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A Model for Communication Locus In International Product ...

  1. 1. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL A MODEL FOR COMMUNICATION LOCUS IN INTERNATIONAL PRODUCT CRISIS MANAGEMENT Susan H. Godar, William Paterson University In this paper, I propose a framework for deciding the locus of communications for managing the communication flow during an international product crisis situation. Based on the model for the standardization of advertising in a multinational corporation which was advanced by Laroche, Kirpalani, Pons, and Zhou (2001), I suggest how a the company will select location(s) for the dissemination of information about the crisis. The primary factors influencing that location selection are Market, Subsidiary Power and Manager Expertise. Introduction Product defects are not new problems. Kings of old employed tasters to sample their food to make sure that it was not defective. As companies have increased access to more consumers both at home and around the world, the scope of potential harm has increased (Morgan 1988) beyond simple food tasting. Now, a product problem can affect company survival. Due to this increase in scope, companies have developed a process, a product crisis management (PCM) program, for handling crises brought on by product defects. Product recall and reintroduction information, and other public relations handling during PCM situations have been discussed in the marketing and management literature (c.f. Mitroff 1986; Wisenblit 1989; Arpan 2002). Most instances have involved national examples, with academic studies and popular business press focusing on domestic applications of the Johnson & Johnson behavioral model developed during McNeilabs's recall and reintroduction of Tylenol in the United States in 1983, or concentrating on the consumer effects of product recalls and reintroduction. My paper expands the product crisis management PCM literature to include an international dimension with a framework to cover the handling of public announcements in the midst of international PCM by affected companies. Building upon the model developed by Laroche, Kirpalani, Pons, and Zhou (2001) for the standardization of advertising in multinational companies, I offer a series of propositions to develop a decision model for establishing the locus for the management of the outgoing information to the public during the product crisis. These propositions show the impact of each of the included factors upon that location decision. With the growth of global products, it is also appropriate to look at the handling of communication during these crises on a global basis. International PCM presents different marketing problems than domestic or national PCM. The loci of information, decision makers, and product distribution may be very dispersed. The product may be sold in various countries under different names or meeting different health and safety standards. There may be different long-term marketing effects with reintroduction, especially if the product problems elicit animosity within the country. The number of potential stakeholders is much larger: home and host government involvement, diverse media, and dispersed operations. All have different "frames of reference" (Shrivastava 1987). A normative model is developed in this paper to aid companies in the handling of product harm incidents involving products marketed on an international basis. According to Kuklan (1986), a crisis is an out-of-the-ordinary situation requiring new rules. Short-term actions are needed to put out the fires and long-term actions may be needed to remove the source of the problems. The model proposed in this paper will focus on the short-term actions needed to put out the fires. While the handling of the Tylenol situation was widely regarded as well done, the handing of the Perrier recall in 1990 on an international basis was not as successful. The people at McNeilabs promptly responded to the Tylenol problem, withdrew their product rapidly and provided consistent, continuous information to the media. On 213
  2. 2. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL the other hand, the recall at Perrier had many more problems. The recall was delayed by a lack of coordination and indecision about who should do it and where it should be one. Confusing media contact resulted from conflicting announcements from the French headquarters staff and announcements from the French headquarters staff and the staff in their largest market. Their U.S. Market share plummeted and did not rebounded to its pre- crisis, level. Perrier's lack of a communication loci decision model may have contributed significantly to its problems (Butler, 1990; Kurzbard and Siomkos 1992). In 2000, Bridgestone/Firestone Inc. and Ford Motor Company were jointly involved in a product crisis over tires on the Explorer model of SUV. The blame-laying between these business partners compounded the communication divide between their respective headquarters in Japan and the U.S. A more unified voice, emanating from an agreed-upon locus, may have removed the crisis from the media spotlight sooner and resulted in a faster recovery in sales for both companies. Definitions Pearson and Clair (1998) define an organizational crisis as “a low-probability, high- impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by a belief that decisions must be made swiftly.” (pg. 60) In this paper, I focus on organizational crises involving products as these have the most direct impact upon the marketing efforts of the company. A product harm incident usually involves all three of the attributes in the definition: the marketing objectives of sales and product integrity are threatened; the marketer has limited ability to control the environment; and the marketer is