Recall Crisis Research Articles

The role of social media and brand equity during a product recall crisis: A shareholder value perspective

Utilizing an event study methodology of 185 product recall announcements, this study examines to what extent social media hurts a company’s shareholder value in the event of a product recall. In addition, we explore whether a company’s brand equity and engagement in online chatter potentially mitigate the negative effects of social media surrounding the recall. We operationalize four metrics of online word-of-mouth (WOM) that may moderate negative product recall effects: volume, valence, growth rate, and breadth. The findings suggest that product recalls result in significantly negative abnormal returns for firms. Furthermore, the volume, valence and growth rate of online WOM exacerbate this negative effect of a product recall on firm value. Most importantly, we find negative effects of the volume and the valence of online WOM on firm value are lower for brands with strong brand equity. Surprisingly, we find no effect of company involvement in mitigating the potential negative effects of social media during a product recall. Our findings highlight the threats of product recalls and demonstrate that building brand equity may help protect a company in the social media environment.

Analysis of Traceability Optimization and Shareholder’s Profit for Efficient Supply Chain Operation under Product Recall Crisis

Product recall gains considerable importance in recent times; the reason may be the huge losses faced by manufacturers because of product recall issues. Furthermore, the revenue of the firm is immensely affected as a result of product recall, which may lead to serious outcomes. Huge recall cost (such as repairing or destroying the recalled products and cost of notification) occurs as a result of large recall. Therefore, in order to minimize the quantity and probability of recalls the traceability systems are widely used and considered as a necessary part of product safety strategies. However, from literature it is clear that manufacturers are still struggling to obtain the significant results. This study helps the managers to understand the importance of recall cost by analysing its impact on shareholders profit. Keeping in view the importance of problem, the paper proposed an integrated optimization model to minimize the expected loss to shareholders in recall crisis using batch dispersion methodology. The analysed results show that reduction in traceability level increases the expected shareholders losses while decreasing the operational costs. This will help managers to optimally set the production batch sizes in order to reduce the product recall impact.

The effects of firm actions on customers’ responses to product recall crises: analyzing an automobile recall in China

In times of product-harm crises, the involved firms always employ some countermeasures, such as releasing messages relevant to their response actions. To evaluate the influence of these messages on the perceptions and behavioral responses of corporate customers relative to the recalls, we conducted a case study of the Volkswagen automobile recall in China in 2013. Guided by the protective action decision model, we developed a conceptual model to first study customers’ responses to the recall crisis. Based on this model, we further examined the influence of two types of firm actions, namely technical and ceremonial, on the customer crisis-coping process. Results show that product experience, risk perception, and information seeking significantly influence customers’ behavioral intentions during the product recall crisis. Customers in the technical action group exhibit a higher level of risk perception based on their product experience and have a higher likelihood of seeking information. However, information seeking fails to influence their behavioral intentions. Ceremonial actions overcome the disadvantages of technical actions, but customers’ lack of solution information should be met. In this sense, crisis-involved firms are encouraged to employ a combination strategy including the implementation of the two types of firm actions and then promptly release the messages containing both actions.

Auto recall crisis, framing, and ethical response: Toyota's missteps

This study employs a content analysis to examine news coverage concerning Toyota's recall crises from January 16, 2009, through November 21, 2012, in the following media: The New York Times, The Washington Post, USA Today, and the news releases listed on the Toyota official website. We examine how the media frame Toyota's crises and responses, and whether the news coverage varied between mass media and Toyota's releases. The findings shed light on the crisis communication in terms of response strategy selection. In tracking the ethics of the Toyota crisis in the years since its inception, combined with a content analysis conducted in this paper, the authors attempted to integrate the literature of crisis management with that of ethics in public relations. Ethics should be foremost among the considerations of an organization's reputation and a primary factor of successful crisis management. The Toyota case has far reaching implications for ethical crisis management and recall strategy in the auto industry as a whole.

Pet Food Panic: Procter and Gamble’s Use of Crisis Response Advertising (CRA) in Recall Crisis

This research explores the use of advertising as a rising form of organizational crisis management. More specifically, the study analyzes Procter and Gamble’s (P&G’s) use of image repair strategies in the advertisements that were placed in response to the Menu Foods’ pet food recalls of 2007. As with recent attempts by other companies to manage various publics’ reactions to crises, the data suggest that crisis response advertising enabled P&G to better manage the crisis and to repair its image. The evidence also suggests that advertising might serve as a channel for an organization’s crisis management.

