Journal of Marketing Management

Vol. 27, Nos. 910, August 2011, 959975

Product recall, brand equity, and future choice

Con Korkofingas, Macquarie University, Sydney, Australia
Lawrence Ang, Macquarie University, Sydney, Australia

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.

Keywords product recall; product harm; product failure; brand equity;

attributions; disconfirmation of expectations

Introduction

The year 2007 can be considered an annus horribilis for product recall. An article
in Fortune (101 dumbest moments, 2007) declared a series of high-profile product
recalls in 2007 (all of which involved Chinese-made products or ingredients) to
be among the dumbest moments in business. These included Mattel recalling 20
million toy items because of lead paint, and the recall of 850,000 Barbie accessories
and Sesame Street toys for the same reason. All of these recalls have sparked
unprecedented concern among consumers, leading to a significant increase in the use
of Internet-based product reviews (Spate of product recalls, 2007) and an increase in
consumerism (Product recalls, 2007).
However, despite the large financial cost to companies, how product recall affects
their brand equity and long-term market share has not received much systematic
research. Most research tends to adopt a case-study approach either from the
perspective of learning how to manage a brand crisis (e.g. Geyser & Klein, 1990;
Johnson, 1993) or from the perspective of estimating the financial or sales loss

ISSN 0267-257X print/ISSN 1472-1376 online

2011 Westburn Publishers Ltd.
DOI: 10.1080/0267257X.2011.560717
http://www.informaworld.com
960 Journal of Marketing Management, Volume 27

associated with a particular product recall (Davidson & Worrell, 1992; Govindaraj,
Jaggi, & Lin, 2004). However, case studies like these are not necessarily generalisable.
It would be more useful to elucidate general principles that can assist managers to
make contingently effective decisions. For instance, does the severity of the product
defect impact on the damage to the brands equity and alter the likelihood of
customer switching? Does the strength of a brand buffer it from this damage? What
kind of restitutions, if any, should marketers make to recover the lost brand equity
and limit switching and hence loss of market share? Is shifting of blame for the
product recall by the company helpful? The main aim of this paper is to investigate
these questions by adopting a customer-based approach to brand equity (Keller, 2003)
combined with multistage choice-based experiments.

Theory
One representation of brand value is that of Keller and Lehmann (2006). We modify
this representation to posit brand valuation given information at time zero (I0 ) as

BVj|I0 = i Xji,0 Pj,0 + Vj,0 + Sj,0 (1)

where BVj = brand value of alternative j; Xji = level of functional attribute i, brand
j; Pj = price j; Vj = brand equity for alternative j; and Sj = inertia.
Consumers evaluate BVj (at time 0) for all j and choose the brand with maximum
BVj . The components of BVj are likely to change between choice decision periods
due to product experience with the brand chosen or changes to extraneous variables.
Product-recall incidents (and associated product-recall characteristics, PRm ) will
possibly affect attribute perceptions (Xji ,) and evaluations of brand equity (Vj ).
Consumers will update their attribute perceptions (at time 1) to Xji, 1 = f1 (Xji,0 ,
PRm ) and brand-equity evaluation to Vj,1 = f2 (Vji,0 , PRm ), leading to an updating of
BVj for all brands.
Assuming the product-recall incident leaves perceptions of functional attributes
(Xji ) unchanged, and price and inertia remain the same, then any changes in brand
evaluations and hence brand switching are likely to be due to changes in brand equity
Vj . Changes to brand equity (Vj) will be affected by changes in product-recall
characteristics PRm , as shown in equation (2). These product-recall characteristics
include speed of response, problem severity, communication method, restitutions,
and responsibility, which we will discuss in the next section. The change in brand
equity will lead to a change in overall brand value (BVj), as in equation (3). In turn,
changes in brand value may lead to switching between brands, as shown in equation
(4) ( k are suitable transformation functions).

Vj = 1 (PRm ) (2)

BVj = 2 Vj (3)
Switching =3 (BVj ). (4)

Typical studies assess the impact of product-recall incidents primarily on changes to

brand-equity evaluations. However, changes in brand-equity evaluations, although
significant, may not necessarily lead to loss of sales or market share. If the overall
 Korkofingas and Ang Product recall, brand equity, and future choice 961

Figure 1 Schematic diagram of major constructs.

