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SCANDAL SPILLOVER AND COMPANY RESPONSE STRATEGIES: ARE THEY ALL TARRED BY THE SAME BRUSH?
Whereas the interest in the area of corporate crises and crisis response strategies has been increasing during the last decades (e.g. Coombs, 2007; Dawar & Pillutla, 2000), little is known on the spillover effects that an organizational crisis can induce towards other firms within the same industry. Though over the years, a variety of reputational collapses of single companies have become memorable by causing whole industries to suffer. Following these considerations, the aim of this study is to extend prior research on corporate crises and crisis management by focusing on intra-industry spillover effects. We investigate the topic by means of an experiment taking as an example the sportswear industry. We randomly assigned participants interested in sports to a scenario with either a personally relevant scandal or a personally irrelevant one about one major sportswear brand. We then measured the corporate reputation, purchase intentions and willingness to recommend the brand for an overall of five sportswear companies as dependent variables. We find a significant negative spillover and reduction of corporate reputation and behavioral intentions for different sportswear brands and thereby distinguish between the unexplored effects of scandal relatedness to the customer. We are the first to investigate the degree of personal relevance of upcoming negative information, finding no significant influence on the strength of scandal spillover. Furthermore, we argue against existing literature and question the role of reputation as protective shield and buffer against negative spillover, finding especially companies with high corporate reputation to suffer from scandal spillover. In a next step, we employed three different response strategies, namely active, defensive and collective (Dawar & Pillutla 2000) in order to find the best spillover correction method for competing brands. Conversely, we found none of the three response strategies to be suitable spillover correction methods placing managers of spillover-affected companies into a blind alley.
