It’s every manufacturer’s worst-case scenario: a product defect so severe it triggers a recall. And it’s been a busy year for the practice, with big names in the auto industry suffering painful public recalls, including airbag manufacturer Takata and stalwart Volkswagen, who has been caught up in an emissions cheating scandal.
But what can firms do to help cushion the blow of falling consumer confidence and stock prices? Researchers in China and the United States tried to answer that question by studying how big firms use advertising campaigns leading up to product recalls.
Whether you’re a manufacturer or not, their research presents insights into using ads as a form of damage control when your business hits a rough patch.
This week’s insight: Increasing advertising prior to a recall can have a positive benefit depending on the type of product and the severity of the recall. It’s important for companies to take an honest look at the problems that got them here in the first place, though, before deciding on an advertising strategy.
Research study: “Should Ad Spending Increase or Decrease Before a Recall Announcement? The Marketing–Finance Interface in Product-Harm Crisis Management” by Haibing Gao, Jinhong Xie, Qi Wang and Kenneth C. Wilbur, Journal of Marketing, September 2015. https://journals.ama.org/doi/10.1509/jm.14.0273
What they did: The research team studied 110 cases of product recalls between 2005 and 2012 and examined the impact of increased advertising spending on softening the impact of big recalls.
What they found: The impact of pre-recall advertising depended on how serious the problem was and how new the recalled product was (and thus how familiar customers and investors were with the product.) In the case of a new product that was recalled because of a less-serious issue, increasing advertising spending could help soften the blow of the recall. This is because investors and customers are more likely to give the benefit of the doubt to products they were less familiar with, researchers found.
On the other hand, increasing advertising spending when the recall covers an older product with more serious issues can actually hurt post-recall performance, since investors and customers who see the ads are more likely to underestimate the severity of the recall and are disappointed when the true seriousness of the problems is revealed.
Because of the sharpness of the two different reactions, researchers urged firms to take a hard look at what got them into trouble. If your product is new and the hazard is minor, ads can make a positive difference. On the other hand, their research indicates the opposite for older models with bigger problems— good advice for any firm with a crisis on their hands.