Communication Blame

Repair Problem Severity

Brand
Expected Brand Equity
Attributes Equity Post
Pre Pre
Announcement
Delay

Brand Brand
Choice Choice
Pre Post

perceived value of the strong brand far exceeds the perceived value of the weaker
brand, then even a large loss of brand equity for the strong brand may not necessarily
lead to any loss of its market share because its overall brand value still exceeds that of
the alternative. From a managerial viewpoint, changes in brand equity due to product
recall will be more concerning if those changes are also reflected in switching from the
brand to alternative brands. We include equation (4) to assess not only the impact of
product-recall incidents on brand equity and overall brand value, but also the impact
of these incidents on switching behaviour (and hence market share).
We estimate equations (1)(4) through the use of a multistage choice
experiment involving a product-recall incident with experimentally varying incident
characteristics. Brand-equity measures (before and after product recall) and brand
choices are elicited from respondents during the experiment. The elicited measures
allow changes to brand equity to be analysed and the impact of product-recall
characteristics on these equity changes and additionally on switching behaviour to
be assessed. Figure 1 summarises the main theoretical notions outlined above.

Brand equity, switching, and product-recall characteristics

It is arguable that one of the most important tasks for a marketer is to build strong
brands, since strong brands potentially bring many benefits such as larger margins,
less vulnerability to competitive actions, and greater trade support (Keller, 2003).
Therefore, when a product crisis such as a product recall occurs, one of the most
important tasks is to protect the equity of the brand. Recent research has shown that
product recall can severely damage the strength of a brand (van Heerde, Helsen, &
Dekimpe, 2007). There is also another important (but subtle) reason why protecting
the equity of the brand during a product crisis is important. By definition, the market
share of the brand drops to zero when the affected product is totally withdrawn from
the market. However, this does not mean that the brand equity of the product also
drops to zero. If brand equity exists in the minds of customers (Keller, 2003), then
962 Journal of Marketing Management, Volume 27

being able to manage how customers think about the affected brand during the crisis
becomes paramount. To the extent this is well managed, the residual brand equity
(in the mind of customers) can serve as a springboard to post-crisis recovery of the
market share.
During a product crisis, exposure to marketplace information is likely to be more
wide-ranging and negative. One of the reasons why product recall garners so much
media attention in particular cases is the potential harm to consumers from defective
products. Logically, the greater the product harm, the greater the predicted fall in the
brands equity. This was particularly exemplified in 2000 with the recall of Japans
Snow brand of milk due to contamination. A total of 13,000 Japanese suffered from
food poisoning the worst in Japans postwar history. The market share of the Snow
brand dropped from 40% to less than 10% (Finkelstein, 2005) and what was once
considered an iconic brand (which started life in 1925) was irreparably damaged.
Thus we hypothesise:

H1: The greater the severity of the product defect, the greater the decrease in brand
equity.

Are all brands equally affected by product recall or are some brands more vulnerable
than others? One recent case study investigates how well two brands recovered after
a crisis. Cleeren, Dekimpe, and Helsen (2008) found that the stronger brand (i.e.
Kraft) recovered much faster (in terms of market share) than Eta (the weaker brand).
In examining five years of scanner data from 615 households, they explored how well
the two brands survived the salmonella-poisoning crisis in 1996. Kraft recovered 70%
of its previous sales level (three months after reintroduction) compared to only half
of the previous sales level for the Eta brand over the same period.
Actions of a company during a product crisis may also affect its brand equity.
Companies can react differently when faced with a product-harm crisis ranging
from swift action and accepting full responsibility at one extreme to stonewalling
(denying responsibility, a lack of remedial measures, or simply not communicating
about the product-harm issue) at the other. Dawar and Pilluta (2000) investigated the
effectiveness of different approaches, including that of stonewalling when brands
or reputations are strong or weak. They theorised that when consumers have strong
prior expectations about a brand or company (i.e. one with strong brand equity), they
tend to discount any inconsistent information, including information about product
harm. This is less likely to occur for brands for which consumers do not have strong
prior expectations.
Thus they found that the more reputable the firm (i.e. reputable, award-winning,
successful, spotless record over 30 years see study 2) or the stronger its brand
(i.e. Compaq see study 3), the more likely companies are able to get away with
stonewalling; that is, their brand equity did not fall in the face of product crisis. On
the other hand, if a firm is not as reputable (i.e. selling in the market for 30 years see
study 2) or the brand is not as well known (i.e. Zeos see study 3), stonewalling will
lead to a significant drop in its brand equity. Even for a severe product-recall problem
(i.e. exploding laptops, causing injuries to hands and faces), stonewalling did not
alter the brand equity of Compaq (strong brand) significantly (relative to the control
condition) but significantly decreased the brand equity of Zeos (weak brand). They
attributed the robustness of Compaqs brand equity to consumers discounting any
negative information. They concluded, Consumers existing positive expectations
 Korkofingas and Ang Product recall, brand equity, and future choice 963

