Product-harm Crisis Research Articles

Should Ad Spending Increase or Decrease before a Recall Announcement? The Marketing–Finance Interface in Product-Harm Crisis Management

Product recalls tend to damage the stock price of the recalling firm. This article proposes and empirically demonstrates that adjustments to prerecall advertising spending can be used as a tool to moderate this financial damage. Using data on automobile recalls and detailed advertising expenditures from 2005 to 2012, the authors show that adjustments to a firm's prerecall advertising expenditure can either mitigate or amplify the negative effect of the recall on stock market value, depending on the direction of advertising adjustment and the recall characteristics. Boosting ad spending before a recall announcement softens the stock price loss when the recall involves a newly introduced product with a minor hazard but sharpens the loss when the recalled product is an established model with a major hazard. Cutting prerecall advertising worsens the stock price loss when the recall involves a new product, regardless of the hazard. This research also reveals that in product-harm crisis management, profit maximization and shareholder value maximization can conflict with each other, underscoring the importance of developing an integrated crisis management strategy.

Consumer, Investor, and Combined Reactions Following Product-Harm Crises

<p>Using a series of Toyota automotive recalls as the context, this study examines reactions by consumers, investors, and reports on a combined measure to capture the overall effect of the recalls on the firm. Following the recalls, consumer sales returned to pre-recall levels quickly, however, investors immediately punished the firm with negative abnormal returns of between -14.16 and -16.04% over the longest event windows examined. A combined measure designed to capture consumer and investor reaction shows that the overall brand value of Toyota declined by 16% in the year following the announcement of the product-harm crises. Investor and consumer reaction was different following the recalls. Managerial implications are discussed.</p>

An Empirical Study of the Volkswagen Crisis in China: Customers' Information Processing and Behavioral Intentions.

Product-harm crises usually lead to product recalls, which may cause consumers concern about the product quality and safety. This study systematically examines customers' immediate responses to the Volkswagen product recall crisis in China. Particular attention was given to customers' responses to the risk information influencing their behavioral intentions. By combining the protective action decision model and the heuristic-systematic model, we constructed a hypothetical model to explore this issue. A questionnaire survey was conducted to collect data involving 467 participants drawn from the customers of Volkswagen. We used structural equation modeling to explore the model. The results show that customers' product knowledge plays an important role in their responses to the crisis. Having more knowledge would make them perceive a lower risk, but they might need even more information, making them more likely to seek and process information, and subsequently increasing their positive behavioral intentions toward the firm (that is pro-firm behavioral intentions). Risk perception increased customers' information needs, information seeking, and information processing but decreased their pro-firm behavioral intentions. In addition to promoting information seeking, information needed to also facilitate customers' systematic processing and thus increase their behavioral intentions to take corrective action. Customers' behavioral intentions were also spurred by systematic processing, but failed to be predicted by information seeking. In summary, theoretical and practical implications and suggestions for further research are also discussed.

Oops! I did it again: Effect of corporate governance and top management team characteristics on the likelihood of product-harm crises

Product-harm crises are ubiquitous in today's marketplace. Prior research has explored the negative consequences associated with these crises and highlighted effective crisis management strategies. Limited attention, however, has been devoted to exploring the antecedents of such crises. The authors use agency theory to explore corporate governance and top management team (TMT) characteristics that impact firms' likelihood of experiencing a product-harm crisis. They argue that family firms, firms with higher levels of managerial ownership, and firms in which the marketing function has a higher influence in the TMT are likely to exhibit a higher strategic emphasis on product quality. Strategic product-quality emphasis, in turn, mediates these firms' lower likelihood of encountering a product-harm crisis. An analysis of 116 S&P 500 firms across 2006–2011 provides considerable support for the authors' arguments. These results have important implications for practitioners and for scholars working in the areas of innovation, family business, and corporate governance.

Riding out a product-harm crisis

Purpose – This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach – This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings – Although product-harm crises can pose serious consequences for firms in both financial and intangible ways, continuous investment in brand equity can mitigate the negative consequences. Practical implications – The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value – The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

Ethnography Goes Digital: Researching Professionals Using a Qualitative Mobile App

