United Airlines, Samsung and Other Brands That Lost Big Over PR Scandals
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Brands have shown time and again how tricky public relations can be in the face of a scandal. Despite apology statements and product withdrawals, the financial damage done to brands who undergo lawsuits or safety recalls is often deep and ongoing. Here are six of the biggest brand scandals of recent years, how much money was lost and how the brands are recouping.
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Volkswagen has lost billions after being caught in an emissions scandal of sizable proportions. In 2015, the German car manufacturer was exposed for programming its cars to pass emissions requirements only while being tested, making the diesel engines appear much more environmentally friendly than they were. The findings only applied to U.S. models, but VW admitted to producing 11 million cars worldwide with the counterfeit technology.
The manufacturer set aside $18.28 billion to cover the costs of legal fees and recalls related to the scandal in 2015, however, things have been looking up recently. In February, VW reported 2016 profits of $5.4 billion and expects moderate growth in 2017.
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Samsung’s upcoming release of its new Galaxy S8 phone might help redeem the brand’s losses after its 2016 exploding phone snafu. In September of last year, Samsung recalled its Galaxy Note 7 after several cases of the phone catching fire while charging. The brand reported in January that defective batteries were to blame, but the explanation didn’t make up for the more than $5 billion loss associated with the recall.
Amid the brand’s internal chaos is the political scandal rocking South Korea, where Samsung is headquartered. In February, Samsung’s de facto leader Lee Jae-Young was arrested under allegations of corruption tied to South Korea’s recent impeachment of President Park Geun-hye. He faces charges of bribery, perjury and embezzlement, among others.
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Fast casual food chain Chipotle is still struggling to rebound following a massive E. coli outbreak at some of the brand’s restaurants nearly two years ago.
In the fall of 2015, the chain made headlines when 60 customers in 14 states became sick after eating at the burrito restaurants. Since the outbreak, Chipotle’s (CMG) stock has fallen 40 percent from its all-time high. It posted its first ever quarterly loss in the first quarter of 2016, bleeding $26.4 million, and reported annual sales of $3.9 billion, down 13 percent from the year prior, according to Fortune.
In an effort to change customers’ perceptions, Chipotle retrained its staff, increased restaurant inspections and launched a massive new ad campaign in April 2017. The chain also announced a menu overhaul, announcing that its food was now made with “only real, whole ingredients” from its meats to its tortillas.
Despite the new public relations moves, financial services company Credit Suisse predicts Chipotle stock will continue to fall in 2017.
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Mylan was forced to pay a $465 million settlement in 2016 after public and congressional outrage over its inflated pricing of the EpiPen, which is used by 3.6 million Americans to combat life-threatening allergic reactions.
According to data from Fortune, the company acquired EpiPen in 2007 and raised the wholesale cost of the injection device 500 percent, from $100 to $600 by spring 2016. Company CEO Heather Bresch said Obamacare was partly to blame for the price increase.
As a result of the pricing scandal, the company launched a cheaper generic version of the medication. EpiPen’s market share dropped from 95 percent in summer 2016 to around 70 percent in spring 2017, according to Athenahealth. Competing drug manufacturers Impax Laboratories also introduced a generic EpiPen alternative, which sells for $109.99 for a two-pack.
Bad news persisted for Mylan in April of this year when the drug company announced a nationwide recall of the EpiPen after two incidents where the device failed to release its medicine.
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In the summer of 2015, America and Switzerland slapped a number of FIFA executives with charges of corruption. According to the U.S. indictment, marketing heads from the governing body of soccer paid and agreed to pay “well over $150 million” in bribes to win marketing rights for international soccer tournaments like the World Cup. To put that in perspective, the 2014 FIFA World Cup raked in more than $2 billion from tournament sponsors, broadcasting and merchandising.
FIFA’s legal fees alone totaled $50 million in 2015, but the true hit to the organization was the threat of lost sponsors. Disappointed with FIFA’s handling of the scandal, major sponsors such as Visa, Sony and Coca-Cola made public statements about their concerns over the incident, threatening to pull out if the organization didn’t make immediate changes. With a little over a year left until the 2018 World Cup in Russia, there remain 24 unsold sponsor slots in the tournament’s 34-sponsor program, representing millions in lost revenue.
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Little more than 24 hours after the airline’s widely socialized passenger removal blunder, shares of United Continental Holdings (UAL) fell 3.7 percent in morning trading, knocking $830 million off the airline’s market cap, according to Marketwatch. Prior to the market’s open, United shares were down as much as 6 percent in premarket trading.
This comes on the heels of an earlier debacle in late March when United refused to let three young female travelers board a flight because they were wearing leggings. According to spokesman Jonathan Guerin, United had the authority to dictate the girls’ wardrobe because they were holding free friends-and-family tickets. He said that regular fare-paying passengers are free to wear what they like, but friends and family must meet a certain dress code.
The airline faced widespread backlash from the public and celebrities alike who claimed that United had sexualized the pre-teen girls. The negative publicity certainly didn’t help the airline’s track record of disgruntled customers — it ranked dead last in a 2016 survey of North American airlines customer satisfaction published by J.D. Power.