians at CME conferences around the world.

He maintains that physicians are natural magicians, with our special costumes, magical potions and incantations. We’ve even got X-ray vision, to his way of thinking.

But Dr. Rubin’s magician’s props are tongue depressors and ear specula, with the occasional rubber band or sponge ball thrown in. And his goal is communication. “It gets the kids interested, listening and engaged. And it makes me more human and less intimidating,” he says.

Dr. Bruce Rubin, the new department chair for pediatrics, works with an impromptu magician’s assistant on a recent afternoon at the Children’s Medical Center.

Or maybe the first thing to catch your attention was his amazing record of professional accomplishment.

He says that he’s known as the mucus guy. But I say he’s known for developing effective and appropriate aerosol therapy for children with lung diseases. And for advocating the antibiotic drug azithromycin for cystic fibrosis.

He’s also known for setting the traditional understanding of CF on its head by discovering that, contrary to conventional wisdom, it’s not that there’s too much mucus in the CF airway. Instead CF patients’ lungs fill up with pus. And that, of course, leads to a very different treatment approach.

He is indeed a darn good magician, too, to which my kids and I can attest.  To learn more about this great physician and human being in our book, Trust is Everything, please go here.

GM Predicts it Will Make a Profit in 2010 — But Will it Make Vehicles We Want?

As reported in today’s Wall Street Journal, GM’s CEO Ed Whitacre, Jr. proclaimed that General Motors will make a profit this year:

“My prediction is we will be” profitable in 2010, Edward E. Whitacre Jr. told reporters at GM’s Detroit headquarters, a sign of rising confidence that also sets a tough benchmark for the still-struggling car maker’s employees. “Do we have obstacles in the way? Yes. But we have a good management team and a good plan in place.”  Mr. Whitacre, who also took the chief executive title temporarily last month, said the company’s new chief financial officer — Chris Liddell, who is joining GM from Microsoft Corp. — could “of course” be a candidate to become the company’s CEO. But he added “that’s up to the board” and noted the search for a permanent boss is still in its early stages.

My own purchasing decisions would have a miniscule impact on GM’s profitability in any case of course, but we’re not planning to buy any cars this year, or for the next several years.  Both of our vehicles weren’t in fine shape,and given the significant financial hit we’ve taken thanks to the Great Recession of 2008 and counting, we wouldn’t be buying a new car any time soon no matter how many miles our cars had on them.  Equally important, I don’t see that any of the new vehicles that GM has coming out as compelling in any way.  The Chevy Cruze is perhaps as good as much of its competition in the small car market, but not better.  The Chevy Volt, GM’s electric vehicle, will most likely be priced too high to justify as a money-saver for anyone, and I’ve never been a truck buyer and most likely never will.  Frankly, given that GM’s CEO came from AT&T and its new CFO comes from Microsoft, I’m going to be concerned about the product quality of GM’s new cars.

Just my $.o2.

Aneil

Zappos Uses Social Networks for Announcing Downsizing

Here’s an update on Zappos, in this case, how it uses a real “social” approach to marketing.  Thanks to  my friend Beverly at SAS for sharing this.

Original Post 1-17-09:

Here’s an excerpt of my interview in today’s Investor’s Business Daily:

E-tailer Zappos has held its own in a sluggish economy. In fact, the online shoe seller’s revenue rose from $840 million in 2007 to $1 billion in 2008, though it fell short of its expected $1.1 billion in sales, noted Tony Hsieh, Zappos’ CEO, who’s based in Las Vegas.

To stay competitive, Zappos laid off 125 people, or about 8% of its 1,460 staffers, in November 2008. Most managers delivered the bad news one-on-one, though some call centers’ managers, who had larger staffs, notified teams in small groups.

Layoffs were determined by performance, and in the case of call center staff, attendance and reliability. Staff was paid through the end of the year, received severance pay of one month for every year they worked, and their health plan was extended for six months. In addition, existing staff were offered counseling to deal with their stress.

After staff members were informed of their dismissals, CEO Hsieh sent an e-mail to staff, explaining why the reduction was done, how financial revenue goals hadn’t been met, and described the staff’s severance packages. He then posted that e-mail on a special Twitter section for Zappos’ employees.

Twitter is a free social messaging service that works in real-time.

Why disclose specifics about the layoffs on Twitter rather than keep it under the radar screen as many companies do? Hsieh said that Zappos’ success depends on its 10 core values including “open and honest communication. We’re open with everything on how we run our business internally. When people don’t know what’s going on, rumors start,” he said.

Aneil Mishra, an associate professor of management at Wake Forest University’s Babcock School who writes about the effects of downsizing, said having the CEO communicate with staff on a social network enables the company to control the message. “It gets the company ahead of other people who will put their own spin on it,” Mishra said.

Aneil

Are Students “Customers”?

The debate about whether students are customers, ongoing for more than a couple of decades now, continues in today’s New York Times:

A recent article in The Chicago Tribune described a continuing debate in business schools over whether their enrollees should be regarded as “customers” rather than as traditional students. Should the students have more say over what they are taught and even how they are judged? What’s the risk of the student-consumer approach in M.B.A. programs? And does the issue reflect broader issues in higher education?

• Stephen Joel Trachtenberg, president emeritus, George Washington
• Edward A. Snyder, dean, University of Chicago Booth School of Business
• David Bejou, dean, Elizabeth City State University School of Business
• Richard Vedder, professor of economics, Ohio University
• Mark C. Taylor, professor of religion, Columbia University

Personally, I’ve always thought of my students as co-producing with me and the faculty and staff at the school they attend the two key outcomes outlined by Stephen Trachtenberg:

Schools of business have two purposes as far as students are concerned. The first is to educate. The second is to place students in challenging and well-compensated positions after they graduate so they can use their educations to build careers and lives. Along with the quality of the faculty is the effectiveness of the job-placement office. The university is society’s gatekeeper. Students see degrees as tickets of admission to the big show: the marketplace.

In other words, you get out what you you put into an endeavor.  I never thought of myself as as a customer when I was a student, but rather as a junior partner in the education process.    I was blessed to have great faculty mentors help me get jobs, but I doubt they would have helped me unless I had demonstrated my worthiness through my hard work and strong results over several years

Karen and I always find it sad when students asks us to write recommendation letters for them when we’ve only taught them for one semester in their last year, but we’ve been asked because we supposedly know them better than all of the other professors they’ve ever had.  How can that be?  In these instances, clearly both the school and the students have failed to create the collaborative relationships necessary to get the most out of an education.

Aneil