Copyright 2018 by Gary L. Pullman
We
all err from time to time. However, few of us make
multi-million-dollar mistakes or are in the position to do so.
Judging by the errors of those who have made such mistakes, that's a
good thing. Whether their misguided actions are caused by dubious
attempts to make their brand stand out among competitors' products,
by careless proofreading, by faulty testing, by bad judgment, or by
other errors, companies often pay a high price, both in loss of
revenue and in the erosion of customer relations, when such mistakes
occur, as these 10 boneheaded blunders that cost companies millions
demonstrate.
10
Abercrombie & Fitch's “Exclusionary” Marketing
Abercrombie & Fitch's CEO Michael Jeffries
In
a cruel and misguided attempt to make his company's brand stand out,
Abercrombie & Fitch's CEO Michael Jeffries insisted that the
company refuse to “target” potential customers who are “young,
old, fat,” or “skinny.” Abercrombie & Fitch garments
weren't for everybody, he maintained; they were reserved for only the
“cool and popular kids” who deserved them. Most “people don't
belong, and they can't belong” in his company's clothes, he told an
interviewer. “Are we exclusionary?” he asked himself, before
answering, “Absolutely.” What Jeffries saw as “exclusionary,”
others viewed as disdain for ordinary people who could have been
customers. As a result of these and other of Jeffries' derogatory
statements, Abercrombie & Fitch, once a popular line of clothing,
has become unfashionable, its sales plummeting sharply. His comments
damaged his company's brand and caused it millions of dollars in lost
sales. (LINK 1)
9
Alitalia Airlines' Cut-Rate Deal
A
mistake in pricing cost Alitalia Airlines $7.72 million dollars in
lost revenue. The Italian airline offered “a business-class flight
from Toronto to Cypress” for only $39. The deal was a “steal.”
Unfortunately for Alitalia, the victim of the theft was the airline
itself. The ticket price was actually supposed to be $3,900. Before
the mistake was caught, 2,000 tickets were sold at the $39 price.
Although the airline tried to “cancel the purchases,” it finally
accepted the loss and made good on the cut-rate price. (LINK 2)
8
Coca-Cola's Product Replacement
To
remedy a downturn in its market share during the 1970s and 1980s,
Coca-Cola decided to introduce “New Coke,” a sweeter alternative
to its regular product. Taste tests suggested the idea was both
timely and wise. Half of the 200,000 subjects who participated in the
company's “blind taste tests” preferred the taste of “New Coke”
to both the original version and to Coca-Cola's chief rival, Pepsi.
It was out with the old and in with the new, as “New Coke”
replaced old Coke. However, Coca-Cola customers rebelled, many of
them boycotting the new beverage. Analysts suggest the company
believed people made their decisions as to which soft drink to buy
solely on the basis of taste, not realizing that many had an
“emotional involvement” with the original beverage. Neither of
these possibilities were covered in the company's research. Although
Coca-Cola lost millions of dollars due to this testing error, they
rectified their mistake by reintroducing the original, now calling it
“Classic Coke.” (LINK 3)
7
Decca Records' Decision Not to Represent The Beatles
A
Decca Records executive had bad news
for agent Brian Epstein. “Not to mince words,” he was told, “but
we don't like your boys' sound. Groups are out; four-piece groups
with guitars particularly are finished . . . The Beatles have no
future in show business.” Such decisions are judgment calls, but
this one, in retrospect, was more than just bad; it was totally
wrong. Decca had the same opinion of The Beatles as it had of such
other auditioning groups as The Yardbirds and Manfred Mann: the
company simply saw no future for them. The Beatles earned billions of
dollars, a good portion of which would have been Decca's, had the
company's executive not rejected the Fab Four as clients. (LINK
4)
6
JC Penney CEO's Attempt to Reinvent the Company
Ron
Johnson, JC Penney's former CEO, made several mistakes that proved
nearly fatal to the department store chain's bottom line. First, he
took it upon himself “to dictate consumer shopping habits” by
discontinuing its “deep discounts” in favor of “everyday
low-pricing.” As a result, the company's loss was “$1 billion for
the year,” which was “the worst quarter in retail history.”
