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doi:10.1016/j.bushor.2006.01.002 Seediscussions,stats,andauthorprofilesforthispublicationat:https://www.researchgate.net/publication/4885317 Howshouldacompanyrespondtoaproduct harmcrisis?Theroleofcorporatereputation andconsumer-basedcues ArticleinBusinessHorizons·February2006 DOI:10.1016/j.bushor.2006.01.002·Source:RePEc CITATIONS 53 READS 2,116 2authors: DanielLaufer VictoriaUniversityofWellington 23PUBLICATIONS285CITATIONS SEEPROFILE W.TimothyCoombs TexasA&MUniversity 78PUBLICATIONS3,022CITATIONS SEEPROFILE AllcontentfollowingthispagewasuploadedbyW.TimothyCoombson07April2014. Theuserhasrequestedenhancementofthedownloadedfile.Allin-textreferencesunderlinedinblueareaddedtotheoriginaldocument andarelinkedtopublicationsonResearchGate,lettingyouaccessandreadthemimmediately. https://www.researchgate.net/publication/4885317_How_should_a_company_respond_to_a_product_harm_crisis_The_role_of_corporate_reputation_and_consumer-based_cues?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_2&_esc=publicationCoverPdf https://www.researchgate.net/publication/4885317_How_should_a_company_respond_to_a_product_harm_crisis_The_role_of_corporate_reputation_and_consumer-based_cues?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_3&_esc=publicationCoverPdf https://www.researchgate.net/?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_1&_esc=publicationCoverPdf https://www.researchgate.net/profile/Daniel_Laufer?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_4&_esc=publicationCoverPdf https://www.researchgate.net/profile/Daniel_Laufer?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_5&_esc=publicationCoverPdf https://www.researchgate.net/institution/Victoria_University_of_Wellington?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_6&_esc=publicationCoverPdf https://www.researchgate.net/profile/Daniel_Laufer?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_7&_esc=publicationCoverPdf https://www.researchgate.net/profile/W_Coombs?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_4&_esc=publicationCoverPdf https://www.researchgate.net/profile/W_Coombs?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_5&_esc=publicationCoverPdf https://www.researchgate.net/institution/Texas_A_M_University?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_6&_esc=publicationCoverPdf https://www.researchgate.net/profile/W_Coombs?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_7&_esc=publicationCoverPdf https://www.researchgate.net/profile/W_Coombs?enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg%3D&el=1_x_10&_esc=publicationCoverPdf www.elsevier.com/locate/bushor How should a company respond to a product harm crisis? The role of corporate reputation and consumer-based cues Daniel Laufer a,*, W. Timothy Coombs b a College of Business, University of Cincinnati, 428 Carl H. Lindner Hall, Cincinnati, OH 45221-0145, USA b Department of Communications, Eastern Illinois University, 600 Lincoln Ave., Charleston, IL 61920-3099, USA 0007-6813/$ - see front matter D 200 doi:10.1016/j.bushor.2006.01.002 * Corresponding author. Present ad Business, Yeshiva University, 500 West New York, NY 10033, USA. E-mail addresses:
[email protected] [email protected] (W.T. Coombs). KEYWORDS Product harm crises; Attributions of blame; Corporate reputation; Consumer segments Abstract Product harm crises such as Vioxx and Firestone can be devastating events for companies. Although lawsuits by victims tend to draw most of the attention, observers, who typically learn of product harm crises through media outlets, can also cause extensive damage to the companies involved, as they represent current and potential customers of the product. This article provides guidance to practitioners in choosing the appropriate strategy to effectively deal with a product harm crisis. The authors recommend that corporate reputation and consumer-based cues, such as gender and nationality, be incorporated in the decision-making process regarding the choice of a corporate response. D 2006 Kelley School of Business, Indiana University. All rights reserved. 1. Product harm crises: A major threat to companies Contaminated Coca-Cola cans in Belgium, poisoned Tylenol capsules in the United States, defective Firestone tires in the United States, Venezuela, and Saudi Arabia, and, most recently, patients becom- 6 Kelley School of Business, In dress: Sy Syms School of 185th Street, Belfer Hall, om (D. Laufer)8 ing ill after using Vioxx: these are but a few examples of product harm crises. Defined as bdiscrete, well publicized occurrences wherein products are found to be defective or dangerousQ (Dawar & Pillutla, 2000, p. 215), product harm crises present particular challenges in this age of mass media. According to a government website (www.recalls. gov), over 75 products were recalled in August of 2005, involving a combination of consumer products, food, drugs, motor vehicles, and car seats. This statistic supports Berman’s (1999, p. 69) claim that bit is probably only a matter of time for any product Business Horizons (2006) 49, 379—385 diana University. All rights reserved. http://www.recalls.gov http://dx.doi.org/10.1016/j.bushor.2006.01.002 mailto:
