By now, I think everyone has heard of the Robinhood-GameStop saga. And I’m not talking about bandits hanging out in the forest robbing the rich to give to the poor. This Robinhood is a stock trading platform founded in 2013 by Vlad Tenev and Baiju Bhatt. The trading platform quickly rose in popularity, climbing to a valuation of roughly $8.3 billion.
A company can suddenly find itself in a crisis. Robinhood responded to its situation by seemingly forgetting its founding mission. Its consumer base felt abandoned and betrayed.
The Robinhood-GameStop saga continues to unfold, as Robinhood execs find themselves needing to answer questions before Congress. This article will focus on what we can learn from Robinhood’s response to the crisis and how it impacts brand management.
A Little Background on Robinhood
Co-founders Vlad Tenev and Baiju Bhatt say the Occupy Wall Street Movement inspired them to create a company that would make investing accessible to everyone. They named their startup after the famous English outlaw—Robinhood, who stole from the rich to give to the poor. Their founding mission was to create equal footing for the retail investor in a space monopolized by hedge funds and wealthy investors.
Robinhood’s mission is to democratize finance for all.
We believe that everyone should have access to financial markets, so we’ve built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike. (Robinhood website)
According to Robinhood’s co-founders, after meeting in college and landing in New York, they quickly observed that Wall Street firms pay very little to trade in stocks. At the same time, most consumers are charged a hefty commission for every trade. They set out to disrupt this dynamic. The app is user-friendly, operating more like a system that young investors are familiar with—games. Initially, Robinhood permitted stock trading, but it evolved to offer options trading and margin loans.
Robinhood execs say they had 13 million accounts as of May 2020. Compare this to Schwab’s 12.7 million brokerage accounts, and it’s clear that Robinhood has captured a loyal following.
The Robinhood-Gamestop saga begins during the last weeks of 2020. A group of around six million investors on Reddit, going by the name Wall Street Bets, started to buy shares in GameStop. The buying frenzy was provoked by Information that Melvin Capital, a hedge fund company, had shorted down GameStop stock. The Reddit group decided to hit the shares out of the universe. What happened is a small revolution.
As sales skyrocketed, so did GameStop’s share price. The group wasn’t as motivated by making a killing on GameStop shares as they were by sticking it in the eye of Wall Street, short-sellers, and hedge funds. They went one step higher than Occupy Wall Street. They were inside. Wall Street Bets went after other shorted stock, including BlackBerry, AMC, Bed Bath & Beyond, and Nokia.
It Helps to Have a Crisis Management Process
Most of the Wall Street Bets group members used the popular Robinhood trading app, which markets itself as “not-your-father’s-brokerage-firm.” Everything was going great until Robinhood halted trading on these stocks. Robinhood users immediately screamed out “betrayal” and accused the fintech of becoming like the rest of Wall Street moguls.
On January 28th, Robinhood posted a blog announcing that users would not be able to buy stocks from several companies, including GameStop, AMC, and Nokia. It cited “market volatility” as the reason. Customers could only sell their shares but not buy or trade.
Robinhood followed up with another blog explaining that they were required to keep a significant amount of money on hand to process all the trades. They didn’t have enough to match the flurry of trading activity. The problem is that according to tweets on the subreddit group’s Twitter account, only individual investors were denied trading rights. In contrast, institutional investors and hedge funds were allowed to continue.
Robinhood users flocked to Apple’s App Store and GooglePlay, leaving negative app reviews. Google intervened to remove tens of thousands of one-star ratings. Vlad Tenev said they had no choice but to conform to regulatory requirements. However, he admits that the hastily sent blog did a poor job explaining why they halted trading, leaving the door open to criticism, accusation, and conspiracy.
The usual cast of political characters came out on TV and social media to denounce Robinhood’s response and praise Reddit traders’ efforts to disrupt the “elitist” hold on Wall Street. But, will Robinhood’s brand recover?
The Robinhood story didn’t have to go negative. A series of mistakes or misjudgments created a frenzy of hate toward the platform by its loyal consumer base.
After seven years of building brand loyalty, it took only seven minutes to destroy it.
4 Powerful Lessons the Robinhood-GameStop Story Teaches us About Branding
- Consumers Prefer Purpose-Led Brands
Research indicates that among the 24-44 age group, four out of five consumers exclusively or actively purchase more produce from purpose-led brands. Havas’ Meaningful Brands study shows that more than two-thirds of consumers buy products or services from brands that align with their values. On the stock market, purpose-led brands outperform other brands by 134 percent.
Let’s recall Robinhood’s founding vision:
“to provide everyone with access to the financial markets, not just the wealthy.”
Robinhood’s users identified with its brand purpose. The action taken by the Reddit group was, in many ways, a fulfillment of Robinhood’s purpose.
2. Brand Trust is Priceless
The more radical your brand purpose, the more activist your consumer base will be. And the more vociferous will be their response if they feel betrayed.
If you promise users that your brand is about equalizing access and disrupting billionaire investors’ hold on the stock market, and then you take action that shuts down the retail investor, it looks like you’ve changed your brand purpose.
More importantly, Robinhood blocked users from purchasing individual stocks, causing their prices to fall. Users could sell at whatever position they held, but they couldn’t buy. At the same time, “the big guys” were unaffected. Robinhood users were losing money. The trading app they trusted was not only turning its back on its purpose, but it was hurting them financially.
3. Perception Matters
In a previous post about brand authenticity, we cited several studies demonstrating the importance of trust in consumer decisions. You can break that trust by merely being unclear about why you take a particular action.
Reddit users propelled GameStop stock by 1,500% over two weeks of trading activity. Shortly after news surfaced that some big hedge funds were facing a loss of around $19 billion, Robinhood halted trading on GameStop. It wasn’t much of a stretch for Robinhood customers to accuse the company of turning its back on its founding mission and joining the Wall Street bankers.
Robinhood wasn’t changing its mission nor aligning with “the rich.” It faced a legitimate risk-management crisis—it lacked sufficient funds to cover the frenzy of trading activity. But that’s not what it said. And even though it gave a new version 24 hours later, it was too late. User betrayal and mistrust had already set in.
4. Consumer-Generated Content Is Uncontrollable
More than 100,000 negative reviews on app stores weren’t enough. Betrayed users took to Twitter and other social media apps to express their frustrations. The fury was so intense that tens of thousands began venting their anger on the World Wide Robin Hood Society’s Twitter account based in Nottinghamshire, UK (yes, it really exists!). The group was forced to tweet a welcome message to all their new “followers” and ask them to be sure they intend to tweet to them and not the RobinHood app.
One brand’s loss is another’s gain?? Only if readers take the time to understand the mix-up.
- Consumers prefer purpose-led brands.
- If you’re going to behave in a manner that seems to be in opposition to your brand purpose, you need to clearly explain the reasons ASAP.
- Perception outweighs reality. Your consumers can quickly turn against you.
- Rebuilding shattered trust takes time.
- Every company should have a crisis communication strategy that they use when needed.