Business Research Report

Business Research Report

 

 

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Business Research Report

Executive Summary

This study seeks to analyze the Coca Cola Belgian product recall that occurred in 1999. Specifically, this study has the objective of examining the production and factors behind the recall. Other significant objectives of this paper include the investigation of the financial consequences caused by the recall and the consequent actions taken by the Coca Cola Company (CCC) management to rectify the situation. The recall was created by a combination of two major errors in Coke’s production and distribution systems. Apparently, coca Cola made errors in the composition of their soft drinks; a mistake that caused nausea and vomiting when consumed (Averya, Ruthann, Sora & Tatjana, 2010). Likewise, Coca Cola’s distribution systems failed to maintain a healthy environment in offering soft drinks that resulted in equally negative reactions. After the application of several strategies to handle the ethical and financial crisis that had affected the Belgian market, Coca Cola emerged with a significant financial loss and an even larger damage to its reputation. The financial consequences of the recall by the Belgian government affected the profit margins for Coca Cola significantly (Coombs, 2007). For approximately six months, the company witnessed limited operations in Belgium creating a perfect case for studying the financial consequences of company mismanagement. This study will therefore examine how organizations could enhance their crisis management, by complementing central crisis management theories with an inter-disciplinary standpoint, incorporating organizational traditions in addition to a comprehension of the circumstance enveloping the crisis. The analysis of these factors and events generated conclusions that will offer useful insight into handling corporate crises in the future.

 

Background to the Business Decision or Problem

The nature of the problem in this study revolves around the handling of massive ethical violations caused by the distribution of Coca Cola products product that were of inferior quality. The severity of the situation was worsened by the fact that these ethical violations were committed in one of its major overseas market, Belgium. Consequently, the Belgian government reacted by suspending the sale and consumption of all Coca-Cola products after the cases of food poisoning escalated throughout the country. After the official announcement by the Belgian health minister, approximately 15 million bottles and cans of Coke were withdrawn from retail and wholesale selling points (Victoria & Spero, 2003). The decision by the health minister cost approximately $200 million in costs and invaluable damage to Coke’s brand image (Victoria & Spero, 2003). The situation became eve worse when Luxembourg, France and The Netherlands joined the group of states that banned the consumption of Coca Cola products. The ban was placed indefinitely until the cause of the poisoning was discovered (Averya et al., 2010). Reports from the Belgian branch of Coca Cola indicated that the bottle and cans contained a quality defect responsible for the nauseous effect among its consumers. Surprisingly, the head company at the United States was vaguely aware of the exact location of its Belgian subsidiary let alone its health crisis. Moreover, Coca Cola failed to react to the Belgian crisis promptly and appropriately choosing to deny its involvement and downplaying the event. The two main reasons behind the recall included an unusual taste and smell in Coke bottles while the other reason was evidenced in the high number of nauseous people who had consumed Coke canned drinks (Fearn-Banks, 2007).

 

 

Research Questions and Definition of Terms

The research questions for this study are as follows:

How do ethical and financial crises affect the reputation and standing of companies?

How do companies and the government relate in handling ethical and financial crises?

Why do companies invest a lot of finances and human resources in building brand images?

In these research questions, “ethics” refers to the moral standards that control an individual’s conduct or that of an activity.

“Brand image” refers to the overall presentation of a product or service perceived by actual or prospective consumers.

The Specific Research Objectives to be Addressed

The research questions concentrated on the conduct of international companies during crises that worked to tarnish their images and long-standing reputation. Most companies have had difficulties containing ethical crises that occurred in their operations. Many of such incidents have evolved into full-blown media disasters. Consequently, such disasters have had grave financial and legal consequences that have to be addressed before a company loses its market share. One of the significant research questions is concerned with the approaches used to handle such ethical crises by companies. The reason for selecting this objective is that ethical issues can create massive complications and contribute towards bankruptcy and possible lawsuits. Apart from these consequences, such crises, if handled poorly, can lead to loss of market shares. In analyzing companies and their conduct during ethical and financial crises, it is imperative to acknowledge that relevant data being used in the examination will be obtained for different purposes.

Coca Cola Company also experienced distribution and production problems that form a significant part of this research study. The Belgian crisis was created by poor standards at the production stages that threatened to affect the profit margins for the company negatively (Fraser & Betty, 2010). In fact, the losses realized by the company during the recall period were very considerable. Through analyzing the data on financial operation before and after the recall, the study will be able to conduct evaluations into the operations at the Coca cola production including their quality standards, their production processes and other related factors.

