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How Bad News Can Be Good for Sales

Here's an intuitively odd idea: Small doses of bad news may be good for sales. That's the theory coming out of Stanford Graduate School of Business and Tel Aviv University. It sounds weird, but a recent study undertaken by the two institutions found that smatterings of mildly negative information — a so-called “blemishing effect” — may strengthen a consumer's positive impression of a product or service.

In the report “When Blemishing Leads to Blossoming: The Positive Effect of Negative Information,” researchers contend minor smudges on an otherwise shiny slate could change the usual approach taken by marketers, for instance, altering online ads or product descriptions on retail Websites, or even face-to-face sales attempts.

“We find that as long as the negative information about a product is minor, your pitch [to a consumer] might be more persuasive when it calls attention to that negative, especially if consumers have already learned some positive things,” said Baba Shiv, Sanwa Bank Ltd., professor of marketing at Stanford Graduate School of Business, in a news release.

For the study, test groups of consumers and lab volunteers were asked to consider the purchase of hiking boots, chocolate bars, or champagne glasses. Researchers provided information about features, asked participants to rate the information as positive or negative, and measured the influence such information had on purchasing decisions.

Lets apply the concept to electronics companies, and infer what the supply chain impact could be. Purchasers of high-tech gadgets probably weigh pros and cons in much the same way they do when deciding which boots to buy.

Since the study says “small doses of bad news” could help accentuate positive attributes, I suppose the heaps of troubling headlines about {complink 3847|Nokia Corp.} and {complink 4644|Research In Motion Ltd. (RIM)} wouldn't make them viable candidates to test the theory.

What about {complink 379|Apple Inc.}? Even though the company admitted to sales shortfalls because of inadequate supply, and its contract manufacturing partner, Foxconn, has been slapped for questionable labor and safety practices, Apple is still a Wall Street darling. (See: Apple Shipment Shortfall Prompts Cut in 2011 iPad Shipment Forecast and Apple Has a Foxconn Problem.) And, as long as the iPhone and iPad keep looking glamorous, there's very little that seems dissuasive enough to uncrown the industry's current king of the hill. So, Apple probably also wouldn't fall into this study's parameters.

What impact could this blemish effect have on, say, e-readers, which still have benefits over their more sophisticated tablet cousins (namely, being easier on the eyes)? What would happen if Amazon's Kindle or Barnes & Noble's new Nook devices got a couple of bad marks for every few dozen good ones? Would that heat up conversation and competition, drive holiday gift-buying demand, and spur next-generation engineering innovation? Perhaps. And, if that happened, would the supply chain be ready?

Maybe, too, Acer's decision to flush out channel inventory while digesting a management turnover will help the Taiwanese PC OEM get back on track and redefine its expertise. (See: Acer’s Blunder Sends Up Warning Flares.) It's happened before. Some electronics companies, after a few faltering quarters, take the news on the chin and come back fighting, at least for a while.

And, look at {complink 2470|IBM Corp.}, which just celebrated its 100th anniversary. As EBN editor-in-chief Bolaji Ojo wrote last week:

    IBM has taken steps many would consider suicidal: It led the creation of the memory IC (DRAM) market but exited the sector, dumped its PC business (selling the division to China's Lenovo Group), and has focused on higher-end services, consulting, and more research intensive activities.

    These actions, which hurt sales, were heavily criticized at the time, but the company took the steps because it visualized a different future for itself. Low-margin businesses and what IBM described as a 'seismic shift in the world' compelled the company to make these moves in a bid to improve its competitiveness.

In this case, IBM brought the bad news on itself, and still managed to become a $100 billion company with more than 426,000 employees globally.

This leads me back to the results of the Stanford/Tel Aviv University research: How is your company using bad news to drive more sales, create new opportunities, or visualize a different future for itself?

16 comments on “How Bad News Can Be Good for Sales

  1. Tim Votapka
    June 21, 2011

    Jennifer's article on the survey raise some interesting points. I think back to when I've seen negative PR come up among companies and organizations with which I've worked, and the ones that came through stronger were those that stuck to their core principles. A while ago I came across a list I thought were excellent rules for survival, particularly during stressful periods. It applies to entire groups, individual departments and posts.

