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How dirty tricks in business can backfire on the offender

Smear campaigns might end up doing more damage to the offender than the victim, UBC Sauder research shows.

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The Globe's bimonthly report on research from business schools.

U.S. President Donald Trump may have given it a new name, but the concept of "fake news" – that is, spreading lies and deception as a means of smearing a rival – is an old trick.

Take, for example, the story of a bakery chain in South Korea. Once a mighty force in the country's food industry, the company was brought to its knees in 2012 after a man posted a photo of a dead rat in a popular online forum, claiming he'd found it baked into one of the chain's loaves of bread.

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Nine days later, the story was a revealed as a hoax – spun by the owner of a competing bakery – but by then the victim bakery chain had suffered much damage.

What surprised many watching the fallout, however, was just how detrimental the lies would also be to the hoaxster.

Gene Moo Lee, an assistant professor at the University of British Columbia's Sauder School of Business, remembers the incident well. Years later, he and a team of researchers, all of South Korean origin, used the case as motivation to dig deeper into fake news in the business world.

In particular, the researchers sought to better understand what happens when a company engages in fake news as a means of damaging a market competitor. The work is published in the Journal of Business Ethics.

What they found was surprising: Yes, the victim of the deception will almost certainly suffer negative publicity and reputation damage, but it's the offending company that will ultimately feel the brunt of the backlash – so much so, the offender may never recover.

"This study showed that deceptive marketing just doesn't pay," says Dr. Lee.

To reach their findings, the team studied three years' worth of data, social media posts, news articles and ad spending related to the South Korean bakery story to determine how the sentiment of consumers toward the two bakeries changed over time.

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A detailed analysis of the results revealed a strong pattern. "We found that the victim firm had significant damage, but only in the short term, while the offending firm suffered damage lasting more than two years," Dr. Lee says in an e-mail.

Dr. Lee says researchers were cautious in drawing broad generalizations given the study involved a single case in one industry. However, the team is confident in its conclusions, noting information about the two bakeries involved in the study and public sentiment were available in detail and allowed researchers to thoroughly measure the impact of the case.

"Having said that, the lessons learned from the study are [still] relevant to the business community in general," he adds.

Rule No. 1? Don't underestimate the ability of social media users to notice the details.

In the bakery case, for instance, it was social media chatter questioning the credibility of the rat-in-bread rumour that sparked the traditional South Korean media to investigate the case. Users questioned the timing of the original post – just before Christmas – and expressed widespread doubt about an attached photo of the rodent. Critically, users highlighted a location stamp on the attached photo and noted it was taken very close to a franchise operated by the competing bakery.

"This shows evidence that social media can be self-controlled and self-monitored by the user community," says Dr. Lee.

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Lesson No. 2? Don't lie.

"A lot of people spread fake news, but when it is uncovered … it brings lasting reputation damage to the offender," he says.

In the bakery case, both businesses survived the crisis. However, the creator of the fake news was sentenced to 14 months in jail in 2011.

The study, entitled Does Deceptive Marketing Pay?, was co-authored by Reo Song at California State University, Ho Kim of the University of Missouri-St. Louis, and Sungha Jang of Kansas State University.

Story ideas related to business school research in Canada can be sent to darahkristine@gmail.com.

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