Dacquisto, Huang, Langham and Shogren 1

Dacquisto, Huang, Langham and Shogren 2
Catherine Dacquisto, Ruizhe Huang, Jena Langham and Krista Shogren
J453: Anna Klyueva
24 February 2013
SK-II Crisis in China
Proctor and Gamble (P&G) provides branded products and services of superior quality and value that improve the lives of the world’s consumers (P&G). This global corporation produces various products including the SK-II line of cosmetics.
P&G entered the Mainland Chinese market in 1988 as one of the largest global corporate advertisers. P&G sales held approximately one-fifth of the Chinese cosmetics and toiletries market.
Additionally, the company held some of the common U.S. products such as Pantene, Head &
Shoulders, Cover Girl, and Pringles. In the early 1990s, P&G increased its presence in the international cosmetics industry by acquiring Max Factor. As a result, the company introduced SK-
II as a high-priced specialty product.
SK-II first entered the market in Mainland China in the beginning of 1999. The product initially targeted women travelling from China to Hong Kong, Taiwan, South Korea and Japan. It was primarily used by women and was meant to smooth and whiten the skin. Proper use of SK-II involved a 6-8 multi-step regimen. The product became widely used by a myriad of Southeast Asian women.
After a debacle in 2005 when P&G received a fine for “false advertising,” the relationship and level of trust between P&G and Chinese consumers decreased in value. The advertising claims for SK-II were found to be at fault, and P&G was shown not to be responsible for the customer’s skin reaction to the product. The company issued a thank you letter through Sina.com to its Chinese

Dacquisto, Huang, Langham and Shogren 3
“netizens” for their support after the court case ruling. The letter reiterated that the unlabeled ingredient “will not cause injury to the skin”.
One year after the advertisement debacle in 2005, SK-II had 97 sales counter in China and more than 400 sales personnel in every major city. SK-II accounted for approximately 7% of the brand’s global sales, putting it at the number two premium skin care brand.
On September 14, 2006 the National Quality Inspection Department of the State General
Administration of Quality Supervision, Inspection and Quarantine (“AQSIQ”) selected samples from a batch of SK-II products to test. After testing the samples, AQSIQ announced that nine SK-II skin care products contained substances banned in cosmetics under Chinese law: chromium and neodymium. Furthermore, these two ingredients can cause allergic dermatitis and eczema. Chinese government knew the trace amounts of illegal substances were part of the manufacturing process; however, P&G did not address the allergen ingredients. Furthermore, P&G discredited all allegations that SK-II was hazardous to consumers.
One day later, P&G released a return policy that had four specific conditions. First, the returned product had to be one of the nine banned. Second, the consumer had to have a history of hospital record of proven allergies. Third, the consumer had to have the original receipt. Fourth, the product had to be at least two-thirds full. The refund took one month to be issued. These four return policies angered the already upset customers and caused an uproar of hysteria at SK-II counters.
Hundreds of frustrated customers stormed SK-II stores where they demanded refunds but the level of mayhem caused P&G to discontinue refunds.
At no time during this crisis did P&G publically announce that the products were recalled.
Instead, the company stated the tedious return policy that implied SK-II was not faulty but rather the customers were simply dissatisfied. Retailers such as SaSa and Mannings stopped selling SK-II but still accepted returns. On September 21, P&G found three more products that contained the same

Dacquisto, Huang, Langham and Shogren 4 banned substances. On September 22, P&G stopped all SK-II sales and operations in China.
However, the spokesperson of P&G still claimed that SK-II products did not pose any safety concerns.
After it was found that various ingredients in the SK-II products were determined to be potentially hazardous, many consumers were unsettled and angry. The return policy has been revised multiple times due to the influx of complaints and the uncontrollable behavior of customers at return counters.
Currently, all nine SK-II products have been pulled from China; however, they remain in stores in other countries such as Hong Kong and Singapore. P&G has not given notice of an official recall and instead has issued a return notice with the notion that there is nothing dangerous about its products but rather their customers are only dissatisfied.
Moreover, customers are experiencing conflicting opinions due to inconsistent health standards in various countries carrying the product. The Hong Kong Customs and Excise
Department stated that SK-II products do comply with the General Safety Requirement under the
Consumer Goods Safety Ordinance. This information is increasing the confusion on whether the traces of chromium and neodymium are purposely placed in the product or occur naturally through the manufacturing process.
The Chinese Government is another key opponent in this case as P&G has avoided direct communication and compliance with their concerns. P&G is not taking responsibility for their actions associated with frequently changing the return policy and neglecting the crisis.
These actions have cast an extreme negative light on P&G as a company and tainted the image of its product: SK-II.
At this point, P&G needs to take further steps to clarify its position in the crisis by defining

