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doi:10.1016/j.bushor XXXXXXXXXX See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/4885317 How should a company respond to a product...

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doi:10.1016/j.bushor XXXXXXXXXX
See    discussions,    stats,    and    author    profiles    for    this    publication    at:    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
Article        in        Business    Horizons    Â·    Fe
uary    2006
DOI:    10.1016/j.bushor XXXXXXXXXX    Â·    Source:    RePEc
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Victoria    University    of    Wellington
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Texas    A&M    University
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usho
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
a College of Business, University of Cincinnati, 428 Carl H. Lindner Hall, Cincinnati, OH XXXXXXXXXX, USA
Department of Communications, Eastern Illinois University, 600 Lincoln Ave., Charleston,
IL XXXXXXXXXX, USA
XXXXXXXXXX/$ - see front matter D 200
doi:10.1016/j.bushor XXXXXXXXXX
* Co
esponding author. Present ad
Business, Yeshiva University, 500 West
New York, NY 10033, USA.
E-mail addresses: XXXXXXXXXX
XXXXXXXXXX (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
epresent cu
ent 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
esponse.
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
discrete, well publicized occu
ences 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
it is probably only a matter of time for any product
Business Horizons XXXXXXXXXX, 379—385
diana University. All rights reserved.
http:
www.recalls.gov
http:
dx.doi.org/10.1016/j.bushor XXXXXXXXXX
mailto: XXXXXXXXXX
mailto: XXXXXXXXXX
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, XXXXXXXXXXMoreover, product
harm crises and product recalls are threatening to
a company’s reputation (Berman, 1999; Davies,
Chun, da Silva, & Roper, 2003; Mowen, XXXXXXXXXXWhile
an intangible asset, corporate reputation does
have financial implications for an organization;
for example, Davies et al XXXXXXXXXXreported that
eputation 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
esponse 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, XXXXXXXXXXThis article
organizes and extends our understanding of how
to evaluate a product harm crisis and select crisis
esponses 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 o
potential users of the product. This is especially
prevalent when the product harm crisis is initially
eported 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 wa
anted,
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-
ant 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-
ility 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 gende
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
ad.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
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How should a company respond to a product harm crisis? 381
involved people receiving electrical shocks afte
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 XXXXXXXXXXfound 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
and of personal computer.
The first group received information about a well-
known
and, Compaq, while the second group
eceived the identical information for a relatively
unknown
and, Everex. The authors found that
participants in the well-known
and condition
(Compaq) attributed more blame to the users fo
the computer problems; in contrast, participants in
the relatively unknown
and 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
and has a favorable
eputation, less crisis responsibility will be attrib-
uted to the company or
and; on the other hand, if
the company has a negative reputation or is
elatively unknown, consumers will attribute more
lame 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
lame.
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 popula
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 thei
eactions 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
eact 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
lame will be attributed to a potentially responsi-
le party by an observer to the incident. Ro
en-
nolt XXXXXXXXXXreviewed studies examining
Answered 1 days After Feb 16, 2022

Solution

Parul answered on Feb 17 2022
110 Votes
Application of Red Hat on case study/ article
Red Hat offers opportunity to express the true feelings and emotions urging one to look at intuitions/ gut-feeling. This can help one to comprehend the situation promptly. In this case study it easy to discern that customer makes their decision emotionally rather than logically. If they aren’t associated with the
and and invested in their image then any crisis with the product a consumer will hold the company liable for the damages. In recent past, we have experienced a lot of product harms and crises like Vioxx and Firestone that can be tremendously dangerous not only for the companies but also for other stakeholders like consumer, environment and society. For any company to survive the test of time and thrive in future they require to build a rapport with their...
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