Peter Jackson
Jul 23, 2014

Who pays for a marketing-inspired crisis?

Marketers may want to consider insurance in case their marketing plans go awry.

Peter Jackson
Peter Jackson

Editor's note: As an insurance broker, the author has an obvious bias regarding the topic. While we normally don't publish opinions that could be construed as sales pitches, in this case, we thought the concept warranted sharing.

When you're designing a marketing campaign or product launch do you consider 'How do I de-risk this project?' Or, 'How's my position going to be affected if things don't go to plan?'

Marketing teams are always asked for absolute ROIs, but rarely do CMOs consider the actual value of what they are promoting—marketing campaigns can add quantifiable value to a brand. But they can also, on occasion, reduce value. The cost of a car, ship, airplane, house, and computer network can all be tangibly valued and insured. Increasingly, international businesses in Asia are also looking to insure their brands from unintentional self-harm.

Marketing is not immune to its own crisis moments. When a marketing campaign goes wrong it can cause spectacular international damage to a brand, to say nothing of ruining professional reputations. For both new and experienced operators in Asia, different cultural sensitivities, isolation from head office, and a lack of checks and balances can have disastrous, unforeseen consequences.

Partnership marketing, social-media initiatives, and the popularity of celebrity endorsements have added elements of risk to marketing endeavours. Marketing teams are, increasingly, losing control of message delivery and public response. In this environment, CMOs should look at how the costs of a self-inflicted marketing wound can be minimized.

What is the value of a brand, and how is this value protected?

When a company’s value is derived primarily from the brands it owns, insurance can protect the company from the financial consequences of a loss to their brand portfolio.

While insurance coverage won’t make consumers buy your products or visit your stores, it will give you financial protection so that the costs of rehabilitating a brand, if something goes wrong, are borne by insurance, giving you the time and money to rebuild your brand.

A few simple examples include:

Celebrity risk: You have a major advertising and promotion campaign using a celebrity. You can buy so-called “death & disgrace” cover where you can protect the costs of the campaign against that celebrity’s death or unfavorable publicity. There have been a number of recent high-profile cases of this: Luis Suarez dining out on Italian, Korean K-Pop stars shockingly having boyfriends, and various other unsavory antics. Likewise, if you’re using personalities for events, you can insure against “no show” or event cancellation.

Sales promotion: There is the risk that a sales promotion is too successful. You can insure against, for example, over-redemption in sales promotions. This is useful if your promotions cannot be fully controlled and a product becomes over-subscribed and under-supplied. As a side note, Hello Kitty continues to be a retail draw card.

Product recall: The greatly feared branding disaster. This is a major issue both from a reputational and cost perspective. Product recall cover, often mixed with cover for 'malicious product tamper' (where an employee deliberately sabotages a product), is widely available to compensate for lost revenue and increased costs that arise from having to withdraw a product. This coverage also helps companies handle a delicate situation in a manner which can, occasionally, enhance brand reputation. Recent automotive recalls have come to prominence, especially in the United States, and are good examples of where this sort of coverage could be used on a large scale.

Political risk: This is a much overlooked area of protection. Events in Ukraine, Vietnam, and Thailand have highlighted the risks of operating in various markets. Political risk and terrorism cover will compensate for losses associated with government actions, civil disturbance, or terrorism. This is particularly valuable if you have just opened up in a new country or have well established operations that contribute meaningfully to overall group results and might be assets that could be valued by others.

Reputational harm: This is a new insurance market where you can buy cover against losses that arise from intangible events that damage your reputation. This could include events that impact your industry or attacks in the media. This is particularly important if you own highly-visible brands that tend to be a “target.”

Lessons for a CMO

So what should a CMO take away from this article? The internal marketing risks are numerous: Remote branch offices doing ‘marketing’ without authorization, cross-cultural misunderstandings, and agencies developing over-enthusiastic campaigns are some of the pitfalls for CMOs in Asia. The risk is magnified the further removed a head office is from day-to-day operations. Either HQ is unaware of initiatives, or they try and impose market-inappropriate marketing tactics. CMOs now need to be prepared for internal risk management and cost mitigation which should be part of all marketing business plans.

If you are not covered, are you prepared for the financial fallout of a crisis? The costs of rehabilitating a brand can restrict your team’s ability to do their job after a crisis. Being prepared, and covered, means your trip to the Board of Directors might have a very small silver lining.

Peter Jackson is CEO of Lockton Companies, Singapore

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