may provide firms with a form of insurance against the potentially devastating impact
of crisis. For these firms, brand equity appears to be remarkably resilient to different
types of firm response and less fragile than initially expected (p. 224).
However, there are also studies that point in the opposite direction. Consumers
may come to expect more from high brand-equity products, so that when failure
occurs they are more disappointed. Rhee and Haunschild (2006) looked at US
automobile sales data from 1977 to 1999 for 46 brands of cars. During this period,
there were a total of 1853 automobile recalls, of which 795 were classified as severe.
They then looked at the changes in sales data following the product recall for all the
brands over these 15 years. Intriguingly, they discovered that high-quality brands of
automobile (e.g. Lexus, BMW, Porsche) are more likely to suffer a decrease in market
share (an average of 2.92% drop) in the month following a severe product recall
than their corresponding low quality brands (e.g. Kia, Daewoo, and Hyundai an
average drop of 1.64%). Thus instead of high-quality brands being able to withstand a
product crisis, they are in fact more vulnerable than low-quality brands. The authors
concluded that good reputation may be a double-edged sword with a significant
downside; When firms make mistakes, those with good reputations suffer more
market penalty than those with poor reputations do (p. 113). The authors speculate
this may be because consumers expect more from high-quality brands, and when a
defect occurs, it is more likely to result in a greater disconfirmation of expectations
(see Andreassen, 2000).
In another study, which examined the on-time delivery service of a sandwich shop,
Roehm and Brady (2007) found similar results. They manipulated the severity of the
service failure (delivery time), the brand equity of the campus sandwich shop, as well
as the immediacy in which respondents evaluate the service failure. They found that
the well-known sandwich shop is more likely to suffer a drop in satisfaction rating
(compared to a baseline pre-measure) when subjects have more time (10 minutes
of free time relative to immediate evaluation) to ruminate about the service failure.
The drop is especially large when the failure is severe (a 90-minute wait for lunch).
However, if subjects were not given time to ruminate, the satisfaction ratings of the
high-equity sandwich shop did not drop at all, even if the delay was a severe one (it
should be noted that, during a typical product recall, affected consumers have ample
time to ruminate). More importantly, they found that the low-equity sandwich shop
did not suffer any significant drop in their satisfaction rating regardless of the severity
of the service failure, nor the immediacy of the evaluation.
In summary, there is evidence to show that high and low brand-equity products
may be affected differently by product recall. On the one hand, there is evidence to
show that high-equity brands may be able to weather a given product crisis better
than weaker brands (Cleeren et al., 2008; Dawar & Pilluta, 2000). We call this the
buffer effect.

H2a: Brands with high equity are less likely to be penalised during product recall than
brands with low equity.

However, there is also evidence to the contrary that is, brands with high equity
tend to suffer more during product recall (Rhee & Haunschild, 2006; Roehm &
Brady, 2007). Thus one can also make the opposite prediction to H2a. We call this
the prominent fall effect.
964 Journal of Marketing Management, Volume 27

H2b: Brands with low equity are less likely to be penalised during product recall than
brands with high equity.

Other factors may also moderate the effects of product crisis. One such factor is
the speed of company response to the product crisis. Keller (2003) argued that the
longer the delay in initiating product recall, the greater the probability that the equity
of the brand will be damaged by the negative publicity and word of mouth. Speed of
product recall becomes important if the product has the greatest potential for harm.
In 1996, it took Kraft five days to recall its peanut butter (infected with salmonella),
leading to severe criticism of the company (cited in van Heerde et al., 2007). It
can be argued that, in this case, the delay led to more than 100 cases of salmonella
poisoning. Similarly, when baby-food manufacturer, Gerber, refused to withdraw its
products after consumers reported finding shards of glass in some jars, its market
share dropped from 66% to 52% in only a couple of months. The perception created
by not withdrawing quickly is that the company does not care for its customers. We
thus hypothesise;

H3: The faster consumers are informed of the product defect, the less damage will
occur to the brand equity.

Keller (2003) pointed out that the restitutions, if any, must be sincere. This means the
firm must clearly acknowledge the issue and be willing to take the steps to solve the
problem. This may involve a range of tactics, including a personal apology, repairs,
exchange, refund, or any possible combinations. For instance, in the 1995 tax season,
a consumer discovered that the personal financial management software developed
by Intuit was flawed. Upon confirmation that this was true, the chairman of Intuit
personally wrote a letter of apology to all its 1.65 million users saying the company
had let them down. Furthermore, as an act of good will, Intuit put a new version of
the software online for anyone to download. Full refunds were also given to those
who requested them. We thus hypothesise:

H4: Companies that personally inform their consumers about the product defect are
less likely to suffer decreases in brand equity.
H5: Companies that quickly rectify the product defect are less likely to suffer decreases
in brand equity.

