10th Global Conference on Business & EconomicsISBN : 978-0-9830452-1-2
Exploring customers’ reaction to product recall messages:the role of responsibility, opportunism and brand reputation
Francesca Magno
PH.d in Marketing
University of Bergamo
Faculty of Economics
Department of Business Administration
Via dei Caniana, 2
24127 Bergamo
ITALY
e-mail:
Fabio Cassia
PH.d. in Marketing
University of Bergamo
Faculty of Economics
Department of Business Administration
Via dei Caniana, 2
24127 Bergamo
ITALY
e-mail:
Alberto Marino
Full Professor in Marketing
University of Bergamo
Faculty of Economics
Department of Business Administration
Via dei Caniana, 2
24127 Bergamo
ITALY
e-mail:
Exploring customers’ reaction to product recall messages:the role of responsibility, opportunism and brand reputation
ABSTRACT
The number of product recalls has been increasing in recent years worldwide. Several studies have tried to define the best ways for the companies to manage product recalls and to mitigate negative impacts on brand image. However these efforts mostly adopt a managerial perspective, thus largely ignoring the customers’ point of view. A quasi-experiment is conducted on a sample of 92 students in order to analyze customers’ reaction to the communication activated by the company. Findings underline the impact of responsible vs. opportunistic recall management and partly disconfirm previous results about the moderating role of brand reputation.
Keywords: product recall, corporate responsibility, customers’ perceptions, crisis management, brand reputation.
Track: Social Responsibility, Ethics and Consumer Protection
1. INTRODUCTION
The number of product recalls has been increasing in recent years worldwide and will continue to increase in the future. In 2008, for example, in the European Union 1,866 cases were reported as compared to 1,605 in 2007 (+16%) and to 1.051 in the 2006 (Eurostat, 2009). This is due to several reasons, in particular: the role of consumer activist movements; the role of governmental agencies; the increasing complexity of products and markets (Murphy and Laczniak, 1981).
Generally a product recall occurs when a product presents significant substandard quality (it violates a consumer product safety standard or regulation) or is unusually dangerous (Pruitt and Peterson, 1986; Chu et al., 2005). The recall begins with the discovery of a defect by a manufacturer, a distributor, an importer, a retailer, an end user or a federal agency. The decision to recall the good could be spontaneously taken by the company, enforced by a federal agency or by both. In this article we focus on the recalls decided by the firm (Chu et al., 2005).
A recall can represent a major crisis for a manufacturer and can seriously damage the brand integrity, the corporate reputation and profitability(Chea et al., 2007).According to Hartman (1987) three different categories of product recalls can be identified, based on the percentage of the stock of the product involved in the crisis:
- Major Recall: more than 20% of the stock of model recalled;
- Medium Recall: between 10% and 20% of the stock of model recalled;
- Minor Recall: less than 10% recalled.
Recall means for a company to meet direct costs (costs of notification and of correcting defects) and indirect costs (lower profits, damage to brand equity, etc.) (Davidson and Worrel, 1992; Pruitt and Peterson, 1986).
2. LITERATURE REVIEW AND HYPOTHESES
The greatest part of the existing literature about product recalls focuses on the managerial perspective (Souiden and Pons, 2009). In particular most of available studies analyze the best ways to implement product recalls (Schoeny, 1992; Smith et al., 1996), to manage product crisis (Siomkos and Kurzbard, 1994) and to minimizethe impact of a product recall on market share (Barber and Masako, 1996). These studies emphasize the importance of being prepared to deal with product recalls: every firm should develop a plan or a protocol to manage such a crisis (what to do, people to be contacted, etc.). This plan should be the result of a close collaboration among legal, marketing, safety, distribution and sale experiences. During a product-harm crisis, consumers often receive only negative information about both product and company, so that their attitude toward the company can change negatively (Siomkos and Kurzbard, 1994).
