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Asia Insider: Brand Lessons

By: T. Joseph Lin, PhD
Posted: August 27, 2008, from the May 2007 issue of GCI Magazine.

Eleven years ago, I bade farewell to my regular column, “Notes from the Orient” in GCI magazine’s sister publication Cosmetics & Toiletries magazine, but promised that I would occasionally write on important issues of interest to our industry. On my recent trip to Shanghai, before attending the Osaka IFSCC Congress in October, I witnessed an unfamiliar scene—the beautifully decorated and usually crowded SK-II cosmetic counter at a luxury department store was deserted. A note posted at the counter indicated that it would be closed indefinitely.

SK-II products, made by P&G Japan, are among the best known prestige cosmetics in Asia. The reporting of the discovery of 0.77 to 4.5 ppm of chromium and neodymium in SK-II products by China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) triggered a closing of all SK-II counters in China for more than two months. Many experts in China believe P&G was an unlucky victim of an international trade dispute involving China and Japan. Clearly, the company suffered significant financial loss due to the closing of its counters and damage to its brand reputation.

P&G China recently announced that the problem had been resolved and “thanked” Chinese health authorities for their cooperation. I believe this incident will long be remembered as a lesson in crisis management in overseas marketing. Debate continues as to whether the company’s decision to close the counters was a responsible act to protect consumers or an unintended error caused by panic and confusion, fueling consumer anger and tarnishing the brand’s image.

SK-II Panic in China

About a month after the AQSIQ report and closing of the SK-II counters in China, I attended a P&G press conference in Shanghai. An expert explained that chromium and neodymium discovered in SK-II products were technically unavoidable contaminants from raw materials, and the amounts, far below the levels internationally considered hazardous, were unlikely to pose any safety concern to consumers. According to tests conducted in Hong Kong, many well-known international and domestic brands of cosmetics also contain similar levels of these two metals. Even though the company was very sure that its products were safe and that there were no violations of regulations in manufacturing, the company returned money to customers who requested a refund. The company’s intention was to protect the brand’s reputation. Unfortunately, it appears this act of goodwill backfired, and the number of customers requesting a refund suddenly increased beyond the capacity that P&G staff could handle. For security reasons, P&G decided to close the counters and wait for things to cool down.

Thereafter, matters only got worse. Disappointed customers, many probably believing that the products were unsafe, sought retribution; a glass door at the P&G Shanghai office was shattered and threats were made against company staff. This made it even more difficult for the company to reopen counters and resume business.