An Integrated Perspective for Reappraising Effects of Word-of-Mouth Communication of Negative Corporate Publicity and Consumer Status: An Abstract

Abstract

Negative publicity and the company’s response to it are among the most critical factors affecting consumers’ buying decisions (Advertising Age 1995). Because corporate publicity is considered one of the most credible sources of information, it has more influence than other means of communications (Bond and Kirshenbaum 1998). The Association of Certified Fraud Examiners (2016) in recent research estimated that the overall cost of corporate negative publicity to businesses globally is 5% of annual revenue. Furthermore, consumers are more sensitive to negative information as opposed to positive information (Fiske 1980). As of now, theoretical framework for how consumers respond to negative publicity and the mechanisms for optimizing strategies to offset the negative effects are inconclusive. Kroloff (1988) compared the impact of negative and positive media exposure and found that negative publicity has a larger impact on corporate brand image than positive news. Some literature studies find that consumers respond in a homogeneous manner to negative publicity (Pearson and Mitroff 1993).

WOM effect on purchase intentions is a complex issue that has generated much debate over many years. Prior research shows that positive WOM (PWOM) motivates brand purchase, while negative WOM (NWOM) reduces purchase intention (Bansal and Voyer 2000). This article specifically focuses on how those effects fluctuate during a corporate crisis typically resulting from a company’s flawed product or an employee’s alleged unethical behavior and how the negative publicity affects existing and potential consumers differently. Based on a comprehensive literature review, this study hypothesizes and tests that companies’ potential consumers are more sensitive to negative corporate publicity than existing consumers. In addition, the moderating effect of negative corporate publicity is greater for the relationship between WOM and potential consumers than for the relationship between WOM and existing consumers.

These findings give marketing managers informative cues that indicate that they should pay special attention when a company attempts to develop a new market. For example, when an MNE begins to develop new geographic international markets, the damage from negative corporate publicity may be disproportionately greater to local consumers than those of their home country, which also indicates that they need to be willing to invest more resources to recover from those crises.