AMITY INTERNATIONAL BUSINESS SCHOOL

MARKETING TOOLS & TECHNIQUES

Contingency Plans & Crisis Management

Submitted to: Ms. Nidhi Bhatia Submitted by: Harshita Baranwal, Section A, Enrollment No. A1802011082

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Contingency planning

Organizations prepare contingency plans in recognition of the fact that things do go wrong from

time to time. Contingency planning involves:

Preparing for predictable and quantifiable crises

Preparing for unexpected and unwelcome events

The aim is to minimise the impact of a foreseeable event and to plan for how the organisation

will resume normal operations after the crisis

Contingency plans

The contingency plan:

Identifies alternative courses of action that can be taken if circumstances change with

time

Details standby procedures to enable the continuation of essential activities and services

during the period of the emergency

Includes programmes for improving the business in the longer term once the immediate

situation has been resolved

Steps in drawing up a contingency plan

Recognise the need for contingency planning

Identify possible contingencies - all the possible adverse and crisis scenarios

Specify the likely consequences

Assess of the degree of risk to each eventuality

Determine risk strategy to prevent a crisis & to deal with a crisis should one occur

Draft the plan and identify responsibilities

Simulate crises and the operate of each plan

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Dealing with the “what if” question Scenario analysis:

This involves constructing multiple but equally plausible views of the future

The scenario consists of a “story” from which managers can plan

Sensitivity analysis

Involves testing the effect of a plan on alternative values of key variables

e.g. the effect of a 50% loss of capacity

Crisis management

Crisis management involves:

Identifying a crisis

Planning a response

Responding to a sudden event that poses a significant threat to the firm

Limiting the damage

Selecting an individual and team to deal with the crisis

Resolving a crisis

Stages of a crisis

Pre-crisis Prior to the event

Warning Indications that there is or may be or could be an event liable to cause a

significant impact on the organization

Crisis point When the event begins to cause significant impact on the organisation

Recovery The acute stage of crisis has passed and the organisation is able to focus

on a return to normal operations

Post crisis Evaluation of the effects

Repair to the organization

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Role of the crisis manager

Crisis assessment

Event tracking

Managing human considerations

Damage assessment

Assessment or resources and options

Development of contingencies

Managing communications

Co-ordination with external bodies

Controlling information

Controlling expectations

Managing legal requirements

Advice on handling a crisis

Appoint a crisis manager

Recognise that the crisis manager is likely to adopt a more authoritarian style than is

normal

Do an objective assessment of the cause (s) of the crisis

Determine whether the cause (s) will have a long term effect or whether it will be a short

term phenomenon

Project the most likely cause of events

Focus on activities that will mitigate or eliminate the problem

“Look for the silver lining”- opportunities in the aftermath

Act to guard cash flow

Dealing with the financial aspects of a crisis

Accelerate accounts receivable (payment by debtor)- by offering a discount if necessary.

Slow up payment to creditors where possible.

Increase short term, sales

Reduces expenses - especially “non mission critical” expenses

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Outsource non mission critical operations.

Re-schedule loans

Dealing with the “people” aspects of a crisis

Form a crisis team

Designate one person only to speak about the crisis to the outside world

Act to prevent or counter the spread of negative information

Make use of the media to provide a counter argument

Do not tell untruths - trying to manipulate or distort the information will backfire

If we could be absolutely sure about what the future holds and what the consequences of our

decisions and actions were we would not need to be prepared for the unexpected and unintended

consequences. But in reality much of what marketing deals with is full of uncertainty and risk.

The best plans include contingencies and so mean the organization is, for example, at least

prepared if there is an emergency.

Contingency planning can get difficult. You have to be able to argue why the plan you adopt is

better than any contingency plan you also have, otherwise the question can be asked, "why not

go with the contingency plan straight away?". This means a contingency plan should not be an

alternative plan radically different to the one you implement. Instead it should consist of small

subtle deviations based on the plan you are implementing.

Contingency planning involves the following:

Identify both beneficial and unfavourable events that could possibly derail the strategy or

strategies.

Specify trigger points. Calculate about when contingent events are likely to occur.

Determine early warning signals for key contingent events. Monitor the early warning signals.

Assess the impact of each contingent event. Estimate the potential benefit or harm of

each contingent event.

