- Robinhood halted trading in certain volatile stocks on Thursday, then reversed the decision.
- The company didn’t appropriately communicate to users the reason for its decision.
- Now Robinhood may be in the middle of a branding crisis it can’t recover from.
- Visit Business Insider’s homepage for more stories.
Robinhood spent years crafting a brand that promised to upend investing by making it easier for regular people to trade stocks.
But after a sudden and controversial move to halt trading in certain shares on Thursday, branding and crisis PR experts now say the no-fee app may have managed to destroy all those years of brand equity — and potential customer loyalty — basically overnight. In order to get back on its users’ good side, sources say, Robinhood must commit to transparency and open communication.
“Strong financial services products and brands are built on trust and objectivity,” said Matt Rizzetta, chairman of North Sixth Group, the parent company of PR firm N6A. “The instant these values are breached it can turn into a crisis that is impossible to recover from.”
Robinhood responded to a request for comment with a link to its blog post from Thursday.
Robinhood is living through a branding nightmare
To recap: Robinhood quickly came under fire on Thursday when it decided to limit buying of shares of GameStop and other volatile companies including the theater chain AMC Entertainment Holdings. The stocks in question were at the heart of a frenzied rush by retail investors who piled onto the market to try and make money at the expense of short sellers who had bet against them — the now-famous squeeze.
While the decision has since been reversed, and Robinhood has said that it’s allowing limited buys of these shares, the blowback came just as quickly. Customers flooded the Google Play Store with angry, one-star reviews; Rep. Alexandria Ocasio-Cortez called Robinhood’s move “unacceptable”; and the company now faces a class-action lawsuit from angry users. Further, the SEC said it will review actions by entities that inhibit trading ability, while both the house and senate scheduled hearings on the matter.
Robinhood may not have had a choice in the matter, due to the nature of “clearing houses,” or the entities that help platforms like Robinhood get enough cash to execute trades. Regulations limit how much cash clearing houses can distribute within certain windows of time. So the huge surge in GameStop trading left clearing houses limited in what they could do, as reported by Bloomberg. To address this, Robinhood raised another $1 billion between Thursday and Friday.
And yet: What is there to do regarding brand damage done?
Robinhood once had a reputation for protecting the ‘little guys’
Rizzetta has seen this story before, he says.
“Robinhood is a textbook example of years of goodwill and brand equity disappearing instantly,” he told Insider. This is largely due to Robinhood “violating the cardinal sin of using poor discretion against the interests of [its] customers.”
That violation cuts straight to Robinhood’s identity as a friend of the “little guys,” says Erich Joachimsthaler, founder and CEO at brand strategy firm Vivaldi Group. (The legendary Robin Hood, of English folklore, stole money from the rich and gave it to the poor.) In this case, those “little guys” were investors on Reddit who banded together to drive up the stocks of GameStop and others — both to turn a quick profit and apparently to send a message to Wall Street.
In the end, however, Robinhood’s decision to limit trades because of “financial requirements, including SEC net capital obligations and clearinghouse deposits,” according to a Twitter thread by cofounder Vlad Tenev, signaled to consumers that it wasn’t capable of handling their money — its avowed reason for being.
That disappointment could hurt not only its reputation but also its long-term business, Joachimsthaler said.
“If you lose trust, love, and respect, then you lose the business,” he said. “Many of its competitors also offer zero-fee trading now, and they are a safer choice.”
Robinhood may have also lost consumer confidence because of how it explained its decision to halt trading of certain stocks, in Tenev’s Twitter thread and in two blog posts.
The best way for the company to rehabilitate its brand — and to mitigate the risk of users jumping ship — is “to educate their clients or their future clients about why they took the actions that they did,” said Tim Derdenger, an associate professor of marketing and strategy at Carnegie Mellon University’s Tepper School of Business. Honesty, with a dose of clarity, is the best policy.
Robinhood also needs to communicate to users, Derdenger added, that “we’re still on your side.”
That’s because Robinhood in some ways failed to live up to its name and reputation of being the friend of the little- guy retail investors.
The crisis is exacerbated by the current climate, where anxieties are high, consumer trust is low, and cynicism reigns supreme, said North Sixth Group’s Rizzetta.
How Robinhood can rehabilitate its image
It remains to be seen whether the company will be able to overcome the crisis, experts said.
Andy Gilman, president and CEO of CommCore Consulting, stressed the need for being proactive, saying that the company needed to hire a team of seasoned crisis communications experts and develop an orchestrated communications strategy to combat the negative press. About a month ago, Robinhood posted a job opening for a corporate communications manager.
The company must also continue to act fast, as it did by tackling its liquidity problem and raising money overnight to be able to at least offer limited trading, said Joachimsthaler.
“If social conversations reinforce the narrative that they are not really the friend of the little guys, but are in cahoots with the big hedge funds,” he said,” the harm will be difficult to overcome.”
Nick Lichtenberg contributed editing.
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