Consumer Learning and Product-Harm Crisis Management

Introduction to Product-Harm Crises

A product-harm crisis refers to a situation that can trigger serious damage to a company. A crisis can threaten an organization's systems and cause drastic changes in the way a firm operates. Crises often have a disruptive impact on organizational, social, and environmental systems, and in most cases they lead to extensive damage accompanied by significant costs imposed upon the organization, individuals, and society at large. A succinct definition of a product-harm crisis is best understood when its causative factors are identified. Beyond comparing various studies on the phenomenon, this paper also offers recommendations on how the problem can be mitigated, since such crises can severely disrupt the operations of even highly successful organizations.

For organizations, crises are high-consequence, low-probability events that can jeopardize the most important organizational objectives. However, an organization's ability to manage a crisis determines how well it can withstand one. A crisis management unit bears the initial responsibility of assessing the impacts of the crisis. An effective crisis management team must protect the organization's reputation and control negative publicity.

A product-harm crisis is typically centered on a specific brand. The positioning of Johnson & Johnson's Tylenol in 1982 and Ford's car accidents in 1977 are among the most well-known cases of product-harm crises. In the 1990s, the Coca-Cola Company had to withdraw 30 million bottles and cans in Europe due to a contamination scare. Similarly, in 2000, Firestone recalled at least 7 million tires following reports that approximately one hundred individuals had died in accidents involving defective tires produced by the firm. More recently, San Lu's melamine crisis dominated news headlines after it left four children dead and others seriously injured and hospitalized.

Product-harm crises can be caused by numerous factors, including sabotage, product misuse, and manufacturer negligence. Heightened product sophistication, a vigilant media, and increasingly demanding consumers have also made product-harm crises more visible. Regardless of the causative factor, product-harm crises lead to significant harm to consumer health and considerable financial losses for the affected firm. For instance, in the United States, business firms have faced premium increases of between 20% and 100% for liability and property insurance. In the 1990s, product liability claims accounted for $6 billion in annual losses for U.S. firms (Chen, Ganesan, & Liu, 2009).

Factors Contributing to a Product-Harm Crisis

Product trade interconnects most national economies, rendering more entities vulnerable to the risk of product challenges that can disrupt trade at any point within the supply chain. The nature of a product-harm crisis can range from fire and flood to computer viruses and quality assurance failures — conditions that could affect items crucial to conducting business locally, regionally, and globally (Vassilikopoulou, Lepetsos, Siomkos, & Chatzipanagiotou, 2009).

Various factors contribute to product-harm crises, and these are generally divided into two broad groups: natural and unnatural events. Natural conditions include wildfires, hurricanes, and earthquakes, among other incidents originating from environmental forces. Unnatural events, by contrast, include inappropriate product usage, insufficient quality assurance processes, and other human-originated activities.

Some studies have further classified unnatural events as intentional or unintentional. In particular, positive or negative consumer perceptions of social responsibility and supply shortages can both trigger a product-harm crisis. For example, a rival organization might circulate unsubstantiated negative claims about a business or brand, deliberately creating a product-harm crisis.

In cases of high-severity product-harm crises, organizational response is considered the most vital determinant of consumer opinions and attitudes toward the firm involved. For medium-severity crises, the time elapsed since the crisis has been identified as the second most important factor. External effects and corporate social responsibility tend to influence consumers' purchasing behavior most strongly in severe crises (Chen, Ganesan, & Liu, 2009).

Comparing Research Perspectives on Product-Harm Crises

Scholars focusing on product-harm crises approach the subject from different angles. Chen, Ganesan, and Liu (2009) examine the elements that affect the outcomes of a product-harm crisis. Their study deploys a conjoint analysis of selected factors to investigate the importance of each variable in influencing consumer buying behavior, and they evaluate variations in consumer intentions across three different levels of crisis severity. They also conducted longitudinal research on buyer decision behavior based on a product crisis that left consumer product quality uncertain.

Lei, Dawar, and Gurhan-Canli (2012) examined how foundational base-rate data influences brand attributions. Vassilikopoulou, Lepetsos, Siomkos, and Chatzipanagiotou (2009) used case studies to evaluate buyer perceptions of a product's integrity. In contrast, Chen, Ganesan, and Liu (2009) also researched the effect of product recalls on stock market value during a product-harm crisis, adopting an event study approach.

Yannopoulu, Koronis, and Elliott (2011) explored the role of the media during a product crisis and the eventual effect on brand trust. They adopted a case study methodology addressing two key questions that shape buyer responses to a product-harm crisis publicized through mass media: how public and private communication channels influence brand trust, and what impact media coverage has on uncertainty perceptions during a crisis. According to these scholars, there is a sharp difference among consumers in terms of brand trust and risk perception when the crisis is analyzed through public versus private channels.

Zhao, Zhao, and Helsen (2011) investigated consumer learning in a turbulent market and the resulting choices consumers make in crisis situations. Their study identified uncertainty features that affect buyer product decisions following a product-harm event. Among the primary attributions examined are consumer brand market, consumer consideration sets, research factors, and consumer utility before, during, and after the crisis, along with brand choice. Further sub-classification in their study generates utility attributes derived from quality product experience, advertising stock, risk coefficient, and advertising sensitivity. The studies these scholars analyzed are based on a structural paradigm that is more robust than a standard buyer-learning model. The scholars also state that after processing data through their newly crafted model — in which orientation to cost and risk is separated from uncertainty aspects and price evaluation — firms can better manage quality perceptions following a product-harm crisis.

In comparison, while Zhao et al. (2011), Lei et al. (2012), Vassilikopoulou et al. (2009), and Yannopoulu et al. (2011) derive their findings from a consumer perspective, the assertions of Chen et al. (2009) emerge from an investor's vantage point. Among the consumer-focused studies, Zhao et al. (2011) and Vassilikopoulou et al. (2009) both posit that time is a crucial factor in post-crisis consumer behavior, and that discounting effects exert a strong influence on purchasing decisions.

Conclusion

While analyzing various scholarly works on product-harm crises, it is evident that organizations can successfully manage such crises, restore brand trust, and minimize potential consequences by properly adopting the recommended approaches. Firms with strong brand images should consider implementing voluntary recalls, and organizations facing adverse impacts during a crisis are advised to demonstrate a clear organizational response that signals their commitment to social responsibility and commercial integrity. Business entities are also encouraged to restore their image by demonstrating the capacity to handle a crisis both effectively and efficiently.

References

Chen, Y., Ganesan, S., & Liu, Y. (2009). Does a firm's product-recall strategy affect its financial value? An examination of strategic alternatives during product-harm crises. Journal of Marketing, 73(6), 214–226.

Lei, J., Dawar, N., & Gurhan-Canli, Z. (2012). Base rate information in consumer attributions of product-harm crises. Journal of Marketing Research, 49(3), 336–348.

Vassilikopoulou, A., Lepetsos, A., Siomkos, G., & Chatzipanagiotou, K. (2009). The importance of factors influencing product-harm crisis management across different crisis extent levels: A conjoint analysis. Journal of Targeting, Measurement, and Analysis for Marketing, 17(1), 65–74.

Yannopoulu, N., Koronis, E., & Elliott, R. (2011). Media amplification of a brand crisis and its effects on brand trust. Journal of Marketing Management, 27(5/6), 539–546.

Zhao, Y., Zhao, Y., & Helsen, K. (2011). Consumer learning in a turbulent market environment: Modeling consumer choice dynamics after a product-harm crisis. Journal of Marketing Research, 48(2), 255–267.