Crisis management: What foreign companies can learn from past crises?

Earlier this year IKEA confirmed that they would be coming to New Zealand. Photo / 123RF

COMMENT:

Krispy Kream Donuts and Sephora encountered high profile crises when entering into the New Zealand market. What can other overseas companies learn from their mishaps?

An important part of Crisis Management is crisis prevention, and much can be learned from analysing crises that have occurred to other companies.

Foreign companies such as Ikea and Taco Bell, which have announced their plans to enter into the New Zealand market, would benefit tremendously from this type of analysis.

In 2018 when Krispy Kreme launched its operations in New Zealand, the company decided to run a competition to coincide with the opening of its first donut store in Auckland. The first 100 people waiting in the line at the opening of their new store in Auckland would receive free t-shirts, and other prizes including free donuts.

What seemed to be a good idea turned into a crisis for Krispy Kreme because of the terms of the competition which excluded people based on residency. Only New Zealand residents were eligible to participate in Krispy Kreme's competition.

A couple, who waited hours on line in order to participate in Krispy Kreme's competition, were surprised when a security guard asked them whether they were New Zealand residents. When one of them told the security guard that she was from the Philippines and wasn't a New Zealand resident, the security guard asked her to leave the line. Her boyfriend, who was a New Zealand resident, was allowed to participate in the competition and remain in the line.

Kiwis queue for the opening of Krispy Kreme in Manukau. Photo / File

This incident generated a considerable amount of negative publicity for Krispy Kreme. After planning the store's opening for months, a highly successful public relations campaign turned into a crisis in minutes. The news of the couple's negative experience with Krispy Kreme spread quickly, and the incident was covered extensively in the news and on social media. The Philippines ambassador in New Zealand was also outraged, and he called for a boycott against the company.

What went wrong? It is a standard practice to specify rules for competitions. However, excluding people from participation based on residency is a questionable condition to include, especially in a diverse country with a large number of tourists and non-residents who live in the country for extended periods of time. This crisis could have been avoided if the restrictive conditions weren't included in the terms of participation for the competition.

It is worth noting that Krispy Kreme's terms for the competition were legal. However, a company needs to look beyond legal implications, and consider the responses of other key stakeholders as well. A crisis can occur even if a company is complying with the law. Krispy Kreme did not take into consideration the reaction of large segments of the public that viewed the restrictive conditions of the competition as unjust.

Krispy Kreme is not the only overseas company that has encountered problems when starting their operations in New Zealand. Sephora, the French cosmetics company, generated negative publicity when they opened their first store in Auckland earlier this year.

The company was accused of causing environmental harm, not a good way to launch its operations in New Zealand. In its response to the crisis, the company defended its actions.

First, Sephora claimed that the confetti it used during the grand opening of the Auckland store wasn't harmful to the environment. The company mentioned that the confetti was bio-degradable, water soluble and plant based. Second, Sephora claimed that its actions were coordinated with Auckland City Council.

Unfortunately for Sephora, Auckland City Council did not accept Sephora's version of events. The council denied it had given Sephora permission to dispose of the confetti into storm water drains. It also issued a formal warning to the company as a result of its actions.

Restaurant Brands plans to have 25 Taco Bells trading in New Zealand in the next five years. Photo / Supplied

What lessons can be learned from Sephora's crisis? Foreign companies entering into New Zealand need to be aware of the environmental impact of their operations. The public is proud of New Zealand's reputation for natural beauty, and any perceived harm to the environment will be damaging to a foreign company's reputation. Government officials will also respond quickly to public sentiments. Politicians are sensitive to public opinion, especially close to election times.

When Ikea, Taco Bell, and other foreign companies launch their operations in New Zealand, they should be aware of core values that are strongly held by kiwis. One core value held in New Zealand is a strong belief in fairness and equity. Another core value is concern for the environment, and preserving the natural beauty of the country. If either of these values are violated by a foreign company, there is a high likelihood that this will trigger a crisis.

Also, foreign companies need to look beyond complying with the laws when they operate overseas. A crisis occurs when stakeholders' expectations of a company are not met. In many cases these expectations go beyond legal requirements. Therefore, foreign companies need to be aware of stakeholder expectations. Otherwise, they will face crises in the future that could have been avoided.

- Daniel Laufer, PhD, MBA is an Associate Professor of Marketing at Victoria University of Wellington, and an expert in Crisis Management. He has previously provided commentary for the Wall Street Journal.