What Happens When We Don’t Trust a Brand Anymore? Ask Netflix.

Netflix stock has tumbled again to an 18-month low of $75 a share based on, among other things, trust. Think about it… the company’s value has erased about $12 billion in just 104 days. Yes the company has see-sawed on promises of splitting apart services, then relenting and bringing them back together… but what they have really undone is the consumer trust and loyalty they had worked so hard to achieve.

One of the fundamental values of a brand is to earn loyalty that results in the security of future earnings. In other words, consumers will come back time and time again to both purchase your products, and also allow them to expand their relationship with you. But the moment a company breaks that trust, it is very hard for consumers to stay on board.

Just imagine the scale of this tumble. Netfiix lost 800,000 subscribers in the third quarter of 2011, after years of steady growth. So all this “brand equity” was thrown away over a couple of weeks of announcing a price increase and then a spin-off of it’s DVD-by-mail business to a separate entity, initially called Qwikster. This was a tipping point for the company, and enough to push consumers to drop their subscriptions and look for alternate ways to get the content they enjoy. There is a delicate balance in building and sustaining loyalty.

What CEO Reed Hastings did was not in the best interests of his consumer base. And by not checking in with his loyal consumers first, he risked the farm. Time will tell if it is all over for Netflix.

In fairness, Mr. Hastings has confessed his mistakes publicly. But contrition isn’t always enough. Just like when a close friend violates our trust, it takes a lot of time to forget the violation and reconnect in the same old way. And, in fact, we often are continually skeptical about everything else they do. So is this dynamic similar to the relationship with a brand. Once it has violated our trust, it takes a long time to regenerate the confidence we once had.

It is not impossible to rebuild trust, but it has to be done in unique ways. Tylenol in the US had rumored poisoning. It reacted immediately in the consumer’s best interests by taking all of its products off the retail shelves until they got to the bottom of the problem. And their share came back stronger then ever. Perrier, France, had tainted water, and it nearly ruined that brand. They were once the leader in premium bottled water, and lost that positioning forever. But, by persistent marketing and distribution, they are still a player, albeit not as dominant. Toyota fought tooth and nail to defend allegations that it’s cars were unsafe. In the end, the media did promote that there was little proof in the consumer claims, but it cost them dearly in legal fees and marketing costs.

Time will tell if Netflix can re-establish it’s relationship with consumers, and stand by their side in solving tough business problems instead of making moves without consulting them. The brand will need patience and a persistent and thoughtful strategy to stay around.