How to handle negative publicity: An evaluation of response strategies.– Sten Boerkamp – 2014
How to handle negative publicity: An evaluation of response strategies.
Research on consumers’ reaction to corporate response to negative publicity
Sten Boerkamp – 306442
Economics and Business Economics
Master Marketing
Erasmus School of Economics
Erasmus University Rotterdam
First reader and thesis supervisor: Ms. I. Versluis
September 2014
Abstract
Companies facing negative publicity have to decide whether or not they should respond, and if so, in what manner. In this thesis two different response strategies and a No response scenario are tested for a well-known and a less-known cola brand. It is found that consumers have significantly lower brand attitudes and likelihood to buy in all scenarios. For the well-known brand, Coca Cola in the experiment, it is important to respond to the publicity to minimise damage. The Adaptation of new processes strategy, a strong effort of a company involving a confirmation of the risks and a change of the production process, did not outperform the Denial of severity strategy. The latter strategy consist of a confirmation of the presence of disputed ingredients, but includes a strong denial on the alleged risks they form. In other words, the company states there is nothing to worry about. For less-known cola brand First Choice, responding to the news did not have a dampening effect on the change in consumer brand attitudes.
The proposed model introduces a direct effect of brand familiarity and moderating effects of source credibility and perceived article negativity. Brand familiarity does not have any predictive power on the change in brand attitudes. The credibility of the source does have a significant impact; consumers who perceive the source as more credible have a stronger negative change in brand attitudes. The perceived article negativity is a robust predictor of attitude changes. It is important to correct for this perceived article negativity to be able to find good results.
Consumers expect a response of well-known brands on allegations. Although a response cannot prevent all damage to a brand, it has a considerably smaller negative effect on consumer brand attitudes as compared to a No response strategy. The more credible the source of the articleis considered, the stronger the negative effect on consumer brand attitudes.
Content
Abstract
1: Introduction
1.1: Problem statement + Research Questions
1.2: Relevance of topic
1.2.1: Theoretical
1.2.2: Practical
2: Theory
2.1: Literature review
2.1.1: Company crisis: product-harm
2.1.2: Company response effect
2.1.3: Buying intention
2.1.4: Brand familiarity
2.1.5: Publicity
2.1.6: Source credibility
2.1.7: Responsibility factor and attribution theory
2.1.8: Publicity and the effect of marketing efforts
2.1.9: Impact of publicity over time
2.2: Conceptual model + hypotheses
3: Method
3.1: Research design
3.2: Experiment
3.2.1: Response bias
3.2.2: Validity of scales
3.2.3: Manipulation checks
3.2.4: Outlier
4: Results
4.1: Differences between response strategies
4.1.1: Effect on delta consumer brand attitude
4.1.2: Ranking strategies
4.2: Brand attitudes and likelihood to buy
4.3: Brand familiarity
4.3.1: Effect on delta consumer brand attitude
4.3.2: Effect on delta likelihood to buy
4.4: Article negativity
4.5: Source credibility
4.6: Attitudes towards company response
5: General discussion
5.1: Answering research questions
5.1.1: Problem Statement
5.1.2: Research question 1
5.1.3: Research question 2
5.1.4: Research question 3
5.1.5: Research question 4
5.2: Academic & Managerial Implications
5.2.1: Academic
5.2.2: Managerial
5.3: Limitations & Further Research
5.3.1: Limitations
5.3.2: Further research
6: References
7: Appendix
1: Introduction
Consumers are increasingly aware of their health and safety and act upon it. But what happens when the trust of consumers is undermined by news articles? In 2009, Toyota issued a recall for 3.9 million vehicles in the U.S. due to problematic floor mats, leading to sudden and uncontrollable acceleration. The problems were widely described in blogs. Only after the news hit the majority of mainstream media, brand attitudes towardsToyota decreased significantly and Toyota was not able to recover for more than a year(Fan, Geddes, & Flory, 2011).
