Product harm crisis and consumers’ moral reputation toward the troubled company

If company or brand has a favorable reputation, less crisis responsibility will be attributed to the company or brand (Laczniak et al., 2001). Company reputation moderates negative effect of product harm crisis (Klein & Dawar, 2004) and brands with strong reputation weather a crisis more effectively than their weaker counterparts (Zhao et al., 2011). On the other hand, good reputation is more penalized for their mistakes from the market than firms with a poor reputation, (Rhee & Haunschild, 2006).

Moral reputation defers from reputation in the sense that moral values are those preferences that are integral to any moral reasoning process. Moral thought reflects ethics. It is the art-science that critically evaluates the subject. As such, ethics identifies the norms or standards of behaviors that either are or can become the values that are implemented through moral reasoning (Muller at al., 2005). In case of product harm crisis situation, consumers who have intense ethical beliefs, tend toward more forceful levels of blame towards the affected company Zhou and Whitla (2012) showed that moral reputation is an important bridging connection between the attribution process and consumers’ reaction to negative celebrity publicity. Therefore, moral reputation may have to incorporate with causative factors to see the actual effect. When a negative event occurs due to controllable cause, the observer evaluates the action according to his /her moral beliefs, attributes, responsibility, and then becomes angry and wants to punish the subject (Weiner, 1986; Alicke, 2000). If the locus of a cause of a product harm crisis is internal and the behavior is stable and controllable, consumers tend to attribute blame and responsibility to the company (Klein & Dawar, 2004), whereas locus is external and the behavior is uncontrollable by firm, attributions will be made by consumers to external factors (Folkers, 1984). Based on the possible attribution tendencies suggested by Shaw and McMartin (1977), observers to a product harm crisis are more motivated to avoid harm than to avoid blame (Chaiken and Darley, 1973; Laufer and Coombs, 2006), as a result they will blame to the company. Recent studies showed that consumers’ ethical believes are badly affected by product harm crises (Vassilikopoulou, et al., 2011). These compelling evidences motivate us to hypothesize,

H₁= Internal (company), stable and controllable (by the company) product harm crises will cause detrimental effect on consumers moral reputation toward the troubled company

Product harm crisis and consumer based brand equity

Consumer based brand equity, the differential effect that brand knowledge has on consumer response to the marketing of that brand (Keller, 1993) leads to give moral judgments on brand and company during product harm crisis (Vassilikopoulou, et al., 2011). Companies about which consumers had weak prior expectations based on accumulated experience with the company, were barely able to maintain consumer based brand equity after a product harm crisis, even if they responded positively and proactively to remedy the harm (Dawar & Pillutla, 2000) and good moral reputation indeed leads to positive prior expectation. A brand’s image can be seriously damaged by product-harm, resulting in unfavorable brand beliefs and thereby in weakened brand equity (Dawar and Pillutla, 2000). Brand equity directly and positively affects purchase intentions in product harm crisis (Dawar and Pillutla, 2000). Folkes & Katsos, (1986) showed how attributions in the context of service delay led to the subsequent desire to complain, and affected re-purchase behavior. Therefore, it can be hypothesized that,

H₂= If the locus of the crisis is internal (company), stable and controllable (by the company), moral reputation toward the troubled company may significantly affect on the consumer based brand equity.

 

METHODOLOGY

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Current study on how product harm crises shape consumers’ moral reputation toward the troubled company thereby consumer based brand equity during product harm crisis, the causal dimensions (attributions) namely locus, stability, controllability factors have been chosen and attempted to understand how these factors affect consumer judgment in terms of moral reputation toward the troubled company and subsequent evaluations of brand equity. In line with previous research (Russell 1982; Folkes, 1984; (Zhou & Whitla, 2012), the locus was taken as internal (inside the company), while stability and controllability were considered as stable (permanent) and controllable (under the control of the company). A self administrated questionnaire survey was conducted to test the proposed hypotheses. The study used a fictitious product harm crisis scenarios highlighting internal, stable and controllable situation of product harm crisis. This scenario was followed by different questions to elicit perceptions of the locus, stability and controllability of the cause of the crisis event, consumers’ moral reputation toward the troubled company, and consumer based brand equity. A fictitious yoghurt brand “X” was used as the stimulus brand in these two conditions. A fictitious brand and fictitious crisis scenarios were taken in this research to avoid confounding effects due to consumers’ potential relationships or experiences with existing brands and past crises situations. The trigger event for the product harm crisis consisted of the fictitious scenario stating that the information about dead and hospitalized people due to adding of harmful preservatives to that yoghurt brand “X”. Study conducted a survey of a convenience sample of Sri Lankan based undergraduate marketing specialized students. The convenience sampling method was preferred since questionnaire can be easily and quickly collected and respondents are more corporative (Malhotra & Peterson, 2006; Vassilikopoulou, et al., 2009).

