Liwu Hsu (PhD’12) Wins Dissertation Honor
Hsu Dissertation Honored by Marketing Science Institute
Product recalls: companies hate them; customers get annoyed by them. But how companies handle them makes all the difference in the world.
Liwu Hsu (PhD’12), who will defend his dissertation this spring, won a prestigious honorable mention in the 2011 Alden G. Clayton Doctoral Dissertation Proposal Competition for his dissertation “Can Online Chatter Kill a Giant? Insights into the Role of Brand Equity and Social Media during a Product Recall Crisis.”
According to his doctoral advisor, Professor Shuba Srinivasan, “From 80 submitted papers, 168 marketing scholars selected one winner and four honorable mentions. It’s a great honor for Liwu and the department.” The annual award is given by the Marketing Science Institute. Hsu will begin as an assistant professor at the University of Alabama at Huntsville College of Business Administration in Fall 2012.
In his study, Hsu looks at how social media can help or hurt a company’s shareholder value in a product recall crisis situation and provides insight into the potential moderators of brand equity. This study builds on brand research previously published by Professor Susan Fournier, one of his doctoral committee members.
In the event of a product recall, when a company denies a problem or even hesitates to acknowledge a rumor of recall, social media gives consumers the power to tarnish a company’s reputation, increasing investors’ concern about future company cash flows. Investors fear the initial costs of product recall and replacement, potential lawsuits, and potential new regulations, and stock value and reputation can take a big hit (even if it’s temporary).
A big brand company can’t readily hide its faults and provide an insurance-like protection of shareholder value. Company denials get countered by user stories and blogs spread the word. That in turn generates more criticism, and generates more ill will. “Negative buzz spreads quickly via social media,” says Hsu, “and worse still, social media enables and encourages consumers to be more critical of companies and their brands. Moreover, it is increasingly difficult for a company to bury or hide from its mistakes on the web.”
Hsu recommends that in a PR crisis, the CEO should respond proactively. Immediate solutions include creating a post, perhaps a video, to air out the problem, and the company’s solution, immediately. “Share information efficiently, completely, and directly with consumers,” he says. In recent years, Hsu explains, marketing dollars have increasingly shifted from traditional communication vehicles towards the Web 2.0 platform. Companies are learning that it is important to be continually communicating online, keeping the channels open for when the need arises.
Recent business scandals demonstrate that it’s better to acknowledge a negative event quickly, admit fault, and then move on. The Internet assures that bad secrets never stay hidden for long.