The cloud and its silver lining: negative and positive spillovers from automotive recalls

Abstract

Product recalls hurt the sales of non-recalled products in the category because of negative spillovers. Recently, there has been some evidence of positive spillovers from recalls on the sales of non-recalled products. We focus on spillovers from brand- (i.e., same brand), firm- (i.e., same firm, but not same brand), and country-level (i.e., same country-of-origin, but not same firm) recalls on the sales of non-recalled products. Furthermore, we examine how advertising and price of non-recalled products interact with brand-, firm-, and country-level recalls to affect their sales. We use data on 124 cars in the USA in 2006–2015. Results indicate that brand-level (country-level) recalls hurt (benefit) the sales of non-recalled products. Higher advertising and price of non-recalled products weaken the negative effect of brand-level recalls, while lower advertising and price strengthen the positive effect of country-level recalls. Finally, firm-level recalls result in positive spillovers when advertising is high.

Effects of advertising and R&D on spillovers from a rival’s bankruptcy

“…Such literature has shown that firms respond to a rival's bankruptcy by changing their product variety (Ren et al, 2019) and prices (Ozturk et al, 2016). Further, their sales can be affected by a rival's crisis (e.g., Giannetti & Srinivasan, 2021;Ozturk et al, 2019). We show that a firm's marketing investments prior to a rival's bankruptcy announcement also play a significant role in affecting investors' expectations of the firm's future prospects.…”

The effects of pseudo‐relevant 100% claims

“…Second, various other aspects connected to the product might be affected by such claims, and the influence could even transcend the boundaries of the particular product. Prior research has indicated that marketing actions directed at one product, such as marketing communications or product recalls, may have implications not only for other products within the same brand or products from different brands within the same category (Balachander & Ghose, 2003; Chae et al, 2017) but also for different products originating from the same country (Giannetti & Srinivasan, 2021; Han, 1989). This implies that the negative effects of pseudo‐relevant 100% could potentially spill over and influence consumers' reactions to associated products and unrelated ones originating from the same country.…”