When a product recall occurs, attribution of blame is most likely to occur. Consumers
often ask, Whose fault is it? Folkes (1984) and Folkes and Kotos (1986) found that
if a consumer attributes a product failure to the firm rather than to himself, he is more
likely to feel anger, generate negative word of mouth, and want a refund and apology
from the firm. Consequently, the customer is also less likely to want to buy from the
firm again (Griffin, Babin, & Attaway, 1991). However, if the fault is due to external
uncontrollable circumstances, less blame is placed on the firm (Folkes, 1984). As long
as the product defect is perceived to be temporary or caused by an outside party and
thus beyond the control of the firm, the reputation of the firm is less likely suffer
(Klein & Dawar, 2004). Perhaps this is the reason why some companies try to shift
the blame for product-recall incidents to external parties. We thus hypothesise:
 Korkofingas and Ang Product recall, brand equity, and future choice 965

H6: Companies that shift the blame of the product defect to an external supplier are
less likely to suffer decreases in brand equity.

From equation (1), changes to brand equity will affect total brand value. In turn,
from equation (4), brand-value changes are likely to influence future brand choices
(and hence future brand market shares). Several studies have examined links between
changes to brand equity and future purchase intentions. Palmer, Beggs, and Keown-
Mcmullan (2000) showed that brand-equity changes due to a service failure in a
restaurant were positively correlated with repurchase intentions. Similarly, McDowell
and Sutherland (2000) showed that increases in brand equity for television programs
positively affected program ratings. Using data from 264 hotel guests, Woo, Bongran,
and Hyun (2008) found that increases to aspects of brand equity (loyalty, awareness)
increased repurchase intention. Using multiple product categories, Erdem and Swait
(2004) provided evidence that positive changes to related aspects such as credibility
and trust increased likelihood of brand consideration and hence brand choice. We
thus hypothesise:

H7: Increases in brand equity for a given brand will increase the probability of brand
choice (hence market share) and decrease switching away from that brand.

To test the hypotheses outlined above, two separate experiments using hypothetical
product-recall incidents and stated choices were designed. The details of the first
experimental study appear in the next section.

Study 1
Study 1 was designed as a preliminary experiment to assess the overall impact of a
hypothetical product recall on brand-equity evaluations. In particular, the experiment
was designed to test hypotheses H1, H2a, and H2b; that is, to assess whether the
severity of the product defect will affect brand equity and, if so, whether high (or
low) brand-equity products suffered more during product-recall incidents.

Method
In this experiment, respondents were asked to make a choice between two branded
Mp3 players: a well-known brand, identified as Brand A, and an unknown (fictional)
brand (Brand X). After this choice, brand-equity measures for both brands were
elicited. The second stage involved showing respondents a hypothetical product-
recall experience with the brand chosen from the first stage. This was followed by
a further brand-equity measurement for the two brands. Both stages were conducted
using a self-completed survey booklet.

Design
The initial scenario information indicated that the respondent was in the market for
an 8 Gigabyte (Gb) Mp3 player and only two choices were available: Brand A ($250)
and Brand X ($150). Respondents were shown photographs of the respective Mp3
966 Journal of Marketing Management, Volume 27

players with information about dimensions, features, and prices. All player features
were identical in all respects apart from price and brand.
The second stage of the experiment involved a hypothetical product-recall
experience with the respondents chosen brand. Two levels of recall-problem severity
were constructed: the first level was a problem with the intermittent connection of
the earphone socket (mild); the second level was a fault with the USB connection
that could short-circuit and severely damage any connected devices (severe). Half
of the booklets used in the experiment contained a product-recall notice with
the severe product defect, while the other half had the mild condition. Each
respondent received a randomly selected product-recall experience. In all product-
recall notices, resolution of the problem was by product repair within three
weeks.
Following Aaker (1991), Agarwal and Rao (1996), and Keller (1993), brand
equity is operationalised as a multi-item scale by summation of: brand attitude
(good/not good; like/not like), brand reliability (reliable/not reliable), brand trust
(trustworthy/not trustworthy), and perceived quality (high quality/low quality). All
of the above items were rated separately on seven-point numeric scales, with 1
indicating the minimum rating for the item and 7 the maximum (total brand-equity
maximum score = 35, minimum score = 5)

Procedure
The booklets were distributed randomly to an undergraduate class of 160 students
with an equal chance that a given student would receive either of the experimental
conditions. The student sample is justified because MP3 player ownership is
significantly higher for consumers under the age of 30 than other age groups (Pew,
2005). Further, the 1828-year age group was more likely to download music from
online sources (possibly for use with Mp3 players) than other age groups (Pew, 2009).
Results were generated by SPSS V16.0.

Results
Table 1 summarises the brand-equity impact of product recall using standardised
differences between post- and pre-experience brand-equity measures for both brands
(Brand A, Brand X).
Table 1 shows that the severity of the product-recall problem seems to impact
on brand equity evaluations significantly. For the USB-connection problem, brand-
equity evaluation for Brand A significantly decreased, while brand-equity evaluation
for Brand X significantly increased. For the milder problem of the intermittent sound,
there was no significant change in brand-equity evaluation for either brand. Thus H1
is supported.
Furthermore, changes to total brand equity for each brand are different.
Considering the overall sample, the difference between post- and pre-experience
brand-equity measures is negative for the established brand (Brand A) and positive
for the lesser-known brand (Brand X). Brand A choosers significantly decreased their
evaluation of Brand A (high equity brand) post recall, but Brand X (lower equity
brand) choosers did not significantly decrease the evaluation of their chosen brand.
This provides evidence to support H2b but not H2a.
 Korkofingas and Ang Product recall, brand equity, and future choice 967

Table 1 Total brand-equity measures (average) before and after product recall
(study 1).