Sample and procedure

A sample of 492 respondents completed the survey. Among them 61.4 % are male. The average age was 22, ranging from 18-31 years. Each respondent was instructed to read specifically designed scenarios documenting the product harm crisis event in conjunction with a standard questionnaire which contained a series of questions regarding aforementioned variables in the study. Respondents were informed of the confidentiality of their views and opinions and debriefed after the survey. Questionnaires were administered in classroom session. To ensure the plausibility of the fictitious experimental scenarios, they were rated at the end of each scenario as, 1= “not realistic at all” and 7= “very realistic”. Internal consistency analyses were performed on the overall sample exploring validity and reliability

Measures

The survey instrument included measures of internal locus, stable and controllable arrtibutions, consumers’ moral reputation toward the troubled company and consumer based brand equity. Each of these constructs with measurement items, detailed in Table 1. The items used for attributions and moral reputation (Zhou & Whitla, 2012) were measured with 7- point Likert scales ranging from 1= “strongly disagree” to 7= “strongly agree” according to aforementioned authors. For example, in case of internal locus of attribution, “the cause is something that reflects an aspect of the company” is measured by using 1= “strongly disagree” and 7= “strongly agree” (Zhou & Whitla, 2012). Consumer based brand equity was measured as a measure of consumer beliefs (Aaker, 1991;Keller, 1998) In this method, consumer based brand equity measure was constructed with multiple item scales tapping dimensions of brand equity which have been used in previous research (Aaker, 1991; Agarwal & Rao, 1996; Keller, 1993; Dawar & Pillutla, 2000) and study treated brand equity as a composite of brand related beliefs; including brand attitude (favorable- unfavorable), brand trust (not at all trustworthy- very trustworthy, perceived quality of brand (low-high), perceived quality of products of brand(low-high), and brand desirability (not at all desirable-very desirable) using five items 7 - point semantic scale.

 

ANALYSES AND RESULTS

Assessment of the measurement of the model

Collected data were analyzed by using SPSS (version 20.0). Regression and correlations were run to analyze the proposed hypotheses and regression based technique; Hierarchical regression analysis was used to identify the mediator variable (Ro, 2012; Fairchild and MacKinnon, 2010). Factor analysis identified the validity and reliability of the different items used in each construct measured the same underlying construct(Pallant, 2008). Therefore, validity and reliability analysis verify the internal consistency of the items used. The reliability of the scales was accessed by reliability coefficient, Cronbach’s alpha (Cronbach 1951). Preferably, the reliability coefficient should be above 0.7 (DeVellis, 2003). In case of validity analysis, KMO>0.5 (Sig of Bartlett's Test<0.001) verifying the adequacy of the sample (Field, 2005). The analysis showed the average correlation among the items verifying the internal consistency (Table 1). All indexes were above their respective thresholds, providing evidence for acceptable scale reliability (Table 1).

Majority of the respondents recognized (more than 50%) the locus, stability and controllability separately, while 75% recognized the scenario was related to internal (company), stable and controllable by the company which the scenario needs to accentuate. That suggests that the crisis event was successfully manipulated. Majority (72%) stated that the experimental scenario was realistic.

Regression and correlation analysis

Regression and correlation analyses have been employed to test the study hypotheses. Answers for the variable namely, consumers’ moral reputation toward the troubled company, which states negative questions, were reversed in order to comply with the scales of the rest of the variables in the questionnaire. Causal dimensions of product harm crisis were highly correlated with consumers’ moral reputation toward the troubled company and consumer based brand equity as depicts by Table 2. Consumers’ moral reputation toward the troubled company and consumer based brand equity were negatively correlated with almost all causative dimensions discussed here (P<0.01).

 

Table 1-Validity and reliability results of each construct

Effect of causal dimension on consumers’ moral reputation toward the troubled company

Regression analyses were run to see the effect of causative dimensions on consumers’ moral reputation toward the troubled company. First, simple regression analyses were run to analyze the effect of individual causal dimensions on consumers’ moral reputation toward the troubled company. Results showed that locus was highly significant (β = -.181, t=-4.07, P<0.001) and stability was marginally significant (β =-085, t=-1.89, P= 0.06) verifying the correlation results (table 2). Controllability was also affect negatively (β = -.233, t= -5.30, P<0.001).

