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Why Uber’s bad behavior will eventually hurt its bottom line

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trafficThe negative news cycle is seemingly never-ending for Uber. The ridesharing service has seen a flurry of bad press in the past six months, most recently when it surged prices during a hostage situation in Sydney, Australia, when residents were trying to flee the Central Business District.

Before that, Uber had a series of anticompetitive snafus, giving contractors phones and credit cards to create fake Lyft accounts, hailing drivers and canceling the trip at the last minute to divert business. More notably, Uber has reportedly stalked some of its users using its “God View” tool, including a BuzzFeed reporter, in the wake of a senior executive’s suggestion that the company should dig up dirt on journalists critical of its practices.

The company has also been painted as misogynistic, releasing an advertising campaign in Paris to pair riders with “hot chicks.” Even worse, Uber drivers have been accused of sexually assaulting and even kidnapping their riders.

Despite these egregious incidents, the company has a stunning $41 billion valuation and is still the most popular ridesharing service, despite having several competitors that serve the same purpose, including Lyft, Sidecar and Via. How is this even remotely possible, when Uber has done next to nothing to rectify its image? No executives have resigned, a prevailing good faith step for companies when top brass blunder, and the PR team hasn’t been at the forefront of its missteps, except in this case. At what point will consumers as well as investors abandon Uber?

“There’s this culture in America that any publicity is good publicity, but in the long term, that’s not something that works for a company, and you see that with American Apparel and Abercrombie and Fitch,” said Len Herstein, CEO and president of ManageCamp.

American Apparel’s stock surged 19 percent a day after former CEO Dov Charney was fired for alleged misconduct with employees. Abercrombie and Fitch CEO Mike Jeffries’ controversial comments about overweight teens hurt his company’s sales and stock as well, and shares jumped 8 percent following the news that Jeffries was stepping down.

Grace Yeung, a senior brand consultant at BAV Consulting, agreed with Herstein, but said the economic damage to Uber is hard to assess.

“They’re definitely destroying their brand value, but it might not show for a while,” she said. “It’s hard to tell the impact on revenue when a company isn’t public.”

Brad VanAuken, partner and chief brand strategist at The Blake Project, said Uber’s profits and valuation have been relatively unscathed (at least so far) because it fills a need in the market.

“If it was an average company that wasn’t doing anything extraordinary and had all this bad PR, they would be in a lot more trouble,” he said.

And while Uber has market capitalization for now, competitors like Lyft, which has a positive public perception and serves the same purpose, could easily take the ridesharing throne if Uber doesn’t wizen.

There’s a time and place for everything

It’s expected for a startup that is building something disruptive like Uber to be a bit overly confident and even brash. Startup founders need to convey to investors that they’re a class above the rest when raising capital, and many overcompensate by acting arrogantly.

“As someone who ran a startup for four years, you need to have that ‘they just don’t get us, but we’re doing it anyway’ mentality because by nature, startups are more likely to fail than succeed,” Lamotte said.

However, Uber has already raised substantial capital — $1.2 billion during its most recent funding round in June — and doesn’t need desperate publicity stunts. At this point, the company is just turning people off.

“The core issue with Uber is they think like a startup, but now they’re a mature business that has grown at a massive pace,” Lamotte said. “They need to act like a mature business.”

So how can they turn things around? First of all, Yeung said Uber should develop a robust privacy policy to show the world it isn’t spying on users in wake of the “God View” scandal.

“They’re aware they have a brand issue and are trying to cover it up,” she said, referring to the company’s No Kid Hungry campaign a few weeks ago and strategy of offering free rides in Sydney. “But people are more concerned with what happens to the data they collect.”

True — 91 percent of Americans feel consumers have lost control over how personal information is collected and used by companies, according to a November Pew survey of 607 adults. Companies that are able to quell our privacy fears have an advantage over competitors.

It would have also helped Uber’s case if Emil Michael, the company’s senior vice president of business, had resigned after making comments about wanting to smear Uber’s critics. Case studies have shown that companies have experienced a sharp drop in consumer approval when an executive or celebrity endorser does something disreputable, according to Yeung, citing how negatively people felt about BP Oil when CEO Tony Hayward refused to step down after the 2010 spill.

But Uber remains steadfast in its defiance, enjoying its bad boy reputation. After Michael’s gaffe, New York City General Manager Josh Mohrer tweeted“Shake it off” and “#HatersGonnaHate.” This could come back to bite the company in the future.

“You can’t get away with this stuff forever,” Lamotte said. “Indiscretions will eventually put such a bad taste in consumers’ and investors’ mouths that it’s going to impact their bottom line.”

 

Megan Anderle

Megan Anderle

Megan Anderle is a journalist based in northern New Jersey who writes about technology, business, and sustainability. Her work has appeared in The Guardian, Forbes, and The Record.

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Tags: Big Data, Business, Business Management