Dacquisto, Huang, Langham and Shogren 5 return policies, lending support to its consumers and repairing its relationship with the Chinese
Government, media outlets, consumers and company employees.
P&G is facing a lack of trust among consumers, negative publicity within the industry and bad relations with the Chinese government. P&G should establish open communication about product information, enact a consistent and fair return policy, and develop transparency to increase trust among stakeholders.
Restore trust among consumers and maintain SK-II sales within the Chinese market.
We recommend that SK-II restore trust within its four key stakeholders: consumers, media,
Chinese government and employees by restructuring return policies and developing a new open communication system. The return policy would guarantee all returns with a 30-day period within any retail outlet. The one-month allows unsatisfied customers to successfully return their product with no restrictions, while also allowing P&G to remove any pirated products from circulation. To create a more open communication system, P&G should establish a public platform where stakeholders and the company can freely exchange comments and ideas. This would be specific to each public and, ideally, restore trust among all. We hope that putting our unsatisfied stakeholders needs at the forefront of our crisis management improves the trust they have with P&G.
Consumers
P&G’s current consumers have a negative image of the company and no longer trust the SK-
II product. In order to repair this relationship, P&G must reestablish confidence in its products and

Dacquisto, Huang, Langham and Shogren 6 put the customers before its monetary gains. In the long run, P&G will most likely make more money from healthy consumer relationships.
Strategy
P&G must first release a sincere apology emphasizing how they are at fault and its willingness to serve the consumer with any needs regarding the SK-II product. This apology would come directly from the CEO at a press conference in which the public and media would be invited to attend. Additionally, a written form of this apology would be on the website. It will then enact a relaxed return policy in all countries where the product was sold. P&G will improve all SK-II products to meet all health requirements in every country the product is sold and then release the new product back into the market.
Objectives
To allow consumers to return the product for 30-days for a full refund with or without a receipt, no questions asked. To increase trust by 45% in consumers through introducing an improved product that is compliant with each country’s regulations by 1 April 2013.
Tactics
P&G will allow for an open 30-day return policy at all locations the SK-II product was sold.
After pulling the product from the shelves, P&G will improve the product to meet all health regulations and release it into the market. The packaging of the product will contain a discretionary label that will clearly state any ingredients that may be a risk for users. P&G will also release a brochure outlining all information about the product including, how to use, its purpose and potential side effects. In conjunction with the brochure will be a website containing all information and an open communication forum to allow consumers to discuss the product on a monitored platform.
Media

Dacquisto, Huang, Langham and Shogren 7
The media currently paint a negative image of P&G and the SK-II brand. They give negative publicity towards P&G and provide the public with information that is not consistent with P&G’s message.
Strategy
P&G will establish a more open relationship with the media so that they are equipped to provide the public with a constant flow of information. This continuous flow allows for transparency and consistency among various Chinese social media platforms such as Renren, Weibo and blogs. Additionally, P&G will use traditional media, such as Peoples Daily , and local newspapers.
Objective
P&G will contact three major newspapers and several local to send out information to consumers by 23 February 2013 to report during the duration of the SK-II rebranding and testing.
Tactics
First, P&G will publicize any events or public forums through the media by inviting the press to attend. The company will hold demonstrations of the newly improved SK-II, while accompanied by a certified dermatologist, at all counters where the product is sold. The media will be invited to report these events. It is P&G’s responsibility to ensure all train employees and ensure they are well-versed to answer potential questions from the media. Second, P&G will release inside information about product development to the media for them to put on social media. This allows for social media users to have access to the internal management or inner workings of the developing SK-II product. Third, the media will be invited to publicize the product testing to the public. By disclosing the test results, current and potential SK-II users can see the science behind the product.
Chinese Government