In Belgium, reports of school children becoming ill after drinking Coca Cola led to mass hysteria (Nemery,Fischler, Boogaerts, Lison, & Willems, 2002). Allegedly the products contained dioxin, which was also found in chicken related food crises at the same time. The negative publicity forced Coca Cola to recall millions of beverages, although the products did not pose a health risk.
The gold standard of company response to negative publicity is considered by many the case of the tampering with Johnson & Johnson’s Tylenol. Some of the bottles were deliberately contaminated with cyanide, a deadly poison, after they left the factory. Johnson & Johnson recalled all Tylenol products within a week and designed new tamper-proof bottles which were available within ten weeks. It also offered a $100,000 reward for the tip leading to the murderer, which was never claimed. The company regained their full market share (Murray Shohen, 1992).
Not all cases of negative publicity are as clear as the ones mentioned. In the previous examples there was an immediate health risk.In this research the focus lies on alleged health risks after repeated use of a product. For example, consuming too much sugar can pose serious health risks, but it can take years before it can harm an individual. Some products contain ingredients that are potentially harmful, but it may be subject of debate. One such ingredient is aspartame, found in numerous light variants of products. How consumers react to negative publicity on this kind of unclear risks is of interest in this study.
Companies have a wide range of options when news gets out. In situations without an immediate health risk, it is not clear how consumers will react. For a company it is important to know how to respond to minimise damage to the brand. Bradford and Garrett (1995) identified five main response strategies: no response, denial, excuse, justification and concession.In the unclear risk situation a company may choose a different response strategy as compared to an immediate health risk situation. For instance, when a company does not respond to an immediate health risk, this can be seen as irresponsible. Concerning a non-immediate health risk it might be acceptable to choose a no response strategy, as not all information is available.
Negative publicity can have different subjects, such as, product risks, incidents, unethical behaviour, recalls or other company actions (Kalaitzandonakes, Marks,Vickner, 2004; Kasperson et al, 1988).Negative publicity has been defined as the noncompensated dissemination of potentially damaging information by presenting disparaging news about a product, service, business unit, or individual in print or broadcast media or by word of mouth (SherellReidenbach, 1986). Blogs, social media, reviews and other forms of online communication can also be considered as mediums broadcasting negative publicity. This research is focussed on negative publicity in credible traditional media.
Kaspersonet al. (1988) found a negativity bias in media coverage, a preference of journalist and editors to publish negative articles over positive articles. Consumers’ perceived risk is related to the amount of positive and negative media coverage they receive.Since media have a preference to cover rare or dramatic risks,companies face increased attention of media when something goes wrong. The negativity bias also increases the difficulty for companies to have their response be heard.
The statement “there is no such thing as negative publicity” is popular, although this is not correct for most cases(Berger, Sorensen, Rasmussen, 2010).And as publicity gets spread more quickly through social media and other innovative technologies, it becomes harder for firms to manage publicity and react properly and in time.
From a marketing perspective, brands are built carefully, which reflects in intangible assets (Simon Sullivan, 1993). Publicity has an effect on the strength of a brand. Most often publicity management is done by the public relationship department, with other goals than the marketing department (Jeffries-Fox, 2001).Companies aware of this inconsistency can align the targets of public relationship with the targets of marketing. Increased cooperation can create a single message communicated to external parties, protecting brand value.
1.1: Problem statement + Research Questions
More and more research on publicity explores different relationships between publicity, consumer brand attitudes, choice and sales, and a number of possible moderating variables.In this research the main questions is about the moderating effect of a company’s response.What strategy do companies have to follow for best results?Do more familiar brands need a different strategy?
Problem Statement:
This paper investigates the bestresponse strategy as measured byconsumer brand attitudesfor two brands of cola.
Four research questions are formulated to find an answer to the problem statement and to provide structure. First the general effect of negative publicity on consumer brand attitudes is examined.