forced to respond rapidly to the problem. Product crises can be broadly divided into two categories: those arising out of tampering by outsiders and those unforeseen defects arising from internal manufacturing error (Mitchell 1986). Tampering is defined in the U.S. Federal Anti-Tampering Act of 1983 as putting substance in a product with the intent of harming a third party. From a company's point of view, there can be three types of tampering: the initial act, copycat incidents and threats of tampering (Lowe 1988). All three types of these externally generated product harm incidents present problems. Unforeseen defects can arise out of manufacturing errors, including faulty production, inadequate research and development work, insufficient testing, and poor packaging, which can all lead to a product recall. These internally generated product harm incidents present unique problems for companies as the company must assume all responsibility and convince the public that the problem has been solved and will not recur. The Tylenol incident was a product-tampering incident and the Perrier and the tire situations were internally generated product harm incidents. While this difference may have contributed to the variance in the success level of the respective problems, a more important difference was in their handling of the actual crisis. According to Levy (1983), the primary attributes of an effective crisis management program are Preparation, Candor, Action and Initiative. In a simple domestic model, these attributes would occur in two parallel streams of activity, one involving the product and the other involving the public relations effort around the crisis. This model is the depiction of the activities undertaken by Johnson & Johnson in their recall of Tylenol, considered to be the seminal case of proper actions in a product harm crisis (Lowe 1983; Murray and Shohen 1992). Both of these activity streams took place only in the home country. This "Tylenol" model is based upon a public relations effort which took place at the time of the crisis and featured: (1) sharing all details of the crisis with the media; (2) having one central spokesman providing the information; (3) the ability to distance itself from the cause of the crisis; and (4) the ability to build upon their strong reputation (Murray and Shohen 1992). During this time the product problem was identified, a recall was immediately instituted, the product was altered to prevent repeats of the problem, and the product was reintroduced to the market, all with strong communication with the media and stakeholders. In the Johnson & Johnson case, all players were located at the headquarters of the affected company. Differences Between the Domestic and International Situations 214
  3. 3. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL In a domestic product crisis situation, the locus of communication is relatively easy. While the headquarters staff recalls the affected product line and the company's R&D staff modifies and reintroduces the product, the central spokesperson for the company, usually the company's president, would make full disclosure to the press which would rapidly disseminate the information to the public. In an international product crisis situation, the loci of communications become much more complex. In light of the differences that exist, a decision model is developed that considers the factors that a company will use to decide upon the source of the decisions with which it is faced during a PCM incident. The International Framework Laroche, et al. (2001) identified four broad factors that determined the level of standardization in advertising that a multinational company would use. The first three factors, similarity in market position, potential decision power of the subsidiary, and the MNC’s manager familiarity with the foreign context, impact the degree of control of the MNC over its subsidiary. This, in turn leads to advertising standardization: where there is high control, there is a high level of advertising standardization. I contend that the first three factors are the same factors that operated under conditions of PCM. While the decisions for standardized advertising are made under conditions of advanced planning and the crisis decisions are made under conditions of immediate reactions, the intended outcome is the same: a message about the product that will positively affect future sales. The decision to standardize advertising means that the decisions about advertising are made by the headquarters staff. Communication during a crisis that flows from the headquarters, as opposed to a subsidiary, is a parallel case. Thus, the advertising model is an appropriate base for the PCM model. Additional literature, too, is utilized in the development of the model as explicated below. Within the Market factors are the ability to isolate the problem based upon the importance and size of the market in which the product crisis occurred, and the similarity of the product across multiple markets. In the Subsidiary Power factors are the company’s diffusion of information/mandates about the product affected and its contact with the host government. Among the Familiarity factors are the potential for political impact, including consumer animosity, in the host country and the impact of partnerships and collaborators on the decision. The relevance of each of these factors will be discussed below. Market Factors If a market accounts for a significant proportion of the total sales and/or revenue of a company, the company has a larger stake in the successful resolution of any problems. If the market is a small part of the overall company, the company may choose to delegate the responsibility for its management to local personnel. Problems in less important markets may not seem "worthy" of significant effort