Posted on : 05-05-2012 | By : Frank Eliason | In : Brands, Leadership, Marketing, Social Media
Tags: Ben Baldanza, Jerry Meekins, Spirit Airlines
The past few weeks have been fascinating for me, watching Spirit Airlines and the latest Customer blow up to take over the internet. In my book, @YourService, I talk about Customer gaining more and more control over your brand. Ever since the days of Dell Hell & Comcast Must Die, Customers have been realizing this new found power. Some of my favorite blow ups over the past year have been the Bank of America debit card fee fiasco, Netflix/Qwikster, and the Verizon payment fee. Each of these examples are learning opportunities for businesses. Spirit Airlines offers probably the greatest learning of them all. So let’s take a quick look at each one.
- Bank of America Debit Card Fee Fiasco – Timing is everything, and for BoA the timing was simply horrible. At the time banks were viewed at an all time low. The overwhelming opinion was they were money grubbing institutions that did not care for their Customers at all. As you probably are also aware, government regulations on fees, and very low interest rates were making it difficult for banks to increase profitability while maintaining proper reserves. Therefore banks started looking for new ways to make up the lost revenue. Debit card fees made sense to many, since much of the fees lost were related to debit card purchases. BoA should have done more Consumer research before introducing the possibility of such a fee. They would have found that this particular fee very much angered their Customers, and Customers of other banks because they fear all banks would follow suit. Bank of America should have also talked more openly about the impact regulations would have on the bank and in particular, Customers. The challenge is the general population does not understand how banks make money, and the impact changes may cause. Stated simply banks were not trusted. The worst part about BoA handling of this situation was they defended it extensively, which pitted the company against their Customers. Brian Moynihan, CEO of BoA even stated during the fiasco, that they have an “inherent right” to a “certain amount of profit.” The fact is this showed the general population that the leader was out of touch with Customers and potential Customers.
- Netflix/Qwikster – I am a Netflix streaming Customer, and love it! I should say my kids love it (I do not get to watch my shows often). Netflix to many has seemed like the savior for continually increasing cable bills, and the best part is that it was cheap! You could easily use their streaming service and DVD by mail service at a very low rate of $9.99 a month. In July of 2011 the company announced they were changing the plans. Basically they were separating out the DVD by mail service and streaming. For Customers who continue to use both, the rate would go up to $15.98 a month. Given the cost to process items by mail as well as increased licensing cost for programming, this new rate could be justified. It would also guide more people to streaming which certainly is cheaper for the company to process. Of course that is not how the Customer viewed this change. Customers saw a company they viewed as different then the cable company, increasing fees at an even higher percentage than the cable company. Netflix immediately went from trusted disruptor to untrusted money grubber, just like cable. In September Netflix announced that their intention with the fee hike was to separate the DVD by mail business from streaming and create a separate entity called Qwikster for DVD’s. Netflix would just be streaming. This set off a whole new firestorm. Netflix failed to estimate the ramifications this would have for Customers and the way they shopped for their entertainment. Needless to say a month later Netflix backed down on the Qwikster idea, but the fees stayed at $15.98 a month. After losing subscribers, Netflix is growing again, but through this, the trust level is not the same as it once was.
- Verizon Payment Fee – Often companies try to send bad news out during slow news cycles, such as weekend or holiday weeks. On December 29 Verizon issues a press release “Customers Encouraged to Use Options to Avoid Single Payment Fee That Starts Jan. 15.” Besides being bad spin, the press release outlined a new $2 convenience fee for making payments. Within 24 hours the net was filled with discussion about the fee. The next day Verizon came back to reinforce the decision on the fee and clarify that the online chatter will not change their mind. Of course the FCC was listening to the online chatter too! By 3:00 in the afternoon the FCC stated they would investigate the fee. Almost immediately after that announcement, Verizon changed their mind regarding the fee.
These incidents prove that Customers are forcing change in companies! The most recent incident involves the spunky good ole boys of Spirit Airlines. I was shocked to notice that the company’s board of directors and leadership team appear to be all men. Of course that has nothing to do with it, but maybe their lack of diversity and thought process is part of their problem. That is not for me to decide, but certainly others can form their own view. Spirit airlines has never shied away from controversy. Over the years they have been accused misleading advertising, including this incident involving tweets, inappropriate advertising like the ‘threesome fares’ and ‘M.I.L.F Sale’ (no wonder women do not appear to be part of the company’s leadership or board!), and they even tried to spin government disclosure requirements to be about hiding taxes. This ‘Animal House’ of airlines has been making a name for themselves in recent years, including making a nice profit thanks to add on fees, but I know it is a reputation I would never want to be part of.
