Cosmo, an American cosmetics company had gained a reputation for the production of the KBS range of skincare products and these had gained a massive following not only in the Chinese market but rather the rest of the Asian continent. Their biggest clientele were women of all age groups who had wanted to look good and age gracefully. The manner in which a company handles tough crises will have an impact on their customers who will look to decide whether or not they will stand by the company. When faced with tough decisions, companies must decide on whether to do the right thing even when this means seeing the company lose stock value (Lerbinger,1997). The company needs to have proper crisis management strategies as a way of dealing with any issues that might arise in the course of its operations.
Skin care for women is a matter of concern and they are willing to try out products that promise to give them whitened youthful looking skin which is and, was a popular trend in East Asia. The KBS products were marketed by Cosmo, targeted the Asian market, and was marketed in Japan and then imported to mainland China as well as to over 10 countries in East Asia. To make their products popular, they employed aggressive advertising including endorsements from celebrities who further gave the products much needed credibility, and thus making them more popular. The use of celebrities to market their products was a smart move as the Asian countries thrive on pop culture. The company sold the KBS skin care products widely and successfully.
As part of their mandate, the National Quality Inspection Department is assigned the task of sampling and quality supervision of products to ensure that they are not harmful to the consumers they are sold to. They conducted tests on the KBS line of skin care products in September of 2006 and it was discovered that the raw materials being used in the manufacture of the skin care products contained chromium and neodymium substances that were banned by the Chinese government in the manufacture of cosmetics. The company refuted the claims of the inspection department and stated that their products did not contain the banned substances (Davis,1999).
This was the first mistake the company did. The second was offering to give refunds to their consumers provided they signed a waiver declaring that the products were not harmful and they had only used two thirds of the products (Davis,1999). Not only were they accused of using harmful substances, but the refund policy seemed to be a bribe to the consumers for their silence. There was subsequent riots and demonstrations outside some of the companys stores. This also affected the sales of the company as many consumers stopped purchasing once news got round of the products being harmful. It later emerged that the company had nine products deemed not safe for use and the government banned their importation into the country.
Had the company admitted to wrong doing on their part, they would have come out looking reliable. Company executives who blame their problems on external causes seem less trustworthy. By taking responsibility they will be seen as being in control and that they understand no situation is perfect, and in return earning favor with their loyal consumers (Hayes, 2010). By not admitting to any wrong doing, they were seen to be taking the easy way out and that they were not concerned with the welfare of their consumers to begin with. It was clear that they were more interested in the economic well being and status of their company.
Cosmos needed to understand the Chinese market under the concept of thinking locally but act globally. The Chinese market is one that is demanding, more so with the entry of multinational corporations into the economy. These multinationals continue to play a vital role in the economic development of china creating a competitive avenue with the domestic manufacturers. The company would have done ample research on the substances that are banned by the government and this would have saved them from having their products banned thus costing them large sums of money and their reputation. The Chinese market is one that is very complex and this is what makes it very attractive to investors. China is a major economy that is fast growing and is soon to take over the United States (Dezenhall, 2003). For this reason cosmos should have taken the appropriate measures to ensure that their products were of the highest and acceptable quality.
If Cosmos is looking to re-enter the Chinese market, they need to take into consideration that they need to get back customer loyalty and fix the bad reputation their company has accumulated with claims of bribery and production of harmful products. There is no right way of gaining back customer loyalty, but it is important to have the right tools to do so. One way would be to re-brand their products (Dezenhall, 2007). Changing the name, packaging and even the color of the product. Customers are less likely to associate the new products with the company that had a crisis earlier on.
The company can also change its name and taken on a new management team. This shows that they are committed to change and the well being of the company. Having a new name can also go hand in hand with a new logo all of which are aimed at erasing the tainted past of the company. Re-branding is a difficult process that needs the company to take time before doing. Some companies have failed in the attempt to do so. Hence it is vital for the company to plan effectively and seek out the most suitable ways that will have lasting effects and bring their sales numbers up; and not have them burning out after a few months.
In conclusion, having proper crisis management strategies is important for any company as this ensures that they are able to counter any problems that arise within the company. The company was not able to effectively counter the effects of the products being banned. Re-branding should be a key concept for a company that wants to reclaim their position in the market. China is a major economy that is fast growing and is soon to take over the United States (Dezenhall, 2003). For this reason cosmos should have taken the appropriate measures to ensure that their products were of the highest and acceptable quality.
Davis, L. (May 1999) Truth to Tell: Tell it Early, Tell it All, Tell it Yourself Notes from My White House Education. New York: Free Press
Hayes E., Wooten; L. (2010). Leading Under Pressure. Routledge Academic.
Dezenhall, E. (2003). Nail 'em!: Confronting high-profile attacks on celebrities & businesses. Amherst, New York: Prometheus Books.
Dezenhall, E.; Weber, J. (2007). Damage control: Why everything you know about crisis management is wrong. Portfolio Hardcover.
Lerbinger, O. (1997). The crisis manager: Facing risk and responsibility. Mahwah, NJ: Erlbaum.
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