Research question 1:
What is the effect of negative publicity onconsumer brand attitudes?
To find out what the best response strategy on negative publicity is, first the effect of negative publicity itself must be clear. Consumer brand attitudes are used to measure how consumers feel about the brand on different aspects.
Research question 2:
Can acompany’sresponsestrategy limit the effect of negative publicity on consumer brand attitudes?
Companies can use different types of responses, in which they accept responsibility, propose solutions, or deny allegations. The reaction of consumers on the negative publicity and on the company response combined does lead to updated consumer brand attitudes. Of primary interest is the change in consumer brand attitudes between the initial attitudes and the attitudes after the news and company response.
Research question 3:
Does company familiarity moderate the effect of negative publicity on consumer brand attitudes?
It is not expected that negative publicity affects consumer brand attitudes in the same manner under all conditions. The familiarity of a consumer with a brand is a proxy for their knowledge about the brand. It is interesting to see if consumers react differently on news regarding familiar brands as they have more prior information and possible stronger attitudes.
Research question 4:
Does negative publicity affect purchase intentions?
The experiment measures consumer brand attitudes and likelihood to buy. Reibstein (1978) created a model for attitudes and behaviour: Attitude forms preference, which leads to behavioural intention, and resultsin behaviour. The seriousness of the negative publicity may influence the effect on purchase intentions. From a managerial point of view the link between attitude change and purchase intention and behaviour is especially important as it affects sales directly.
1.2: Relevance of topic
1.2.1: Theoretical
The effect of publicity on brand attitudes and choice did not receive as much attention in the past as research on the effect of advertising, price, promotion and other marketing tools did. In the last decade the knowledge about the effect of publicity hasincreased, specifically related to moderating and mediating variables on the severity of the news, consumer attitudes, brand reputation, and response strategies.It is interesting to see if publicity can be managed or countered to the benefit of the company. Some research to company’s crisis management strategies have been conducted, but to my knowledge there are few experiments conducted to specifically measure the effects of different companyresponses. One example of a relevant research is the paper of Dean (2004) which measures the reaction of consumers on negative publicity and the effects of company reputation, style of response and responsibility. His experiment uses fictitious brandsand is therefore likely to overstate consumer response, since consumers do not have pre-existing attitudes towards the brands which can form a buffer (Griffin, Babin,Attaway, 1991).
In real world data the effect of publicity is incredibly hard to measure, given the number of factors that influence sales. In a research conducted in Australia, on iodized salt, a time series analysis was possible since iodized salt was never promoted, advertised or discounted (Li, Chapman, Agho, Eastman, 2008). Publicity on the positive effects of iodized salt versus regular salt resulted in a significant increase of sales. The current research adds to the existing literature the effect of publicity on well-known real world brands and the moderating effect of different company responses. Furthermore, it provides insight on specific factors of consumer behaviour on negative publicity and company response.The experimental setting using real world brands is preferable over case studies when isolation of factors is important.
1.2.2: Practical
Companies can lose sales when the quality and safety of their products is disputed in the media.In a state of ambiguity, consumers change their attitudes towards a brand based on publicity. For a company it is important to counter negative publicity most effectively to protect market share and company reputation.
This study focuses on the effect of publicity and the moderating effect of company communication. Advertising and other marketing efforts of the company and the relationship with publicity have been researched before (Stammerjohan, Wood, Chang, Thorson, 2005; Jeffries-Fox, 2001) and are outside the scope of this research. In the current experiment the effect of company response on the consumer brand attitudes after negative publicity is the main research goal.
Contrasting to most studies on negative publicity, this experiment considers the effect of a news article that does not include direct health risks. The effect of limited health risks has not received a lot of scientific attention and it is therefore unclear if the effect of consumers is comparable to the reaction on more severe risks, such as the Tylenol case in the introduction(Murray & Shohen, 1992). Responding to less significant health risks is a more relevant case for companies, as the majority of product risks is not considered directly lethal.
