Business Management

Internal Assessment

Research Question: To what extent are Balenciaga’s crisis management

strategies effective in retaining its competitive advantage following its
November 2022 advertising campaign controversy?

Concept: Ethics

Candidate code: ksm710

Examination Session: May 2024
Word Count: 2387
Table of Contents

Introduction ..................................................................................................................................... 3

Ethics in Balenciaga’s Success ....................................................................................................... 4

The Ad Controversy ........................................................................................................................ 4

Crisis Management Strategies......................................................................................................... 5

SWOT Analysis .............................................................................................................................. 6

Stakeholder Analysis ....................................................................................................................... 8

Group A: Minimal Effort............................................................................................................. 8

Group B: Keep Informed............................................................................................................. 8

Group C: Keep Satisfied ............................................................................................................. 9

Group D: Key Players ................................................................................................................. 9

Perception Map ............................................................................................................................. 10

Pre-Crisis ................................................................................................................................... 10

Post-Crisis ..................................................................................................................................11

Limitations .....................................................................................................................................11

Conclusion .................................................................................................................................... 12

Works Cited................................................................................................................................... 13
Introduction

In 1919, Balenciaga was founded as a luxury fashion house by Spanish designer Cristóbal
Balenciaga and since then, the brand has been synonymous with innovation, elegance, and cutting-
edge designs resulting in its establishment as a leader in the fashion industry. The company’s nature
of business involves offering haute couture, ready-to-wear clothing, accessories, and footwear that
main to cater to a selective clientele worldwide. The competitive advantage of Balenciaga lies in
its ability to blend tradition with modernity which creates avant-garde pieces that resonate with
contemporary fashion sensibilities whereas its commitment to quality craftsmanship, unique
designs, and brand prestige has solidified its position in the luxury market. Other than that,
nowadays, ethics play a vital role in determining competitive advantage as consumers are
increasingly conscious of the ethical implications of their purchasing decisions which favour
brands that demonstrate social responsibility, sustainability, and ethical conduct thus maintaining
ethical standards is not only morally imperative but also strategically advantageous for businesses.
However, in November 2022, Balenciaga faced a significant ethical dilemma rooted in its
advertising campaign which stirred controversy and drew widespread criticism that raised
questions about the brand's ethical standing which negatively affected its competitive advantage
(see Supporting Document #1).

This report will examine the effectiveness of Balenciaga’s response to the controversy it faced to
retain its competitive advantage by addressing the research question ‘To what extent are
Balenciaga’s crisis management strategies effective in retaining its competitive advantage
following its November 2022 advertising campaign controversy?’. To do so, the conceptual frame
of ethics will be used to illuminate whether Balenciaga’s response represented ethical behaviour
following the crisis, especially in terms of the company’s transparency, integrity, and respect for
stakeholders.
Ethics in Balenciaga’s Success

Ethics played a crucial role in Balenciaga’s success from outsourcing its raw materials to
delivering them to its target customers; the company has been committed to providing positive
impacts on the environment while protecting the rights and interests of its employees and
customers (Wolfe, 2023). Balenciaga's dedication to maintaining a sustainable supply chain has
not only demonstrated its environmental responsibility but has also resonated positively with
consumers who prioritize sustainability by sourcing its raw materials ethically which helps the
company to minimize its environmental impact while supporting fair labour practices throughout
its supply chain (Wolfe, 2023). In this way, Balenciaga was able to differentiate itself from its
existing market competitors as a socially responsible brand that enhanced the brand's reputation
leading to attracting environmentally conscious consumers and fostering long-term brand loyalty
with them. Moreover, Balenciaga's strict policies and practices aimed at preventing child labour
abuse within its supply chain have strengthened its ethical standing and credibility by conducting
thorough audits to enforce strict supplier standards while collaborating with reputable partners to
minimise the risk of child labour exploitation in its production processes (Wolfe, 2023). This
proactive approach not only advocates ethical principles but also secures customers who seek the
brand’s commitment to social responsibility thus enhancing trust and brand loyalty to Balenciaga.
Other than that, Balenciaga's commitment to honesty and transparency in its transactions with
customers has been important in building and maintaining trust by prioritising integrity from
accurately representing product materials and manufacturing processes to providing clear
information about pricing and policies that further cultivates a sense of trust and reliability of the
brand that leads to positive customer experiences and fosters long-term relationships with them
(Wolfe, 2023).

