مقاله سال ۲۰۱۶

er open letter to General Motors’ employees, commenting on the massive recall of cars related to faulty ignition switches, Mary Barra stresses the importance of the company’s brand equity in addressing the problem. One way GM has tackled the recall is via a social media strategy focused on Facebook and Twitter, communicating directly with individual consumer posts (Goel, 2014). In a social media environment, consumers not only post their opinions about the brand but they also observe how the brand reacts and treats others. How this environment affects the consequence of a product recall event and how to overcome a product recall crisis in the presence of online social media, has become an important strategic question for the firm.

Based on USASearch’s Product Recall Data, from January 2010 to December 2013 there were 5,861 product recall announcements across various industries. On average, four product recall announcements occur every day. Therefore, ―it is probably only a matter of time for any product manufacturer to have one or more products recalled‖ (Berman, 1999, p. 69). Product recall events impose legal costs, affect sales, raise manufacturing costs, dilute brand equity, and hurt financial value, posing a significant threat for brands and companies (Chen, Ganesan, & Liu, 2009; Thirumalai & Sinha, 2011). There are substantial direct costs (e.g., cost of implementing the recall, lost inventory, and reversed sales) and indirect costs (e.g., product liability claims and negative brand image) incurred when a product is recalled due to the presence of unsafe, hazardous, or defective conditions (Pruitt & Peterson, 1986). It is imperative for companies to understand the potential damage product recalls may inflict while finding ways to mitigate their harm.

Empirical work examining product-harm crises is scant and scattered across a number of functional areas with most attention focused on positive and negative consequences of the recall. On the positive side, the resulting outcome consists of reducing the number of injuries and recalls in the future (Kalaignanam, Kushwaha, & Eilert, 2013). On the negative side, product recall announcements have been documented to reduce demand (Marsh, Schroeder, & Mintert, 2004) and decrease future purchase intentions (Siomkos & Kurzbard, 1994). Recalls have also resulted in significant shareholder losses for publicly traded companies in the automobile and the food and drug industries (Davidson & Worrell, 1992; Jarrell & Peltzman, 1985; Thomsen & McKenzie, 2001). More seriously, the loss of shareholder value is often substantially greater than the direct cost of the recall itself, including those associated with destroying or repairing defective products (Govindaraj, Jaggi, & Lin, 2004). This market overreaction is generally based on pessimistic expectations of all potential losses associated with a recall including opportunity losses related to future sales because of brand deterioration and private litigation (Rubel, Naik, & Srinivasan, 2011). Investors are particularly sensitive to market information and react abruptly to exposures that put expected future cash flow at risk (Govindaraj, et al., 2004).