Optimal Advertising Strategies for Multinational Enterprises Facing a Product-Harm Crisis: An Abstract

Abstract

Product-harm crisis causes severe damage to firm’s financial performance due to dramatically dropping consumers’ intention to purchase. For example, after identifying a disastrous product quality flaw in its premium Galaxy Note 7 smartphone, Samsung Electronics Co. announced its net profit fell 16.8% in the third quarter of 2016, and its market share is expected to drop over 3.3% (from 23.3 to 20.0%) as it shipped 11.3 million fewer smartphones compared to same period in 2015 (Cheng and Jeong 2016; Protalinski 2016). Research shows that increasing product complexity and globalizing production processes exacerbate the frequency and severity of these kinds of crises (Chen et al. 2009). This study proposes a theoretical framework that analyzes the advertising effects and argues that the effects on consumers’ purchase intention are different depending on the timeline of a product-harm crisis and the segmentation of target consumers. This study aims to answer two questions: (1) Are advertising effects different depending on the timeline of implementation during a product-harm crisis? (2) Should an MNE use different advertising strategies based on different consumer groups in a product-harm crisis? In dealing with product-harm crises, the knowledge of theory and practice still remains limited (Smith et al. 1996). Because advertising can be instrumental in convincing consumers to trust the company and maintain brand loyalty, it is important to optimize when and how to provide an advertising campaign during a crisis management process. By statistical analysis based on a cross-sectional model, this study finds that generally speaking, the overall effect of advertising after a product-harm crisis is greater compared to advertising beforehand. However, these ad effects are moderated by consumers’ status (existing vs. potential). Specifically, for existing consumers (potential consumers), advertising after (before) a product-harm crisis creates weaker expectation effect and stronger signal effect compared to advertising beforehand, thus diminishing the negative impact of the crisis and maintaining (encouraging) purchase intention. This paper provides methodology and guidance to assess the advertising effects in the matrix of a crisis, focusing on crisis timeline and consumer status. By examining if and how an advertising campaign affects different groups of consumers during a negative corporate publicity, this study contributes to MNEs’ international business literature and provides managerial implications for marketing practitioners.