It’s always been true that when companies behave badly, consumers react by spreading the word and sometimes boycotting. But our recent research found that negative news is also bad for business in a new way: Consumers react even when the bad news extends beyond the company to its supply chain. We discovered that consumers are more likely to believe that a company’s product is inferior in quality when there is a supply chain mishap, even when the product quality has nothing to do with the supply chain problem. This was true across the triple bottom line (TBL): Consumers assume a product has decreased in quality whether the supply chain problems are related to an economic issue (like managers embezzling), a social issue (like unfair wages), or an environmental issue (like polluting).
The past 30 years have seen significant globalization of supply chains. Outsourcing and offshoring have led to extended supply chains that are prone to increased levels of complexity and disruption. And the longer the supply chain is in terms of geography and complexity, the more likely it is that bad things will happen somewhere along the way. With all the risks and opportunities for operational failures, including some risks global supply chains managers not even be aware of, managers can all but guarantee that at some point something will go wrong somewhere in the supply chain, and, particularly with the rise of social media, that consumers will hear about it.
First and foremost, firms need to understand that it is mostly bad news that consumers care about. We found that negative news about TBL operations in the supply chain significantly decreased consumer perceptions of product quality and influenced purchase intentions, even though the news had nothing to do with the product whatsoever. When negative news does emerge, firms need to be prepared to reinforce positive consumer perceptions about their brands and product quality.