The purpose of this research is to help better understand the effects of a product-harm crisis on crisis and non-crisis brands' customer perceived value and market competitive structure in the auto industry. The research first develops a four-dimensional customer perceived value (CPV) measure, and then uses the measure to collect data before, during and after the 2009-2010 Toyota product-harm crisis. These data are analysed and compared to investigate the impacts of the product crisis. The results show that the crisis can have a negative impact on the crisis brand's CPV, and the impact from experienced customers is different to that from inexperienced customers. Some non-crisis brands with the same country of origin (COO) and similar product attributes to the crisis brand will also be negatively affected by the crisis. Moreover, brands with significantly higher CPV will benefit from the crisis. However, these impacts from the product crisis are short-lived and most of the brand's CPV recovers in the post-crisis period to the pre-crisis level. The crisis also changes the competition rules of the product category by changing the weights of CPV dimensions across the pre-, during- and post-crisis periods. Therefore, all companies need to handle the product crisis carefully, so that they can adjust their strategy accordingly in the dynamic market. These findings have implications for understanding the influences of a product- harm crisis. The managerial implications are also discussed.

Spillover of Distrust from Domestic to Imported Brands in a Crisis-Sensitized Market

Spillover of distrust from domestic brands to foreign brands during an industry-wide scandal is an important but overlooked issue in the international marketing domain. Drawing on assimilation/contrast and attribution theories, the authors develop a general model of trust erosion in a multibrand product-harm crisis involving three brand categories: focal (domestic) brands, contrasting (imported) brands, and hybrid (manufactured domestically but with foreign brand names) brands. Assimilative associations in an epidemic-like crisis erode trust throughout the entire product category, whereas contrastive associations protect or even benefit a competing brand category from the brand damage. A survey of 2,156 consumers in nine metropolitan centers in China measured trust in brands of dairy products after the 2008 milk contamination crisis. This study reveals the roles of category distinctness, focal versus contrasting categories, category hybridity, brand prototypicality, perceived crisis severity, and perceived category typicality in moderating the assimilation/contrast effects in such a crisis. These findings have important managerial implications: international marketers should be wary of the risks in having their brand associated with products manufactured domestically in a market such as China.

Utilization of the country of origin effect in product-harm crisis management: an overview of literature and a conceptual model proposition

Despite the fact that companies try to put high emphasis on the quality of their products and processes, still, there are unexpected threats to the safety of consumers by failed quality which leads unexpected shock to the normal operation of the company. Product risk can even lead to corporate crisis, mainly because of strategic threats. For the duration of the crisis, companies struggle to minimize the harm brought to their reputation and brand equity. This paper presents a new notion of measuring organizational success when dealing with product-harm crises. It introduces the concept of country of origin as a potential tool in managing the crisis as it gives a comprehensive overview of effects on perceptions and attitudes of consumers towards products from abroad. This can suggest that using positive associations of the country when building a strong brand creates consumers’ positive attitude and perception towards country of origin aspect of the brand. We think that even at the crisis time, perception, attitude, and behavior that lead to willingness of purchase are influenced by aspects related to country of origin. Thus, country of origin has been identified as an important factor that influences successful recovery from a product-harm crisis.

Attributions of blame following a product-harm crisis depend on consumers’ attachment styles

This research examines consumers’ attachment styles as a predictor of attributions of blame following a product-harm crisis. Though the interpersonal attachment literature suggests that consumers with the secure attachment style should attribute the least amount of blame to the brand, we introduce a novel and seemingly contradictory hypothesis. Because of the unique nature of brand relationships, we hypothesize that consumers with the fearful attachment style will attribute the least amount of blame to the brand. In an experiment, we find support for both hypotheses. Further, we find that these effects occur via different mechanisms. Whereas the secure attachment style decreases attributions of controllability, the fearful attachment style decreases attributions of stability. Though many relationship tendencies have been transferred from the interpersonal domain to the consumer domain, our findings remind researchers that brands are a distinct type of relationship partner.

The effects of firm actions on customers’ responses to product recall crises: analyzing an automobile recall in China

In times of product-harm crises, the involved firms always employ some countermeasures, such as releasing messages relevant to their response actions. To evaluate the influence of these messages on the perceptions and behavioral responses of corporate customers relative to the recalls, we conducted a case study of the Volkswagen automobile recall in China in 2013. Guided by the protective action decision model, we developed a conceptual model to first study customers’ responses to the recall crisis. Based on this model, we further examined the influence of two types of firm actions, namely technical and ceremonial, on the customer crisis-coping process. Results show that product experience, risk perception, and information seeking significantly influence customers’ behavioral intentions during the product recall crisis. Customers in the technical action group exhibit a higher level of risk perception based on their product experience and have a higher likelihood of seeking information. However, information seeking fails to influence their behavioral intentions. Ceremonial actions overcome the disadvantages of technical actions, but customers’ lack of solution information should be met. In this sense, crisis-involved firms are encouraged to employ a combination strategy including the implementation of the two types of firm actions and then promptly release the messages containing both actions.