Pre- Pre- Post- Post-

recall recall recall recall
Brand A Brand X Brand A Brand X
(1) (2) (3) (4) Diff A (3 1) Diff X (4 2)
Problem severity
Ear socket 27.01 14.22 26.47 14.77 .54 .55
(mild) (n = 80) (t = 1.14) (t = 1.06)
USB connect 26.88 14.64 25.76 16.00 1.61 1.36
(severe) (n = 80) (t = 2.97) (t = 2.49)
Brand chosen
Brand A (n = 83) 28.73 12.30 26.78 13.34 1.87 1.04
(t = 3.22) (t = 2.09)
Brand X (n = 77) 25.00 16.73 24.79 17.60 0.21 .87
(t = .56) (t = 1.51)
Overall (n = 160) 26.94 14.43 25.87 15.39 1.07 .96
(t = 3.00) (t = 2.55)
Significant at the 1% and 5% levels (two-tailed).

Discussion

The most interesting aspect of this study is the support for the prominent fall effect.
This implies that managers of well-known brands have more to lose than their low-
equity counterparts. The underlying mechanism would appear to be disconfirmation
of expectations. This supports the more recent work of Rhee and Haunschild (2006)
and Roehm and Brady (2007).
The other interesting aspect of this study is the differing cross-effects observed
depending on initial brand choice. Brand A choosers significantly increased their
evaluation of Brand X after experiencing product recall. On the other hand, Brand
X choosers did not significantly change their evaluations of Brand A after their
product recall. Given the high prior expectations of Brand A, its fall after product
recall would appear to make the other brand (Brand X) relatively more attractive.
Conversely, in the case of Brand X, this effect was not observed because of the low
prior expectations of the brand.
However, critics of study 1 may argue that the experiment has a number of
weaknesses that decrease the external validity of the study. First, the brand used
for the low brand-equity condition (i.e. Brand X) was fictional; second, the visuals
used in the two conditions were exactly the same (except for the brand and price);
and third, one of the levels of the problem-severity manipulation (intermittent audio
output) may not be severe enough to warrant a product recall in the real world. Study
1 also did not investigate whether this prominent fall effect could be attenuated by
corrective actions a company can take. Finally, the impact of the equity drop on
future choice of the brand was not studied. The aim of study 2 is to address these
issues.
968 Journal of Marketing Management, Volume 27

Study 2
Study 1 showed that brands of high equity tend to suffer more during a product
recall than brands of low equity (prominent fall effect). However, as argued earlier,
changes to brand equity may not necessarily be critical if the changes do not lead
to brand switching and hence to changes in brand shares. To analyse switching, we
extended the multistage experiment of study 1 by introducing a choice elicitation
after the hypothetical product recall in addition to the initial choice elicitation and
brand-equity measures.
There are at least two advantages of using choice in addition to the usual brand-
equity measures. First, choices reflect consumers evaluation of brand values for the
available alternatives. Changes to brand-value evaluations will be primarily driven
by changes in brand equity. Second, choice elicitation allows for evaluation of post-
incident purchase probabilities and switching behaviour. The impact on estimated
market share can be estimated and quantified directly, thus increasing managerial
relevance of the analysis.
Although there may be some criticism of the validity of stated-preference methods,
choice models perform reasonably well in validation studies (using subset samples).
Limited available evidence suggests choice-based models perform reasonably well
when applied to the real world or revealed preferences. Natter and Feuerstein
(2002) report good predictive results from choice-based conjoint methods with 43
supermarket brands, while Ben-Akiva and Morikawa (1990) provide evidence that
choice-based predictions (after some minor bias corrections) are not significantly
different to predictions derived from revealed preferences.
Additionally, it is likely that problem severity will not be the only product-recall
attribute that will influence changes in brand-equity evaluations. Company actions
and responses to the product-recall incident may also influence the extent of change
to the evaluation of brand equity. The aims of study 2 are threefold: first, to see if
the prominent fall effect is replicated with a different sample; second, to explore
which factors ameliorate this potential damaging effect on brand equity (see Figure
1); third, to investigate how these changes in brand equity potentially affect switching
behaviour.

Method
To test the hypotheses, a three-stage choice experiment was designed. The first two
stages are identical to those used in study 1. The final stage elicited respondent choice
between the same Mp3 players. It was suggested in the scenario information that six
weeks after the resolution of the product-recall problem, the respondent had lost the
player and needed a new one to take on an imminent vacation.