The Ad Controversy

The Balenciaga ad controversy in November 2022 ignited criticisms and condemnations

(Gárgoles, Ambás, 2023) which deeply impacted both the brand and its creative director, Demna,
as the brand’s holiday ad campaign featured children holding teddy bears adorned in bondage
harnesses (see Supporting Document #1) and costumes alongside a separate campaign that
depicted a collaboration with Adidas on top of copies of documents related to child pornography
legislation. The use of such imagery triggered a widespread backlash with accusations of
condoning paedophilia and child exploitation levied against the brand and Demna (Gárgoles,
Ambás, 2023) which quickly spread across social media platforms with hashtags like
#cancelBalenciaga trending on Twitter and TikTok (BOLD x COLLECTIVE, 2023). Hollywood
celebrities such as Kim Kardashian and Julia Fox condemned the campaign with Kardashian
expressing her disgust and reevaluating her relationship with the brand (Gárgoles, Ambás, 2023)
and Julia Fox voiced her horror at the campaign's content as a mother as well (Issawi, Cohen,
2023). The consequences of the controversy were fast and severe with the Business of Fashion
rescinding an award offer to Demna due to concerns for children's safety (Gárgoles, Ambás, 2023)
and Balenciaga facing vandalism at its brick-and-mortar stores with accusations of paedophilia
spray-painted on windows (see Supporting Document #3). In response to the backlash, Balenciaga
issued apologies via Instagram stories acknowledging the inappropriate use of imagery and
expressing condemnation for child abuse in any form (see Supporting Document #2), Demna, the
creative director, also issued an apology on Instagram admitting fault in the artistic choices made
while the photographer Gabriele Galimberti who took the photo distanced himself from the
campaign and stated that he had no control over the selection of props or models (Gárgoles, Ambás,
2023). Balenciaga attempted to address the controversy through legal means by filing a lawsuit
against a set designer involved in the campaign, but critics persisted that the lawsuit was just an
attempt to shift blame (Highnobiety, 2022).

Crisis Management Strategies

Aside from posting apologies on Instagram to acknowledge the inappropriate use of imagery and
express condemnation for any association with child abuse to demonstrate accountability and a
commitment to rectifying the situation (see Document #2), Balenciaga also implemented several
crisis management strategies to resolve the controversy and bring back the trust of its customers,
partners, and the public in the brand which is necessary for reconciling the broken relationships.
Firstly, the brand communicated openly about the controversy by addressing concerns and
providing explanations where possible, as well as by engaging with stakeholders and the public to
demonstrate a willingness to confront the issue transparently and engage in constructive dialogue
(Gárgoles, Ambás, 2023). Moreover, Balenciaga underwent internal reorganization and
implemented new editorial controls and educational programs to prevent similar incidents in the
future to address systemic issues within the organization showing a commitment to ethical
improvement and accountability (Gárgoles, Ambás, 2023). Most importantly, Balenciaga
announced partnerships with organizations focused on child welfare such as the National
Children's Alliance showcasing its commitment to ethical values and social responsibility by
partnering with reputable organizations and supporting initiatives aimed at protecting children
(BOLD x COLLECTIVE, 2023). Hence, along with careful management of subsequent fashion
shows, celebrity endorsements, and strategic partnerships, Balenciaga gradually rebuilt its
reputation and regained consumer trust by focusing on ethical practices and positive brand
messaging to work towards ethical redemption and re-established itself as a respected player in the
fashion industry.

SWOT Analysis

Strengths
• The brand has an established reputation
for innovative designs, quality
craftsmanship, and sustainability
commitments which have helped it
resolve ethical controversies and maintain
consumer loyalty (Wolfe, 2023).
• Balenciaga has access to significant
financial resources as a part of Kering
Group which enabled it to invest in crisis
management strategies and initiatives to
address ethical issues effectively (Issawi,
Cohen, 2023).
• The brand has established relationships
with key stakeholders including suppliers,
retailers, and celebrity ambassadors who
Weaknesses
• Balenciaga's leadership team and creative
direction demonstrated a lack of diversity
which limited the range of perspectives
and approaches considered in ensuring
the quality of both the controversial ad
and crisis management strategies
(Gárgoles, Ambás, 2023).
• The brand's position in the luxury fashion
market makes it vulnerable to varying and
influenceable consumer preferences
which could worsen the impact of ethical
controversies on the brand's financial
performance (Gárgoles, Ambás, 2023).
• Balenciaga's global supply chain may
present challenges in ensuring ethical
 supported its crisis management efforts practices throughout the production
leading to effective communication of the process particularly in regions where
brand's commitment to ethical values labour standards are less strict weakening
(Wolfe, 2023). the competitive advantage possessed by
the brand concerning its ethical
commitment.