Using advertising and price to mitigate losses in a product-harm crisis

Product-harm crises are common in today's marketplace and are expected to occur with escalating frequency as products become increasingly complex, product-safety legislation evolves, and always-demanding customers continue to press for more. A product-harm crisis may cause major revenue losses, lead to costly recalls, and destroy carefully nurtured brand equity. Moreover, the crisis may not only be devastating for the affected brand, but also influence the entire category when other brands are perceived as guilty by association. Despite these enormous stakes, marketing managers are often unprepared to react appropriately to product-harm crises. Managers frequently increase advertising support or decrease price in the wake of a product-harm crisis in an attempt to regain lost consumers. Competitors in the same category may also boost advertising expenditures or lower their prices to benefit from the misfortune of the affected brand(s). This article provides insights regarding the effectiveness of these strategies in the wake of a product-harm crisis. The extant literature has shown that the effectiveness of these strategies depends largely on the role of the brand in the crisis—affected or not—and the characteristics of the crisis.

When a brand caught fire: the role of brand equity in product-harm crisis

Purpose – The purpose of this study is to investigate differences in consumer reactions to high- versus low-equity brands in terms of consumer attitude toward the brand, involvement with the brand, company credibility and consumer purchase intentions. Design/methodology/approach – Experimental procedure is conducted to test three hypotheses using 317 consumer participants. The experiment is carried out comparing a high-equity personal computer (PC) brand and a low-equity PC brand involved in product-harm crisis. Findings – The results indicate that, in the case of product-harm crisis, negative consumer perceptions regardless of brand equity level; less negative perceptions for a high-equity brand than for a low-equity brand; and smaller loss in consumer perceptions for a high-equity brand than for a low-equity brand. Research limitations/implications – The findings highlight the importance of brand equity in crisis management explained by covariation theory of attributions. Practical implications – Although product-harm crisis is inevitable for many firms, continuous investment in brand equity can mitigate the negative consequences. Originality/value – Product-harm crisis can pose serious consequences for firms on both financial and intangible dimensions. Given the occurrence of numerous product-harm crises involving both reputable and less known brands, it is important to consider potential influences of brand equity on consumer reactions to such crisis.

Product harm crises: The contingent role of information specificity on word-of-mouth effectiveness

Product harm crises: The contingent role of information specificity on word-of-mouth effectiveness

Corporate statement serving as information subsidies in the product-harm crisis

This study explores the attributes of a crisis statement which influence its utility as an information subsidy in the process of product-harm crises in China. Through investigating and analyzing 92 statements released in times of product-harm crises, the results show that the form in which the statement is released, and the length of the statement have significant effects on whether the statement will be quoted fully or partially by the news media.

UNDERSTANDING CONSUMER INFERENCES IN THE PRODUCT HARM SITUATION

ABSTRACT A scandal involving adulterated milk in China in 2008 caused significant morbidity and mortality. Thousands of infants were reported to have become ill, and six died. The scandal involved one of the major Chinese manufacturers of milk-based products, which allegedly adulterated its products by adding melamine. This paper is about the Chinese customer’s perception of the milk companies during the milk scandal in 2008. The present study concentrated equally on both a discussion of the negative consequences, the external influences, and consumers’ predictable outrage in the product harm crisis. Keywords Product Harm Crisis, Chinese Consumer Mind, Qualitative study

Corporate Social ‘Irresponsibility’: Are Consumers’ Biases in Attribution of Blame Helping Companies in Product–Harm Crises Involving Hybrid Products?

In recent years, there have been several high-profile recalls of hybrid products (those where organizations in multiple countries take part in the design, component sourcing, manufacturing, and marketing of a product). If consumers perceive a global firm to be responsible for the recall, then it will reduce their brand equity. Therefore, global firms may respond in ethically questionable ways to justify themselves to important stakeholders and avoid blame. Understanding how stakeholders attribute blame for crises involving hybrid products is important to shed light on the unethical manner in which global firms might avoid blame in such situations. The research reported here shows that in a hybrid product crisis, consumers show a bias in favor of the brand company and against the manufacturing company. This bias is more pronounced when the country of manufacture has an unfavorable image or when consumers lack familiarity with the recalled brand. Ambiguous recall announcements by companies that fail to provide a specific and clear reason for the product defect prompt consumers to assume that a manufacturing flaw caused the product defect. As a result, consumers reduce their attribution of blame for the brand company, and thus its brand equity is maintained.

