VW Can’t Buy Back Customer Love With Gift Cards

November 10, 2015, 10:00 PM UTC
The logo of German car maker Volkswagen (VW) is seen at Northern Virginia dealer in Woodbridge, Virginia on September 29, 2015.
Photograph by Paul J. Richards — AFP/Getty Images

This week, Volkswagen, reeling from a massive emissions cheating scandal, took the unusual step of offering its U.S. customers gift cards and dealership credits — specifically, $500 to spend at VW and Audi dealerships, and another $500 to spend anywhere.

Will this financial compensation restore trust in VW? Most likely not!

When it comes to throwing money at a problem, we can learn something important from an experiment that was conducted on 632 eBay users in Germany, who had left negative feedback following a transaction. In the study, published in 2010, half received an apology “I would like to apologize and ask whether you might withdraw your evaluation.” The other half received a cash rebate (about $5) “as a goodwill gesture.” The results? When offered cash, 21% removed their critical rating. But when offered an apology (without any cash), 45% removed the critical rating.

The point is that when it comes to delivering an apology, actions matter, but getting the words right really matters.

In our book, Friend & Foe, we identify the key elements of an effective apology: speed, candor, remorse, and a commitment to change. First, apologize quickly. Second, rather than deny the problem, VW (VW) should have swiftly come clean and acknowledged the problem; their denials have cost them their credibility. Third, VW needs to express remorse. The head of the company should have taken the perspective of the consumers who feel betrayed and expressed regret. Finally, VW needs to develop an action plan for change.

Not only has VW perpetrated one of the worst corporate scandals of our generation, but the decisions they have made in the wake of the scandal offers lessons in how NOT to go about repairing your reputation as a crisis develops.

Like it or not, as individuals and as organizations, at some point we will fall short. As executives, employees, and representatives of corporations, we will all need to repair relationships—with customers, colleagues, and friends. Drawing on VW’s experiences, here is what not to do:

Don’t deny the problem and keep cheating

When John German first published his findings in May 2014, he alerted the EPA and VW that VW’s cars’ emissions were much higher than expected. Instead of fixing the problem, VW denied it and continued their deception. As German points out, “VW had a chance to fix the problem, and they continued to try and cheat.”

Don’t send a subordinate to apologize when the violation is severe

Rather than sending the CEO of VW from Germany, the head of VW’s U.S. business, Michael Horn, apologized on Capital Hill, “On behalf of our company, and my colleagues in Germany…” The apology sounds hollow coming from someone with limited authority. If VW is really sorry and cares about the 11 million U.S. owners who they deceived, send the CEO of the company.

Don’t shift blame down the chain of command to an implausible target

On Capitol Hill, Horn explained that the sophisticated software that tricked emissions tests “was not a corporate decision.” Rather, it was the work of “a couple of software engineers.” Really? Somehow, the emissions of millions of vehicles are several times the legal limits because of sophisticated software that changes the way the engine operates and all of this was accomplished surreptitiously by a couple of software engineers?

Don’t make vague claims about fixing the problem

Horn explained that VW was “determined to make things right” but also cautioned it could take years to fix the problem. These vague pronouncements fail to instill trust. Instead, the CEO of VW should have offered detailed and specific plans for fixing the problem that involved oversight by third parties.

Don’t throw money at the problem without a coherent purpose

Instead of these personal offerings, VW should have linked the money they spend on addressing environmental damage, such as spending money on environmental offsets to promote clean energy.

When a crisis hits, it is easy to become self-focused and lose sight of the injured party. But it is precisely in these times of crisis that getting things right is so critical. There is a lot we can learn about apologies from VW, if only to avoid the same mistakes in the future.

Adam Galinsky is the Vikram S. Pandit Professor of Business at Columbia Business School. Maurice Schweitzer is the Cecilia Yen Koo Professor at the Wharton School at the University of Pennsylvania. Both are co-authors of Friend & Foe: When to Cooperate, When to Compete, and How to Succeed at Both.

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