Ensure that contingency plans are compatible with current strategy and are economically

feasible.

Have an end game plan – and if necessary an exit strategy

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Assess the counter impact of each contingency plan. That is, estimate how much each

contingency plan will capitalise on or cancel out its associated contingent event.

Crises that could affect businesses

Depending on your business' specific circumstances, there are many possible events that might

constitute a crisis:

Natural disasters - for example, flooding caused by burst water pipes or heavy rain, or

wind damage following storms.

Theft or vandalism - theft of computer equipment could prove devastating. Similarly,

vandalism of machinery or vehicles could be costly and pose health and safety risks.

Fire - few other situations have such potential to physically destroy a business.

Power cut - loss of power could have serious consequences. Would you be able to

operate without IT or telecoms systems, key machinery or equipment?

Fuel shortages - temporary shortages in fuel supply could prevent staff getting to work

and affect your ability to make and receive deliveries.

IT system failure - computer viruses, attacks by hackers or system failures could affect

employees' ability to work effectively.

Restricted access to premises - how would your business function if you couldn't access

your workplace - for example, due to a gas leak?

Loss or illness of key staff - how would your business cope if a key member of staff

were to leave or was incapacitated by illness?

Outbreak of disease or infection - an outbreak of an infectious disease among your

staff, in your premises or among livestock could present serious health and safety risks.

Terrorist attack - consider the risks to your employees and business operations from a

terrorist strike, either where you are located or you and your employees travel. Also consider

whether an attack may have a longer-term effect on your particular market or sector.

Crises affecting suppliers - how would you source alternative supplies?

Crises affecting customers - will insurance or customer guarantees offset a client's

inability to take your goods or services?

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Crises affecting your business' reputation - how would you cope, for example, in the

event of a product recall?

Cases of Crisis Management

CASE 1: Johnson & Johnson's Tylenol

In 1982, Johnson & Johnson's Tylenol medication commanded 35 per cent of the US over-the-

counter analgesic market - representing something like 15 per cent of the company's profits.

Unfortunately, at that point one individual succeeded in lacing the drug with cyanide. Seven

people died as a result, and a widespread panic ensued about how widespread the contamination

might be.

By the end of the episode, everyone knew that Tylenol was associated with the scare. The

company's market value fell by $1bn as a result.

When the same situation happened in 1986, the company had learned its lessons well. It acted

quickly - ordering that Tylenol should be recalled from every outlet - not just those in the state

where it had been tampered with. Not only that, but the company decided the product would not

be re-established on the shelves until something had been done to provide better product

protection.

As a result, Johnson & Johnson developed the tamperproof packaging that would make it much

more difficult for a similar incident to occur in future.

Cost and benefit

The cost was a high one. In addition to the impact on the company's share price when the crisis

first hit, the lost production and destroyed goods as a result of the recall were considerable.

However, the company won praise for its quick and appropriate action. Having sidestepped the

position others have found themselves in - of having been slow to act in the face of consumer

concern - they achieved the status of consumer champion.

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Within five months of the disaster, the company had recovered 70% of its market share for the

drug - and the fact this went on to improve over time showed that the company had succeeded in

preserving the long term value of the brand. Companies such as Perrier, who had been criticised

for less adept handling of a crisis, found their reputation damaged for as long as five years after

an incident.

In fact, there is some evidence that it was rewarded by consumers who were so reassured by the

steps taken that they switched from other painkillers to Tylenol.

Conclusion

The features that made Johnson & Johnson's handling of the crisis a success included the

following:

They acted quickly, with complete openness about what had happened, and immediately

sought to remove any source of danger based on the worst case scenario - not waiting for

evidence to see whether the contamination might be more widespread

Having acted quickly, they then sought to ensure that measures were taken which would

prevent as far as possible a recurrence of the problem

They showed themselves to be prepared to bear the short term cost in the name of

consumer safety. That more than anything else established a basis for trust with their customers

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CASE 2 : The Wormy Controversy (Dairy Milk)

Rise of the Controversy

State FDA Commissioner Uttam Khobragade said a group of people approached him

with chocolates that had worms in them.

Sebastian Fernandez had purchased Cadbury Dairy Milk chocolate from a shop at Pick

and Pay, Vile Parle.

Fernandez discovered that the chocolate (Batch No28F3I10703) had worms in it.