Design
The experiment was conducted using self-completed booklets. The initial scenario
information indicated that the respondent was in the market for an 8 Gb MP3 player
and only two choices were available: a well-known and relatively high-equity brand
identified as Brand A with a price of $250, and a lesser-known, lower-equity brand
(however, this was a real brand unlike, the fictitious Brand X of Study 1) identified
 Korkofingas and Ang Product recall, brand equity, and future choice 969

Table 2 Attributes and levels for the experiment in Study 2.

Attribute Level 1 Level 2

Communication type (commtype) Media release Personal e-mail from firm
Problem type (severity) Paint flaking toxic Paint flaking non-toxic
Problem attribution (blame) External supplier Internal (to firm) fault
Problem resolution (repairtime) Three-week repair Same -day repair
Announcement delay (delay) Delay of six weeks Immediate

as Brand B with a price of $150. Brand A was identical to the well-known brand also
called Brand A used in Study 1.
The product-recall experience consisted of five relevant attributes. Each attribute
has two levels (indicated in Table 2) giving a full factorial of 32 combinations.
Problem-type levels: severe (i.e. toxic paint flaking) and mild (i.e. non-toxic paint
flaking) were chosen because these problems would not affect the functionality of the
Mp3 player, which is consistent with the model of equations (2)(4). An example of
the product-recall notice shown to respondents is included in the Appendix.

Procedure
The booklets were distributed randomly to an undergraduate class of 341 students
(at least 10 repetitions of the full factorial) with an equal chance that a given
student would receive any of the 32 experimental conditions. The student sample
was justified for similar reasons to those stated in Study 1.

Results
For comparison with study 1, brand-equity evaluations pre and post recall and the
associated differences were determined and appear in Table 3.
Overall, there was a significant decrease in Brand As brand-equity evaluation after
product recall, with the opposite applying for Brand B. For initial Brand A choosers,
brand equity decreased significantly for Brand A and increased for Brand B. For initial

Table 3 Total brand-equity measures (average) before and after product recall
(Study 2).

Pre- Pre- Post- Post-

recall recall recall recall
Brand A Brand B Brand A Brand B
Choice (1) (2) (3) (4) Diff A (3 1) Diff B (4 2)
Brand A Mean 29.00 14.98 25.94 15.78 3.06 .80
(n = 245) (t = 9.9) (t = 3.03)
Brand B Mean 24.23 19.98 24.23 20.08 0 .10
(n = 96) (t = 0.0) (t = .22)
Overall Mean 27.66 16.38 25.46 16.99 2.20 .61
(n = 341) (t = 8.69) (t = 2.66)
Significant at the 1% level (two-tailed).
970 Journal of Marketing Management, Volume 27

Table 4 Regression of brand-equity difference on product-recall characteristics

for Brand A (for initial Brand A chooser group in Study 2).

Variable Coefficients S.E. Beta t p-value

(Constant) 3.103 .303 10.24 0
commtype .353 .302 .073 1.167 .244
severity .746 .302 .155 2.468 .014
blame .081 .304 .017 .267 .79
repairtime .093 .303 .019 .308 .759
delay .895 .303 .185 2.957 .003
R2 = .084; F = 3.225 (p-value .008).

Brand B choosers, there was no significant change in brand equity for either brand.
The results from this study corroborate the results of study 1, suggesting stronger
brands are penalised more for given product-recall crises than weaker brands. Both
studies provide evidence to support the prominent fall effect hypothesis (H2b) in
contrast to the buffer effect hypothesis (H2a) for stronger brands.
In accordance with equations (2)(4), we adopted the following sequence of
analysis. Differences in brand evaluations for Brand A choosers were regressed against
product-recall attributes to determine if product-recall attributes were relevant
drivers of changes in total brand equity. (the Brand A chooser group was chosen,
since this group showed significant differences in brand-equity evaluations). Results
are shown in Table 4.
From Table 4, product-recall attributes that significantly affect the equity
difference for Brand A are delay and severity. None of the other attributes
was significant. For severity, where level 1 is a severe problem and level 2 is a
mild problem, the positive coefficient means that a milder problem will result in
a smaller decrease in brand equity. Similarly, for delay, where level 1 is immediate
announcement and level 2 is a delayed announcement of six weeks, the positive
coefficient means an immediate announcement will result in a smaller decrease
in brand equity. The addition of two-way interactions among the product-recall
attribute variables did not add significantly to the explanatory power of the model.
The R2 is a little low, but this may be expected given the cross-sectional nature of the
study and the type of variables employed. However, even though it is low, it is still
significant.
Consistent with equations (2)(4), we then investigated if changes in brand equity
affect switching. Out of 341 respondents, 71.8% (245) chose Brand A. Out of 341
respondents, 71.8% (245) initially chose Brand A, 24.9% switched to Brand B on
the second-choice occasion. For the 96 initial Brand B choosers, 13.2% switched
to Brand A. The elementary brand-switching data suggest the stronger brand suffers
more from product recall in terms of loss of market share than the weaker brand. The
much larger switching percentage for Brand A versus Brand B (24.9% vs. 13.2%) is
likely due to the relatively larger drop in brand equity for Brand A.
To provide more conclusive evidence of the link between changes in brand
equity and switching (and hence brand shares), a binary logistic regression was
performed on post-recall choice (in particular, switching from Brand A to Brand
B for initial Brand A choosers). Brand A choosers were used because they showed
significant changes in brand-equity evaluations compared to initial Brand B choosers.
To test the veracity of the link between changes in brand equity and switching, we
 Korkofingas and Ang Product recall, brand equity, and future choice 971

