No miniskirts? But hotpants were OK...

It was a blazing hot day when 23-year-old student and part-time waitress Kyla Ebbert left her San Diego campus for the airport. She had a doctor's appointment in nearby Tucson and had a flight reservation with Southwest Airlines.Ebbert handed her stub to the flight attendant and took her seat. But as the crew started the safety announcements she was approached by a safety officer, who asked her to follow him off the plane and onto the connecting skyway. Once outside the officer told her she was dressed in an inappropriate manner and would have to return home to change before she could take her flight.  Ebbert, who was wearing a tight turquoise sweater and white denim mini-skirt, was dumbfounded. 'What part of my outfit is offensive?' she asked the attendant. 'The shirt? The skirt?' The attendant frowned and said 'The whole thing.' The passenger stood her ground and eventually was allowed back on the plane on condition that she pulled down her skirt, pulled up her sweater and wore a blanket over her lap during the journey. If you work in PR, the beads of sweat have probably already started to form on your forehead; this is, of course, a brand crisis in the making. Ebbert complained first to her mother, then the local radio station and finally the story started to make the national press. The final circle of media hell was achieved last week when Ebbert, clad in her now-infamous outfit, did the Today show followed by Dr Phil. Then a second woman, Setara Qassim, came forward, claiming she had been forced to fly Southwest wrapped in a blanket after her halter-neck dress was deemed too low-cut by flight attendants. The problem for Southwest was threefold. First, it had treated two women who were dressed normally by current standards extremely badly. Second, Southwest has a strong reputation in the US as the fun and approachable airline. Its treatment of the women was not just inconsistent but directly contradictory to its positioning. Third, and perhaps worst of all, the airline looked hypocritical. In the 70s it used the strapline 'Sex sells seats' and dressed its stewardesses in hotpants that made Ebbert look like Auntie Edna at Christmas. Blogs began to erupt and the media to circle; a strong brand was in trouble.  There is an almost legendary move in marketing called the Tylenol 180. It happens when a company handles a crisis in a manner so consistent with its brand that it not only recovers from the crisis, it builds brand equity and market share as a result. The move was named after painkiller brand Tylenol's ability to not only survive a tampering incident but emerge more trusted due to the way it handled the situation.  In the nick of time Southwest chief executive Gary Kelly executed this very move. Live on Dr Phil, an upset Ebbert was read a statement that apologised to her and offered her two free tickets. But the manner of the apology won the day. Kelly declared: 'From a company who really loves PR, touché to you, Kyla. Some have said we've gone from wearing our famous hotpants to having hot flashes at Southwest, but nothing could be further from the truth. As we both know, this story has great legs, but the true issue here is that you are a valued customer, and you did not get an adequate apology. Kyla, we could have handled this better, and on behalf of Southwest Airlines, I am truly sorry.' The same day, Kelly recorded national radio ads announcing extra-low 'miniskirt' fares. 

Crisis averted, brand restored and sales increased. A fully executed Tylenol 180 is a rare, but beautiful, thing.

Northern Rock has eroded its equity

It's A Wonderful Life is one of the greatest movies ever made. In a pivotal scene, the hero George Bailey, faces a run on his family bank from worried investors convinced they are about to lose their savings.

By making an impassioned speech about community and trust, Bailey persuades most of his panicked customers to believe in the bank and not withdraw their money. At 5pm, with a single dollar left in the safe, he closes the door and saves the day.

Alas, there is no Bailey on hand at Northern Rock. Instead, worried staff were forced to call in the police on Friday, while chief executive Adam Applegarth spent Monday reassuring customers all was well, with the startled look of a man on the edge.

The financial explanation for the plight of Northern Rock is simple. Since going public, the bank has grown by cutting back its operating costs, offering low-interest mortgages to price-sensitive savers, and borrowing heavily from other banks to fund its transformation into the UK's fifth-biggest mortgage lender. There is no doubt that Northern Rock's initial problems were caused by changing credit markets, which forced it to approach the Bank of England last week. But what is really interesting is why it has fallen from grace so quickly.

It was only last Thursday morning that rumours of problems began to emerge. Within 24 hours, lines were forming and phone lines were jamming. Barely five days later, the bank and its share price were in free fall. An almost total absence of brand equity meant that when they were faced with even the smallest indication of trouble, too many customers attempted to empty their accounts completely.

Northern Rock has no reservoir of brand equity because it is a victim of its own success. Applegarth is proud of transforming his company into 'the most cost-efficient bank in Europe'. But by cutting back on branches and personal service, and encouraging customers to bank online and by phone, he also destroyed brand equity. Northern Rock was no longer Diane the bank clerk at the branch on the high street, it was a flickering cursor on a computer screen or a recorded menu choice at the end of an 0800 line.

