MKT 452 - 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 - 1996 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 - 1996 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 - 1996 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?

What happened to Valu-Jet?

James Lewis

• Man convicted of attempted extortion (J & J)