on the part of Headquarters as the return on time invested is thought to be inadequate. The transaction cost of taking action is higher than the perceived benefit. Conversely, a threat to a major profit center within a company may cause the involvement of higher-level personnel in its resolution. Thus, P1: When a product crisis occurs in a market that a company considers to be significant, the communication will flow from the Company’s headquarters. Problems that receive widespread media coverage are less likely to be localized than those with minimal media coverage. Shrivastava and Siomkos (1989) contend that the ability to successfully recover from a product crisis situation is determined by the information disseminated by the media and government which influence the consumers' perceptions of the company and its products. They cite numerous articles that have been written in the popular business press regarding the necessity of a corporate communication program in the face of a crisis. The primary reason advanced is to contain the crisis by rapidly disseminating information. If the company can stop or slow the spread of media coverage, the problem is more likely to be localized. With the global media networks in existence today, this has become increasingly difficult. This factor may interact with the product standardization factor in that coverage may increase for standardized products as the media may perceive that there is more widespread interest in the problems for products that are available and identifiable in multiple markets. For example, even the Tylenol situation was handled differently in some countries. In Spain, where the product was marketed as a prescription drug, no recall was necessary and the crisis passed much more rapidly (Mackie, 1986). When the image of the product is available and similar in multiple markets, the company has a great interest in sending a common message to all those markets. Thus: 215
  4. 4. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL P2: When a product crisis occurs for a standardized product available in multiple markets, the communication will flow from the Company’s headquarters. Subsidiary Power Companies may operate as a network where manufacturing skills and the marketing mix are shared across subsidiary borders with other parts of the MNC (Ghoshal and Bartlett, 1990). If the company has chosen to create a dense, tightly integrated network, it will be more difficult for it to localize any problems. Products may flow across borders through the network, dispersing the location of product knowledge. Birkinshaw and Morrison (1995) found that a subsidiary may have one of three roles. In the first role, it may be a local implementer, with limited geographic and product scope, typically concerned with only one country’s market. In the second role, it may be a specialized contributor with activities that are highly interconnected with other subsidiaries. In the third role, it may have a world mandate with worldwide or regional responsibility for a product line. In this last case, the local operation may have the power – and the knowledge – to handle a product crisis. In the first two roles, however, it is unlikely to possess the necessary information and power to ably discuss the crisis incident. Thus: P3: When a product crisis occurs where the subsidiary has a world mandate for the product, the communication will flow from the local subsidiary. If it has a local or interconnected mandate, the communication will flow from the Headquarters. A crisis situation may impact many stakeholders: employees, stakeholders, and neighbors of the company, the governments of home and host countries, and the suppliers, competitors, etc. The influence of each of these can create problems for the company, in addition to the problems inherent in product recalls/changes/reintroduction. However, the framework proposed by this model focuses the political impact from the actions of the foreign/host government as a factor in the decision to locate the communication source in a given location. This adds a level not found in the model on advertising standardization as the host government will play a less active role there. While they may limit access to certain media or censure a message, they do not have the substantial impact they may have in PCM. This is because, in foreign situations, the dissatisfaction of the other foreign stakeholders is most often transmitted through their government to the company. Actions by the foreign government carry more weight, too, for the company's continued operations in a given country. In these cases, the local subsidiary, because it employs local personnel, may be better able to exercise the power of persuasion over a host government. They may possess better means of contact with local officials to diffuse any governmental problems. Thus: P4: When a product crisis occurs in a market where the company anticipates political reactions from the host government, the communication will flow from the local subsidiary. Familiarity Factors Just as it is important for the site with the responsibility for making public statements to have the requisite knowledge about the crisis and the product in general, so too is it important for it to understand the local market needs. In particular, Arpan (2002) has identified the ethnicity of the spokesperson in a crisis situation as a factor that has significant impact upon the company’s post-crisis recovery. She found that ethnic similarity between the company spokesperson and potential customers in the affected market affected the spokesperson’s perceived credibility and, therefore, the company’s credibility. “Among audiences where ethnic identity is thought to be strong, a spokesperson considered by members of the public to be similar to themselves should be