Violation Type:Acquire and Milk
There is a certain type of private equity firm which likes to buy businesses and then run them into the ground to maximize profit while destroying customer goodwill.
In Phase 0, a business is built up and develops a trusted brand and loyal customer base with good products.
Phase 1 commences when the business is acquired by a private equity firm.
Phase 2 is considered to begin when the private equity firm makes changes to the operation of the business which is to the detriment of product quality or customer satisfaction or goodwill, generally with the objective of increasing profitability. However customers may not be aware that the brand has changed ownership, and may not fully appreciate the deterioration, allowing the private equity firm to successfully milk the business.
In Phase 3, the brand trust and loyal customer base has been destroyed. The private equity firm begins the cycle by acquiring a new business, starting again from Phase 1.