While it's true these approaches are far less expensive to operate, they are also far less likely to build trust. When the cursor stopped flicking this week and the phone lines went dead, panic erupted.

Northern Rock is also a victim of its own successful targeting strategy. The bank has been able to grow by tempting customers to re-mortgage through its low-interest loans. This price-sensitive segment is easy to attract, but also easy to lose and reacts badly to crisis. These customers moved their mortgage to Northern Rock not because of emotion, history or relationships, but because it was cheap. Those who had banked there for decades and believed in what it stood for would have been more accepting of the credit squeeze.

The irony for Northern Rock is that, after years of destroying its brand equity, it has achieved its goal - it is trading at a huge discount to its tangible net assets. Unlike brands that add value through the intangible asset of brand equity, Northern Rock's brand is worth significantly less than the sum of its parts. One of the big banks can now acquire it for less than the value of its loan book and infrastructure, and make a significant profit in doing so. The Northern Rock brand name, of course, will be discarded. By now the only brand equity it possesses is likely to be negative.

Applegarth should be pleased. He has created a bank so lean that it will soon no longer exist.

Simple, a bit sloppy, but not stupid

If you are a good marketer you've already heard of the Net Promoter Score (NPS). If you are a very good one, you know what your NPS is. If you have no idea what I am talking about, read the definition at the bottom, and then meet me at paragraph two.

NPS is a rather bold little calculation. Its inventor, Fred Reichheld, argues that a single question and its resulting score is the only metric you need to measure satisfaction. He also claims a correlation between a high NPS and future revenue growth.

And the metric has taken off. Online forums have sprung up, full of managers keen to discuss it. High-profile chief executives have publicly praised NPS and added it to their management systems. Even finance people have taken note, with several institutional investors asking for the score as part of their due diligence. But two audiences are genuinely unhappy with NPS.

The first is market research firms, which make their money from long-winded analyses of the market that are so complex they require lots of researchers to explain the findings to befuddled clients.

Clearly, one number that your mother-in-law could compute is a direct threat to market researchers and their business. As a result, many have been hell-bent on showing up NPS as being not all that it is cracked up to be. Even Nigel Hollis, one of the biggest and fairest brains at Millward Brown, concluded: 'The jury is still out. We need to see more compelling proof that NPS actually does lead business performance before we adopt it as the sole benchmark of success.'

The group even more appalled by the apparent over-simplicity and over-exposure of NPS are marketing professors - particularly those who study customer satisfaction. Publicly outraged that sloppy statistical methods and clear research bias were being accepted at face value, privately they were probably pissed off that their complex statistical analyses, which have had next to no impact on real marketers, were being superseded by a single score and percentage from an ex-management consultant who did not even have a PhD. Reichheld enraged them further by admitting his lack of interest in statistics. He calls his method 'common sense' and claims the business leaders he targets have 'little interest in advanced statistical methods'.

The top peer-reviewed marketing journals have published a slew of anti-NPS research in recent months. Most notable was the publication in July in The Journal of Marketing of a statistical analysis of Norwegian customer data. The paper, 'A Longitudinal Examination of Net Promoter and Firm Revenue Growth', shows that NPS fares no better than other measures of service satisfaction in predicting business growth. The paper tetchily concludes: 'We find no support for the claim that Net Promoter is the single most reliable indicator of a company's ability to grow.'

Who is right? Usually this column concludes that everyone bar your humble columnist is completely mistaken. But, in this rare case, everyone is right. Market researchers and academics are correct to question the lazy analysis and over-selling of NPS. But I still side with Reichheld. It may not be all it's cracked up to be, but I have seen more non-marketing executives - managers with real power - quote NPS in the past 12 months than all the other marketing concepts put together. This concept is making senior people think about where the money comes from. Not balance sheets, products or sales, but what really drives the business: the customers.

And anything that gets managers to think about customers and their needs is a step in the right direction. Even if that step is a little sloppy and its effectiveness exaggerated.

Net Promoter Score definition:

• The concept was developed by Fred Reichheld, a consultant, strategist and author on loyalty. His books include The Loyalty Effect, Loyalty Rules! and The Ultimate Question.
• Introduced in December 2003, Net Promoter is a metric derived from survey responses to a 'how likely are you to recommend...' question. Respondents who provide a rating of nine-10 are 'promoters'; those who give ratings of six or lower are 'detractors'. The NPS is found by subtracting the proportion of detractors from the proportion of promoters.
• Reichheld's research among 4000 companies showed NPS to be 100% accurate in indicating whether a firm would grow (more consumers championed its service or product) or shrink (more were denigrating it).
• NPS has been adopted by companies including Microsoft and American Express; many report their score to investors.