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Business & Finance Series: Expert Comment

After the scandal - managing corporate firestorms

By Dr Thomas Robinson, Lecturer in Marketing at Cass Business School

by City Press Office (General enquiries)

Consumption happens increasingly with the future in mind. Consumers buy groceries to cook later that day. They purchase a gym membership, seeking to become healthier and body-beautiful in 90 days. They buy a home to prepare for settling down over the next decade.

It’s caring for this imagined future that sits at the heart of consumer society.

Consumers anticipate results

Markets are not only about the immediate quality of the product or service, usage situation, and brand names, but also about the end benefits that a consumer looks forward to. It’s these anticipated results that make consumption meaningful.

For example, the advertised end benefit of a nutritional supplement is the aspiration of a having a perfect physique that will be admired. The end benefit of a bank account is to have money and to afford something. Car advertisements target a consumer’s desire for status or escape from the humdrum of the status quo.

An end benefit is the ultimate outcome of using a product or service. It’s all about hope: hope that a negative future is avoided or a positive future is attained.

Protecting the Future

Volkswagen LogoThis intense, future-focused, orientation among consumers, may explain why corporate controversies are endemic in our consumer-led society. It may also help to explain how to manage such events once they occur.

The destructive capacity of a true corporate firestorm is not only in its ability to ruin careers and generate bad PR, but also, its ability to shape or even destroy consumers' expectations about the society in which they exist.

The corporate firestorm destroys the perceived hopes and futures of consumers, and corporate scandals wreck the setting in which consumer aspirations are located: the future.

A few examples of companies and organisation that have recently seen their reputations damaged by corporate news firestorms are:

  • Deliveroo
  • Volkswagen
  • FIFA
  • Samsung
  • Uber
  • HSBC
  • Royals Royce

But how does the corporate firestorm affect a consumer’s perceived future?

The Volkswagen emissions debacle ruined their reputation as a responsible automobile manufacturer and left consumers questioning if their cars had played a part in climate change.

Coverage of HSBC’s infamous relationship with the Sinaloa cartel in Mexico, brought the question of the safety to the minds of society. HSBC customers were forced to consider the effects of gang activities and drug dealing.

The loss of a consumer’s perceived future immediately accrues three costs that corporate reputation management should address and communicate.

  1. Lost opportunity costs for the consumer – the future that didn’t happen
  2. This is the cost of the knowing there was a better future for the consumer that could have been, but didn’t manifest. Rather than only addressing the moral regret the corporation may have, communication should also address the regrets the consumer is feeling; acknowledging and coming to terms with the consumer’s lost dreams, hopes and the unwanted change to their end benefits.

  3. The consumer’s transaction costs – managing new future goal
  4. This is the cost the consumer has in planning the new anticipated timeline. Because the consumer must now spend efforts gathering information, planning and envisioning a new future, communication should support this cognitive expenditure. In terms of communication this means painting new pictures of the future and providing information.

  5. Consumer ‘hysteresis’ – assisting in reforming consumer identities
  6. Because the world has regularities, consumers know what to do and what their roles are. Consumers understand who they are. When the future suddenly changes because of the corporate firestorm, it not only brings the surroundings into question, but also who they are, what they do, and what their roles are?

    For example, what does it mean to be a VW owner after the emissions scandal? The consumer is left in a state of ‘hysteresis’ - lagging in identity formation. Corporate communications must assist the consumer to become his or her new self.

Recreating the future: accountability and governance

Man being interviewed by the pressIn the face of a scandal, those responsible for reputation management must of course address corporate accountability and governance. Leaders should focus on improving ethical cultures, and addressing production processes and quality control.

However, leaders, and the organisations they manage, also need to address the loss of their consumer’s perceived futures. They must let their customers in on what direction their companies are going. They must also redress the costs of time that appear from the loss of the future. Only then will new end benefits emerge and consumer faith can begin to be restored.

If corporate leaders do not respect the basic nature of reputation management within their markets and address the risks or changes to their customers’ end benefits, they risk prolonging or exacerbating the crisis.

The only option in the face of corporate reputation crisis is to bring consumer hope back into the game by recreating the future in which consumers hope to exist.


Dr Thomas Robinson is a Lecturer in Marketing at Cass Business School, City, University of London.

His research in the field of Consumer Culture Theory, centres on the role of culture and temporality in the market, especially how the experience of time differs from setting to setting and how this informs consumer processes.

Find out more about the Cass Marketing Group.

Definition
Hysteresis

A situation which arises when any historical event affects the future economic path. Any disturbance in an economy will lead to a trickle down effect, and the problem will persist. This rolling down impact is known as the hysteresis effect.

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