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International Journal of Science and Healthcare Research

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Original Research Article

Year: 2016 | Month: July-September | Volume: 1 | Issue: 3 | Pages: 11-19

How Sri Lankan young consumers morally repute the troubled company during a product harm crisis: A challenge of financial sustainability

Ganganee Chandima Samaraweera

Senior Lecturer, Dept. of Agricultural Economics and Extension, Faculty of Agriculture, University of Ruhuna, Sri Lanka.

ABSTRACT

Product harm crises are mounting at an accelerating rate throughout the world recently alarming the importance of scrutinizing this worst nightmare through a new empirical angle. Therefore, this study discusses how consumer looks a troubled company during a product harm crisis through his ‘ethical eye’, i.e., his moral reputational perspective. Based on 492 young Sri Lankan consumers view, results revealed that causative dimensions (internal-company, stable, and controllable-company) affect adversely on consumers’ moral reputation toward the troubled company. Further study uncovers that consumers’ moral reputation is an important bridging connection between the attribution process and consumers based brand equity. This study provides new insights for companies to protect their consumers’ moral reputation toward them, while safekeeping the consumer based brand equity in midst of product harm crisis.

Key words: Product harm crisis, brand equity, causative dimensions.

 
INTRODUCTION

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Product harm crises are discrete, well- publicized occurrences wherein products are found to be defective or dangerous (Siomkos and Kurzbard, 1994; Dawar and Pillutla, 2000). Mounting literature discusses about the effect of product harm crises on brand equity with numerous management strategies. However, product harm crises are increasing at an accelerating rate throughout the world recently. This situation alarms to look the matter through a new empirical eye. Recent literature (Vassilikopoulou, et al., 2011) showed consumers’ ethical nature attached to product harm crises. Therefore, present study tries to capture how consumers’ ethical eye decides troubled company’s reputation during product harm crises.

Product harm crises are among the worst disasters that can happen to firms (Van Heerde et al., 2007) as well as brands (Dawar and Pillutla, 2000). Consumer based brand equity, the differential effect that brand knowledge has on consumer response to the marketing of that band (Keller, 1993), is badly affected due to product harm crises (Dawar and Pillutla, 2000). Moreover, brand equity is fragile because it is founded in consumers’ beliefs and can be prone to large and sudden shifts outside of managerial control because of consumers’ exposure to new information, among other factors (Dawar and Pillutla, 2000). Increased recognition of the value of brand equity (Aaker, 1996, Keller, 1993, Shocker et al., 1994, Dawar and Pillutla, 2000, Zhao et al., 2011) and the mounting frequency of product-harm crises, raise important questions about the security of brand equity in midst of product-harm crises. As brands and companies are highly attached each other, understanding the effect of product harm crisis on consumers’ moral reputation toward the troubled company may in turn decides their view on brand equity; the tremendous value attached to the brand. Weiner (1980) widely used attribution model conceptualizes three causal dimensions of attributions that lead to an overall judgment of responsibility or blame: the locus of the behavior (is the cause located in the consumer or in the seller or manufacturer?), the stability of the behavior (unchanging or temporary- fluctuating over time), and the controllability of the behavior, which can be within or outside the control of the actor. It is very hard to find existing empirical studies which are directly examined the effect of these three causal dimensions on consumers’ moral reputation toward the troubled company during product harm crises and very few discussed this in this research domain (Samaraweera et al., 2014). Therefore, present study tries to uncover the effect of these causative dimensions of product harm crisis on consumer based brand equity in the perspective of moral reputation, and to find the remedial measures to safeguard this valuable and fragile asset in midst of product harm crisis.

Fig 1: Conceptual model

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

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

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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

Variables

Items

KMO of Sampling Adequacy

Cronbach's Alpha

Locus

The cause is something that reflects an aspect of the company

 

.71***

 

.81

 

The cause is something that is inside of the company

The cause is something that is related to the company’s own responsibility

Stability

Only one item was used

-

-

Controllability

The cause is under the control of the company

.50***

.77

The company is responsible for the control of its own action

MRC

 Company “A” deserves little respect from me

 

.75***

 

.90

 This event makes me disbelieving about the virtue and the values of company “A”

 This event makes me feel that company “A” lacks integrity

CBBE beliefs

 

 

What do you feel about the attitude of brand “X”?

 

 

.87***

 

 

 

.87

 

What do you feel about the trust of brand “X”?

What do you feel about the overall perceived quality of brand “X”?

What do you feel about the overall perceived quality of the products of brand “X”?

What do you feel about the desirability of brand “X”?

Bartlett's Test of Sphericity ***P< 0.001
Note- MRC and CBBE beliefs, refer to consumers’ moral reputation toward the troubled company and consumer based brand equity as a measure of consumer beliefs, respectively.

Table 2 - Correlations between causal dimensions and constructed variables


Variables

Locus

Stability

Controllability

MRC

-.181**

-.085

-.233**

CBBE

-.104*

- .078

-.062

*** Correlation is significant at the 0.001 level (2- tailed test), ** Correlation is significant at the 0.01 level (2- tailed test), *Correlation is significant at the 0.05 level (2- tailed test)
Note- 1= first scenario (internal locus - company, stable and controllable) 2= second scenario (external locus- consumer, unstable, uncontrollable), MRC = moral reputation toward the troubled company, CBBE= consumer based brand equity

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