considered.” (Arpan, pg. 333) For most companies, a spokesperson ethnically similar to the market would be found in the local subsidiary. Thus: P5: When a product crisis occurs in a market with a different primary ethnicity than that of the home country, the communication will flow from the local subsidiary. When a company has local or international collaborators who are also involved in the crisis, as occurred in the Bridgestone/Firestone situation, the need for a highly integrated media campaign are more important. Both sides may have positions to present, and those positions are not necessarily in concert with one another. While the day-to-day communications required to run a business that involves collaborators may be easily handled by local subsidiary personnel from both companies, a crisis situation is likely to force decisions higher within each company. Because the Headquarters is more likely to have the requisite familiarity with legal agreements and 216
  5. 5. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL high-level personnel at the collaborator company, they are more likely to desire, and to have the capability, to manage the communications. Thus: P6: When a product crisis occurs where there are partners/collaborators, the communication will flow from the Company’s headquarters. Marketing Management Applications & Conclusions Case studies, particularly in the popular business press, often cover product crisis. Little theory, however, has been advanced to show how they might best be managed. This paper has offered a framework for the loci of decision that would take place during an international product crisis. By weighing the factors, a company can decide from where the public communication regarding the crisis should flow. We propose further work to determine how companies actually handle crises and the validity of the framework for both domestic and international crisis management. Although this framework was setup for international product crises, it may also prove to be applicable to domestic crises. Many of the same factors would be relevant with slight modification for domestic crises. For example, a regionalized product with limited distribution could be considered to be similar to a foreign product that had been localized for a unique market. The framework, therefore, should be considered by marketing practitioners to evaluate its pertinence for purely domestic crises. While this model is presented as a method to decide the location from which to handle the situation after the international product crisis occurs, companies can have plans in place that allow rapid evaluation of the various factors to make expedient decisions on the handling of the crisis. Wisenblit (1989) studied U.S. companies to evaluate the content of PCM plans that they had in place. His content items included identification of a crisis, a checklist of steps, specification of a chain of command, designation of crisis control center, and establishing an outline of crisis communication procedures. A marketing practitioner should determine what difference, if any, exist in their planning for the handling of International PCM would be most appropriate. Companies should evaluate both how they would handle a foreign PCM situation and how that varies from the normal manner in which they handle routine foreign matters. References Arpan, Laura, 2002. “When in Rome? The Effects of Spokesperson Ethnicity on Audience Evaluation of Crisis Communication,” Journal of Business Communication, 39(3):314-339. Birkinshaw, Julian M. and Allen J. Morrison, 1995. “Configurations of Strategy and Structure in Subsidiaries of Multinational Corporations,” Journal of International Business Studies, 26(4):729-753. Butler, Daniel, 1990. "Perrier's Painful Period," Management Today, (August), 72-73. Kuklan, Hoosang, 1986. “Managing Crises: Challenges and Complexities,” SAM Advanced Management Journal, (Autumn):39-44. Kurzbard, Gary and George J. Siomkos, 1992. “Crafting a Damage Control Plan: Lessons from Perrier,” Journal of Business Strategy, 13(2):39-43. Laroche, Michel, V.H. Kirpalani, Frank Pons, and Lianxi Zhou, 2001. “A Model of Advertising Standardization in Multinational Corporations,” Journal of International Business Studies, 32(2):249-266. Levy, Robert, 1983. “Crisis Public Relations,” Dun’s Business Monthly, (August): 50-53. Lowe, Deborah M., 1986. The Development of Corporate Management Responses to Incidents of Consumer Product Tampering. Unpublished DBA dissertation, Golden State University, San Francisco, CA, U.S.A. Mitchell, Thomas H., 1986. “Coping with a Corporate Crisis,” Canadian Business Review, 13(3):17-20. Mitroff, Ian, 1986. “Teaching Corporate America to Think about Crisis Prevention,” Journal of Business Strategy, 6(1):40-47. 217
  6. 6. AIB-SE (USA) 2003 Annual Meeting, Clearwater, FL Morgan, Fred W., 1988. “Tampered Goods: Legal Developments and Marketing Guidelines,” Journal of Marketing, (April):86-96. Murray, Eileen, and Saundra Shohen, 1992. “Lessons from the Tylenol Tragedy on Surviving a Corporate Crisis,” Medical Marketing and Media, 27(2):14-19. Pearson, Christine M. and Judith A. Clair, 1998. “Reframing Crisis Management,” Academy of Management Review, 23(1):59-76. Shrivastava, Paul, 1987. Bhopal: Anatomy of a Crisis. Cambridge: Ballinger. Wisenblit, Joseph Z., 1989. “Crisis Management Planning Among U.S. Corporations: Empirical Evidence and a Proposed Framework,” Advanced Management Journal, (Spring):31-41. Susan H. Godar (Ph.D., Temple University) is an Associate Professor in the Department of Marketing & Management Sciences at William Paterson University. Her articles have been published in Industrial Marketing Management, Teaching Business Ethics, and other journals. She is currently editing a book on virtual teams in business. Her email address is godars@wpunj.edu. 218