Opportunities Threats
• The crisis presents an opportunity for • The controversy surrounding
Balenciaga to strengthen its commitment Balenciaga's ethical issues posed a
to ethical values and implement strong significant threat to its brand reputation
measures to prevent similar incidents in that led to some reputational damage and
the future to enhance its reputation as a temporary loss of some consumers and
socially responsible brand (Gárgoles, partners (Gárgoles, Ambás, 2023).
Ambás, 2023). • Competitors within the fashion industry
• The crisis motivated Balenciaga to capitalized on Balenciaga's missteps to
explore innovative approaches to supply gain its market share and attract
chain management such as blockchain consumers seeking alternatives perceived
technology or supplier partnerships to as more ethical or socially responsible
enhance its ethical strengths and mitigate (Gárgoles, Ambás, 2023).
the risk of ethical violations.
• The crisis opened an opportunity for
Balenciaga to engage with stakeholders
including consumers, advocacy groups,
and industry partners to gather feedback,
build trust, and demonstrate its dedication
to addressing ethical concerns
transparently (Gárgoles, Ambás, 2023).
Stakeholder Analysis

Level of Interest
High Low
Group C:
Level of Power/Influence

Group D:
High

Shareholders and the

Employees and the Management
Executive Officers

Group B: Group A:
Low

Customers Partners and the Public

Group A: Minimal Effort

Partners (Suppliers, Ambassadors, and Endorsers)

Balenciaga only communicated the actions it took with partners to resolve the situation to reassure
partners of the brand's commitment to ethical standards and regain their trust, including Kim
Kardashian being its brand ambassador after the controversy (see Supporting Document #4).

Public

Balenciaga maintained a level of transparency and accountability with the public regarding the
steps taken to address the ethical issue since this only requires low effort in terms of
communication and engagement (Gárgoles, Ambás, 2023).

Group B: Keep Informed

Customers

Balenciaga kept customers informed about the steps being taken to address the ethical issue and
rebuild trust with them through regular updates through social media, newsletters, and other
communication channels to ensure customers feel informed and engaged (Issawi, Cohen, 2023).
Group C: Keep Satisfied

Shareholders

Shareholders are kept satisfied through clear communication about the impact of the ethical issue
on the company's financial performance and the strategies being implemented to mitigate risks and
maintain long-term profitability through regular reports and meetings to address concerns and
always ensure shareholder satisfaction (see Supporting Document #5).

Executive Officers

The executive officers as being responsible for the overall strategic direction of the company are
kept satisfied with comprehensive briefings on the crisis management strategies and their
effectiveness conducted by the company from time to time while the issue is still on the news since
they should be involved in decision-making processes and kept informed of any developments
related to the ethical issue.

Group D: Key Players

Employees

Employees are key players in managing the crisis and rebuilding the brand's reputation resulting
in Balenciaga prioritizing internal communication to provide employees with clear guidance on
the company's values, crisis management protocols, and their roles in the process. Support
mechanisms such as counselling services or forums for open dialogue are also in place to address
any concerns or challenges faced by employees to ensure the effective implementation of crisis
management strategies (Gárgoles, Ambás, 2023).

Management

The management team is responsible for implementing crisis management strategies effectively
resulting in them leading by example to demonstrate a commitment to ethical behavior and
accountability. Close coordination with other stakeholders, clear communication channels, and
speed decision-making were in place resulting in a successful crisis resolution through regular
updates and evaluations of the crisis management plan to ensure continuous improvement and
adaptability to changing circumstances (Gárgoles, Ambás, 2023).

Perception Map

Pre-Crisis

Before the crisis, Balenciaga had already been the market’s favourite as it was able to gain the trust
of its market due to the quality of its products, sustainability efforts, and care for its stakeholders
along with brand endorsements and partnerships with famous Hollywood celebrities including
Michelle Yeoh, Nicole Kidman, and Kim Kardashian being the latest (see Supporting Document
#4)—despite her comments on Balenciaga during the scandal (Gárgoles, Ambás, 2023). However,
Balenciaga’s creative director, Demna, has previously launched intentionally controversial
campaigns to create publicity (Issawi, Cohen, 2023) to drive brand awareness and engagement to
contribute to Balenciaga’s brand image.