Table 5 Binary logistic regression for switching from Brand A to Brand B

(Study 2).

Variables Coefficients S.E. Wald Sig. Exp(B)

Post_ Equity_Brand_A .062 .043 2.07 .15 .94
Post_ Equity_Brand_B .112 .033 11.371 .001 1.119
Diff_Equity_Brand_A .142 .049 8.226 .004 .868
Diff_Equity_Brand_B .046 .044 1.095 .295 .955
Constant 1.949 1.363 2.045 .153 .142
Nagelkerke pseudo-R2 = .29, 2 Diff LL = 221.12; 2 4, .01 crit = 13.27.

examined changes in choice with changes in brand-equity valuations for each brand
(Diff_Equity_Brand_A, Diff_Equity_Brand_B), as well as the level of brand equity for
each brand (Post_Equity_Brand_A, Post_Equity_Brand_B). The Diff_Equity score is
the difference in brand-equity evaluation between pre-recall and post-recall for that
brand, while the Post_Equity score is simply the brand-equity score for that brand
measured post-recall. Table 5 shows the results from the binary logistic regression
using these variables.
The percentage of correct predictions for the model is 81%. However, switching
prediction (correct prediction from Brand A to Brand B) is less accurate, with 40%
correct predictions. Although seemingly low, it provides superior prediction than a
raw prediction based on the 24.9% switching from Brand A to Brand B.
The two significant variables in Table 5 are Post_Equity_Brand_B and
Diff_Equity_Brand_A (p-values both <.05). Since the focal brand is Brand B
(i.e. switching to Brand B), both variable coefficients signs are in accordance
with expectations. The higher the post-recall brand-equity evaluation for Brand
B, the more likely initial Brand A choosers will switch to Brand B. (Note
the positive coefficient of .112 for Post_Equity_Brand_B). The negative sign on
Diff_Equity_Brand_A (i.e. .142) suggests that positive changes to Brand As brand
equity between pre- and post-recall periods will decrease the probability of an initial
Brand A chooser switching to Brand B. Conversely, decreases in Brand A brand equity
(possibly due to product recall) will increase the probability of switching (and hence
decrease brand share for Brand A).
The results of both studies provide evidence to support hypothesis H1. Table 4
suggests only two product-recall attributes namely, severity and delay influence
changes in brand equity. This implies that certain product-recall attributes (severity,
delay) can affect brand equity, while other attributes (commtype, repairtime, and
blame) do not. Thus H1 and H3 were supported, while H4, H5, and H6 were
not supported. Table 5 indicates that increases in brand equity for a chosen brand
increase the probability of that brand being chosen and thus decrease the likelihood
of switching. Thus H7 is supported from the evidence.

Discussion
The results of both studies provide evidence to support H1; that is, the greater
the problem severity, the greater the damage to brand equity from a product-recall
incident. Both studies provide evidence to support the prominent fall effect (H2b)
in contrast to the buffer effect hypothesis (H2a) for stronger brands. Overall, this
972 Journal of Marketing Management, Volume 27

suggests that stronger brands have more to lose from product-recall incidents because
expectations are higher for stronger brands relative to weaker brands. Consumers do
not appear to discount the negatives of a product recall because of brand strength.
Study 2 additionally provided evidence showing greater switching away from the
stronger brand (greater loss of market share) relative to switching away from the
weaker brand. This increased likelihood of switching provides more evidence for the
prominent fall effect. These results differ from those of Cleeren et al. (2008), where
the focus was on the post-crisis recovery of the market share (longer term) and did
not include measurement of brand-equity changes and was, in effect, a one-shot case
study (without a control group), which may limit its generalisability. Our study used
a controlled experiment to assess the impact on both brand equity and market share
for varying levels of product-recall characteristics.
The damage to the brand, especially for the stronger brand, is likely to be increased
if the speed of response in handling the product-recall crisis is slow. Evidence
from study 2 supports H3 that a faster response is likely to cause less damage the
brand relative to a delayed response. Delay is likely to backfire ultimately (provided
consumers find out) if consumers form the perception the company does not care for
its customers. Hypotheses 4, 5, and 6 do not seem to be supported from the evidence
of study 2, suggesting sending personal communication, quicker speed of repair, and
external blame for the product recall are not effective tactics that ameliorate the
damage to brand equity.
In terms of managerial implications, decreases in brand-equity evaluations
engendered by the product recall were also reflected in switching away from the
affected brand. This was especially true for the stronger brand. A more complete and
managerially relevant assessment of the impact of product recall needs to incorporate
choice, as well as the impact on brand equity.