[email protected] mailto:
[email protected] D. Laufer, W.T. Coombs380 manufacturer to have one or more products recall- ed.Q While product recalls can result from both product harm and product tampering incidents, the former is more common than the latter. Companies should not underestimate the impor- tance of properly handling product harm crises, as they have been documented to have negative effects on market share, sales of recalled products, stock prices, purchase intentions, and sales of other company products (Pruitt & Peterson, 1986; Siomkos & Kurzbard, 1994). Moreover, product harm crises and product recalls are threatening to a company’s reputation (Berman, 1999; Davies, Chun, da Silva, & Roper, 2003; Mowen, 1980). While an intangible asset, corporate reputation does have financial implications for an organization; for example, Davies et al. (2003) reported that reputation can influence attracting consumers, generating investment interest, attracting top employee talent, motivating workers, increasing job satisfaction, generating more positive media coverage, and garnering positive comments from financial analysts. With so much at stake, managers should be concerned with trying to minimize the negative effects of a product harm crisis. An evolving literature details how managers can use a crisis response to minimize the harm inflicted by crises (including product harm), with recommendations centering on understanding how the consumer is likely to perceive the product harm crisis and the company’s response to it (Coombs & Holladay, 2004; Siomkos & Kurzbard, 1994). This article organizes and extends our understanding of how to evaluate a product harm crisis and select crisis responses designed to minimize the harm generat- ed by the crisis. 2. Ambiguous product harm crises: Who is to blame? Often, the culpable party for a product harm crisis is not clear to observers, many of whom are users or potential users of the product. This is especially prevalent when the product harm crisis is initially reported in the media. Two recent examples illustrate this point. Last year, an article in the New York Times (Peters, 2005) suggested that Ford trucks with faulty cruise control switches, parked in garages, could be the cause of a number of house fires; however, the article also pointed out that Ford denies any such problems, suggesting the fires could have started in areas other than the garage. Although a federal investigation is underway to determine whether a product recall is warranted, due to the complexity of the issues involved, it could take a year for a decision to be reached. Another newspaper article (Maher, 2005) described a university student’s claim that a bacteria-con- taminated taco purchased from a Chipotle restau- rant gave him food poisoning. Also mentioned was Chipotle’s response to the allegation, which sug- gests that other factors may have been involved in the student’s illness, and the company spokes- person’s observations that Chipotle has never failed a health inspection and that the norovirus can be spread in other ways in addition to food handling. Despite the ambiguity inherent in these types of situations, observers still draw conclusions regard- ing who is to blame. Attribution theory has established itself as an effective tool for predicting stakeholder responses to crises. Weiner (1986), a well known scholar in the area of attribution theory, found that people need to assign responsi- bility for events, especially sudden, negative events; as product harm crises match both these criteria, they fit perfectly with attribution theory. Therefore, a key issue for companies to assess is how consumers attribute blame in these ambiguous situations. Should the consumer blame the compa- ny for the product harm crisis, this can negatively impact their future purchase intentions. Consumers do not want to buy a product that could potentially cause harm, and if they believe that the company is at fault for the product harm crisis, they will avoid purchasing the product. This being the case, managers must learn to read ambiguous product harm crises and select the appropriate responses. Two factors that influence how consumers perceive an ambiguous product harm crisis are the compa- ny’s reputation and consumer traits such as gender and nationality. 