(LINK 5)
Second,
Johnson sought to install boutiques selling “designer brands” in
the department stores. He hoped to snag Martha Stewart's products,
which are popular with customers, but Macy's had already signed a
contract with Martha Stewart Living and sued Penney, thwarting the
hoped-for arrangement. The boutiques did not do well, either. (LINK
6)
Third,
it may not have helped customer relations for Johnson to have hired
Ellen Degeneres as the company's spokesperson. Some of the stores'
female customers, the controversial One Million Moms included, didn't
believe she represented their values as family-oriented, heterosexual
women. (DeGeneres is a self-identified lesbian.) Johnson's response
was to double down by airing a Father's Day TV commercial featuring
“two dads,” which may have further eroded the company's image and
its profits. (LINK 7)
5
Lululemon's Barely-There Yoga Pants
Lululemon,
“a popular retailer of yoga, running and cycling gear,” created a
problem for itself by selling yoga pants that “were so sheer they
inadvertently became see-through when wearers struck certain yoga
poses.” As a result, the company had to recall “about 17 percent
of its inventory after customers complained,” a “gaffe [which]
cost the company tens of millions of dollars.” Company founder Chip
Wilson aggravated the situation by, in effect, blaming the victims.
The problem, he suggested, wasn't his company's clothing, but the
“women's too-curvy bodies.” (LINK
8)
4
Metamorfyx's “Terrible Agreement”
On
behalf of their clients, Robert Granadino and Hernan Camacho,
inventors of a computer keyboard designed to “reduce users' chances
of acquiring Carpal Tunnel Syndrome and other muscle strain
afflictions,” their former lawyers agreed to a settlement with
Microsoft. The problem, their current attorney claimed, was the
lawyer never adequately informed them, and “it was a terrible
agreement.” The attorney for the lawyers who'd previously
represented the inventors countered by arguing Granadino and Hernan
Camacho had agreed to the settlement because Granadino knew “full
well” litigation “could result in the determination of the
invalidity of the patents.” Because of the agreement with
Microsoft, Granadino and Camacho's company, Metamorfyx, which holds
their patents for the keyboard, lost $30 million, their lawyer said.
(LINK 9)
3
Microsoft's Noncompliance with a European Union Regulation
Microsoft
was fined $732 million for its failure to comply with a European
Union requirement that its operating system display a “browser
ballot” that allowed users to access “downloaded links to rivals'
browsers, including Google’s Chrome, Mozilla’s Firefox and
Opera’s namesake, for a period of five years.” In 2015, after
year-long litigation, Microsoft was able to reduce the damages to
$49.8 million. The company is required to “set aside $42.5 million
to fund an antitrust compliance office for the next five years.”
The remaining $7.3 million will be to pay “the plaintiff's
lawyers.” (LINK 10)
2
Netflix's Split Services
It
seemed to make sense to Netflix to increase its fee “for customers
who subscribed to both DVD and streaming.” After all, the company
only wanted to raise the fee from $9.99 to $15.98. Those who
subscribed only to the streaming service or exclusively to the DVD
service would be billed $7.99. The strategy was to encourage more
customers to select “the streaming-only plan,” which is more
cost-effective for Netflix, since streaming doesn't require “expenses
incurred in shipping and processing rentals and returns.” The fee
increase wasn't seen as reasonable by many of the company's
customers, however. In fact, they were incensed. Netflix, having
anticipated an additional 400,000 customers, might lose 600,000,
analysts predicted. As a result of their blunder, the company
“lowered its [2011] third-quarter subscriber outlook by 1 million,”
which represented a loss of nearly $10 million. In the end, Netflix
rescinded its intended fee increase, but the damage was already done,
and the company sustained considerable loss of revenue and bad
customer relations. (LINK
11)
1
Nintendo's Big Mouth
The
value of Nintendo's stock fell by $6.7 billion dollars in 48 hours
after “the company reminded new investors that it had no role” in
developing the 2016 runaway bestselling Pokemon
Go
game. “Opportunistic investors” sold their shares as soon as the
word was out, and Nintendo itself provided the information. “The
Pokémon Company—not Nintendo—was responsible for funding,
licensing, and greenlighting Pokémon
Go,
entitling it to the bulk of profits.” (LINK
12)
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