Why consumers react differently to brand transgressions: Functional vs. ethical breaches and psychological contracts

Brand transgressions are increasingly common, but their effects on consumer behavior remain inconsistent. While some incidents lead to negative word-of-mouth without affecting sales, others cause a decline in purchasing behavior. Existing literature does not fully explain the divergence in consumer responses. This study investigates how consumers react to functional versus ethical brand transgressions through the lens of psychological contract theory. Drawing on a survey of 862 participants and using structural equation modeling, we examine the mechanisms underlying consumer reactions to breaches of brand promises. Our findings identify two mechanisms: withdrawal, primarily triggered by functional breaches, and indignation, associated with ethical breaches that generate negative word-of-mouth. This research expands psychological contract theory beyond functional failures and demonstrates its relevance in ethical contexts. The results underscore the importance of understanding how consumers interpret a transgression and of tailoring brand responses accordingly.