    1. Have the correct technology

    2. Know the technology

    3. Know it is correct.

    4. Teach correctly the correct technology.

    5. Apply the technology.

    6. See that the technology is correctly applied.

    7. Hammer out of existence incorrect technology.

    8. Knock out incorrect application.

    9. Close the door on any possibility of incorrect technology.

    10. Close the door on incorrect application.

    When you take these in carefully, you can see the term “technology” can apply to procedures, policies and methods for getting a function accomplished just as much as an end product out. So long as these rules are in consistently, any “bad news” you may encounter should not be a significant distraction to your purpose.

    Wouldn't be a bad idea to have these posted in employee handbooks by the way, with a random spot check to see if it's known among your staff.

     

  2. Anand
    June 21, 2011

    “We find that as long as the negative information about a product is minor,”

    Jennifer,

     Interesting theory indeed but still I am not convinced how it actually works? And moreover this theory was meant for products do you think we can generalise it to companies as well ?

  3. Himanshugupta
    June 21, 2011

    unless the researchers are sure about how to compare two bad news, the theroy does not make sense. Now as Jennifer mentioned, we have case where RIM and Nokia have been creating lot of bad for themselves but i do not think that is helping consumer perception about these companies. On the other hand we have a recent example of Apple iPhone4 antenna issue. This created some bad PR for Apple last year but can we say that due to that bad PR, Apple actually benefitted?

  4. Houngbo_Hospice
    June 21, 2011

    Shiv seems to be relying on careless customers to support the theory.

    “In situations that encourage careful thinking, presenting exclusively positive information still does seem to be more compelling.” says the report.

    I don't think that many potential “buyers” would commit to purchasing an item without careful thinking -even online. 

  5. Houngbo_Hospice
    June 21, 2011

    “This created some bad PR for Apple last year but can we say that due to that bad PR, Apple actually benefitted?”

    Hi, HimanShugupta.

    Apparently, the iPhone4 antenna issue didn't prevent Apple to sell the product as it had managed to provide a fix. Had that problem (bad news) persisted, I'm certain that customers would have shifted their attention from Apple's products. Maybe that is not the kind of “minor bad news” Shiv is talking about.

  6. eemom
    June 21, 2011

    I am not sure I understand the way the study was conducted or how the eventual outcome was calculated.  If they are saying that companies can succeed and re-invent themselves over time despite bad press, that I would understand.  I can't see how a product or a company that has problems and has received bad press, whether these problems are small or large, how this can actually benefit sales. 

  7. Taimoor Zubar
    June 21, 2011

    I think the only logical explanation I can come up with for the 'bad news' effect is that once a bad news is spread and people already have a positive opinion about a product or a service, the bad news might seem as a shock and they would want to try the product or service once again to confirm the news. The effect might be true for consumer goods (the ones used in the research), but I am not sure if the same can be said for companies selling IT services or catering towards enterprise solutions.

  8. eemom
    June 21, 2011

    I still don't get it.  If a consumer hears bad news about a product they are using there are two possible outcomes, 1) they continue using the product and ignore the news or 2) stop using the product until more positive news is released.  If you assume half will do #1 and the other will follow #2, then the logical conclusion is that the company may lose half their customers due to bad press.  The company now has to work harder to re-earn the trust of these customers they lost once the problem is fixed.  I'm sorry, but I just can't come up with a logical conclusion as to why a company's sales would benefit from bad news.

  9. Taimoor Zubar
    June 21, 2011

    Well there can be a case where the customer is not currently using your product but is aware of it and has a positive image about it. He buys the product (perhaps out of sheer curiosity) to see if the bad news about it is true or not. This can result in increased sales. I am not really sure how significant the volume may be.

  10. Daniel
    June 22, 2011

    Normally, for any products most of the peoples may Google to find reviews about the product, before going for purchase. So if most of the reviews are negative, then I think may not suggest for that product. In my case, if had a plan for new product purchase, first I will do the google to read reviews and if more than 70% of reviews are positive, then I may walked to the store for a real look or demo. But 30% negative reviews don’t drop my plans, unless and unless it’s negligible.