Critical Analysis of the Methods

Research Design and Data Collection Techniques Used

            The Belgian incident was intended to illustrate organizational concerns and challenges that could intimidate a company’s performance, as well as the lifelong implications of strategic decisions made by executive team. The bulk of the information used in the study was retrieved from secondary sources. The main data collection method used involved researching from physical and virtual academic databases and libraries. Since the major part of the data was qualitative, it was relatively easy to collect the financial and ethical history of Coke’s operations in Belgium. Particularly, the CCC official websites offered additional data in terms of financial history and public press releases. Browsing these websites presented an outstanding means of perceiving how companies exploited Internet technology to collect and disseminate information during critical moments. However, primary sources were also used when collecting information on the Belgian crisis. Primary data collection was conducted using a collection of methods namely direct observation, face-to-face interviews and questionnaires. Primary data collection was mainly hindered by cultural differences between Belgium and other states. The inability to express opinions and ideas effectively was a challenge that interfered with the collection of data. Other complications in primary and secondary data collection include a general reluctance to cooperate and insufficient resources.

Sampling Process

            It was necessary for the Belgian population to be separated into relevant categories for ease of analysis. The target population is far too large. The unit of analysis was selected as the Belgian citizens and the sampling technique focused solely the manner in which the citizens were chosen. Another consideration was the determination of the number of units for sampling. Large samples have the benefit of being more representative while they decrease the quality of the study. The sampling procedure used in the study was simple random sampling where the complete list of the population was obtained from the Belgian authorities. From this list, participants for the study are selected in a random manner. After the sampling process, the data collection devices are applied to the sample units and the collected information used to infer the different characteristics on the entire population. Several assumptions were made in the simple random sampling method. One was that the selection of sample units was completely random. Another assumption was that popular “random” sampling procedures such as haphazard sampling were considered.

The Final Sample

            The final sample consisted of 1,000 participants that all agreed to take part in the study. Cares was taken to ensure that all the participants were of Belgian origin, had consumed the Coca Cola products and were between the age of 18 and 49. The citizenship criterion was important since only Belgian occupants were affected by the contaminated products. The age group was also important in the selection process since people between 18 and 49 were the major consumer segment. Lastly, it was clear that only people who had consumed the contaminated Coke products would be relevant in the study.

The Data to be used in This Report

Data to be used was retrieved from the interviews and questionnaires. The exact data included:

• Demographic information of participants (age, ethnicity, gender and profession)
• Market segment of participants (Generation X, Y and Z)
• Rate of consumption of Coca Cola products (daily, weekly and occasionally)

This date is a combination of qualitative and quantitative data. However, strictly qualitative data was used to make deductions in this study. Due to time restrictions, the project lacked appropriate resources to undertake a complete qualitative research that could have assisted in creating depth in the case analysis. The crisis management process separates the predicament into three phases: before, during and after the crisis. The stages offered an outline of the definite crisis and proposed tactical and strategic devices for all the stages. One of the major theories, the situational crisis communication theory, is explained as having an outline of how corporations, and especially executives, can handle crises using disaster response strategies depending on the effect of the crisis.

Results and Discussion

A model that can be applied to the Coca Cola case in Belgium is the social learning theory. The theory states that human beings pick up not only their attitudes from emulating others, but also conduct; particularly certain behaviors they see presented in the media. Four months after the Coca-Cola episode in Belgium, other patients reported that they had become nauseous after drinking Coca-Cola (Coombs, 2007). However, the products were tested and the results came back negative. After extensive research was conducted, the conclusion revealed that the complaints were caused by psychosomatic reactions. This verdict complimented the studies of two other scholars that blamed the crisis on mass hysteria. The government research also stated that a large percentage of the concern originated from all the publicity surrounding the earlier food poisoning scare (Victoria & Spero, 2003; Regester & Larkin, 2008).

Another major theory that was relevant in the Coca-Cola case was the cumulative effect theory that states, that convincing campaigns can be most successful when the information originates from several sources and is replicated from a similar source and over a continuous period. After the ban on Coke products was lifted, the company introduced an aggressive marketing plan to fix its image by earning the consumer’s trust. First, Coca-Cola publicly announced on different channels that the Belgian government had lifted the ban (Kersten, 2005; Hearit, 2006). After the announcement, Doug Ivester delivered public statements that apologized for the episode and reinforced their need to be transparent in the public (Regester & Larkin, 2008).

