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Management gurus on crisis communication

September 05, 2006 14:05 IST

A small, independent not-for-profit organisation takes on the big bad multinationals. The matter dies down -- sort of  -- after months of conflicting information, accusations and counter-accusations.

Three years later, the NGO is back, this time with more - and more damaging - evidence of impurity. What happens next? There's enough drama here for a film. Just don't expect to find Coca-Cola India and PepsiCo India queueing up for tickets.

It's the second time since 2003 that the two soft drink manufacturers are in the dock for alleged impurities in their products. Then, and again last month, the Delhi-based Centre for Science and Environment quoted the results of tests it had conducted, which showed hugely elevated pesticide levels in carbonated drinks made by Coca-Cola and Pepsi.

While both companies - then and now - cried themselves hoarse that their products were completely safe and fit for drinking, sales have been affected. Several states have banned the drinks from government canteens and schools, while Kerala has thrown out the two cola brands altogether. There's been an immediate 10 per cent plunge in sales this time, compared to the over-20 per cent drop even six months after the 2003 controversy.

The drop in sales and consequent revenue loss is no small issue for Coke and Pepsi - the two companies together account for an overwhelming 93-94 per cent of the Indian soft drinks market, valued at around Rs 6,000 crore (industry estimates). But more importantly - from a long-term perspective, at least - their reputations have been tarnished.

Of course, Coke and Pepsi aren't the first companies to face a crisis of this nature. Lifestyle brand Martha Stewart faced the heat after its founder was imprisoned for insider trading. And pharma company Merck's crisis with arthritis drug Vioxx is well-documented. Closer home, last year, worms were found in some bars of chocolate made by Cadbury India.

And if Johnson & Johnson's handling of the Tylenol crisis in the 1980s is considered by many to be the gold standard for crisis communication, Source Perrier's dealing with the contamination issue in its bottled water a decade later is an example of how not to do it.

Where does Coca-Cola and PepsiCo's handling of the pesticides controversies fit in between these two extremes? Did the companies apply their learnings from 2003 to their present scandal-management strategy? And are there more lessons to be learnt from other corporate catastrophes?

'The company doth protest too much'

First, the obvious question: do Coke and Pepsi need to react at all? Isn't it better to lie low and let the issue die a natural death? Both companies refused to comment on the record, but almost everybody else is emphatic that they needed to react, but in moderation.

"A strategic response is to communicate honestly, quickly and often, with the company's message, so that some other entity doesn't become the source of information about the company," says Charles McDonald, vice president at the Atlanta-based Crisis Management International. Adds Abraham Koshy, professor of marketing, Indian Institute of Management, Ahmedabad: "Being aggressive can be interpreted as typical MNC arrogance."

Aggression has its advocates. Shripad Nadkarni, director, MarketGate Consulting, and former marketing head, Coca-Cola India, advises going for the jugular.

"The response must be disproportionate to the problem. Otherwise, doubts will remain in consumers' minds." Nadkarni recommends an aggressive stance with extensive communication and perhaps even taking CSE to court for defamation, if its analysis proves incorrect.

Before taking that step, though, it's worthwhile to understand what drives CSE: the NGO maintains it's not out on a witch-hunt, aiming to push Coke and Pepsi out of India.

What the environment group is doing is a kind of "brandjacking", say communications and marketing experts: it is hanging onto the coat-tails of a well-established brand to serve its own purpose, which is to draw global attention to the need in India for safe drinking water and stringent standards for foods and beverages. Given ambitions of that scale, it will be incredibly naive to assume this issue will go away quietly.

Still, it won't help to make this a battle of individuals or even institutions. "An I vs You stance will only take the battle further," points out Sunil Alagh, chairman of brand consultancy SKA Advisors and former managing director, Britannia Industries.

"The approach should be of fact finding rather than finger pointing," agrees Sanjay Dhar, the James H Lorie professor of marketing at the Graduate School of Business, University of Chicago.

Pepsi and Coca-Cola are counting on third-party interventions. Industry trade organisations like Ficci, Assocham, CII, pharma associations and pesticides manufacturers' bodies have all come out with carefully-worded statements in support of the cola companies, which also hint that CSE, its labs and testing standards don't quite make the cut.

Meanwhile, the companies themselves were initially quite reticent. After issuing the mandatory "we are safe" declarations, they retreated, waiting for their own test results from labs in India and London.

