Monthly: July 2013

Bill Nichols

31 July 2013

Bill Nichols

After the Crisis: What Price Recovery?

008 – Jul-August 2013

Picture the scene:  negative coverage fading; bloggers sand-blasting someone else; a desultory tweet or two; and the press office phones silent(ish).  The CEO has cut the decibels.  And, yes, stock is trickling back onto the shelves after the recall.

Crisis over? Job done?  You’d forgive exhausted comms and marketing chiefs for thinking so.

But they’re less than halfway there.  After containment, how next to recover on share, volume and margin?  The crisis recovery task is (at least) to restore – and (better) to exceed – the ‘status quo ante’.

Now, at this point, many a company tosses a coin.  Heads,  it’s the expensive advertising accelerator.  Tails, the price-discounting brake.  Or maybe both – and the kitchen sink.  But which choice is preferable? When and why? Surprisingly, and unlike containment, little robust recovery research evidence is on offer.

Until now.  A new study, which reviewed the aftermath of some 60 UK and Dutch product recalls (*), highlights two key influencing factors.  They are (i) the acknowledgement of blame (if/how) and (ii) the extent/volume of negative publicity.

To own up or not?

For many senior managers, ‘owning up’ (admitting blame) generates almost atavistic fear.  But it’s a powerful and cathartic PR move. It draws a line on the crisis and begins to restore trust.  If implemented (the study finds), it tends short-term to halt sales decline and sustain market share. Competitors, too, may quietly applaud since the entire product category may benefit.

But, medium-term?  Typically, advertising effectiveness decreases. So less bangs per buck and harder to grow the brand.  Conversely price sensitivity increases.  So far tougher to recover costs.

Any publicity may be good?

So what about negative coverage?  Not helpful you’d imagine.   True, on the downside, large-scale negativity associates with increased price sensitivity.  And the blight affects both the crisis firm and the whole category.  (No competitor applause on this scenario!).

But there is an upside.  It partly validates the old ‘any publicity is good publicity’ mantra.  Because, typically the raw power of large-scale heightened awareness outweighs its negative direction.  So it actually supports increased advertising efficiency.  On this tack, counter-intuitively, the greater the volume of negativity the faster the recovery!

Now, speculatively, throw in sustained PR (not a study variable) to further minimise the residual negative.  This may explain the rapid ‘bounceback-ability’ witnessed in some product recall scenarios.

Which way?

These, then, are complex effects.   Far from a toss of the coin (hit the advertising, crash the price), the  study pairs the factors to identify and support a much more nuanced four-way response:

  1. Low coverage/blame not accepted: focus on advertising, leave price alone
  2. Low coverage/blame acknowledged:  discount, withdraw from advertising
  3. High coverage/blame not accepted: go heavy on advertising, leave price untouched
  4. High coverage/blame acknowledged: the one case in which increased advertising may go hand-in-hand successfully with price discounting.

Now granted none of this is likely to set the adrenalin pumping.  It’s hard to match the buzz of fire-fighting.  Even prevention strategy development can seem more attractive than picking forensically through the ruins!

But there is a massive challenge here.  For recovery to succeed and deliver business benefits, both forensic style and careful manipulation of the key variables are crucial.

For some, crisis recovery could be just as structured as crisis management – and perhaps just as much fun!


(*) Cleeren, van Heerde and Dekimpe (2013). .