Wharton's Marshall Meyer, NYU's Thomai Serdari and Carlos Torelli from the University of Illinois at Urbana-Champaign discuss the Dolce & Gabbana boycott in China.

Italian fashion house Dolce & Gabbana is trying to clean up a public relations mess in China that could cost the company hundreds of millions. In November, the luxury brand launched three ads on the Chinese social media network Weibo to promote its Shanghai runway show. The videos depict an Asian woman wearing a D&G cocktail dress, trying to eat pizza margherita, an oversized cannoli and spaghetti pomodoro using chopsticks. A male voice in Mandarin presents the videos, saying, “Welcome to the first episode of ‘Eating with Chopsticks’ by Dolce & Gabbana,” while the model stabs at the food. “Is it too big for you?” the narrator mocks when the woman tries to pick up the giant cannoli.

The ads were viewed as disrespectful, racist, sexist and stereotypical, prompting a swift backlash from Chinese consumers, celebrities, media and even the government. Retailers and online sites dumped D&G products as founders Domenico Dolce and Stefano Gabbana scrambled to save face. They removed the videos within 24 hours, but more trouble followed when a Chinese fashion blogger shared a screen shot of an Instagram conversation in which Gabbana apparently called China a “country of [poop emojis]” among other insults. (Gabbana subsequently claimed his account had been hacked.)

The founders issued a personal apology video in which Gabbana said, “We will never forget this experience, and it will definitely never happen again.” But the mea culpa wasn’t enough to defuse the backlash, and the Shanghai show was canceled.

The incident has been a blow to the company, although it remains unclear just how much it will lose from the boycott or how it will affect the overall health of the brand. The company posted revenue of 1.29 billion euros in the fiscal year ended March 31, 2018, of which 25% came from the Asia-Pacific region, according to Business Insider Italia. The controversy does illuminate the issue of cultural sensitivity in an increasingly global marketplace. China, with its burgeoning economy, accounts for one-third of spending on luxury goods worldwide, according to a study by Bain consultancy.

The Knowledge at Wharton radio show on Sirius XM invited three experts to discuss the D&G dilemma. Marshall W. Meyer is a Wharton emeritus professor of management who specializes in China; Thomai Serdari is an adjunct professor at New York University’s Stern School of Business and a luxury branding strategist; and Carlos Torelli is a business administration professor at the University of Illinois at Urbana-Champaign. Following are key takeaways from their conversation.

Don’t Underestimate the Problem

All three experts were aghast at the commercials, which still can be seen on Youtube.com. They can’t understand what the company was thinking in creating and releasing such obviously problematic ads.

“I looked at those video clips, and I just shuddered,” Meyer said. “I think in any culture, the portrayal of eating inappropriately is going to lead to a negative response.”

“I looked at those video clips, and I just shuddered.” –Marshall Meyer

If the goal was to be funny, Torelli said, Dolce & Gabbana failed in spectacular fashion. “Sometimes brands want to differentiate by … being a little bit outrageous and blusterous. Sometimes you can try to get away with that because of the high status that your brand has, but I just can’t understand what went through their minds when they were doing this,” he noted. “It’s like they tried to create the most outrageous thing [without] considering the consequences…. [It’s] incomprehensible how this passed any marketing test.”

Companies must be careful with comedy because it can easily backfire. Serdari pointed out that D&G would have been better off making commercials that portrayed Italians in China, not knowing how to eat Chinese food.

“I think it would have made a whole world of difference if they had approached the cultural difference from that perspective rather than what they did,” she said. “It is very important in luxury to be able to present humorous campaigns, but it’s also important to have the joke be on you.”

According to a report in the Los Angeles Times, London-based Brand Finance consultancy estimates the scandal could wipe up to 20% off the Dolce & Gabbana brand’s value, so the scope of the problem is significant.

“This is really a [major] problem considering that [China] is a big market for luxury brands,” Torelli said. “They really messed up. This is a classic example of a bad decision. … They’re trying to clean it up now, but definitely the impact in terms of lost business is already being felt. They’ve been dropped from multiple retailers, and the backlash is just tremendous.”

Don’t Underestimate the Chinese Consumer

Companies that want to sell in China would do well to remember that Chinese customers are smart and sophisticated, the three experts noted.

“Chinese consumers shop online, and they’re very, very savvy in terms of how they find their products,” Serdari said. “The global positioning of these companies is very important for the Chinese, and they have access to all internet tools. They can cause really big harm to those companies that don’t [play by] the rules.”

