How do mass layoffs impact brand equity?

A PwC India report states that in the second quarter of 2022, startup funding dipped by 40%, as compared to the same period in 2021. This led to thousands of startup employees losing their jobs this year. In some cases, the layoffs resulted in companies, like Lido Learning, shutting down.

The layoffs and the way some of them were handled, have resulted in a lot of questions about the operations and profitability of startups. The negative press generated by these layoffs can trigger a shift in the overall appeal of both B2B as well as B2C startups.

Ruchir Lahoty, managing partner, MegaDelta Capital, says that these layoffs can impact a consumer’s decision, in terms of associating with a brand.

"Layoffs are often caused by the internal financial instability of a company. This may be a reason for the customers to be cautious with their dealings with a particular brand. It may serve as a deterrent for long-term engagements with such a company."

Lahoty opines that a consumer would ideally like to work with a brand that will be around for some time. With layoffs and financial instability, the trust factor may come into play, especially if it’s a B2B brand.

B2C brands’ target is to build long-standing loyalty with their consumers. "For newer, developing brands, negative press doesn’t induce consumer loyalty for a brand," Lahoty adds.

According to Lloyd Mathias, a business strategist and investor, "Issues like mass layoffs do impact the employer brand, as it makes future hires quite wary of the company. This may happen more so in the case of companies that fire in a cavalier manner or have just come out of a hiring cycle.”

“Also, existing employees tend to feel a bit insecure. While these stories are picked up by business-oriented audiences, the impact on the larger consumer base is limited." In terms of business, Mathias ascertains that the impact is larger as far as B2B brands go. Their customers are a business audience, who will be in the know of any sharp cutbacks, especially those that make it to the media.

"B2C brands get impacted with a drop in customer-facing metrics: lower advertising; sales and customer service cutbacks." The industry with the highest percentage of layoffs is Edtech. The latest company to lay off people in the space, is coincidentally the leader in the space, i.e., BYJU’S - The Learning App. The company let go of 2,500 people. As per media reports, it plans on relieving a total of 12,000 employees. The decision is enforced by the company's bid to become profitable before it goes public.

The company doesn't exactly command the best public image right now. "BYJU’s has been in the news over the past few months for all the wrong reasons. The delay in reporting FY21 results, the huge loss (Rs 4,589 crore in FY21), and the recently announced layoffs," Mathias points out.

“Now compare this with its massive sports properties. Its logo on the Indian cricket team jerseys, is worth Rs 5 crore per bilateral match and Rs 1.65 crore per match in an ICC event. Then, its commitment as global partners for the 2023 ICC ODI World Cup in India and partnership with 2022 FIFA World Cup in Qatar."

While the layoff decision was followed by some messaging from the company itself, it was also followed by disgruntled ex-employees, who pointed out issues with the entire process.

Aniruddha Bhagwat, CEO & co-founder, Ideosphere, shares an interesting post that he came across on social media. A former BYJU’S employee shared a negative experience with the company’s HR department. Some employees have made waves on social media by saying that the company didn't send them a termination letter, but simply asked for their resignation. These kinds of communication could have been avoided.

"A company needs to establish a strong protocol for its communication, both internal and external. Preparedness starts much before a crisis strikes and at that time, the company needs to have a solid communication foundation. A better framework of executing such layoffs needs to be in place," Bhagwat adds.

He also believes that a consumer’s perception may not be hit that drastically until the layoffs don't have a direct correlation with the product or services that the company offers.

Bhagwat acknowledges the overall impact on the brand's reputation in the market with these unfortunate events. He makes an observation that in almost all the cases of mass layoffs, startup founders themselves have not come forth and gave rationale behind their decision.

"If the layoffs are imperative for the success of a company, the people at the helm, need to come forth and address their decisions with a dialogue with the media. The brand's face needs to come forward and explain the rationale behind its decision, upfront. That will give the public a better sense of clarity and also minimise the dent on the brand's public perception," he adds.