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Life Impact The University of Adelaide

Friday, October 7, 2005WHY SAY SORRY?

Influencing consumers’ perception post organizational crisis

CRISIS MANAGEMENTAND

CORPORATE REPUTATION

Angelo De Blasio and Roberta Veale

Life Impact The University of AdelaideSlide 2

Insert Name of Presentation

CORPORATE REPUTATION

Corporate Reputation can be defined as the overall assessment of an organization’s business and social performance as

compared to the observed performance of other organizations.



CORPORATE CRISES

A Corporate Crisis…

Is unexpected Offers little time to respond

Responses result in positive or negative outcomes

Damage to reputations impacts:

Consumer trustSocial expectations

Future growth and revenue

“…any event with the potential to bring an organization into disrepute and jeopardise future profitability, growth and,

survival” (Dean 2005)



POTENTIAL CRISIS TYPES

Victim• Minimal attributions of crisis responsibility.

– The organisation itself is considered a ‘victim’– e.g. product tampering, terrorism

Accidental • Moderate attributions of crisis responsibility.

– The organisation still carries some blame– e.g. machinery failure

Preventable • Strong attributions of crisis responsibility.

– The organisation carries the full brunt of blame– e.g. executive fraud, product failure



“PREVENTABLE”Vitamin C content in RIBENA

March, 2007

• GlaxoSmithKline (Ribena) found to have engaged in misleading and deceptive conduct.

• Fined NZ$217,500 by Auckland District Court and ordered to run a series of corrective advertisements.



CONITUUM OF DEFENSIVE AND ACCOMODATIVE RESPONSES

ACCOMODATIVEDEFENSIVE

ATTACK DENIAL EXCUSE JUSTIFICATION INGRATITION APOLOGY CORRECTION

Adapted from Coombs (1998)

CRISIS RESPONSE



APOLOGY/ CORRECTION



BACKGROUND TO THE STUDY

• Few studies have explored the impact of crises on consumer purchase intentions

• Limited number of studies completed in theAustralian context.

• Most studies use student samples.

• Limited range of crisis responses used in testing.



CONCEPTUAL FRAMEWORK

Adapted from Lee (2005)

CRISIS SERIOUSNESS

Crisis Response Type

Trust in the Organisation

Impression of the Organisation

Purchase Intention

Judgments of Organisational Responsibility



RESEARCH DESIGN

Stage 1 – QualitativeFocus groups (x 2)• To determine crisis

response to test in stage 2

• To determine hypothetical crisis to test

Stage 2 – Quantitative Experimental design

• Self Administered Questionnaire

• Convenience Sample of 250

• 5 cells of 50 each – rotated responses

• Pre-test confirmed measures



FOCUS GROUP COMMENTS

Determining Crisis Type • “I am likely to become more involved in a crisis if I believe it

could have been prevented.”

Determining Crisis Responses• “An organisation would have a lot of trouble using justification

as a crisis response for a preventable crisis.”

Determining Crisis Situation• “We buy and consume food products on a daily basis. That’s

why I always get worried every time I hear about a product recall in the supermarkets.”



CRISIS SITUATIONWalker Family Pty Ltd is a large supplier of fresh produce. For many years they have supplied fresh fruit and vegetables to a number of supermarket and restaurant chains. In September 2006, an outbreak of illness caused by Escherichia coli (E. coli) bacteria was found in fresh lettuce supplied by Walker Family Pty Ltd. The strain of E. coli found in the lettuce causes bloody diarrhea and dehydration. By 6 October, 2006, 67 people were infected after eating lettuce supplied by the company, including 3 people who also suffered a form of severe kidney failure (Hemolytic Uremic Syndrome). Federal health officials stated that over 50% of those who reported being sick from eating the lettuce were hospitalised. The outbreak was eventually traced to one of the company’s farms located in a regional area, where many of the organisation’s products are sourced. Investigators with the Professional Society for Infectious Diseases confirmed that the dangerous strain of bacteria found in the lettuce originated from irrigation water contaminated with sheep feces and from grazing cattle. On September 27th, there was a recall of all goods distributed by Walker Family Pty Ltd and consumers were warned to be especially vigilant when preparing fresh fruit and vegetables. As a result of this, consumer analysts predict that Walker Family Pty Ltd will suffer dramatically as a business due to the fact that many consumers feel the organisation has engaged in unsafe practices.



Denial (Previously untested in this context) “Until adequate testing has been conducted Walker Family Pty Ltd refuses to

acknowledge that the recent outbreak of E. coli is linked to any of our products.”

Excuse “Upon distribution, our products are exposed to a number of possible sources of

contamination not associated with our organization.”

No Comment (Previously untested in this context) “Despite the government issuing a recall of all goods supplied by Walker Family Pty Ltd.,

the organization is yet to make an announcement on the outbreak of E. coli linked to its products.”

Apology“Walker Family Pty Ltd is extremely sorry that the recent outbreak of E. coli was linked to

our fresh produce. Our thoughts are with the victims.”

Correction“Walker Family Pty Ltd. yesterday announced that the source of the recent E. coli

outbreak had been identified and corrected. New testing procedures have now been implemented and will ensure that a similar outbreak of E. coli does not occur in the future.”

RESPONSES TESTED



RESULTS

Comparison of mean scores for Impression of the Organization

Response Type

Mean Score

Std.

Denial 9.60 5.28

No Comment 15.40 6.96

Excuse 14.00 5.95

Apology 15.37 5.79

Correction 18.02 5.59Crisis Response

Type

Trust in the Organization

Impression of the Organization

Purchase Intentions

Judgments of Organizational Responsibility

0.06

0.45

0.32

0.06

NS

No significant difference between means scores for

No Comment, Denialand Apology



LIMITATIONS

Sample Error• Convenience Sample• Risk of demographic biases.• Relatively small sample size.

Only 1 type of crisis tested• 1 level of seriousness.• 1 level of organizational responsibility.

Hypothetical brand used for testing• No measure of influence of brand

equity.



IMPLICATIONS FOR PRACTITIONERS

• Public Relations efforts are important and relevant to Australian consumers and the impact on organizational reputation, post-crisis.

• Results challenge some widely accepted managerial assumptions regarding ways to repair and enhance organizational reputation.

• Apologizing for a crisis may not be more affective in reducing damage to an organization’s reputation than providing an excuse, or completely refusing to address the situation at all.

DIRECTIONS FOR FURTHER RESEARCH

Constructs tested in this exploratory study can be investigated more comprehensively by:

• testing a range of product types • Investigating alternate scenarios • employing larger, more representative samples



QUESTIONS?

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Education