Chinese consumers are also deeply embedded in social media, which gives them a wide view of the world. “In China, the access to social media and how much business is conducted online is unbelievable compared to Western standards, so [D&G] should have known better,” Torelli noted.

“Change your management practices to hire people who bring that diversity — that really deep understanding of the culture that you cannot gain through a briefing.” –Carlos Torelli

Meyer thinks that, in addition to the lack of cultural sensitivity, the D&G imbroglio reveals a deeper, more subtle issue regarding national pride. When China opened up some 40 years ago, it gave a lot of advantages to foreign companies in economic zones such as Shanghai and Shenzen, he said. Those foreign brands became “deeply rooted” in China before native brands got established.

“In some sense, any foreign brand in China is walking on a tight rope, if you will, because on the one hand, given the history, foreign brands are attractive and prestigious,” he said. “But they also remind China that they’re a little behind in developing the brands of their own companies.”

Torelli agreed. He’s taught in China for many years and said he’s fascinated by just how much Chinese students are “interested in cracking branding. … I always tell my students [in the U.S.] that the day the Chinese figure out how to make global brands properly, the rest of the world is going to be in trouble. They already make the goods; they’ll just capitalize on the value added from the branding,” he said. “In the years to come, it’s going to be a lot more competitive. We’re starting to see Chinese brands becoming savvier, and the more [that happens], the more strong competition they’re going to find in global brands that are already flourishing in the Chinese market.”

Brands Can — and Do — Recover from Blunders

According to Meyer, it’s hard to say whether the mistake will have a lasting impact on the D&G brand. History is littered with examples of companies that made big PR blunders, were boycotted and survived just fine.

Meyer recalled a boycott against Coca-Cola in Shanghai in the late 1940s, a major Korean department store that was forced to close because China was concerned about the placement of U.S. anti-ballistic missiles in Korea, and numerous boycotts over the years against Japanese products.

Although Meyer doesn’t discount the financial power of boycotts, he said the effects are not often long-lasting. Dolce & Gabbana will likely not be forced to pull out of China, where the company opened its first store in 2005 and now has about 44 boutiques. “Ultimately, if they’ve got the right goods and if they make the right apologies, they’ll take a hit. But my guess would be that ultimately they can recover. There have been many cases of recovery.”

Torelli noted that he was unimpressed by the video apology. A recovery plan must be top priority for the brand right now, he said, and there are several ways to go about it. He recommended a new marketing campaign that is sincere, authentic and culturally appropriate.

Serdari also suggested that D&G can recover if it takes the right steps, using the viral nature of social media to its advantage. “While social media has magnified the problem … the scandal [will be] forgotten once another one hits the market,” she said. “That is true with everything that goes viral. So, if creativity is maintained and the company takes the correct steps to rekindle the relationship, I think that the retailers and e-tailers are going to re-include them in their merchandising.”

“While social media has magnified the problem … the scandal [will be] forgotten once another one hits the market.” –Thomai Serdari

Diversity Matters More Than Ever

The case highlights why it is important for companies to ensure that they have a diverse staff. Employees from different backgrounds can help guide the brand through the intricacies of race, religion, culture and other social complexities.

While all firms should strive for diversity, Serdari said, it’s especially important for companies with a global presence. “It’s very hard to truly understand a culture from [the outside]. It’s not only knowing historical facts and understanding what is going on in everyday life, but you need to understand the subtleties of language, the subtleties of visual culture that have existed before you entered that market. And for that you need a person who is not necessarily a business person, [but someone] who has a very deep cultural education and training and who can help you translate these things into correct ad campaigns and business strategies.”

Torelli agreed, saying competition is vastly different than it was 20 or 30 years ago, when a few brands dominated the world. Back then, those companies didn’t have to give much consideration to globalism or diversity. Now, there is a multitude of brands – even in the luxury market — competing against each other for an ever-smaller slice of the customer pie.

He encouraged executives to bring an open mind to their hiring and marketing strategies. “The more you can get deep understanding of your cultural market, the better. Change your management practices to hire people who bring that diversity — that really deep understanding of the culture that you cannot gain through a briefing,” he said. “With the right talent in the company and the right mindset to be open-minded, to understand the markets where you operate, managers can acquire this deep understanding that can help avoid these types of mistakes.”