Brand disasters aren't the same as business disasters.
Business disasters are transitory problems from which companies can easily recover. For example, a series of bad quarterly results is a business disaster, but the disaster becomes moot after you clock a couple good quarters.
Brand disasters are events that cause customers to no longer trust you. For example, if your products become responsible for highly-publicized deaths, your existing customers will jump ship, and potential customers will be all "I don't think so..."
Last month, I identified Boeing's 737 MAX crashing-on-takeoff scandal as a brand mega-disaster because it's created a general impression that something is fundamentally wrong at Boeing and that therefore their products can't be trusted. That's an albatross they might never shed.
Similarly, the Wells Fargo fake account scandal fundamentally changed how the public perceives the brand. Where the brand originally said "solid, American, and trustworthy," it now says "Gee, do I really want to trust my money with these shady characters?"
Brand disasters don't come out of nowhere.
Unlike business disasters (which can result from mere bad luck) brand disasters emerge from corporate culture. At Boeing, for instance, the culture changed from "safety first" to "cost-savings first." At Wells Fargo, it changed from "serve the customer" to "sell, Sell, SELL!"
While brand disasters can happen in any industry, they're more serious and long-lasting inside industries where there's a big downside risk to working with an untrustworthy partner, like aircraft manufacturing, banking, accounting, and pharmaceuticals.
And that's why the Amazon brand may be headed for a disaster.
The Amazon brand established itself by selling a product--books in print--where the manufacturers (the book publishers) do their own quality control. Customers knew that when they bought from Amazon, they'd get what they paid for.
In addition, buying a book has virtually no downside risk to the customer, other than perhaps discovering, post-purchase, that it was written by Danielle Steel.
All kidding aside, Amazon developed an enviable brand reputation as a trustworthy source for a quality product, a reputation that it built upon as Amazon branched out into additional product categories.
However, Amazon has recently been sacrificing its brand reputation by allowing third-party sellers to offer poor-quality products. According to a recent article in the Wall Street Journal:
"[Our] investigation found 4,152 items for sale on Amazon.com's site that have been declared unsafe by federal agencies, are deceptively labeled or are banned by federal regulators -- items that big-box retailers' policies would bar from their shelves [including] at least 2,000 listings for toys and medications lacked warnings about health risks to children."
Amazon justifies the inclusion on its site of products that could kill children in the same way that social media sites justify child pornography--that they're just a platform and therefore not responsible, as long as they take down anything that violates their terms of service.
The problem here is that Amazon.com has always positioned itself as a store rather than, say, a flea market. As such, customers feel that Amazon should guarantees the goods it sells in exactly the same way that brick and mortar stores guarantees the goods they sell.
Put another way, if a product being sold on Amazon.com starts killing children, people are likely to blame Amazon for selling it, rather than merely blaming the original supplier.
So that's the first level of brand risk--a widely-publicized event that repositions Amazon as untrustworthy, coming on top of the drip-drip-drip erosion of trust that's already taking place.
To make matters worse, Amazon has gained a reputation as an employer that doesn't value its blue collar workers. It's been plagued by stories of mistreatment of warehouse workers and has been recently accused of not giving proper safety training to its delivery drivers.
These problems apparent stem from Amazon's focus on growth at any cost, even if that cost is the erosion of the good will and trust that the brand has acquired over the years. But that's just the start.
Amazon is also a major player in cloud computing (which accounts for 50 percent of the company's profits) and an increasingly important player in the grocery industry--both of which are especially dependent upon maintaining the trust of their customer base.
Any widely-publicized scandal in those areas, piled atop Amazon's already increasingly sketchy brand image, is risk permanent damage to the Amazon's brand.