Final Report Summary - PRODUCT-HARM CRISES (When bad things happen to good brands. On how to deal with product-harm crisis)
Product-harm crises are omnipresent in today's marketplace. Recent examples include contaminated Coca Cola in several European countries and salmonella poisoning in Brinta's breakfast porridge. These crises can be particularly harmful for society and devastating for an affected company. According to the Consumer Product Safety Commission, injuries, deaths and property damages related to consumer products cost the American public over USD 700 billion per year. Furthermore, about 25 100 deaths and 33.3 million injuries can be linked to defective consumer products in the United States of America (USA) in recent years. Obviously, the financial costs for the affected company tend to be huge as well. A product-harm crisis may cause to major revenue and market-share losses, lead to costly product recalls, and destroy a carefully nurtured brand equity. Moreover, product harm may spill over to non-affected brands when they are perceived guilty by association. Therefore, a product-harm crisis may not only be devastating to the affected brand, it may potentially affect the entire category.
Because of the increasing complexity of products, more stringent product-safety legislation, and more demanding customers, product-harm crises tend to occur ever more frequently. A recent PWC study found that the weekly number of product recalls notified to the European Commission has risen from an average of six in 2004 to 14 in 2005. Not surprisingly, the European Union (EU) has realised the importance of product-harm crises to public safety and has fairly recently installed information sharing systems to facilitate the rapid diffusion of product safety information amongst its memebr countries. Although information on hazardous products fairly quickly reaches the consumers, still little is known about the influence of these negative events on consumer purchases.
In contrast to previous empirical literature on this topic that mainly focused on one particular crisis event, our research consists of the systematic analysis of a unique database, containing purchase data of large household panels surrounding 60 product-harm crisis that happened in the United Kingdom and the Netherlands between 2000 and 2007. Insights into how brands and categories can overcome a product-harm crisis requires generalisable knowledge on consumer reactions to such crises. As our data cover a year before and a year after the crisis, we can study how household purchase behavior for the affected brand and category is influenced by the product-harm crisis. We investigate whether the brands' and categories' post-crisis performance is affected by consumer characteristics, crisis characteristics and managerial decision making.
We find that negative publicity has a detrimental impact on the affected brands' shares, and reduces the effectiveness of brand advertising. In contrast, category advertising effectiveness is higher when the crisis is surrounded by negative publicity. Moreover, while acknowledging the blame has no impact on the brand's share, it is beneficial for the affected category. Both brand loyals and heavy users react more adversely to the crisis than other consumers as reflected in a decreased brand share and category purchases, respectively. However, their price sensitivity is also higher, offering the opportunity to re-attract brand loyals and heavy users via price discounts. Apart from cerating generalisable knowledge on the impact of product-harm crises in a European context, its results also lead to reliable recommendations for companies on how to effectively deal with a crisis event.
Because of the increasing complexity of products, more stringent product-safety legislation, and more demanding customers, product-harm crises tend to occur ever more frequently. A recent PWC study found that the weekly number of product recalls notified to the European Commission has risen from an average of six in 2004 to 14 in 2005. Not surprisingly, the European Union (EU) has realised the importance of product-harm crises to public safety and has fairly recently installed information sharing systems to facilitate the rapid diffusion of product safety information amongst its memebr countries. Although information on hazardous products fairly quickly reaches the consumers, still little is known about the influence of these negative events on consumer purchases.
In contrast to previous empirical literature on this topic that mainly focused on one particular crisis event, our research consists of the systematic analysis of a unique database, containing purchase data of large household panels surrounding 60 product-harm crisis that happened in the United Kingdom and the Netherlands between 2000 and 2007. Insights into how brands and categories can overcome a product-harm crisis requires generalisable knowledge on consumer reactions to such crises. As our data cover a year before and a year after the crisis, we can study how household purchase behavior for the affected brand and category is influenced by the product-harm crisis. We investigate whether the brands' and categories' post-crisis performance is affected by consumer characteristics, crisis characteristics and managerial decision making.
We find that negative publicity has a detrimental impact on the affected brands' shares, and reduces the effectiveness of brand advertising. In contrast, category advertising effectiveness is higher when the crisis is surrounded by negative publicity. Moreover, while acknowledging the blame has no impact on the brand's share, it is beneficial for the affected category. Both brand loyals and heavy users react more adversely to the crisis than other consumers as reflected in a decreased brand share and category purchases, respectively. However, their price sensitivity is also higher, offering the opportunity to re-attract brand loyals and heavy users via price discounts. Apart from cerating generalisable knowledge on the impact of product-harm crises in a European context, its results also lead to reliable recommendations for companies on how to effectively deal with a crisis event.