Dynamic Effects of Customer Reactions to Product Recalls

On 15. September 2011 by rkuebler

Due to the more and more decreasing length of product life times and the necessary shortening of the product development time, companies face higher risks of product failures leading to product recalls.

Companies, which have to recall defect products or which face a product crisis must be aware that a recall does not only affect sales, but also other important marketing instruments and marketing figures. So it can be stated that product recalls can additionally harm the established brand image (de Matos and Rossi 2007; Mowen et al. 1981; Rhee and Haunschild 2006), the customer loyalty (Cleeren et al. 2008), the brand equity (Dawar and Pillutla 2000), a company’s stock value (Ting-Heng et al. 2005), and the effectiveness of the used marketing variables like advertising, promotions or pricing (Van Heerde et al. 2007).

Companies adapted their behavior to these moderating effects and rely on several different strategies when recalling defect products. Kübler and Albers (2010) could show that companies who face situations with a higher degree of hazard probability and a higher probability of a hazard tend to use higher degrees of communicated social responsibility and transparency.

As shown above, research has identified several outcomes of product recalls in terms of direct customer reactions. Meanwhile companies have to be aware that indirect customer reactions like word of mouth or continuing press and- media-reactions may also play an important role in case of a product recall, as these reactions may again influence and enforce the direct effects.

Additionally the immense increase of online social media and the increase of cross-linkage between consumers through online services has led to a significant increase of individual word of mouth and consumer feedback (Duan et al. 2008). Online feedback and online recommendations are nowadays believed as serious key drivers of online and offline sales (Chevalier and Mayzlin 2006). Companies which recall a product therefore must be aware that their behavior might not only affect the individual buying behavior of their clients but also their recommendation and feedback behavior. While social networks and the corporate engagement in these networks may result in several benefits for companies like better a better identification of affected customers and thereby a better reachability of affected customers, they also pose severe risks in case of a product crisis. Affected and annoyed customers may use the web 2.0 to communicate their problems and sorrows publicly and may thereby further increase and prolong the negative outcomes of a product recall. To effectively control these effects and to reduce negative outcomes, companies must be aware of how their own recall communication and recall strategy affects their customers’ word of mouth behavior.

Actual examples of product crisis show that online consumer word of mouth may not only stimulate further word of mouth but may also lead to new press coverage, which might again influence or even provoke further consumer reactions. To optimally react to a recall scenario and to optimally control its marketing instruments during and a after a product crisis, companies must know how these dynamic effects occur. Only then they are able to retain and regain their customers trust and their pre-crisis market share.

Given that – to the best knowledge of the authors – nobody has yet focused on these effects, five important questions arise for practitioners:

1.)   How do the different aspects and elements of a product recall strategy affect press and media reactions?

2.)   How do the different aspects and elements of a product recall strategy affect customers’ word of mouth?

3.)   How does press and media coverage of a recall situation influence customers’ word of mouth?

4.)   How does word of mouth influence press and media work in case of a recall situation?

5.)   Which product related and situational factors do moderate the size and the durability above-mentioned effects?

Our study delivers insight into the dynamic effects of recall communication and the impact of the individual elements of a recall strategy on consumer word of mouth and press and media coverage. Using complete media and social media clippings in case of 10 different recall cases our study extends the existing literature by analyzing how and how long the chosen degree of communicated transparency, social responsibility and further provided information influences the tonality and size of media coverage. In addition our model analyzes the size and persistency of the dynamic effects between mass media reactions and online customers word of mouth.

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