2: Theory
2.1: Literature review
There are a number of common themes in research on publicity. Most studies focus on negative publicity, as it is associated with higher risk and larger stakes. Studies vary by using different independent variables; such as consumer commitment, trust or preference, or company characteristics such as brand image or responsibility, or response strategy. Case studies are popular for examining overall effect of certain strategies, but the results of these studies are complex to extrapolate due to noise (KorkofingasAng, 2011; Ahluwalia, Burnkrant,Unnava, 2000). Experiments can focus on the effect of specific factors, but may guide respondents to certain answers or may be subject to social desirability bias. When using fictitious brands in an experiment, real world implications may be limited, although the effect of publicity is easier to measure.
Literature suggests a negative effect of negative publicity on sales and on consumer brand attitudes (Griffin, Babin, & Attaway, 1991). News articles provide a relatively credible source of information, especially compared to advertising. Consumers use this information in their decision making processes. A positive effect on sales may occur when awareness is low as the negative publicity can significantly increase awareness offsetting the negative effect of the news itself (Berger, Sorensen, & Rasmussen, 2010). This positive effect of negative publicity scenario is very uncommon.
2.1.1: Company crisis: product-harm
Negative publicity can take many different forms. Accounting scandals, employee discrimination, bribery cases or terrible customer service are all significant potential problems for a company leading to reputational damage (Greyser, 2007). Product-harm crises can be considered as the most severe problems. A product-harm crisis is characterised by the (direct) negative effect of a product on the health or well-being of a consumer.
Two main types of product-harm can be distinguished. First, products that risk or affect health or well-being directly, for instance when consuming one unit. These risks are hardly arguable by companies or other institutions and demand a swift response and a thorough solution to the problem. Second, products may contain harmful ingredients that may pose a threat when used regularly. In this non immediate health risk situation consumers are not in immediate danger and companies may challenge the claims or point at the amounts a customer needs to consume before it is considered unhealthy or risky. Alternatively the ingredient may be beneficial for one whilst it may increase the risk of harm for others. Sugar for instance is considered unhealthy when used excessively. And some health improving products such as Becel Pro-Activ can lower blood cholesterol for people with high cholesterol levels, but it may pose unintended health risks for others.
Events in the first category are more severe and companies often decide to recall the affected products. Johnson and Johnson recalled their Tylenol products when some of them were tampered with deadly poison, and Toyota recalled millions of vehicles worldwide for sticking accelerator pedals. Laufer and Coombs (2006) state that before and during a product recall situation the situation is ambiguous. In line with the attribution theory, consumers try to attribute blame to either the company, the user, or another person or institution (Kelley, 1973). The initial reputation of the company and their responsibility in the event is likely to affect brand attitudes.
2.1.2: Company response effect
Consumers desire a response from a company when they encounter negative publicity (Menon, Jewell, & Unnava, 1999). In their paper on response strategies for companies experiencing negative publicity, they find that no response or a weak response leads to about the same consumer attitudes, whilst a strong response generates more positive attitudes towards the company.
An appropriate response to negative publicity is predicted to reduce the negative effect of publicity on consumer brand attitudes (FolgerCropanzano, 2001). Companies may try to shift the blame on others, counter argue the statements, accept responsibility and act on it, or take other steps. Depending on the credibility of the company, the response might weaken the perceived threat to consumers, and limit the effect of the negative publicity on brand attitudes. Different appropriate responses to publicity exist. In this experiment, three main strategies are defined.
The Adaptation of new processes response (1) consists of an acknowledgement of the problem and a promise to change the production processes to eliminate the risk. In the Denial of severity response (2) a company confirms the initial claim, but argues that the risk is minimal or non-existent. The company may also choose a No response strategy (3). This can be due to litigation, or the company can try to keep the problem silent to minimise damage. Finally, the company may just be too slow or indecisive in their actions.