Reports

Brand Damage from Product Harm and Corporate Social Irresponsibility: How Deep and How Long?

Max Backhaus and Marc Fischer, 2016, 16-133

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Brand equity can suffer significantly during a crisis, with profound and enduring effects on subsequent corporate performance. While the academic literature is rich on product-harm crises, less is known about the effects of corporate social irresponsibility events on consumer-based brand evaluations.

In this report, Max Backhaus and Marc Fischer fill this research gap and conduct a systematic investigation of the dynamic effects of brand crisis events on brand attention and brand strength.

Their examination is based on a unique dataset of 214 crisis events (both product failure and social misbehavior) in Germany across 12 industry sectors, 69 brands, and five years.

The principal measures used to analyze the impact and effects of the crises study include YouGov’s Brand Index and advertising spend allocated before, during, and after the crisis (Ebiquity). YouGov’s Brand Index score is particularly sensitive and revealing, as it tracks brand perception weekly.

Findings

  • The effect of a brand crisis event is asymmetric. It increases brand attention but damages brand strength, both immediately and in the long run.
  • The potential brand damage from corporate social misbehavior is, on average, deeper and cumulates to a larger total effect over time than from product failure. The damage may extend to nine months.
  • The brand damage effects are aggravated if the firm denies responsibility, the event is a national event, and there is more media coverage.

Implications

The findings provide important implications for managers. First and foremost, marketers should not ignore the risks of corporate socially irresponsible behavior. These results offer a clear message that such behavior may have a devastating effect on one of the most valuable corporate assets, the brand.

There is an asymmetric focus on corporate social responsibility and cause-related marketing activities in research and in practice. These findings suggest that increased attention to the effects of corporate social irresponsibility is warranted.

The results furthermore shed light on which events have the potential to develop into deeper crises. For example, media coverage essentially has a double jeopardy effect as it intensifies brand attention as well as diminishes brand strength. The study also shows that denying the responsibility of a crisis in the beginning hurts the brand over time.

Max Backhaus is a Ph.D. student at the University of Cologne. Marc Fischer is Professor of Marketing and Market Research, University of Cologne and Professor of Marketing, UTS Business School, Sydney, Australia. 

Related links

What to Do When Your Product Fails (2015) [Article]

Should Ad Spending Increase or Decrease Prior to a Product Recall Announcement?
Haibing Gao, Jinhong Xie, Qi Wang, and Kenneth C. Wilbur (2014) [Report]

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