Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?

Abhishek Borah and Gerard J. Tellis
Article Snapshot
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Key Takeaways

We analyzed daily traffic, topic, and sentiment on more than 1,000 automotive websites following recall announcements for about 16 months.

A recall event increased negative chatter for innocent competitors of the same country and had damaging effects on their sales and stock market performance.

Online chatter amplifies the negative effect of recalls on sales nearly 4.5 times.

Article Snapshot​s: Executive Summaries from the Journal of Marketing Research

We examine whether a focal firm’s product recall has a “perverse halo” of negative online chatter for competitors, which then damages those competitors’ sales and stock market performance.

“Perverse halo is extensive, and it occurs for nameplates within the same brand across segments and across brands within segments.”

“Online chatter amplifies the negative effect of recalls on downstream sales by about 4.5 times.”


Research
Product recalls damage a firm’s reputation, trust, and brand equity with consumers and lead to losses in sales and market value. However, prior research on the effect of recalls on rival brands is very scarce. No prior research has focused on the effect of recalls on online chatter about rival brands and whether the negative chatter about the rival leads to damaging effects on their sales and stock market performance. Main hypothesis: Does negative chatter about one brand increases negative chatter about an innocent rival and thereby decrease its sales and stock market performance.

Method
We analyzed daily traffic, topic, and sentiment on more than 1,000 automotive websites following recall announcements for 48 car models over a period of about 16 months. The car models belonged to the following brands: Toyota, Honda, Nissan, and Chrysler. Using time-series models, we analyzed the following:

  • Whether negative chatter about one car model due to its recall increased negative chatter about another car model and if this increased negative chatter led to decreases in sales and stock market performance.
  • If apology advertising about a recall by the recalled brand affected negative chatter for the recalled brand and its rivals.
  • The word-of-mouth multiplier effect of recall on sales.

Findings
​Perverse halo, a phenomenon whereby negative chatter about one car model increases negative chatter about another car model, is extensive. Only 26%–33% of effect of negative chatter is truly brand-specific, and within a brand 56%– 91% of effect of the negative chatter is shared among its car models. The direction of the perverse halo is asymmetric—that is, it is stronger from the dominant brand to a less dominant brand. Perverse halo is strongest between brands of same country. It also affects a rival’s sales and stock market performance. Finally, online chatter amplifies the negative effect of recalls on sales nearly 4.5 times, and apology advertising about recalls hurts a recalled brand and its rivals.


 
 
 Figure 1: Perverse Halo Between Japanese Brands*

*This figure shows the perverse halo among Toyota, Honda, and Nissan. We find a considerable three-way perverse halo (26%) among the three Japanese car brands. We find the highest two-way perverse halo between Toyota and Honda (50%) and Honda and Nissan (50%), followed by Toyota and Nissan (43%). Most importantly, we find that for each brand, exclusivity (i.e., isolation from all perverse halo) is rather low at only 26% for Honda and 33% for both Toyota and Nissan. That is, only 26%–33% of the effect of negative chatter is truly brand-specific​


 

Figure 2: Effect of Negative Chatter about Product Recall on Toyota Stock Returns*

*This figure illustrates the results of the effect of Toyota’s, Honda’s and Nissan’s concerns on Toyota’s abnormal returns. We find that a one-unit shock in Honda’s concerns has a significant and negative impact on Toyota’s abnormal returns with an accumulated effect of -18 basis points. In dollar terms, this drop translates into a loss of about $7.3 million from Toyota’s average market capitalization.


Implications

First, recalled firms need to consider apology ads carefully because such ads can backfire, as they may increase attention to and elaboration about the crisis. Second, firms from the same country and of the same size should keep an eye on a rival’s recall events. Third, firms from a different country and of a different size could emphasize their strengths and unique qualities relative to the recalled firm. Finally, the recalled firm needs to monitor and manage online chatter. We find that the negative effect of the focal car model’s recall event on its own sales gets amplified nearly 4.5 times due to recall chatter of both the focal and the rival car model.
Questions/Exercises for the Classroom

  • Does negative online chatter of one brand spill over into negative online chatter of another brand? (Use Twitter or other social media sites to check and analyze the sentiment of 3-4 tweets that discuss rival brands when a firm has product recall)

  • Does negative online chatter of one brand spill over into negative online chatter of another brand? Will same country brands get affected more? (Use Twitter to check and analyze the sentiment of 3-4 tweets that discuss rival brands of same and another country when a firm has product recall)

  • What is the effect of apology advertising about recalls on the online chatter of the recalled brand and its rivals? (Analyze advertisements that are shown during recalls by a recalled brand. What are your perceptions about recalled brand and its rivals?)


Full Article
Abhishek Borah and Gerard J. Tellis (2016), "Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?" Journal of Marketing Research, 53 (2),  pp. 143-160.
doi: http://dx.doi.org/10.1509/jmr.13.0009


Abhishek Borah is Assistant Professor of Marketing, Foster School of Business, University of Washington (e-mail: abhi7@uw.edu).




Gerard J. Tellis is Professor of Marketing and Management & Organization, Director of the Center for Global Innovation, and Neely Chair of American Enterprise, Marshall School of Business, University of Southern California (e-mail: tellis@usc.edu). 


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Abhishek Borah and Gerard J. Tellis
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