Service Failure Severity, Customer Satisfaction, and Market Share

The generally accepted view among managers and researchers is that the greater the severity of a service failure, the greater the resulting impact on customer satisfaction and business outcomes, such as lost customers and revenue. The research used to defend this viewpoint, however, does not typically address the severity of service failures, like those that result in injury or death (i.e., product-harm crises). This research addresses this issue by examining both minor incidents (i.e., failures that do not result in physical harm) and major incidents (i.e., failures that result in injury or death) in the U.S. airline industry, and the corresponding impact on the customer satisfaction and market share of the firms affected. Our results indicate that minor incidents are more strongly (negatively) related to future market share than are major incidents. Moreover, our findings indicate that only minor incidents are significantly linked to customer satisfaction. We argue that these findings occur for two reasons: First, most customers believe major incidents to be low probability events that are less salient when compared to more probable failures. Second, consumers impacted by major incidents most likely defect and are therefore not captured in future customer satisfaction surveys. Consequently, managers can delude themselves that things have “returned to normal” after a major incident when relying on customer satisfaction scores alone.

Product recalls and product-harm crises

Purpose– The aim of this study is to investigate and analyze product recalls and product-harm crises in the US toy industry, which is a major area in marketing and firms' competitiveness.Design/methodology/approach– By using longitudinal data from the US Consumer Product Safety Commission (CPSC), the paper uses content analysis to compare and contrast toy recalls, product hazards and country of origin issues of 721 toy recalls in the US market between 1974 and 2008, covering 270 million recalled toys.Findings– Findings of this work reveal that most of the recalled toys were manufactured in China, although a wide variety of toy brands were designed in the USA. Major hazards of toy recalls included choking, lead poisoning, aspiration, fire/burn and other injuries.Research limitations/implications– The study relied on the CPSC's data that seemed representative of the toy industry in the US market, but missed other markets of Europe and Asia. Also, there was availability of detailed data in sub-categories of the toy industry.Practical implications– The paper provides useful academic and managerial implications that can help us understand the issues of product recalls and product-harm crises.Social implications– Toys are one of the most widely available products in the world; the industry is a $50 billion industry and has transformed itself from a small-scale business sector into a well-established industry.Originality/value– This investigation is particularly important in the areas of firm-specific competitiveness, business ethics and regulatory and societal issues.

Mitigating Product Harm Crises and Making Markets Sustainable: How does National Culture Matter?

Product harm crisis has become a serious issue in the business world today irrespective of the crisis mitigating strategies adopted to remedy the harm. The purpose of the study is to determine whether national culture shapes consumer reactions to crisis response strategies as a result of variation of consumers’ perceptions the affected firm’s moral responsibility. The study considers a comparison of 303 marketing-based Chinese and Sri Lankan students. Findings of independent sample t tests and Analysis of variance (ANOVA) suggested that consumers’ moral perceptions vary significantly between China and Sri Lanka in response to crisis response strategies revealing a new insight in the crisis mitigating literature. A wounded company has to launch a super effort response in Sri Lanka whereas the voluntary recall response in China is sufficient in a crisis in order to maintain moral reputation. Moreover, the study reveals that implementation of an inappropriate strategy leads to significant financial and moral reputational loss to a company. Therefore, the study recommends companies choosing culture-specific response strategies in order to protect moral reputational status and to make the market sustainable.

The impact of a product-harm crisis on customer perceived value

The purpose of this research is to help better understand the effects of a productharm crisis on crisis and non-crisis brands’ customer perceived value and market competitive structure in the auto industry. The research first develops a fourdimensional customer perceived value (CPV) measure, and then uses the measure to collect data before, during and after the 2009–2010 Toyota product-harm crisis. These data are analysed and compared to investigate the impacts of the product crisis. The results show that the crisis can have a negative impact on the crisis brand's CPV, and the impact from experienced customers is different to that from inexperienced customers. Some non-crisis brands with the same country of origin (COO) and similar product attributes to the crisis brand will also be negatively affected by the crisis. Moreover, brands with significantly higher CPV will benefit from the crisis. However, these impacts from the product crisis are short-lived and most of the brand's CPV recovers in the post-crisis period to the pre-crisis level. The crisis also changes the competition rules of the product category by changing the weights of CPV dimensions across the pre-, during- and post-crisis periods. Therefore, all companies need to handle the product crisis carefully, so that they can adjust their strategy accordingly in the dynamic market. These findings have implications for understanding the influences of a productharm crisis. The managerial implications are also discussed.