As I discuss in my book @YourService, social media simply highlights the culture of the company that already exists. In this case social media is highlighting the frat house style culture of this airline. Over the years they have tried to spin it that they are ‘Customer friendly,’ including going on how carry on fees are a Customer benefit. Spin is never a good approach, but it still shows you for who you are, because Customers are smart and can easily see through it. There are two major issues impacting the brand over the past few weeks. The major incident involves 76 year old, Vietnam vet, Jerry Meekins who is dying of esophageal cancer. He no longer was permitted to fly by doctor’s order, and he requested a refund. The airline responded that they would not be able to refund the money because he did not purchase the $14 insurance. This is not the first incident like this, as you can see from this Consumerist post. Of course this heartless approach does not fit with the spin they have historically provided indicating they are a Customer friendly airline. Remember social media, simply displays the culture of your brand! Spin no longer matters. The company had numerous opportunities to quietly make an exception, and we would have never heard about Mr. Meekins, but the company decided to take the hardline approach. As word spread regarding Mr. Meekins, the social media in conjunction with traditional media started to heat up about Spirit Airlines. The company continued with their posture. In fact CEO Ben Baldanza called into Fox News to discuss this. Of course Fox brought up the fact that Spirit Airlines is leading, by more than double, in Customer complaints to the US Department of Transportation. Mr. Baldanza was not horrified by this fact, but simply spun this further to indicate most Customers were happy. I have never met a CEO that would not be horrified to be leading in complaints. I agree number of complaints does not mean anything, unless you understand the details of those complaints. It is still indicative that this airline is not living up to the spin they would like us to believe. In my view, it showed that Mr. Baldanza is completely out of touch.
There are a few approaches you can take when dealing with incidents like this. You can either try to quietly handle it (make it go away as I like to say) or you can be firm in your approach. It would appear that the later was the direction Spirit wanted to take. If you are going that direction, it is imperative that you explain why and clearly outline the benefit to all your Customers. As an example, Spirit could have said that we strive to be the low cost airline, and to that effort we would not be able to make exceptions to this but we would like to find solutions, such as transfer the ticket to Mr. Meekins daughter so she could visit. The next options could have been, once it reached the CEO and the publicity, Mr. Baldanza could have offered to refund the money out of his own pocket. This way it would not be changing the rules but would have still made him out to be the good guy. Spirit did not take any of these approaches. Instead they took the hardline approach, but 24 hours after the Fox News piece, Mr. Baldanza issues a statement that they would now refund the money as well as donate to a cause close to Mr. Meekins. Backing down, after the CEO took such a hardline stand in a public form, was probably not the right choice. The negative brand hit was already there and this new gesture would not change that. Of course it does reemphasize that we are now in an @YourService world! This experience, which started as a simple Customer Service call, will be very altering for Spirit Airlines, and I would expect many dramatic changes over the course of the next year, including in the CEO position. The Good ole boys may be moving out of the frat house!
This is not the only incident going on with Spirit Airline right now. The social web is also enraged over a fare increase changing carry on bags to $100. So even resolving the issue for Mr. Meekins does not change the discussion of the fee change. Spirit has been a leader in the airline industry, at least when implementing new fees. They led the way in checked baggage fees, boarding pass printing fees, carry on fees, and others. They have not led the way regarding proper disclosure of fees. I would guess this is one of the reasons for complaints regarding the airline. It is also the reason they are not trusted at all, and these incidents will not help build that trust. Any increase in fees will create a backlash in social media, but the key is how you discuss them. Will fares go down due to the cost structure shift or service go up? Spirit could have had good talking points if done properly. In fact, I do believe they have seen fares go down, while fees went up. They need to first embrace what they want to be. If that is being the lowest cost provider, then fully embrace it with no spin. They need to outline their fares compared to full service competitors in an open way. So show fare, with carry on (paid online at time of ticket purchase) compared to multiple competitors for the same flight. Then also show the same comparison with different options, such as paying for carry on at the time of boarding. Spirit Airlines has failed to partner with their Customer to create the right experience for both the Customer and the company. As complaint data indicates the company may be making a short term profit, but at the rate they are going, they will not be in business soon, unless they have dramatic changes. These blow ups in social and traditional media do tend to force dramatic change, and I expect that will happen here. Best of luck Spirit and Mr. Baldanza!
The Good Ole Boys of Spirit Airline!
Board of Directors (found here on the Spirit Airlines website)
Bill Franke, Chairman – Managing Partner of Indigo Private Equity, NewBridge Private Equity
Ben Baldanza, President & CEO – Spirit Airlines
David Elkins – Retired President & Co-CEO of Sterling Chemicals
H. McIntyre Gardner – Retired Head of Americas Region & Global Back Group, Global Private Client for Merrill Lynch
Robert Johnson – Retired CEO of Dubai Aerospace Enterprise
Barclay Jones III – Executive Vice President of Investments for iStar Financial Inc
Jordan Kruse – Managing Director Oaktree Capital Management
Stuart Oran – Managing Member of Roxbury Capital Group, former senior executive at United Airlines
Horacia Scapparone – CEO Bristol Group
John Wilson – Principal of Indigo Group
Management Team (found here on the Spirit Airlines website)
Ben Baldanza, President & CEO
Barry Biffle, Executive VP & CMO
Thomas Canfield, Senior VP & General Counsel
Ted Christie, Senior VP & CFO
Tony Lefebvre, Senior VP & COO
Jim Lynde, Senior VP Human Resources
Guy Borowski, VP Technical Operations
Jake Filene, VP Airport Services
Joseph Houghton, VP Flight Operations
Craig Maccubbin, VP & CIO
Edmundo Miranda, VP & Controller
Graham Parker, VP Pricing & Revenue Management
Charlie Rue, VP Financial Planning