Product recall, brand equity, and future choice

Abstract

The number of major product-recall incidents involving established brands have increased markedly over the last few years. Although the direct costs have been evaluated in these cases (typically in the millions), the indirect costs to brand equity and subsequent loss of market share are harder to evaluate. This paper applies a simulated multistage choice-based experiment to assess the impact of hypothetical product-recall experiences on brand-equity measures and, importantly, future brand choice. Contrary to some evidence, we find that product-recall experience has greater negative impacts for established strong brands than weaker non-established brands. Additionally, attributes of product recall such as the seriousness of the recall problem and speed of recall announcement impact on pre- and post-recall differences in consumer evaluations of brand equity. Differences in brand-equity evaluations for the established strong brand significantly affect post-recall choice.