Scholarly Insights: AMA’s digest of the latest findings from marketing’s top researchers
Volkswagen competitors may be hasty to celebrate the scandal that resulted in the recall of 8.5 million cars, but the heavy repercussions may not be bound to Volkswagen alone. Research from the Journal of Marketing Research examines the possibility of the “perverse halo effect”—negative chatter which affects products outside of the crisis but within the same industry— particularly as it relates to vehicle recalls. The findings show that a significant percentage of negative chatter can spill over to unrelated brands under the condition that they share similarities to the recalled car.
“Between 67% to 74% of the effect of negative chatter is shared with one or more brands,” write authors Abhishek Borah and Gerard J. Tellis who monitored Internet chatter after recalls for Toyota, Honda, Nissan and Chrysler automobiles.
Perverse halo effect can have serious implications for a company’s earnings. “A 1% increase in concerns of a rival nameplate leads to a monthly loss in sales revenue of 3.8 million USD (elasticity of -1.9%),” the study implies. Negative chatter is most likely to affect outside brands and models when these brands are dominant in the market, originate from the same country or share the same nameplate.
The authors also posit that attempts to apologize to thepublic after a recall can further agitate the problem. In the worst cases, apology advertising may only draw additional attention to the crisis itself.
Firms at risk of negative spillover from a rival company can practice the following to prevent or lessen the blow of negative spill over:
- Firms should be aware of the similarities they hold with their competitors.As soon as a rival has a recall, similar firms should avoid comparisons and stay off the radar to minimize the effects of perverse halo.
- Firms should distinguish products from the product experiencing a recall, if possible.In the case of automobiles, marketers should focus on promoting models that differ from the recalled vehicle. This can be especially effective if the promoted vehicle’s qualities provide solutions to the problem leading to the recall.
- Consumer opinions should be considered thoroughly.Even during a non-crisis period, it is important for firms to be aware of connections consumers draw between competing products. Recognizing these associations allows marketers to refine advertising strategies and managers to know when to lie low during a recall.
Firms who are undergoing a recall for their own product can also get back on their feet by considering the following:
- Not all apology advertising works.It is important to design an apology strategy that resonates with consumers in such a way that the recall’s repercussions aren’t emphasized over the company’s corrective efforts.
- Maintain an open dialogue with consumers online.Marketers need to be tactful and responsive to control negative chatter as it occurs through digital channels such as social media.
Companies must understand the relationship they have with their competitors in the consumers’ eyes. By assuming that a different brand name protects them from recall-based negativity, a firm becomes vulnerable to the effects of perverse spill over.
Abhishek Borah and Gerard J. Tellis (2015) “Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?” Journal of Marketing Research In-Press.