Pondicherry University 2006 M.B.A Business Administration MANAGERIAL ECONOMICS - Question Paper

Since Perrier had been an unfailingly reliable source of pure water in the past, the Scientist’s 1st reaction was that the equipment was at fault. But after extensive checking and the purchasing of a further 8 bottles of Perrier, it soon
became clear that the mineral water contained minute volumes of benzene and industrial solvent and a carcinogen
It was a discovery that was to prove costly to Source Perrier, the water's French manufacturer. Within weeks it had withdrawn every bottle from world wide circulation – 160 million in all – at an estimated cost of £140 million.

Perrier did not get to hear of the issue until the findings had been confirmed buy both American state and federal agencies, and even there appeared to be little reason for haste. The concentrations of Benzene discovered, although well about the Food and Drug Administration's tolerance limits, were far beneath the sort of levels that might endanger health. But this was where the 1st risk appeared, since it should have been clear to Perrier to that clinical health endangerment and customer's perception can be entirely various - especially provided the general risk averting profile of many Perrier consumers.
Nevertheless, when Perrier group of America was told of the issue it moved immediately to recall’s 70 million bottles from North American outlets. But it also broke the 1st rule of crisis management; don’t play the issue down.As a outcome before it knew the exact source of benzene contamination Perrier American branch was confidently announcing that the contamination was limited to North America .Here was risk no two, and the American management really should have known better than to make statements that might have to be retreated at a later date,
In France, how ever ,Source Perrier was making far more serious errors.At 1st it reacted decisively, halting global bottling of the product that made up 14% of it’s sales in 1990, but then it started breaking every rule in the book.On eleventh February, 2 days after the crisis had broken, a Source Perrier spokesman announced that the source of the benzenes was a cleaning fluid mistakenly used on the bottling line that served the noth American market .The machine in ques. had now been cleaned and repaired, and independent tests, it was claimed, showed that the source of the water, at Vergeze in the South of France, was unaffected by any pollutants. This was risk no three, and having taken it Perrier was later to wish that it had not .
This apparently calming public announcement was to say the least, a little disingenious, since in reality Perrier had no idea where the contamination at it’s Verges plant was coming from.Less that 3 days later the real reason was discovered , a failure to screen out impurities in the natural gas that was current in the Perrier spring . 6 months' worth of production , covering Perrier's entire global market, had been affected, and clearly the company had too change its story
In Paris, Source Perrier still did not seem to have grasped the enormity of the issue.The company chairman,Gustav Leven , announced a global withdrawal of the product but was at pain’ to make light of the issue. Fredrick Zimmer, the president of Perrier's international division was even quoted as saying that 'all this publicity helps build the brand's renown.' More worryingly however he also observed that Perrier water 'naturally contains several gases, including benzene. These have to filter out'. This last remark raised the obvious point that the filtration device was clearly a logical place to look for the contamination.


Questions:
(a) Identify the risks that source Perrier took in it’s handling of the benzene crisis
(b) If Source Perrier could undo any 1 of its reactions to the crisis which 1 should it be?

Earning:   Approval pending.