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 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 the public 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:
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.
The president of the Center for European Economic Research (ZEW) comments on the impact of Volkswagen's scandal on "Made in Germany" products.
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.
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
1. 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.
2. 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.