Examining the relevance of Yamas and Niyamas to Toyota

Yamas and Niyamas are the social and personal conduct observances in Yoga Sutras of Patanjali. There were reports in the literature that they came close to the Code of Conduct Guidelines (CCGs) and the basic principles of Toyota. The purpose of this paper is to make an in-depth study of this observation to assess the relevance of Yamas-Niyamas to Toyota over and above its CCGs and basic principles. We carried out this study by tracking the revisions the company made over time in its basic principles and also by mapping the CCGs and principles to Yamas and Niyamas. During the revisions, we found that the principles that emphasize happiness at work (Santosha) and humility and gratitude (Easwarapranidhana) took a back seat which got again reemphasized when the company faced the latest recall crisis. The mapping has shown that the tenet asteya of the Yamas and Soucha of the Niyamas could not be directly mapped to any of the CCGs and principles. Yet, these are shown to be relevant to Toyota in its conduct before and during the recall crisis. Thus, it is suggested that it will be useful for Toyota to pay attention to all the Yamas and Niyamas which can supplement the existing CCGs and principles. This can equip the company to face an increasingly complex environment in the future. The study is carried out by an in-depth analysis of the already existing vast literature on Toyota and Yoga Sutras of Patanjali .

How Long Does It Take to Recover from Product Recall? A Study on Pharmaceutical Industry Recalls

While studies showing that product recalls hurt firm performance are common, studies on how long it takes for firms to recover from the loss associated with product recall remain scant. This is unfortunate since product recall is not the end of the game, but possibly a starting point to regain competitive advantage. We fill this gap by studying the recovery time of the sales to pre-recall period following a firm’s product recalls. We use signaling theory to investigate how firms’ recall strategies (proactive and passive strategies) handle recall crises and how different levels of recall severity affect the recovery time following recalls. We also examine how firm reputation moderates the aforementioned relationships. We test our hypotheses by employing event history analysis of drug recalls during the 10-year period from 2004 to 2013.

Instructional Messages During Health-Related Crises: Essential Content for Self-Protection

Mediated instructional messages have the potential to enhance individuals' knowledge and self-efficacy to take self-protective actions during a food-related health crisis. This two-phased study used content analysis to examine the presence of instructions during an actual egg recall crisis (n = 566 television broadcasts). Next, these messages were used in a pretest–posttest experiment to explore changes in participants' (n = 651) foodborne illness knowledge and self-efficacy after watching a standard media message or a high instruction media message. In general, actual broadcasts only provided self-protective instructions between 3% and 17% of the time. Standard messages slightly increased viewer knowledge, but decreased viewer efficacy. Conversely, the high instructional message significantly increased both knowledge and efficacy.

Analysis of the Interactive Relationship Between Apology and Product Involvement in Crisis Communication

This study explores the interactive relationship between apology, as a crisis-response strategy used in the current Toyota recall crisis, and product involvement in influencing the restoration of the organization’s reputation and customers’ future purchase intentions. The authors measured the impact of the interaction between participants’ perception of an apology and their product-involvement levels using a 2 (perception of apology: high sincerity vs. low sincerity) × 2 (product involvement: high vs. low) experiment design. The results showed that an apology was an effective strategy for repairing the organization’s reputation for those participants who were highly involved and perceived the strategy as highly sincere, but it did not increase their purchase intentions.

THE EFFECTS OF AUTOMOBILE RECALLS ON THE SEVERITY OF ACCIDENTS

The number of automobile recalls in the United States has substantially increased over the last two decades, and after a record of over 30 million cars recalled in 2004, in the last few years it has consistently reached between 15 and 17 million, and in 2010 alone 20 million cars were recalled. Toyota's recall crisis in 2010 illustrates how recalls can affect a large number of American drivers and the defects connected to them can result in loss of life and serious accidents. However, in spite of the increase in public concern over recalls and the loss of property and life attached to them, there is no empirical evidence of the effect of vehicle recalls on safety. This paper investigates whether vehicle recalls reduce accidental harm measured by the severity of injuries in vehicle accidents. The results of our analysis show that if a recall for a new‐year model is issued, then the severity of injuries of accidents continuously diminishes during the first year after the recall, something we do not find among cars not subject to recalls. This is because defects are repaired over time but also because drivers react by driving more carefully until the defects are fixed. To minimize the losses attached to having dangerously defective cars on our roads, both quick and timely recall issuance are needed and more detailed information on defects should be delivered to owners of defective vehicles. The latter can be made possible through simple but important policy changes by the U.S. government regarding recall information sharing with drivers and insurance companies. (JELL51, L62)