According to Siomkos (1989) and Siomkos and Kurzbard (1994), the success of a product crisis management is influenced by three factors:
1) corporate reputation: the crisis consequences on a company with high reputation may be limited;
2) external effects (the impact of media coverage): in particular the media can limit the negative effects of a product crisis when they underline that the company is acting in a responsible manner or vice-versa;
3) the company’s response to the crisis:several responses can be ordered along a continuum: denying any responsibility and avoiding any communication (denial), recalling the product only after the intervention of a Federal Agency (involuntary recall), recallingspontaneously the product (voluntary recall), showing honesty and concern with consumer welfare (super-effort).Siomkos and Kurzbard (1994)suggest that it is better for the company to have immediate recourse to voluntary product recall and to super-effort initiatives.
Despite the significant number of studies about product recalls which take the firm’s point of view, only a few empirical studies investigate customers’ reaction to those events (e.g. Mowen et al., 1981). Among this second category of studies,de Matos and Vargas Rossi (2007) analyze factors influencing customers’ judgment in the case of a car recall in Brazil. The authors found that corporate social responsibility, blame attributed to the company and perceived danger can affect customers’ reaction.
Anyway even this stream of literature does not consider customers’ perception about the way the company has managed the crisis and the communication. In particular the company making a product recall should emphasize that it is acting in a socially responsible manner (Mowen et al., 1981). Even if managers think that their companies are behaving responsibly in dealing with a product crisis, customers’ perception could be different and causing a long-lasting change in their attitude toward the company even after the crisis.These perceptions could have therefore a permanent impact on customers’ attitude toward the company after the crisis.
Drawing on this reasoning, thepurpose of this paper is to give a contribution to available literature by testing the following hypothesis:
Hp. 1: Customers’ perception that the company has managed product recall in a responsible way is positively linked to their attitude toward the company after the crisis;
Hp. 2: Customers’perceptionthat the company has managed product recall in an opportunistic way, is negatively linked to their attitude toward the company after the crisis.
Brand reputation contributes to distinguish the company from its competitors (Balmer and Gray, 2003) and give to the firm several benefits: easier access to capital (Stuart et al. 1999), protection against potential market entrants (Milgrom and Roberts, 1982), superior financial performance (Roberts and Dowling, 2002), the possibility to ask for higher prices (Shapiro, 1983; Podolny, 1993; Sullivan, 1998; Benjamin and Podolny, 1999).
Previous literature has highlighted a contradictory role of reputation in relation to the effects of product recalls.Brand reputation creates expectations in the mind of consumers about the quality of its products (Argenti and Druckenmiller, 2004). According to Siomkos (1989)the presence of a good reputationcan mitigate the consequences of the product crisis. On the contrary Rhee and Haunschild (2006, p.113) found that “high-reputation automakers suffer more market penalty as a result of severe product recalls than low-reputation automakers do”.
Following this reasoning we hypothesize that brand reputation has a moderating impact on the effectiveness of product crisis management. In particular we state that:
Hp. 3. If customers perceive that the company has managed product recall in a responsible way, their attitude toward the company will improve more substantially in the case they perceived a high brand reputation before the crisis than in the case they perceived a low brand reputation;
Hp. 4: If customers perceive that the company has managed product recall in an opportunistic way, their attitude toward the company will deteriorate less significantly in the case they perceived a high brand reputation before the crisis than in the case they perceived a low brand reputation.
3. METHODOLOGY AND RESULTS
To try to answer the research questions a quasi-experiment was performed using a sample of undergraduate students (Peterson, 2001). The quasi-experiment was built around the case of the recall of 99,391 cars, which involved Toyota (Yaris) in January 2009. First of all respondents had to answer some questions about their perception of the brand Toyota. After that they were exposed to a stimulus containing news about the recall of Toyota and then they were asked to complete a questionnaire. 92 questionnaires were completed.