3. Role of corporate reputation in forming blame attributions Corporate reputation can be defined as an overall evaluation that reflects the extent to which people see the firm as bgoodQ or bbad.Q Various external sources measure corporate reputation, the most popular being Fortune magazine’s Most Admired Companies rankings. Corporate reputation has been shown to impact consumers’ reactions to product harm crises. In a pioneering study, Siomkos and Kurzbard (1994) presented consumers with scenarios depicting two separate product harm crises, each based on actual incidents of product harm. The first scenario https://www.researchgate.net/publication/247478277_Corporate_Reputation_and_Competitiveness?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= https://www.researchgate.net/publication/237774325_The_Hidden_Crisis_in_Product-Harm_Crisis_Management?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= https://www.researchgate.net/publication/237774325_The_Hidden_Crisis_in_Product-Harm_Crisis_Management?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= https://www.researchgate.net/publication/237774325_The_Hidden_Crisis_in_Product-Harm_Crisis_Management?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= https://www.researchgate.net/publication/4884628_Planning_for_the_inevitable_product_recall?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= https://www.researchgate.net/publication/229677354_Security_Price_Reactions_Around_Product_Recall_Announcements?el=1_x_8&enrichId=rgreq-e2e908863555d82da4e096ec0753ed65-XXX&enrichSource=Y292ZXJQYWdlOzQ4ODUzMTc7QVM6MTAyNDI2NTk4MTgyOTI3QDE0MDE0MzE4MTMyMTg= How should a company respond to a product harm crisis? 381 involved people receiving electrical shocks after using hairdryers; the second involved apple juice made with ingredients that could potentially be harmful to consumers. In both of these experi- ments, the authors found that consumers’ likeli- hood to purchase the product after a product harm crisis increased in relation to the company’s favor- ability of reputation, and that consumers felt the products involved were less dangerous when sold by a company with a better reputation. Unfortunately, Siomkos and Kurzbard did not directly examine consumers’ attributions of blame for the crisis; however, a subsequent study by Laczniak, DeCarlo, and Ramaswami (2001) found a link between company reputation and blame attributions to the company for a product failure. In this study, participants were divided into two groups, both of which learned about problems associated with using a particular brand of personal computer. The first group received information about a well- known brand, Compaq, while the second group received the identical information for a relatively unknown brand, Everex. The authors found that participants in the well-known brand condition (Compaq) attributed more blame to the users for the computer problems; in contrast, participants in the relatively unknown brand condition (Everex) attributed more blame to the company for the problems. From these studies, managers can learn how consumers react differently to a product harm crisis based on the reputation of the company involved. If a company or brand has a favorable reputation, less crisis responsibility will be attrib- uted to the company or brand; on the other hand, if the company has a negative reputation or is relatively unknown, consumers will attribute more blame to the company for the product harm crisis. In addition to a company’s reputation, it is important to integrate consumer traits into the equation. Consumer traits further our understand- ing of the factors that can shape attributions of crisis responsibility/blame. 4. How consumer traits shape perceptions of product harm crises: The role of perceived severity A consumer segment represents a group of con- sumers who share a similar set of needs. In order to capitalize on potential profits, companies develop products that fit the needs of these segments. According to Kotler (2005), one of the most popular means of segmentation is based on demographics such as gender, nationality, and age. In addition to understanding the different needs of consumer segments in order to develop new products, it is also important for companies to understand whether these segments differ in their reactions to product harm crises. Should compa- nies expect different consumer segments to react in a similar manner in terms of assessing culpability for a product harm crisis? Or will these segments react differently, thereby requiring different cor- porate responses to the crisis depending on the segment of interest? The challenge is to identify traits that should relate to perceptions of product harm, especially to ambiguous product harm situations. One factor that has been shown to impact blame attributions is the perceived severity of events. This research is based on psychology’s defensive attribution hypothesis, which predicts that when an incident results in a more severe outcome, more blame will be attributed to a potentially responsi- ble party by an observer to the incident. Robben- nolt (2000) reviewed studies examining