The Toyota crisis: an economic, operational and strategic analysis of the massive recall

PurposeThis paper aims to provide an in‐depth analysis of the economic, operational and strategic aspects of the Toyota recall crisis, as well as its implications for the global auto industry and its competitive dynamics in the future.Design/methodology/approachThe paper provided a literature review (of both academic literature, company reports, and popular press).FindingsToyota's recent efforts to become the top selling automaker in the global market place might have led to some unfavorable changes in its supply chain management practices, as well as tarnishing some of the core values of the “Toyota Way”, which were partially responsible for the massive recall. Toyota's handling of the recall also reflected the unique “Japanese way” of managing crisis.Originality/valueThe paper provides a timely analysis of a corporate crisis that is still unfolding. The multi‐disciplinary perspectives used in this analysis provide unique insights to understand a complex corporate phenomenon.

Examining how image restoration strategy impacts perceptions of corporate social responsibility, organization‐public relationships, and source credibility

PurposeThe paper aims to test Benoit's five image restoration strategies to examine how each strategy impacts perceptions of the organization‐public relationship (OPR) and corporate social responsibility (CSR). It also examines how the strategy used impacts the credibility of the source cited in the crisis response message.Design/methodology/approachAn experiment measures stakeholders' reactions to the different crisis messages and the messages' impact on perceptions of the OPR, CSR, and source credibility measures.FindingsResults indicate the reducing the offensiveness strategy led to higher perceptions of the OPR and CSR. The image restoration strategy employed does impact stakeholders' perceptions of the credibility of the source.Practical implicationsThe paper indicates organizations should try to bolster, minimize, transcend, and differentiate when preparing crisis messages during a product recall crisis. These types of messages protect the OPR and perceptions of CSR.Originality/valueIt adds to the experimental literature (whereas previous research uses cases studies). It expands Dardis and Haigh by examining the impact image restoration strategies have on OPR and CSR. It also extends current literature by examining the source of the message and how the image restoration strategy employed impacts the credibility of the source.

System dynamics modelling for examining knowledge transfer during crises

AbstractThe threat of organizational crises cannot be overlooked in today's complex business environment. During crises, organizations encounter unique, threatening and stress‐inducing situations in which critical decisions must be made constantly in a timely manner based on limited information. Nevertheless, there have been very few studies engaging in exploring the theme of knowledge transfer in the context of managing organizational crises. Consequently, this study attempts to explore this issue with reference to a product recall crisis of a motorcycle manufacturer using the method of system dynamics modelling. The research findings illustrate the multiple knowledge transfer mechanisms used and their influence on organizational performance during crises as a means of distributing critical knowledge and facilitating the development of collective understanding within organizations. Future studies which aim to explore the dynamics of different types of knowledge being processed by means of various knowledge transfer mechanisms during crises are encouraged. Copyright © 2010 John Wiley & Sons, Ltd.

Product recall crisis management: the impact on manufacturer's image, consumer loyalty and purchase intention