Fernandez complained to the shopkeeper Jitendra Shah who later informed Pravin Marve,

vice-president, Andheri Vyapar Manch.

Marve then contacted the FDA and gave them the sample. FDA Joint Commissioner

Hindurao Salunkhe said Cadbury's Talegaon plant will also be inspected.

Effects Of The Controversy On Cadbury

The state Food and Drug Administration has ordered abduction of Cadbury's Dairy Milk

chocolates from all over Maharashtra after worms were found in two of them in Mumbai.

bad storage practices by retailers and distributors that had led to the worms.

Festival season sales (Cadbury sells almost 1,000 tones of chocolates during Diwali)

plummeted 30 per cent.

Role Of The Public Relations

Not denying the fact

Maharashtra Food and Drug Administration had given a clean chit to the company's two

plants in the state.

tell consumers about improper storage

Bharat Puri, Cadbury's mild-mannered MD, went to media offices around the country

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Taking precautions

Company launched Project Vishwas, a retail education programme.(generating awareness

and providing assistance in improving storage quality.) “Steps to ensure quality &

regain the confidence”

new double packaging even for the smallest offering

wrapped in aluminum foil and enclosed in a poly flow pack, which was sealed on all

sides.

company also carried out quality checks

Gaining back trust

AB played a pivotal role in all communication relating to Cadbury's products and brands

created a campaign which aimed for both rational and emotional appeal.

Benefits Of A Good Campaign

The company bounced back soon after the campaign hit the screens. Between October

2003 and January 2004, Cadbury's value share melted from 73 per cent in to 69.4 per

cent. The recovery began in May 2004 when Cadbury's value share went up to 71 per

cent.

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Case 3: Exxon Valdez

In 1989, the Exxon Valdez oil tanker, entered the Prince William Sound, on its way

towards California.

The ship ran aground and began spilling oil. Within a very short period of time,

significant quantities of its 1,260,000 barrels had entered the environment.

At the moment of the collision the third mate, who was not certified to take the tanker

into those waters, was at the helm.

The probable cause was established that the Captain and many of the crew had been

drinking alcohol in considerable quantities.

What did the company do?

The action to contain the spill was slow to get going.

The company refused to communicate openly and effectively to the public about the

incident.

The Exxon Chairman, Lawrence Rawl, was immensely suspicious of the media, and

reacted accordingly.

Poor Crisis Management

The Chairman refused to be interviewed on TV and said that he had no time for “that

kind of thing.”

A company spokesman misrepresented the extent of the spill and clean-up efforts

This was in contrast to the footage of the ecological disaster shown on TV

Failure to Fix the Problem

While Exxon stalled and attempted to cover up the problem, the clean-up operation was

slow to begin

Around 240,000 barrels had been spilled, with another million still on the ship.

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During the first two days, when calm weather would have allowed it, little was done to

contain the spillage.

This spillage spread out into a 12 square mile slick.

The Problem Compounds

Then the bad weather struck, making further containment almost impossible.

After more than a week, the company was still giving no ground on the request for better

communication.

The media clamor became so hostile that eventually Frank Larossi, the Director of Exxon

Shipping, flew to Valdez to hold a press conference.

It was not a success. Small pieces of good news claimed by the company were

immediately contradicted by the eyewitness accounts of the present journalists and

fishermen.

Outrage Builds

John Devens, the Mayor of Valdez, commented that the community felt betrayed by Exxon's

inadequate response to the crisis, in contrast to the promises that they would be quick to react

exactly in this eventuality

Poor Communication

Eventually, Chairman Rawl was interviewed live

He was asked about the latest plans for the clean-up.

It turned out he had neglected to read these, and cited the fact that it was not the job of

the chairman to read such reports.

He placed the blame for the crisis at the feet of the world's media.

The Aftermath

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Exxon lost market share and slipped from being the largest oil company in the world to

the third largest.

The "Exxon Valdez" entered the language as a shortcut for corporate arrogance and

damage.

What went wrong?

The company failed to show that they had effective systems in place to deal with the

crisis - and in particular their ability to move quickly once the problem had occurred was

not in evidence

They showed little leadership after the event in ensuring such problems would never

happen again

They quite simply gave no evidence that they cared about what had happened. They

appeared indifferent to the environmental destruction.