Thursday, December 02, 2010

How to Destroy Your Corporate Brand

Our college switched to Dell a few years ago. We've a ton of problems with bad hard drives in laptops. Hard drive issues in desktops too, but not nearly as frequent.

How a capacitor popped Dell's reputation:
From 2003 to 2005 Dell shipped 11.8 million PCs with a known defect but chose not to fully disclose the situation to all of its customers. The inside details of its management decisions, unsealed after settlement of a lawsuit, and the consequences of its customer service blunders, appeared side-by-side in two New York Times stories recently. 
Dell finally settled the lawsuit in September and its enterprise business has recovered. But the consumer side is struggling, in part because of what one analyst called "lingering" negative perceptions of its customer service.
It seems Dell mishandled the situation at virtually every opportunity.
  • misread the severity of the problem,
  • slow to act,
  • focused on minimizing financial damage, rather than brand damage,
  • treated large customers better than average consumers.

At first Dell underestimated the scope of the problem, which it tracked back to inferior capacitors that could lead to a catastrophic failure of PC motherboards. Dell grossly underestimated failure rates. Early on it expected rates as high as 12%, which is bad enough. But even as it revised estimated failure rates drastically upward, Dell continued to ship PCs with the defective capacitors as it struggled to identify the components and remove them from its supply chain. 
Dell kept production moving and revenues coming in in the short term, but it also dramatically increased its liability and damaged the company's reputation for quality. 
Failure to be proactive
Rather than be proactive, Dell's strategy was to "fix on fail." Even as some frustrated customers reported failure after failure and rumors began to circulate, for the vast majority of customers Dell did not choose to proactively replace or repair machines known to have the defective component. 
As the scope of the crisis became clear, with at least one volume customer reporting failure rates exceeding 20 percent, and with its its own estimates projecting potential failure rates of of 45 to 97 percent, management made a series of decisions that appear to have been carefully calibrated to minimize Dell's financial exposure and avoid a full recall. 
The PC maker began proactively replacing PCs with the defect, but only for its large customers that made volume purchases, and then only after the customer experienced a failure rate exceeding 5%. It also triaged customers into three categories: Those who might move their accounts over the issue, those who might cut back on purchases over the problems - and everyone else.

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