retailing-product harm crisis

RETAILINGProduct Harm Crisis

What is a Product Harm Crisis?

• A “discrete, well-publicized occurrence wherein products are found to be defective or dangerous

Some Recent Incidents of Product-Harm Crisis

• Battery explosion crisis (2006-present)

Some Recent Incidents of Product-Harm Crisis

• Sanlu infant formula (2008)

Some Recent Incidents of Product-Harm Crisis• Toyota (2009---present)

Pedal and Brake problem

Some Recent Incidents of Product-Harm Crisis

• Cucumber crisis in European

Some Recent Incidents of Product-Harm Crisis

• DEHP misuse in Asian

What Happens after a Product-harm Crisis?

• A product harm crisis typically follows by a product recall where the affected brands are removed from the market place before the problem is solved.

Product Recalls in U.S.

Voluntary Recalls of Hazardous Products in the United States

Year Number of Recalls Product Units (million)

2006 471 124

2005 397 67

2004 354 216

2003 279 40

2002 393 50

2001 341 90

2000 288 90

Sources. U.S. Consumer Product Safety Commission Annual Reports

Product Recalls in the China

• The implementation of the first recall system went into effect on October 1, 2004.

• In 2007, other recall systems for food, drug, toy and electronics products were set up.

• The passing of these new laws is meant to tighten the supervision of manufacturers and impose tougher penalties on those which make bad products, as the government seeks to restore public confidence, after a spate of problems.

What is the Impact of a Product Harm Crisis?

• Short-term effects of a crisis • lost sales• the costs associated with product recalls

• Long term effects of a crisis • severe damage the reputation of the affected brand and company

The key challenge for companies faced with a crisis is to restore consumer trust

Implications on the firm

(i) a loss in baseline sales

(ii) a reduced own effectiveness for its marketing instruments

(iii) an increased cross sensitivity to rival firms’ marketing-mix activities

(iv) a decreased cross impact of its marketing-mix instruments on the sales of competing, unaffected brands.

The impact of a response may be moderated by the firm's reputation.

Impact of Crisis on Brand Equity

• Brand equity is fragile because it is founded in customers' perceptions of quality, reliability, dependability, trustworthiness, desirability, purchase likelihood, and attitudes.

• It is vulnerable to large shifts outside of management's control, due, for example, to consumers' exposure to new information.

A firm's response to a product-harm crisis is an important determinant of the impact of the crisis on brand equity

Do Consumers React to Product Harm Crises in the Same Way?-Evidence from Consumer Psychology Studies

• Impact of pre-crisis brand loyalty to product harm crisis

• Impact of pre-crisis brand familiarity to product harm crisis

• Blame in a product-harm crisis

Impact of pre-crisis brand loyalty on product harm crisis

• Consumers tend to resist or discount information that is against to their pre-attitude and they are apt to minimize cognitive dissonance caused by the negative news

• Consumers are more likely to engage in biased processing

• Loyal consumers experience with competing brands is limited so their search costs tend to be higher and they incur higher substitution costs when they buy the non-preferred items

• Heavy users (loyal consumers) are likely to focus more on the benefits of the product than its product harm compared to light users

Impact of pre-crisis brand familiarity to product harm crisis

• People exposed to new information on a familiar brand perceive positive information to be as diagnostic as negative information

• Unfamiliar customers tend to weigh negative information more heavily

• A product recall influence evaluations of a company more negatively when the company is unknown

• Familiarity increases a consumer’s confidence toward the preferred brand and familiar brands are often perceived to be less responsible for a product harm crisis

Blame in a product-harm crisis

• It may be serious negative consequence for the consumer’s future purchase intention.

• If consumers blame the company for the product harm crisis, they are likely to switch to the competing brands.

• On the other hand, the more consumers blame themselves for a product harm crisis, the more likely they are to do nothing when dissatisfied.

Assessing consumer’s blame in a product-harm crisis is important implications for a company which involves in

product harm crisis.

Consequences and Antecedents of Product Harm Crisis

Consequences of A Product-Harm Crisis Antecedents Of Consumer Responses in Product Harm Crisis

Purchase Intentions of The DefectiveProduct

Brand Familiarity and Reputation of The Affected Company

Purchase Intentions towards All TheAffected Company’s Products

Brand Loyalty

Re-Purchase Intentions External Factors Such as Regulatory Agencies, Interests Groups, And Media

Intentions to Replace The Affected Brand Attributions of Responsibility and Blame

Likelihood of Buying A New ProductFrom The Affected Company

Perceptions of The Severity of the Product-Harm Crisis

Recommending the Affected Product Or Company to Others – in Other Words, Positive Word of Mouth Behaviour

Pre-Crisis Category Usage and Advertising

Brand Equity Corporate Social Responsibility Appearance of Safety Signals on the Defective

Product The Number of Product Recalls That Have Been

Take Place Prior to the Crisis Prior Expectations

The response strategies of product harm crisis

The coping strategies of product harm crisis are classified into three categories:

• Settlement Strategy (accommodative)• Silent strategy (reticence)• Defence strategy ( defensive)

Implications for the Firms• Quality consistent over time• Quality control• Loyal customers• Advertising strategy• Crisis management• Corporate social responsibility

Implication for Retailers

• Store brand-direct crisis management• Retailers as intermediaries between manufacturers and

consumers

Retailer’s Role• Communicate with consumers locally and personally• Content of communication

• Fully acknowledgement of the existence of a problem • Denial

• Compensation (the offer of announcement of material redress for alleged product problems)• Affected consumers who receive compensation for a problem are

generally more satisfied (more loyal)

• Logistics (relates to organizational and technical infrastructure that is used to mange a crisis)• Where and how to send the product to • Line of communication