  11. FLYINGSCOT
    June 22, 2011

    I am not sure I understand fully the data behind this story.  I believe negative news can be used to the benefit of a company if the news is handled correctly.  Toyota and Lexus seem to handle bad news well by going overboard with recalls and compensation etc. which effectively reinforces their strong commitment to product quality and customer satisfaction.  Short term blips in sales are then followed by longer term growth as customers buy into the quality story.   I firmly believe that customers do not mind product issues (too much) provided these issues are dealt with professionally and quickly to their full satisfaction. 

  12. Jay_Bond
    June 22, 2011

    This is an interesting theory. I can see how it might work out for individual products, but hard to see how this could be applied to an entire company or supply chain. This study also fails to mention how many people participated and under what conditions. It would seem like anybody who researches a product before making a purchase would have a sense of how the product performs or lasts. I think more people have concerns over getting the best product for their money as opposed to negative press that might have been caused by something going on overseas.

  13. Jennifer Baljko
    June 22, 2011

    Thank you everyone for the discussion. All good points and questions. I, too, have some concerns about the study's methodology and the results, but I can't speak on the details, parameters, or intentions.

    That said, following the whole thread here, I think what's compelling is to tie together some of the points raised by all of you. Here's what I mean.

    eemom, TaimoorZ shared opinions about how bad news may divide potential consumers. Some may opt out of a purchase, or others may take a risk and buy it anyway. I think the important question is what is the weight of the bad news? How bad is it, will it sway end-user perception?

    This goes to Hospice_Houngbo's and jacob's points about critical thinking and reviews. Although I disagree that a lot of critical thinking goes into consumer device purchases (I think there is quite a bit of compulsive, word-of-mouth buying sprees after a very brief market analysis), I do think reading bad news or negative reviews spark critical thinking among consumers (a desired reaction, I would add). But, like jaybond mentioned “I think more people have concerns over getting the best product for their money as opposed to negative press.”

    So if negative reviews spur critical thinking, and critical thinking has the potential to sway potential buyers one way or another and people really just want bang for the buck, the next test will depend on the user's perception of the company's brand. How much does an end-user trust the company that's making the product he's interested in buying?

    Trust comes in a few flavors, as we know and talked about here. Apple has leveraged its brand to create a hard-to-replicate user experience and Toyota and Lexus has gone well beyond normal expectations to regain trust when products fail.

    Tvotapka and Flyingscot nail it. Flyingscot says “I firmly believe that customers do not mind product issues (too much) provided these issues are dealt with professionally and quickly to their full satisfaction.”

    And, Tvotapka brings it full circle. After negative PR, “The ones that came through stronger were those that stuck to their core principles.”

    Arguably, core principles are tested by how well operating, engineering, supply chain, and financial practices are aligned to these driving principles.  How well these strategic and functional practices hold up involving vigorously testing them against survival rules like those Tvotapka provided. (BTW Tvotapka – do you know the original source to that list. It's a good one, and should get a credit)

    Still with me? See how a study like this – or at least the concept behind it – ripples back to companies' supply chains? If a company doesn't know how to align its practices to its core principles, how to course-correct in a way that stays true to those principles, or how build trust among partners and consumers, no amount of news – good or bad – is going to make the company successful over time.

  14. hwong
    June 22, 2011

    Agreed with your points. If people are happy or complacent with their own place, then they are not going to strive to work better. Without being better, then they'll let other companies steal market share. 

  15. Mr. Roques
    June 22, 2011

    Good point, I thought the same. I can see how this could work with particular products. The sales guy can let you know about the cons and that creates a better “trust” relationship.

  16. stochastic excursion
    June 23, 2011

    A lot of the advertising of prodects is short on perceived authenticity.  People are more comfortable with a product profile that puts it somewhere on the bell curve.  If the ratings by a particular source put it in the top .01%, that can be a drawback because there's nothing “normal” to compare it to.

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