Brand Crisis Management

February 21, 2022

Jon Pineau

Intro

Crises affect all types of organizations, sometimes at the fault of their own or due to systemic issues. In times of crisis extra pressure is put on organizations. Crisis etymology is from Latin, meaning judgement ^[1], a perfect definition of customer’s actions towards an organization while they undergo difficult times. If an organization succeeds through difficult times, public opinion improves for the organization, or if they struggle, opinion falls. An organization’s previous efforts into its branding may be destroyed if it fails to respond to a crisis appropriately.

COVID-19 All-In Crisis Mode

The COVID-19 pandemic put every organization into crisis mode. Some industries had to be temporarily shut down; workforces switched to remote, and others disrupted their supply chains. One interesting example is the personal fitness equipment market. Before the COVID-19 pandemic, the personal fitness supply market was a niche industry. Still, after lockdown restrictions were put in place worldwide in months, the industry became mass market. The market size change was due to alterative product commercial gyms were forced to close. This led commercial gym consumers to buy personal fitness equipment to fulfill their fitness needs.

Niche to Mass Market

Before COVID-19, the residential, personal fitness equipment market was a small niche market. As fitness enthusiasts switched from commercial gyms to buying their equipment, this led to a large increase in the personal equipment market scope. In comparison, the commercial gym market is a mass-market where 16.7% of Canadians own a gym membership ^[2]. The pace and scale of the change would require a reliable, and organized supply chain with the ability for suppliers to ramp up production quickly. To meet the increased demand all of these elements must not fail.

To visualize the increase in market size for the fitness equipment for the individual manufacturer, the stock price of Peloton, a leading fitness equipment company, provides good insight. When Peloton went public in September 2019 the stock price sold at $25.24 ^[3] per share, hovering around this price until the COVID-19 pandemic began. By December 2020, the share price for Peloton shot up to $162.70 ^[3]. The share price for Peloton shot up because of the increase in demand for personal fitness equipment.

Long Supply Chain

Much of the fitness equipment products are produced overseas in China and other East Asian countries. This requires them to be shipped to North America, and Europe, as Air Freight is uneconomical as most fitness equipment is heavy. For a container ship to travel from China to the US west coast takes 15 to 20 days ^[4] plus time to load and unload the large vessel. It can take over a month for a product to leave the factory to end up at the retailer’s possession under normal circumstances.

Again, the COVID-19 pandemic was nothing but normal, as manufacturers and distributors were forced to close to stop the virus spread. The closures significantly extended the production and delivery process, creating backlogs in ports and distribution centers.

Communicate the problem

A retailer for the personal fitness equipment industry is in a difficult situation in 2020. Demand is incredibly high, but supply is non-existent. This made it difficult for retailers to manage their store inventories. To compound this, many retailers have e-commerce websites that show product inventory. These inventories quickly ran dry as in-store shopping restrictions from COVID-19 outbreaks in many regions. This led to the fitness equipment consumers who thought they purchased equipment still in stock switched to an on-order purchase. One fitness equipment retailer in the GTHA region that will be unnamed in this article poorly communicated this issue.

Before COVID-19, this company had a Google review score of over four stars out of five, a respectable score with hundreds of reviews, its currently sitting at a poor 2.7 out of 5. Its failure in communications deters customers as its competitors have much higher scores. After this company ran out of store inventory, they kept quiet for weeks until they messaged a two-week delay on orders and upped it to 4 weeks soon after. Considering the complex supply chain, this delay in orders is extremely optimistic, as there was a huge backlog throughout the supply chain and on the company’s own inventory as every fitness equipment retailer made record sales in the spring of 2020. This led to customers waiting several months for their products that they expected to come sooner.

Compounding this, the retailer was not communicating with concerned customers. This led to their Google reviews dropping, with customers claiming fraud to get their money back. These low reviews certainly lower new consumers’ confidence with purchasing from this company.

The company should have better communicated the issues with their stock situation. Focusing on how replenishing stock for inventory for some products will take four weeks at a minimum due to the global supply chain breaking down. Then they should mention to their pre-order customers their current order will likely take much longer than a month to receive their products due to the crisis. Refunds should be offered to customers as claiming fraud is not a normal business practice.

Video Card Industry

Another industry facing supply shortages, and increased demand is the video card industry. The video card industry also has a complicated supply chain, and a record increase in demand. Some retailers are practicing distributing their products to create a lottery for a limited number of customers. The Newegg Shuffle allows a small percentage of users to purchase high-demand products. The lottery shuffle may work for some retailers, but most fitness equipment retailers are small scale making a lottery shuffle too difficult to implement.

Summary

During times of crisis, organizations must succeed to maintain their viability. Even when the crisis is not the organization’s fault, extra focus is still placed on these organizations. For the personal fitness equipment retailer their poor communications destroyed the company’s established reputation. To not deter future customers the retailer will have to a costly rebrand of itself to improve its reputation.