Close to two weeks after the CSE fired its salvo, Coca-Cola brought in its experts: senior scientists from London's Central Science Laboratory and Coca-Cola's own global quality director addressed the media in India, assuring them Coke's products met EU standards.

A measured response is what the textbooks advise, aiming to achieve quick closure. And both companies have adopted conscious, safety first stands. Last time round, they protested against testing the final product - which is what the CSE had done.

The international norm was to test the quality of the inputs, they insisted, and that's what India, too, should follow. Now they've stepped down, expressing their willingness to abide by measurable, scientific standards for soft drinks.

"This shows an honest acceptance of issues and a willingness to address them seriously, rather than knee-jerk reactions," says Koshy.

The immediate fallout appears to be in the cola makers' favour: carpet-bombed with conflicting information and rumours, consumers are more confused than scared, unlike last time. And a confused consumer is better than a scared one, points out a Delhi-based communications expert. "You can always woo him back."

Softly softly catchee monkey

The wooing's already begun. The pesticides issue is not just one of residues, toxicity and the safe/unsafe debate. It's a battle of perception: how Coke and Pepsi react will decide whether consumers will stick with them or move on to "safer" drinks. "There are only three ways to tackle such a problem: communication, communication, communication," says Alagh.

Pepsi took out advertorials in major newspapers, claiming pesticide levels in milk and tea were far higher than those found in the carbonated drinks. Coca-Cola's ads asked, "Is there anything safer for you to drink?" It has thrown its plant doors open to the public, inviting consumers to see how the beverages are made. Over 2,000 enquiries have already come in.

Unlike Pepsi, which doesn't appear too active in the wired space, Coca-Cola is also tapping into online communities in a big way.

The company website is an integral part of its current engagement strategy: all press releases and statements are uploaded onto the site, along with lab reports, product information, press ads and contact details. It's also set up an India Helpline comprising two dedicated telephone lines and an email ID. All unlike last time.

Spread the blame

In 2003, they were partners in peril. This time, instead of joint press conferences and joint statements, Coca-Cola and Pepsi are responding through the Indian Soft Drinks Manufacturers Association. Good move, say experts.

"It is best to join hands as that makes it seem less a company problem and more an 'India' problem," agrees Nirmalya Kumar, professor of marketing and director of the Aditya Birla India Centre at London Business School.

And it's not just a problem of pesticides in your pop. Coca-Cola and Pepsi are emphasising the broader scope of the issue: the high levels of pesticide in all foodstuffs.

The angle now is: everything is contaminated, from coffee and tea to milk and water, so why single out soft drinks? Koshy calls this "social inoculation" - inject small doses of a problem into society and they gradually stop having an impact.

"After sufficient doses of 'it is not uncommon to find pesticides in all we eat and drink', the typical response would be, 'this is not a big issue'," he predicts.

What next?

There's still a long way to go before Coke and Pepsi can close the file on this one. Here are some ways to speed it up.

Learn from McDonald's: Although federal courts in the US dismissed charges that its fast food was causing Americans to grow fat, McDonald's still addressed the issue.

It took its infamous "super size" option off the menu and offered a greater variety of salads and lean meats. Coca-Cola and Pepsi in India have "abysmally small portfolios," says Nadkarni, recommending that both companies expand their product offering to include more non-carbonated beverages. "These may not be large volume-builders, but make sure your consumers are offered choices," he says.

Learn from Cadbury India: In 2004, worms were found in a few bars of the company's bestselling Dairy Milk chocolate. Sales plunged 15-40 per cent immediately. Cadbury's got to the root of the problem - open packaging - and new tamper-proof packaging was launched within 90 days. Two new commercials were also launched, featuring brand ambassador Amitabh Bachchan.

One showed Bachchan in a hard hat inside the Cadbury factory, declaring himself completely satisfied with the company's quality controls. It worked - within six months, internal surveys showed the company's popularity was at pre-worm levels. "Why aren't the cola companies using their brand ambassadors similarly?" asks Alagh.

They've got filmstars and cricketers on contract - use them effectively to get across the message that these drinks are safe. "We use brand ambassadors to promote brands. Why not to protect the brand?"

Learn from the Boy Scouts: Be Prepared. If an incident occurs once, there's every probability it will happen again - and again. In fact, it may not be a bad idea to start preparing for Round III right away.
Meenakshi Radhakrishnan-Swami