© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
A highly publicised event caused by a product being found to be defective, contaminated or even harmful to consumers. The crisis could affect the entire product category or a subset of the category. In many cases, the crisis triggers a product recall on a voluntary basis or forced upon the affected company or companies by government regulators. In today's 'flat world', product-harm crises are often global.
Short-term effects of a crisis are lost sales and the costs associated with product recalls. In the long term, the incident can severely damage the reputation of the affected brand and company. The key challenge for companies faced with a crisis is to restore consumer trust.
China's 2008 milk scandal stemmed from milk being spiked with melamine. The potentially lethal chemical was added to artificially boost the protein level of milk. Babies fed on contaminated infant formula suffered kidney damage; at least six infants in China reportedly died.
Though initially the crisis centered on Sanlu, the leading pre-crisis infant formula brand, many other Chinese brands were tainted by the scandal, including Yashili and Mengniu. Even today, most Chinese mothers still avoid domestic infant formula brands and prefer paying a premium for foreign brands. A very similar crisis occurred in 2007 in the pet food category when scores of pet food brands were recalled worldwide following reports of kidney failure among dogs and cats. The affected brands had sourced melamine contaminated wheat gluten from a Chinese supplier.