Country of Origin and Marketing Mix Strategies in a Product-harmCrisis: Evidence From the 2008 Infant Milk Scandal in China

A product-harm crisis can cause devastating harm to the brand. How managers can buffer the brand against such damage is a very important marketing topic. This study looks at the impact of a product-harm crisis on marketing mix effectiveness in the context of the 2008 infant milk scandal in China. Our contributions to the literature are threefold. First, in addition to advertising and pricing, which has been the main focus of pervious research on product-harm crisis, we also investigate the effectiveness of discounts, product line length, and distribution. Second, we are the first to empirically study the role of country-of-origin spillover effects. Third, we extend existent findings to an emerging economy (China) where customers tend to be more value driven compared to developed markets. We formulate and estimate a dynamic hierarchical linear model (DHLM) which enables the study of both short and long-term marketing mix effects while also considering endogeneity, individual brand heterogeneity and temporal variations in consumer and retailer response parameters. Our most important findings are that consumers tend to ignore discounts by involved brands while they pay more attention to those by uninvolved brands. We also find that distribution becomes more important for domestic brands in driving their sales. Finally, we find that for all brands it becomes harder to build brand equity through marketing activities after the crisis. Our findings suggest that in emerging markets, pricing and advertising may not be powerful instruments to mitigate losses in a crisis, whereas product line length and discounting are,depending on brand country of origin and involvement in the crisis.