Dallas Business Consultant Elijah ClarkDallas Business Consultant Elijah Clark
    by Dr. Elijah Clark

A crisis management is the method in which a person or business handles an emergency situation. In business, a crisis can be anything from having to recall a defective product or dealing with an economic change that causes a drop in sales and brand trust. Within this article I will attempt to examine a product-harm crisis and how management can affect whether or not the company can recover once a crisis happens.

Having the ability to understand and react promptly when a crisis arises is vital for maintaining a businesses market share, trust, and reputation. Improperly managing a crisis can have the potential to damage carefully developed equity, and spoil consumers’ quality perception (Chen, Ganesan, & Liu, 2009). When dealing with a crisis, all companies need to be involved in the recover and rebuilding process. To properly manage a product crisis, the company must be prepared to do so. Without preparation, time, finances, and consumer trust will likely have negative impacts. In order to sustain reputation, and prevent a major financial loss, the company must react promptly, honestly, and clearly. I will address what a product-harm crisis is and how to manage it effectively.

A Proactive Strategy

Chen, Ganesan, and Liu (2009) explains that a product harm crisis and recalls have the potential to damage a company’s brand, spoil consumer perception, and ruin a company’s reputation along with cause market share losses. During a 12-year study, it was discovered that a proactive product-recall strategy could likely hurt a company financially more than a passive recall strategy. This is because the tools used by financial market and investors will predict a likely fall in value. This differs from research done by Vassilikopoulou (2009), which explains that there is a sensitivity of dealing with recalls. Being proactive, honest, and financially strategic on resolving the recall is paramount for success. Vassilikopoulou (2009) further stated that a product-harm crisis can impact a company’s sustainability. Ranking factors and relative importance do have an influence during a product-harm crisis. Understanding the likelihood of a crisis could also help create a more accurate crisis management plan. The article explains that corporate social responsibility, organizational response, time and external effects are crucial in managing a crisis. While there may be only a small chance of a crisis occurring, all employees and managers should be prepared and ready to effectively respond if needed.

Maintaining Consumer Trust

In the case of the Fitbit Force, a wrist-worn product that tracks fitness activity. After the launch of it’s new product, 1.7% of more than 100 million users began developing skin rashes where the device was being worn. CEO James Park, responded almost immediately to the news, delivering an apology and product recall with a full refund for all of the devices. Later test results showed that users were likely experiencing allergic contact dermatitis, which is when an itchy rash is caused by a substance that comes into contact with your skin (“Contact Dermatitis,”, 2014). The likely cause for the rash was users not properly cleansing the area beneath the all-day worn device and their skin. The Fitbit company could have easily blamed the rash on user error, but instead decided to take full responsibility and issue a recall. Instead of dealing with a consumer backlash because of their lack of responsiveness, the company continues to do well and consumer trust was sustained.

On the other end, there was the Kryptonite bicycle lock crisis in 2004. After an Internet video surfaced of a user hacking the well-respected company’s lock, many more videos and complaints began forming. The videos showed that the lock could be easily unlocked by jamming it with a plastic pen. Krytonite eventually did address the situation weeks later with a product recall and explained that the issue dealt with all types of cylinder locks including those associated with vending machines and some automobile ignitions. Because of the extended time for the company to respond, media and consumers had been staining the company’s brand for days. This eventually led to consumer trust being lost. Beyond the cost of the recall, millions of dollars had been spent in order to rebuild the company’s reputation.

The Consumer Relationships

Yannopoulu, Koronis, and Elliot (2011) examined more than the brands’ reputation and timeliness, they also examined consumers’ trust during a brand crisis. Yannopoulu et al. explained that dealing with a crisis is focused around brand trust and risk. A crisis should be maintained through a direct experience like that of Fitbit where users received an email from the CEO about the recall, versus mass social media. Conducting and analyzing 22 in-depth interviews and content analysis that explored consumers’ experiences throughout a crisis concluded these results. The key finding is that media outlets and third parties can either preserve or damage consumer to brand trust. Relationship and brand trust are essential during a crisis and companies cannot afford to neglect media aspects if they want to retain customers. Cornelia and Mihaela, (2011) agree that relationships are important and marketing strategies should focus on consumers’ proximity to customers, needs, and their interaction. In addition, the company should remain close to the customer, remain adaptive and present a human and friendly language. According to Cornelia and Mihaela (2011), marketing may be just the solution for many companies to get out of the crisis.

Conclusion

Research has indicated that a proactive strategy may have positive consequences on consumer perception if the crisis is responded to with a constant, active, and firm response (Chen, 2009). The business affected should respond quickly to the crisis and should focus their attention on building and strengthening consumer trust. During a crisis, marketing strategies should be analyzed and focus on resonating emotionally with the consumer through a human, friendly language (Cornelia & Mihaela, 2011). Without proactively managing the crisis, the risk of negative impact rises. The challenge of a crisis is how the information is used once the company receives it. If the company chooses to take the lead and get out in front of the negativity or potential negativity, then they can manage some level of control. To successfully manage a business crisis, the company’s voice must become the trusted channel of information.

 

Credits

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.

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

Cornelia, M., & Mihaela, B. (2011). About the crisis marketing and the crisis of marketing. Journal Of Academic Research In Economics, 3(3), 311-316.

Contact Dermatitis. (2014, July 16). Retrieved October 7, 2014, from

http://www.mayoclinic.org/diseases-conditions/contact-dermatitis/basics/definition/con-20032048

Dr. Elijah Clark

Dr. Elijah Clark

Elijah is a business management consultant. He writes about business marketing, development, branding, technology, and how to develop and use marketing strategies and techniques effectively.
Dr. Elijah Clark

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Cite this article:
Dr. Elijah Clark (November 8, 2014). Managing a Product-Harm Crisis [Web log post]. Retrieved from http://elijahclark.com/managing-product-harm-crisis/
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