All the constructs included in the research were operationalized through multiple items, measured on 7 point Likert scales. An exploratory factor analysis was conducted in order to ensure that responsible recall management and opportunistic recall management were two distinct constructs. Results of the factor analysis confirmed the existence of two different factors. The constructs were operationalized through scales including respectively:
-four items for responsible recall management (independent variable);
-three items for opportunistic recall management (independent variable);
-fours items for brand reputation (moderating variable);
- three items for customers’ attitude toward the company (criterion variable).
After that a regression analysis was performed to test the hypotheses. We also checked for multicollinearity, obtaining satisfactory values (all the variance inflation factors were well below the value of 10).Results are summarized in the following table:
Hp / Variable / / sig / VIF / Supported1 / Responsible Recall Management / .45 / .00 / 1.17 / YES
2 / Opportunistic recall management / -.21 / .02 / 1.13 / YES
3 / Responsible Recall Management * Brand reputation / .31 / .00 / 1.34 / YES
4 / Opportunistic Recall Management * Brand reputation / .09 / .31 / 1.30 / NO
Dependentvariable: attitude toward the company (Adjusted R squared: .327)
Results show a significant and positive relation between customers’ perception of responsible recall management and their attitude toward the companyafter the crisis (Hp. 1 is supported) On the other side opportunistic recall management is negatively related with customers’ attitude toward the company after the crisis (Hp. 2 is supported).More interestingly data shows a moderatingrole of brand reputation. As a matter of factif the company is perceived to have a high reputation the effect of responsible recall management on the attitude toward the company after the crisis will increase (Hp. 3 is supported). However the perception of an opportunistic recall management has negative effects on the attitude toward the company after the crisis, regardless that the company had a high or low brand reputation (Hp. 4 is not supported).
4. DISCUSSION
The main objective of this article was to test how customers perceive the behavior of the firm in managing the product recall. Results demonstrate that if customers feel that the company is acting in an opportunistic way their attitude toward the company will get worse. On the contrary if customers perceive a responsible behavior, their attitude toward the firm will recover. These findings confirm previous studies(Siomkos and Kurzbard, 1994)suggesting that it is better for the company to have immediate recourse to voluntary product recall and to super-effort initiatives and thatthe company making a product recall should emphasize that it is acting in a socially responsible manner (Mowen et al., 1981). Anyway the firm should demonstrate a real involvement to avoid to be perceived as opportunistic by (a part of) the customers, i.e. the company is not taking care of its customers, but only trying to exploit the situation.
Additional findings about the role of customer reputation partially contradict some previous studies (Rhee and Haunschild, 2006): companies with a high brand reputation will suffer less from the crisis, but only if they demonstrate a genuine and responsible recall management. On the contrary brand reputation will not have neither positive nor negative effects, in case the company is perceived as acting opportunistically.
5. CONCLUSIONS
This paper demonstrated the importance to analyze product recalls not only from the perspective of the company but also from the consumers’ point of view. Communication efforts will be successful only if they are included in a responsible behavior, otherwise they will continue to damage the image of the company well beyond the problems with the products itself. This work emphasize the role of a good reputation, which helps the responsible firm to better recover from the crisis.
Significant management implications can be derived from this paper. Anticipating the intervention of authorities and demonstrating a spontaneous super-effort can reduce potential damages to the image of the company. On the contrary a communication perceived as externally forced or artificial determines therisk to be perceived as opportunistic, thus permanently deteriorating customers’ attitude toward the company. As a consequence firms should develop plans to be prepared to face a product crisis not in a traumatic way.
Obviously this research has several limitations. First of all it is an explorative study, therefore results need to be strongly corroborated by other researches. A replication with a wider and different sample would also be fruitful. Moreover the method of quasi-experimentation presents several advantages but also disadvantages, because recalls are not studied within their natural settings. Further studies with other methodologies will help to improve our understanding of this phenomenon.Finally several streams of research emerge from this explorative study. In particular customers’ reactions to several other kinds of recall communication strategies could be evaluated, e.g. how different contents of the messages can affect consumers’ perceptions. In the same way the effectiveness of the timing of the recall communication and of different media could give interesting insights.
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October 15-16, 2010
Rome, Italy