Figure 1. Pre-crisis Perception Map

Post-Crisis

Despite the purpose of creating publicity to contribute to Balenciaga’s brand image, the absence
of a crisis communication plan and effective social media monitoring contributed to a delayed
crisis response which worsened the damage to their reputation and stakeholder trust resulting in
adverse effects on the company’s brand image. Hence, consumer trust significantly declined with
the brand’s Instagram followers being reduced due to this failure of Balenciaga to address the crisis
along with a decline in brand prestige considering that competitors take advantage of this misstep
taken by Balenciaga concerning its commitment to ethical business.

Figure 2. Post-crisis Perception Map

Limitations

Whilst various secondary sources have been used to ameliorate the analysis of this issue, this study
is limited by the breadth of secondary sources. Thus, a greater array of sources (preferably some
primary research involving key decision-makers or stakeholders at Balenciaga) may lead to a
richer analysis. Further, the effectiveness of this analysis has been limited by the limitations placed
by the word count for this paper.
Conclusion

In conclusion, despite Balenciaga's longstanding reputation for innovation, quality craftsmanship,

and sustainability commitments, the brand's crisis management of the November 2022 advertising
campaign controversy revealed significant shortcomings in its crisis management strategies and
ethical preparedness as the intentionally controversial campaigns created for publicity coupled
with a lack of a crisis communication plan and effective social media monitoring which resulted
in a delayed and inadequate response to the crisis led to worsened damage to the brand's reputation
and stakeholder trust causing a decline in consumer trust and brand prestige. Although Balenciaga
communicated well with its stakeholders after the crisis emerged, the delay in communication had
already created a negative perception of the brand's commitment to ethics leading to ineffective
crisis management. Moreover, despite its access to significant financial resources and established
relationships with key stakeholders, including suppliers, retailers, and celebrity ambassadors,
Balenciaga's vulnerability to threats such as ethical controversies and reputational damages
became evident that these strengths possessed by the brand is not strong enough to prevent the
external threats from negatively affecting Balenciaga’s competitive advantage. Also, the
perception map illustrates a significant shift in stakeholders' perceptions of Balenciaga from pre-
crisis to post-crisis which highlights the brand's failure to effectively address the ethical issue and
retain its competitive advantage whereas Balenciaga's inability to manage the crisis effectively,
coupled with its reliance on controversial campaigns for publicity, weakened its reputation as a
socially responsible brand and raised questions about its commitment to ethical conduct. In the
end, Balenciaga's response to the November 2022 advertising campaign controversy was not
successful in retaining its competitive advantage as the brand's failure to adequately address the
ethical issue and communicate transparently with stakeholders resulted in reputational damage and
a loss of consumer trust. Therefore, moving forward, Balenciaga must prioritize ethical
considerations in its marketing strategies and crisis management efforts to rebuild trust and regain
its competitive edge in the luxury fashion market.
Works Cited

"All the facts about Balenciaga's child ad conspiracy scandal." Highsnobiety, 7 Dec. 2022,

www.highsnobiety.com/p/balenciaga-child-ad-conspiracy-theory/.

"Controversy and consequence: The Balenciaga ad scandal — BOLD X collective." BOLD x

COLLECTIVE, 22 Sept. 2023, www.boldxcollective.com/insights-blog/the-balenciaga-

ad-scandal.

Gárgoles, P., and G. Ambás. "The power of consumers on social media: A case study of

Balenciaga’s crisis communication." Fashion Communication in the Digital Age, 2023,

pp. 3-13, doi:10.1007/978-3-031-38541-4_1.

Issawi, D. "What to know about the Balenciaga ad scandal." The Cut, 5 June 2023,

www.thecut.com/article/what-to-know-about-the-balenciaga-ad-scandal.html.

Paton, Elizabeth, et al. "Nytimes.com." The New York Times - Breaking News, US News, World

News and Videos, 28 Nov. 2022, www.nytimes.com/2022/11/28/style/balenciaga-

campaign-controversy.html.

Wolfe, I. "How ethical is Balenciaga?" Good On You, 23 Aug. 2023, goodonyou.eco/how-

ethical-is-balenciaga/.