Managing Product-Harm Crises

35 Pages Posted: 26 Aug 2006

See all articles by Harald J. van Heerde

Harald J. van Heerde

Massey University - Dept of Communication, Journalism & Marketing

Kristiaan Helsen

Hong Kong University of Science & Technology (HKUST) - Department of Marketing

M. G. Dekimpe

Catholic University of Leuven (KUL) - Department of Applied Economics; Erasmus Research Institute of Management (ERIM)

Date Written: June 2005 9,

Abstract

Product-harm crises are among a firms worst nightmares. Since marketing investments may be instrumental to convince consumers to purchase the firm&apos's products again, it is important to provide an adequate measurement of the effectiveness of these investments, especially after the crisis. We provide a methodology through which firms can assess the impact of product crises in a quantitative way. Based on the model estimates, firms can estimate the required level of investment to recoup from the crisis. A key finding of this paper is that it is not only important to assess the extent to which business is lost as a result of the crisis, but also to find the new, postcrisis response parameters to marketing activities. The study of an Australian product-harm crisis for peanut butter reveals that a product crisis may represent a quadruple jeopardy for a firm: (i) loss of baseline sales, (ii) a reduced own effectiveness for its marketing instruments, (iii) increased vulnerability, and (iv) decreased clout. We arrive at this conclusion by using a time-varying error-correction model that allows for (i) shortand long-term marketing mix effects, (ii) intercepts and response parameters that change over time as a result of the crisis, and (iii) missing observations, which result from the absence of the impacted brands during the product-recall period. The time-varying error-correction model is applicable to other marketing-research areas in which these three requirements (or any subset thereof) apply.

Keywords: brand management, error-correction models, time-varying parameters, missing-data problems, Gibbs sampling methods, time-series models

JEL Classification: M, C44, M31

Suggested Citation

van Heerde, Harald J. and Helsen, Kristiaan and Dekimpe, Marnik, Managing Product-Harm Crises (June 2005 9,). ERIM Report Series Reference No. ERS-2005-044-MKT, Available at SSRN: https://ssrn.com/abstract=902511

Harald J. Van Heerde (Contact Author)

Massey University - Dept of Communication, Journalism & Marketing ( email )

Dept of Communication, Journalism & Marketing
Private Box 756
Wellington, 6140
New Zealand

Kristiaan Helsen

Hong Kong University of Science & Technology (HKUST) - Department of Marketing ( email )

Department of Marketing
Clear Water Bay, Kowloon
Hong Kong

Marnik Dekimpe

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 16 326 957 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: http://www.econ.kuleuven.ac.be/tew/academic/market/members/MarnikDekimpe.htm

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1715/9576 (Phone)
+31 10 408 9011 (Fax)

HOME PAGE: http://web.eur.nl/fbk/dep/dep3/about/members/people/mdekimpe

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
304
Abstract Views
1,515
rank
124,962
PlumX Metrics