Effect of consumers’ moral reputation toward the troubled company on consumer based brand equity

Regression analysis showed that consumers’ moral reputation toward the troubled company was significantly affect on consumer based brand equity (β= .173, t=3.89, P<0.001) and the model was highly significant (F (1,490= 15.19 P<.001). However, previous analysis showed that all causal dimensions were negatively affected on consumers’ moral reputation toward the troubled company. Therefore, product harm crisis caused detrimental effect on consumer based brand equity.

Mediating role of consumers’ moral reputation toward the troubled company

A mediation analysis implies a causal chain and the mediator are assumed to be caused by the individual variable and to cause the outcome (Kenny et al., 1998). A mediator variable represents an intervening variable or, stated differently, a mechanism through which an independent variable is able to influence a dependent variable (Baron & Kenny, 1986; Peyrot, 1996). A mediator explains how or why a relationship exists between the predictor and dependent variable, and a mediator is often an attribute or an intrinsic characteristic of individuals (Holmbeck, 1997; Lindley & Walker, 1993; Peyrot, 1996). Mediation, according to the Baron & Kenny (1986) method, three regression equations should be estimated. As it is required to take a single factor, causative dimensions (locus, stability, controllability) were taken as a single factor (LSC) by employing factor analysis. All causative dimensions showed the evidence for acceptable scale reliability (Cronbach's Alpha= .73; KMO= .75).

Study observed the mediating role of consumers’ moral reputation toward the troubled company between causative dimensions of product harm crisis and consumer based brand equity. First regression model showed that the independent variable, combine effect of locus, stability, controllability (LSC) was significant predictor of the outcome variable CBBE (β= -.09, t=-2.1, P<0.05) and the second regression model showed that the independent variable (LSC) was a significant predictor of the mediator consumers’ moral reputation toward the troubled company (MRC) (β= -.19, t=-4.32, P<0.001). Third regression model containing both independent and mediator variable, LSC (β= -.06, t=-1.4, P>0.05) and MRC (β= .161, t=3.56, P<0.001) showed that the mediator is a significant predictor of the outcome variable CBBE. In the third regression, the β values of independent variable (LSC) was not significantly different from zero at a 5% significance level (β= -.06 P= .16) indicating complete mediating effect (Baron & Kenny, 1986).

 

DISCUSSION AND MANAGERIAL IMPLICATIONS

The introduction of the moral reputation concept to the product harm crisis literature as a bridge between product harm crisis and consumer based brand equity is the key contribution of current study to the existing product harm crisis literature. Moreover, current study captured important empirical findings. Regression analysis verified the correlation results. When product harm crisis occurred due to company’s fault and when it is controllable by the company, consumers’ moral reputation toward the troubled company decrease significantly resulting negative impact on consumer based brand equity. That may ultimate result a great financial risk to companies as past literature documented that consumer based brand equity is positively related with purchase intention of the affected brand (Dawar & Pillutla, 2000). Moreover, this finding is in line with Klein and Dawar (2004), McDonald, (2005) and Coombs and Holladay, (2007), who stated that perceived responsibility of a company for a crisis in terms of their intentionally and crisis’s controllability and foreseen ability seems to drive consumers’ anger responses. Further, Folkes, (1984) showed that controllability was highly correlated with feelings of anger and desire to hurt the business. This is aligned with attribution theory as well, which predicts that consumers’ attitudes are more likely to be negatively affected when the crisis event is predicted to be internal and controllable by the firm than when it is external and uncontrollable (Weiner, 1986). Interesting findings were obtained through regression analysis noteworthy to mention. Another major addition to the literature unveiled in this study is the negative impact of product harm crisis on consumers’ moral reputation toward the troubled company and the positive impact of that on consumer based brand equity. Therefore, in the company’s reputation perspective, if the product harm crisis is internal (company), stable and controllable by the company, company should pay more attention as it alarms a great risk of the financial stability of the particular company. Interestingly Klein and Dawar (2004) showed that company reputation moderates negative effect of product harm crisis. Current study found the mediating role of consumers’ moral reputation toward the troubled company.

 

CONCLUSION

Product harm crisis has a detrimental impact on consumers’ moral reputation toward the troubled company. Moreover, consumers’ moral reputation toward the company bridges the relationship between attributions of product harm crisis and consumer based brand equity. This alarms the importance of protecting consumers’ moral reputation toward the troubled company as consumer based brand equity decides the financial sustainability of a company.

 

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