Dacquisto, Huang, Langham and Shogren 8
Chinese government is a highly centralized Communist government. The government order and law is final and the ultimate law of the land, no individual or organization shall question the authority of the central government. Government has the highest power to execute its order and any interest it defines.
Strategy
P&G will restore its relationship with the Chinese government so that it will not affect its operation in Chinese market. This will also allow for further cooperative between the company and the Chinese central government.
Objectives
P&G will host weekly meetings with the Chinese government and establish a set of guidelines to comply with governmental regulations by 22 February 2013.
Tactics
First, P&G will issue a public apology to the Chinese government agencies. This letter will include the reasoning for a lack of cooperation and tendency to question government authority.
Second, P&G will contact the Chinese government agencies to have work meetings on these incidents to clarify any misunderstanding the agencies might have against the company. At the same time P&G will cooperate with the AQSIQ and related government agencies on the testing of products. Company executives will actively stay in contact with the government agencies every week for any update of the product test and report any radical consumer complains. Third, after the test result is gathered the company executives need to host press conference with the government agencies to release the result in joint operation. These three steps will help the company to restore the relationship with the Chinese government and it will create a public image of being cooperative with the government and thus the consumers can hold the company credible.
Employees

Dacquisto, Huang, Langham and Shogren 9
Strategy
It is essential for SK-II employees to be educated on the current crisis to guarantee they represent SK-II in a positive light. Since peers can be considered opinion leaders, stakeholders of
SK-II will value the opinion of their friends and family members who may be employees. Ensure that every employee of SK-II is knowledgeable on the company’s crisis situation and are prepared to answer any questions their peers or customers may have.
Objective
To increase employee awareness on SK-II return policy and current situation regarding safety of its products to 95% by 23 February 2013 by arranging a staff briefing, a resource to ask questions, and internal newsletters.
Tactics

Host a mandatory information session within the next week. o Employees will be well versed on the new return policy and how to clarify why the products did not need a recall.

Post FAQs on the SK-II website for employees to use as a reference.

Create a section on the SK-II website where employees can post questions to be answered by their superiors (Manager, CEO, etc.). o The questions should be answered within 24 hours.

Release weekly newsletters updating employees for 30-days. o The newsletters should contain information regarding the company’s current stance and where it is projected to be heading.

P&G will reestablish consumer trust in the SK-II brand through enacting a fair return policy and improving its product.

Dacquisto, Huang, Langham and Shogren 10

P&G will increase transparency through positive media coverage.

The new set of guidelines between P&G and Chinese government will restore the mutual relationship within the two parties.

Employee education on the situation and the new return policy will help prepare them to answer any FAQs.
P&G will measure its specific progress within each four key publics through a variety of tools. First, P&G will measure success with the media by monitoring social media content it receives from its publics. This can be done through comparing positive attention versus negative attention on social media sites as well as published media. Additionally, P&G can use sites such as
Google Analytics to measure its SEO. Second, P&G can use at-counter surveys to determine what customers opinions of the return policy. The company can measure its sales growth once it releases the new product. P&G can also measure how many people visit its website, more specifically the website forum to discuss product information. If sales begin to rise after the improved product has been released to the stores P&G will have successfully maintained and established trust with its consumers. Third, P&G needs to count the number of meetings with the government agencies.
Additionally, during the meetings with the agencies P&G will take notes and document progress.
Government agencies and P&G will release a joint statement about the product test. Fourth, based off the number of questions submitted on the website, P&G can gage how many of its employees are engaged in the crisis awareness. Also, by sending out a mandatory survey in one of the newsletters, the company can determine what the employees are educated on and what still needs to be clarified.

Dacquisto, Huang, Langham and Shogren 11
References
(n.d.). The Power of Purpose. P&G.
Retrieved Feb. 18, 2013. From http://www.pg.com/en_US/company/purpose_people/index.shtml.