A crisis management plan is a necessary component of a strategic plan. Most planning processes have SWOT analyses and major areas of vulnerability that can be useful. In an era of instant communication, the time for responding is critical in reducing damage to company image and brand name (Hearit, 2006). Conventionally, the suitable place to address these areas of susceptibilities and successive reactions is in a continuity plan (Averya et al., 2010). Planning for unforeseen events is essential to final success in taking advantage of opportunities and handling threats to a corporation. Furthermore, because factors vary according to the country and culture, it is imperative that response plans be designed to suit specific locations and integrate contributions from local organizations and public bureaucrats (Fraser & Betty, 2010).

The absence of a crisis management plan negatively affected the Coca-Cola consumers as well as the company image. Coca Cola’s case was unique since the longer; it was quiet, the guiltier it appeared to be. Ethical considerations also contributed greatly in this case. When the Coca-Cola executive board in Belgium was notified of the crisis on the initial day the poisoning occurred, several of its managers visit the locations to evaluate the situation. The company’s failure in ethics ensured that it failed to act on the product under investigation. Rather than recalling the questionable products, Coca-Cola allowed its contaminated products to continue being distributed and consumed (Coombs, 2007). This represented a failure in ethical judgment. In summary, two major flaws were executed in this case, the first being a poor crisis management plan. With the absence of a crisis management plan, the company failed to respond quickly. A working crisis management plan would have averted the crisis. The other significant mistake was the poor contribution from the Coca-Cola management team. While it was evident that there was no crisis management plan, this was no reason for executives to ignore the situation and hide behind official bureaucracy. The single aspect that was dealt with appropriately in the Coca Cola Belgian case was the restructuring of a positive company image in Belgium (Coombs, 2007). By applying an aggressive marketing plan, Coca-Cola successfully regained the confidence of the larger section of European markets.

From a historical viewpoint, there is proof that the longer the response time to a sensitive incident, the worse the long-term damage to a company’s financial stability and standing. Currently, the availability of the Internet and global media coverage has intensified the volume and speed of information dissemination. Consequently, customers can easily be informed of an apparent or definite problem; the effects of which can be magnified exponentially (Fraser & Betty, 2010). The existing media trend is to emphasize negative events rather than constructive aspects in any situation. In such an environment, if executives are reluctant or incapable to deal with challenges quickly, then astounding images will remain and develop uninhibited in the opinions and outlooks of stakeholders (Fearn-Banks, 2007). In the Belgian case, Coca Cola’s silence as they tried to discover the origin of the problem contributed to a drop in public confidence. The longer executives delay a comeback, the more openings for lasting damage to the emotional connection that links the customer to company reputation and image (Averya et al., 2010). A significant aspect in this emotional agreement is faith and assurance in the company’s capacity to uphold its thriving market position and in the society (Coombs, 2007). There was a political change in Belgium during the nationwide Coke crisis and amid such an environment, the essential relationship between Coke and the state was not established (Victoria & Spero, 2003).

Handling the recall would involve discussing the significance of examining the gravity of the situation. Depending on the study, one can establish the type of recall and information provided in the situation, the company is in a better position to help in resolving the issue for instance, offering an innovative product. For future development of the product that would ensure that a recall would never occur again, the management response team has to discover the exact cause of the problem and evaluate its usefulness (Fearn-Banks, 2007). While Coca Cola is managing the recall, care should be taken to maintain communication lines with immediate stakeholders, particularly their suppliers and distributors. These stakeholders should be kept updated, as this will improve the company’s credibility in the public eye (Fraser & Betty, 2010).

Strategies Adopted by Coca Cola after the Crisis

After the Belgian crisis, several strategies were introduced within the Coca Cola Company that targeted the weaknesses within its structures. Communication problems were evident within the Coke ranks and a clear strategy to alter the problems. During the Belgian crisis, the executives at Coca Cola were confused over the official message concerning the condition. While sales representative and junior staff maintained that they had been informed of the drink contamination issue earlier, the top management in the United States was not even aware of the poisoning cases. Coca Cola Company also has the opportunity to investigate and research into brand strengthening in European markets. After the crisis in Belgium, the consequent chain reaction had a negative effect on the marketing targets for the company. This reaction was a signal that Coca Cola had the opportunity to improve their brand image, grasp new markets and create new avenues of advertisement and brand reinforcement (Victoria & Spero, 2003). The company also reinforced its public relations policies and strategies to cover overseas operations. This would ensure that future crises would be mitigated without much damage to company image and finances.

