Alberto González
How can companies
effectively measure the negative effects of bad publicity?
Consumers are
increasingly providing unsolicited feedback to companies and to each other, and
negative publicity has been steadily increasing for the past 30 years.
Consequently, negative information about brands and companies is prevalent in
the market place. This negative information has more impact on consumer’
attitudes than an equal dose of positive information and spreads rapidly over
the internet as a result of the increase on social media utilization. Diverse
efforts have been undertaken to measure the effect this negative publicity has in
companies but quantifying its impact has proved difficult.
Negative publicity
affects companies differently but, on a general level, we can categorized bad
publicity into the one primarily related to product performance (e.g. product defects) or the publicity more related
with organizational or values (e.g.
discrimination, labor abuses). When facing negative publicity, a particular
company has mainly three response
tactics:
- Denial and rejection of all allegations
- Acknowledgement of product failure or misconduct with a justified refusal to remedy the situation
- Quick acceptance of the allegations with a voluntary proposal to remedy the situation
Independently of the
tactic used, it has been argued that the speed
of the response is critical for the company to achieve a favorable public
response. Moreover, in the past years, and due to the increase on the amount of
information available, a denial and rejection response has rarely worked in
convincing the public. However, the question remain, how can companies measure
the effects of this bad publicity?
First efforts on
quantifying the impact of negative publicity related to crisis events in which a particular company needed to recall a product from the market.
Classic examples of these situations are the cases of the Johnson and Johnson Extra
Strength Tylenol tampering or the P&G Rely tampons controversy. In more
recent years, companies such as Firestone have been forced to recall products
from the markets after safety claims were made. With these cases, a simple,
tough simplistic, compromise was taken: the cost of the negative publicity was
assumed equal to the cost of recalling the product. As an example, P&G
pulled some 400.000 cases of its Rely Tampons off the market at a cost of
approximately $75 million. However, this method does not take the impact on intangible
assets of the company, such as its brand, into consideration.
Bad publicity is well
known to have a negative influence in brand
image and this problem becomes
even more challenging when different products are released under the same
umbrella brand. When a company uses an umbrella brand, the negative publicity
spillovers of one product might negatively affect other products released under
the same brand.
One standard
measurement for estimating the effect of bad publicity used in public companies
concerns the stock prices. As an
example, after the tragic accident of the Germanwings flight AU925 on 24th
of March 2015, its parent airline’s, Lufthansa, stock went down 6% in a two-day
period. This accident has been said to be also behind Ryanair shares dropping
3% on the same period. American airlines and United also dropped 2 and 1 percent
respectively.
However, this type of
measure is inapplicable for SMEs or private companies. Moreover, the difference
between book value and market “real” value became self-evident after the
dot-com bubble burst in 1999-2001, or the already classic Enron case.
Applicable for these companies and public companies alike, is the idea of a reputation index as a tool to measure
corporate reputation. This type of index usually comprises a variety of key factors
including, but not limited to, corporate strategy, financial strength and
viability, organizational culture, ethics and integrity, governance processes
and leadership, products/services, strategic alliances and business partnering,
and/or innovation.
Having concrete
metrics regarding the views of the company from employees, clients and other
stakeholders in topics such as ethics, culture, upper management, environmental
policy, quality of the products or service, or financial strength, prior and
after negative publicity can help companies to estimate the impact of negative
publicity. A company also needs to decide how to weight all these different
factors in order to develop a useful index as a “one-fits-all” criteria for the
weights would be over simplistic.
Despite all the
efforts undertaken to quantify negative publicity, the results are far from
ideal. It is relatively clear that negative publicity will have an influence on
demand and brand image but the extent of this effect varies greatly depending
on factors such as:
(1) Brand loyalty of the customers. As a
general rule, the higher the brand loyalty or commitment, the lower the impact.
(2) The level of exposure. The extent of
media coverage and/or how psychologically or physically far the “event” took
place, have an influence on the impact.
(3) Response tactic. The response of the
company and whether the message turns out to be accurate has also an impact.
(4) Perception of responsibility. How
responsible the company is found to be has the biggest impact on brand image,
followed by company’s reputation.
(5) Credibility of the source.
Claims of the company’s innocence or guilt made by external sources and how
credible these sources are, have a critical impact on the perception of
responsibility.
(6) Reputation and history of the company. Consumer
usually analyze whether we are under an isolated event or one more occurrence of
a known issue. Company reputation in general is also paramount.
As already mentioned,
the second most important factor has been found to be the company’s reputation. A company with good reputation offering an
inappropriate response to an event could remain favorably regarded by
consumers, whereas a bad firm offering the same response will experience a loss
of favor. However, it would be wise to notice that a company with a good reputation
is also expected to provide an appropriate response and consumers
can be disappointed if the response falls short. On a similar fashion, brand positioning has an influence on
the effect. As an example, a company with a personality that is “sincere” is
likely to be harmed more by a service failure than a company with an “exciting”
brand personality.
To finalize, companies
should not forget that the effect of negative publicity depends greatly on the consumers themselves. Consumers are not
a homogenous group and their different personal
characteristics may influence the way they perceive negative publicity. For
instance, differences in the processing
style of the consumers have an effect on mitigating the effects of negative
publicity. Researcher have found out that holistic
thinkers are less susceptible to negative publicity than are analytical thinkers. Holistic thinkers
are more likely to consider external context based explanations, whereas
analytical thinkers will probably attribute the negative information to the
brand and disregard contextual factors. Therefore, as one could expect, if
consumers are directed towards paying more attention to contextual factors, the
impact of negative publicity can be countered.
All in all, some of
the efforts for quantifying the impact of negative publicity have been
relatively naïve or not applicable for SMEs. A combination of methods, in which
measurements for certain factors are taken prior and after the bad publicity,
seems to be the most appropriate instrument for measuring this impact.
Nevertheless, companies should be aware that their actions, contextual factors
and the personality of the consumers, are expected to have an important
influence on the impact of negative publicity and that a quantification might
turn out being over-simplistic.
Alberto González
Lecturer – Innovation and
Creativity
Turku University of Applied Sciences
alberto.gonzalez@turkuamk.fi
The research
problem of the NEMO project is: how
contradictory and negative emotions can ethically and sustainably be used as
sources not merely for improving customer experience and working climate but
also for growth, innovation and new business models?