PurposeThis paper aims to examine the impact of recall crisis management on the manufacturer's image, consumers' loyalty and future purchase intentions. More specifically, this research aims to clarify the types of recall strategies that companies put forward, as well as their impact on consumers' behaviors and perceptions of the manufacturer's image.Design/methodology/approachThe current study focuses on vehicle users who have either experienced automobile recalls or heard them discussed. Data were collected via car‐related web sites. The final sample comprises 573 people. The direction and strength of the relationships between various consumers' attitudes toward the different recall methods and their purchase intention are assessed through structural equation modeling (SEM).FindingsResults show that recalls contested by manufacturers have a significant negative impact on manufacturers' image, as well as on consumers' loyalty and purchase intentions. On the other hand, voluntary recalls or improvement campaigns have a significant positive impact on the manufacturer's image, as well as consumers' loyalty and purchase intentions.Research limitations/implicationsProactive strategies are the best solution to avoid a loss in consumer loyalty to the manufacturer during a recall crisis. In the contrary, manufacturers' adoption of reactive strategies harms their image, as well as consumers' loyalty. This translates into a negative impact on future purchase intentions and manufacturers' market share. This study concludes by recommending appropriate strategies to limit possible negative effects of product recalls.Research limitationsSome variables (such as media, the degree of severity of recalls and the frequency of recalls) are not investigated in this study. Additionally, the research is limited to the automobile industry. Other industries that also experience recalls (such as the pharmaceutical industry) might be considered in future research in order to confirm the consistency of the research findings.Originality/valueThe approach adopted by the current research is relatively different from earlier studies that directly link the types of recalls to the danger perceived by consumers that in turn affects their purchase intentions. In the current study, recalls indirectly impact purchase intentions principally via the manufacturer's image and brand loyalty. Additionally, the originality of this research stems from the fact that the manufacturer's image is considered as part of the changeable legacy of the company that itself may be affected by the “crisis situation,” not a stable asset.

If the Organizations Won't Give Us Information…: The Use of Multiple New Media for Crisis Technical Translation and Dialogue

This study expands crisis message strategies to include those used to communicate technical details and examines them across multiple new media. A content analysis of blogs, Web sites, news articles, and press releases from the 2007 pet food recall crisis reveals that when stakeholders affected by the crisis desire emotional support—most frequently found in blogs—they do not include any types of technical explanations in their messages. Yet when they want rectification—assurance that the crisis will not happen again—they use more elaborate forms of technical translation explanations. Organizational use of technical translation explanations differ between media with Web sites and news articles containing more elaborate technical translation than press releases. When technical translation details are used, dialogic links, such as Web site links, are included.

Learning from toys: Reflections on the 2007 recall crisis

AbstractThe year 2007 will be remembered as the year the toy industry was shaken by a seemingly endless stream of recalls. The scope of this recent wave of recalls associated with lead‐tainted toys coming from China has focused the attention of parents and others responsible for ers who sell these toys, companies who import these toys, and numerous government officials on the problem of toys that have been painted with lead‐tainted paint. Much of the focus of this crisis is on China and its contractors. This is counterproductive and reactive. The problem of lead‐tainted imports is not new. The fact that China is currently in the crosshairs is to a large degree a function of their growth in importance as a preferred site for outsourced manufacturing. It is a volume issue. Lead‐tainted imports have many causes, and these will be explored in this article. This article concludes with a discussion of lessons that managers can take from this crisis. © 2009 Wiley Periodicals, Inc.

Improving recall crisis management: should retailer information be disclosed?

Abstract Recalls of consumer products have increased in recent years, leading to questions of the efficacy of quality control and crisis management and calls for new policies. In the USA, food recalls are voluntary, with crisis communications only disclosing processors' names. Following a review of consumer recalls in several developed countries, the case for disclosure of retailer information is explored. Using survival analyses of critical timing measures of recalls, tests show that disclosure may benefit public health through a more rapid detection of contaminated foods. The potential costs of disclosure are also discussed. Copyright © 2005 John Wiley & Sons, Ltd.

International media coverage of the Firestone tyre recall

The tendency for communication researchers in the area of crisis management to limit data collection and analysis by national borders consequently limits practitioner understanding of the dynamics of crisis planning and response. The Firestone/Ford tyre recall crisis of 2000‐2001 presents an opportunity to mine data on a massive, global scale in an effort to better understand and explain media and public response at that level. The author analyses media reports gleaned from around the world to suggest ways to incorporate potentially determining factors into crisis planning and response matrices. Those factors include media structure and function, as well as cultural syndromes.

The Impact of Product Recalls on the Wealth of Sellers

What happens to the wealth of shareholders of firms producing defective products? Our answer-for producers of drugs and autos that were recalled from the market-is that the shareholders bear large losses. They are substantially greater than the costs directly emanating from the recall-for example, costs of destroying or repairing defective products. In fact, they are plausibly larger than all the costs attributable specifically to the recalled product; the losses spill over to the firm's "goodwill." They also spill over to competitors. This negative externality may even be larger in the aggregate than the losses to the producer of the recalled product.