Does Deceptive Marketing Pay? The Evolution of Consumer Sentiment Surrounding a Pseudo-Product-Harm Crisis

Slandering of a firm’s products by competing firms poses significant threats to the victim firm. The resulting damage can be as large as the one from a product-harm crisis. Unlike a true product-harm crisis, the disparagement is based on a false claim, thus we call it a pseudo-product-harm crisis. Using a pseudo-product-harm crisis event that involves two competing firms, this research examines how consumer sentiments evolve surrounding the crisis. Our analyses show that while both firms suffer, the damage is severer to the offending firm (which causes the crisis) than to the victim firm (which suffers from the false claim) in terms of advertising effectiveness and negative news publicity. Our study indicates that apart from the ethical concern, false claims about competing firms are not an effective business strategy to increase firm performance.