MKT Special Session Crisis Management / Brand Building Prof. John Stockmyer

Typical Crisis Mangement “Expert” Reaction

Crisis Management !!! What companies are supposed to do (common wisdom) following a product crisis Where this “common wisdom” came from Some newer thinking on crisis management

Crisis Management Model* Get a crisis management team in place before a crisis. Quickly (within 24 hours) acknowledge the problem and show concern. Voluntarily recall all harmful products if there is a perceived threat. Provide direct information about harm to consumers. Increase promotional efforts after the crisis has passed. Adapted from Siomkos and Malliaris (1992): * Still widely accepted, but being seriously questioned by some researchers

Source of the C/M Model Anyone remember the Tylenol incident? Cyanide / 7 deaths / 1982 “Experts” of the time wrote off Tylenol… What did Johnson & Johnson do? Crisis Management Model Tylenol back to full market share within 1 year

What got me interested in C/M Summer of ‘93 - Principles of Mktg. –Pepsi “Crisis” Pepsi didn’t do a recall (or even admit fault) Many cases violate “Common Wisdom” –market share almost always came back (or more) no matter what the company did Stove-Top / Coca-Cola, etc.

“Alternative” C/M Research Following a company crisis incident:* Timing of company response (Media) NOT significant to purchase intent * Jorgensen Advances in Consumer Research

Following a No-Fault tampering incident:* N/S link between Product Recall and Perceived Risk of continued product use N/S link between Product Recall and Repurchase Intention Brand Loyalty drove the results... “Alternative” C/M Research * Stockmyer Advances in Consumer Research

Following a tampering incident, consumers who are loyal to the brand: * Rate the brand as more deserving of their business feel more sympathy for the brand report higher PI for the brand perceive less risk associated with continued use of the brand –Consumer comment on next slide * Stockmyer Advances in Consumer Research

Sample Consumer Comment (after acetaminophen metal shavings incident of 2006)

Implications of “Alt.” Research Complex Issue (Case-by-Case basis) Don’t do a recall unless really necessary –Extremely costly / Doesn’t reduce risk/PI Don’t give in to terrorists Brands with brand-loyal customers given benefit of doubt (again and again) –BUILD THE BRAND!!! Brands without brand loyal customer have extreme difficulty recovering from crisis…

“Alternative” Research Becoming More Mainstream Cleeren, Dikimpe and Helsen (2008) –Journal of the Academy of Marketing Science –“To counter the negative effects of a product-harm crisis, brands hope to capitalize on their equity, and often use advertising as a communication device to regain customers' lost trust.” Coombs and Holladay (2006) –Journal of Communication Management “The prior reputation can create a halo effect that protects an organization during a crisis. The prior reputation/halo might work as a shield that deflects the potential reputational damage... “

“Alternative” Research Becoming More Mainstream Chen, Ganesan and Liu (2009) –Journal of Marketing –“… proactive strategies have a more negative effect on firm value than passive strategies.” –“When a firm proactively manages a product recall, the stock market infers that the consequence of the product-harm crisis is sufficiently severe that the firm had no choice but to act swiftly to reduce potential financial losses.”

Final Thoughts: When a crisis happens, ask yourself two questions: 1) Can we take action that will help prevent/minimize harm to consumers? 2) Can we take action that will help prevent/minimize harm to the Company/Brand Image?

What happened to Valu-Jet?

James Lewis Man convicted of attempted extortion (J & J)