01/06/2014 01:23 EST | Updated 03/08/2014 05:59 EST

What CEOs Can Learn From Lululemon's Fiasco

Corporate leaders say stupid things all of the time. Steve Ballmer, Microsoft CEO, was famously quoted as saying "Google's not a real company. It's a house of cards," which is as colossal an underestimation of a threat to your business as one can imagine.

Tony Hayward, CEO of big oil's BP, said "I would like to have my life back," a petulant utterance while millions of people's lives and livelihoods were being destroyed by one of the biggest environmental catastrophes of all time. Mark Zuckerberg, Facebook founder, once said of his customers, "They trust me -- dumb f***s."

Chip Wilson, Lululemon founder, joined the crowd when he blamed customers for quality faults in products, but why did his comments have such a dramatic negative impact on the company's sales and chop off about 8 per cent of its share price? The answer has to do with the degree in which you have clarity about who you are as a company and how far you stray from it in everything you do and say.

Lululemon, intuitively, had as solid an understanding of who it was as a company as any major brand. Its character was rooted in empathy: the strong loyalty to its brand was built, to a large degree, on its belief that it was OK for women of all shapes, sizes and ages to be passionate about yoga.

And while it expanded its lines beyond yoga, it was always committed to providing stylish and durable clothing for women in all of their forms. The strength of the Lululemon commitment and culture united customers with a love of yoga by giving them a sense of belonging, like they were a part of an important club.

Lululemon had a relatively small problem on its hands when a new line of pants turned out to be too sheer and too fragile. All they had to do to contain the problem was apologize sincerely for their mistake, recall the product and recommit to respecting all women by developing a better pair of pants in the future.

What transformed this into a financial and reputational disaster was how the company handled the situation. Chip Wilson, Lululemon's founder, told a Bloomberg interviewer that the problem was with some women's bodies, not with the quality of the product. Blaming the victims caused his comments to go viral and created a firestorm of criticism of the brand.

Normally, when you have a solid understanding of who you are and have a loyal following of customers as a result, they will be tolerant of a few mistakes. This is true even in our personal relationships: we will usually give family and friends far more forgiveness for mistakes than strangers because we know them so much better.

At Apple, some product launches after the death of Steve Jobs were seen to be evidence that the company's legendary commitment to innovation -- to changing the game -- was slipping. But these opinions haven't become widespread and didn't have much of an impact on Apple because loyal customers are still giving the benefit of the doubt to a brand they are passionate about...for now. Like Apple, Wilson should have earned a get out of jail pass rather than being force to resign his post as non-executive chairman.

Wilson didn't get that pass because he struck right at the heart of what defines the relationship between the Lululemon and its customers: his comments were the very antithesis of empathy. When the company exhibited empathy in everything it did, its customers said "You get me!" When Lululemon thumbed its nose at empathy by blaming women's thighs for its own mistakes, customers started saying in droves "You don't actually get me at all." It is like discovering your spouse has an alternate personality that you don't recognize. All trust -- and the relationship as a whole -- is compromised in an instant as a result of a transgression so severe.

Where did Lululemon go wrong? In our view, two places:

  • While the company had a solid intuitive understanding of who it was, it didn't articulate it effectively enough throughout the organization so that everybody understood it and stayed true to its tenets
  • It didn't stay fiercely committed to staying true to who it is at its core in everything it did and said

These two points are inter-related in that you can only stay fiercely committed to something if you know what that something is in the first place. Here are the three simple steps to both attain success at the Lululemon level and to avoid the kind of fiasco it brought upon itself:

  1. Have a compelling understanding of who you are as an organization at your core
  2. Make its articulation clear and concise so that everyone in the organization understands it and buys in
  3. Be fiercely committed to staying true to who your are in everything you do and say

If you have clarity about who you are, you will have more confidence in your actions and you will create greater certainty with your customers about why they should buy from you.

Photo galleryLululemon Gaffes See Gallery