Product-Harm Crisis Management

Words: 1100
Topic: Business & Economics
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Introduction

Customers and consumers are constantly being bombarded by the media and other avenues with information pertaining to products existent in the market. This form of publicity may be catalyzed by a variety of events which may provide positive or negative publicity to the product or brand. Product harm crisis refers to a highly publicized(often through the media) occurrence which is often a consequence of a product being deemed as harmful, dangerous, defective or unfit for use by consumers. This usually raises an alarm across the market which sends the customers into panic mode especially if they constantly interact with the brand often.

Product harm crisis may occur on small scale basis or on a global platform. In both instances, companies that undergo this occurrence are tasked with the burden of restoring confidence in customers and winning back their trust. Product harm crisis may necessitate the need for product recalls, compensation of consumers and in some cases complete product replacement. These actions are normally a result of pressure from government regulators and industry watchdogs who are tasked with ensuring that consumer rights are protected.

Consequences of product harm crisis on a brand

Product harm crisis results in loss of company (product) reputation, loss of revenue and loss of market share. The brand name is equally tarnished. Consumer reactions to product harm crises determine whether the product continues to stay in the market as their trust dwindles. The frequency of recalls of a product in an industry is described as the base rate information.

Factors that contribute to product harm crisis

Industry regulations and scrutiny by manufacturers and standardization bodies have increased the occurrence of product harm crisis. This is because they critically examine products in markets to ensure that they are fit for consumption. These products must conform to defined standards, failure to which action may be undertaken. Continual changes in customer demands and preferences have equally led to the evolution of product complexity which increases the possibility of product harm crisis. Furthermore, consumers are armed with information and are aware of their right to quality products.

Findings on product harm crisis

Past research suggests that firms use different strategies to respond to product harm crisis. This may involve a proactive or passive strategy. Proactive strategies are aimed at brand management and entails quick response to issues raised by customers. More so, several strategies have also been advanced which include denial, forced compliance, voluntary recall and ‘super effort’. The choice of the strategy influences stock returns as product recalls affect the firms value and market share. Studies suggest that proactive recall strategies have a more detrimental effect on stock returns as compared to passive strategies. This is due to the fact that investors view recall strategies from a different perspective as compared to customers. Investors view them as an indication of serious product damage and financial losses arising from expenses in the recall process, compensations and legal proceedings. Such occurrences do not favour the firm’s financial value.

The proactive strategy is inclusive and engages the consumers. The firm receives information from customers through complaints or participants in the distribution channels. It then looks into the complaints by performing an analysis of risk to determine the potential problems of the product. If the findings indicate that the product is harmful, the firm initiates a recall process. The aim of the recall is to remove defective or harmful products in the market and provide the public with information concerning the product anomaly. Passive strategies involve delaying of the recall process in a bid to shift responsibility to other participants. They occur when serious allegations about the product have been raised and in instances where firms may not be ready to handle the process.

Proactive strategies favour the consumer as they believe firms that bear product responsibility are of higher quality. This is due to the fact that the firms immediate response reduces speculation and negative impact of the recall process to the brand.

Participants in the stock market as well as investors in the industry have different views on the proactive recall strategy. To the consumer, it maintains confidence, trust, integrity and retains loyalty. Investors are concerned with ensuring a continual cash flow which is supported by product sales. Research suggests that proactive strategies may receive more coverage and scrutiny from investors leading to negative conclusions about the brand or product.

Consumers adopt beliefs and perceptions about brands based on product harm crises. Brands with initial positive beliefs are unlikely to be severely affected by the crisis. Base rate Information affects consumer decisions hence they may alter or adjust customer beliefs. Research indicates that base rate information affects consumer judgment hence it is important for a firm to understand the implications of product harm crisis on brand positions. It is important to conduct follow ups on products to maintain customer integrity in the brand.

Recommendations for companies handling product harm crisis

Product harm crisis disturb market or brand performance and change customer behaviour (Acton, 2011). In my view, in the event of product harm crisis, a good understanding of the company position in the market and characteristics of the customer are vital to the management of a crisis. This implies that they should understand the perceived danger of the publicized event as well as the overall implication on the company. More so, a firm should understand the reactions of the investors and the ripple effect on market performance. The firm should attain a level of balance in all aspects to handle the market share, investors, customers and its image appropriately.

A proactive strategy ensures that the customers feel the company is concerned about their wellbeing hence it may be suitable for application in cases where firms have a large market share especially for frequently used goods. In cases where the firm relies heavily on investors to manage their portfolio, I believe firms should opt for a passive strategy as this will not hurt the stock market and alter investor confidence. An evaluation of base rate information and its effects on alteration of customer beliefs determines how the firm will manage a product harm crisis.

If a product, with positive beliefs, undergoes a product harm crisis, the customer is likely to be affected since they have the perception that the brand is superior. This is opposed to products with no prior positive beliefs which the customer automatically develops a negative belief about the brand hence affecting the possibility of purchasing the product. The value of the firm, its market share and industry position can all be affected by product harm crisis (Ganesan, 2012).

References

Acton, A. (2011). Issues in Marketing. Atlanta, USA: Scholarly Editions.

Ganesan, S. (2012). Handbook of Marketing and Finance. Massachusetts, USA: Edward Elgar Publishing.