Implications for the Business Decision or Problem

The Coca Cola crisis in Belgium took on an international face that greatly harmed the reputation of the company as a producer of quality and safe beverages. After receiving directives from the Belgian government to dispose the contaminated product, the company had the uphill task of restoring consumer confidence and loyalty. By formulating an aggressive marketing strategy, the company was able to grasp its initial market share. During the recovery period, Doug Ivester, Coca Cola CEO was faced with new challenges such as harsh global economic status (Victoria & Spero, 2003). Within Belgium alone, Coke initiated several promotional events such as the Coca Cola Beach Party, the annual summer tour and other similar initiatives to attract Belgian consumers and earn back their loyalty (Averya et al., 2010). After two months of intensive marketing, it was estimated that the larger section of Belgian consumers had reflected the same level of intent-to-purchase as before the incident.

Implications Prior, During and After the Crisis

The production and distribution crises that occurred in Belgium were a signal that early detection systems were inefficient. Prevention acts as the model form of crisis management. The Coca Cola Company should introduce signal detection processes and devices that can be headed by a system that can inspect and observe crisis warning signals (Jaques, 2010). Risk and issue management are some of the final products that have been used in other companies to monitor crisis indicators. Risk management for Coca Cola should focus on the internal operations that were the cause of the Belgian mishap (Alvintzi & Eder, 2010; Coombs, 2007). During the crisis, managers should be on the alert, understand that the corporation is in a predicament, react appropriately, and take suitable actions. Crisis recognition and suppression are two actions necessary during the crisis event. If the customers can identify a situation as being critical, then it is important for the company to realize that their crisis recognition system is flawed (Coombs, 2007). By choosing to ignore the situation, companies end up being in conflict with their customers making it difficult for loyalty to be entrenched.

Conclusion

Coca Cola’s response to the exceptional product recall consisted of classifying two very precise distribution and production complications that actually led to a collapse in the quality standards, taking measures to eradicate those predicaments, and restoring public faith and confidence (Regester & Larkin, 2008). The matter in this situation is not whether the Coke had the capacity to achieve these targets, but rather the timing and the manner in which they were performed. When the crisis started, Coke executives took a number of days before prioritizing the matter as critical. The corporation did recognize and publicly disclose that there had been errors committed at the manufacturing stage (Jaques, 2010). Nonetheless, according to observers, the apologies by Coca-Cola to its consumers were announced after five days of the public complaining about illnesses. The company again took 10 days after the initial reports for senior managers to reach Belgium and analyze the sate of affairs in the country (Alvintzi & Eder, 2010). In general, the Belgium situation was grossly mishandled, communication was disjointed and that the company lacked the necessary devices to deal with future instances of a similar magnitude.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Alvintzi, P., & Eder, H. (2010). Crisis management. New York: Nova Science Publishers.

Averya, E. J., Ruthann W. L., Sora K., Tatjana H. (2010). A quantitative review of crisis communication research in public relations from 1991 to 2009. Public Relations Review. 36, 190-192.

Coombs, W. T. (2007). Ongoing crisis communication, Planning, managing, and responding. 2nd ed. London: Sage Publications, Inc. 224.

Fearn-Banks, K. (2007). Crisis Communications: A Casebook Approach. 3^rd ed.: Lawrence Erlbaum Associates, Inc. 408.

Fraser, J. & Betty S. (2010). Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives. : Wiley. 600.

Hearit, K. M. (2006). Crisis management by apology: Corporate responses to allegations of wrongdoing. Mahwah, N.J: Lawrence Erlbaum Associates.

Jaques, T. (2010). Reshaping crisis management: the challenge for organizational design. Organizational Development Journal. 28 (1), 9-17.

Kersten, A. (2005). Crisis as usual: Organizational dysfunction and public relations. Public Relations Review. 31, 544-549.

Regester, M. & Larkin, J. (2008). Risk issues and crisis management in public relations: A casebook of best practice. London: Kogan Page.

Victoria, J., & Spero, C. P. (2003). Crisis management in Belgium: the case of Coca-Cola. Corporate Communications: an International Journal, 8, 1, 18-22.