Conclusions and recommendations for further research

The two experiments have provided some interesting preliminary results of the
impact of product recall on brand-equity evaluations. The results suggest that brand
equity, in particular for the established strong brand, is impacted negatively by the
product-recall incident, while the less-established brand is not affected in the same
way. These results are inconsistent with results from Cleeren et al. (2008) and
Dawar and Pilluta (2000), which suggest that strong brands are likely to be more
immune to post-recall impacts than weaker brands. Even though our study could have
benefitted from use of a control condition (i.e. no product-recall incident), it does
not necessarily invalidate our findings, since they are based on relative differences in
experimental levels.
The results of our study imply that consumers do not appear to discount
negative product-crisis information from strong brands. Strong brands are expected
to perform consistently and any product-recall situation leads to an erosion of
consumers trust and reassessment of brand and reliability. Consumers may not have
the same high expectations of weaker brands. Managers of strong brands may thus
have more to lose from product recall than managers of weaker brands. In fact,
weaker brands may add to their brand equity if previous low expectations about
brand reliability, trust, and credibility are exceeded through a successful product
 Korkofingas and Ang Product recall, brand equity, and future choice 973

recall. This is corroborated in both studies, and suggests that disconfirmation of

expectations is a stronger theoretical explanation for these results.
With regard to the product-recall characteristics, the seriousness of the problem
and the speed of company action appear to be the significant drivers of brand-
equity re-evaluation. In these studies, Brand A (the stronger brand) in particular
was penalised for a tardy response in informing consumers of the product recall.
The seriousness of the problem was also relevant; consumers downgraded their
evaluation of brand equity for Brand A when the problem involved perceived harm
to the consumer (toxic paint flakes) relative to the benign paint flaking (study 2).
Further, the difference in brand equity between pre- and post-recall circumstances
was important in explaining switching behaviour. The implication for managers is
that any delays in dealing with the product recall and serious product-recall problems
can have damaging brand-equity consequences and hence lead to lower future market
shares.
These studies represent a preliminary step in exploring the use of designed
factorial experiments incorporating choice to evaluate the impact of product-recall
experiences on brand equity and switching behaviour. There are a number of
limitations to this study that naturally provide scope for further research; there may
be a confound between brand equity and brand familiarity. However, given the nature
of the prepost experimental design where respondents were exposed to both brands
twice, it may be problematic to measure familiarity reliably. The particular product
attributes were limited for this experiment and more-realistic experiments could
expand initial product profiles and number of choices. Additionally, the number of
levels for product-recall attributes can be expanded for generalised results. Problem
severity could be modified to include problems that may affect the functionality of
the product. The impact of product recall may be different across different types
of product categories so investigation of different categories is needed. The impact
of product recall on brand equity may also be gradual and not be reflected in a
simple two-period choice simulation. A simulation involving multi-period choices
with possible information acceleration may provide useful insights. This multi-period
investigation could incorporate word-of-mouth effects for enhanced validity. Given
these were preliminary studies, smaller than desirable samples were used. Stronger
results may be achieved with larger sample sizes giving more repetitions of specific
recall attribute combinations. Additionally, larger samples would allow analysis of
whether responses to product-recall incidents differ across respondents who chose
strong brands and those who chose the weaker brand. Further, focus on brand-equity
variability measures may provide worthwhile avenues for research.

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 Korkofingas and Ang Product recall, brand equity, and future choice 975

Appendix 1. Product-recall notice shown to respondents

(personalised e-mail example)

To: Dear Valued Customer

Subject: Product Recall of Mp3 player
PRODUCT RECALL NOTICE
In an ongoing effort to ensure that our company offers quality products, we are
conducting a voluntary product recall of our 8 Gb model MP3 players
The Product: 8 Gb MP3 player
Defect Details: There is a potential problem with flaking of the paint coating
from the casing of the MP3 player. The problem occurred due to a recent batch
of faulty paint from an external supplier. The flakes are non-toxic with no health
consequences from continued contact.
Consumer Action: Return the player to your nearest service centre for the defect
to be repaired and returned on the same day.
For further information please call 1800 800 700

Yours sincerely
John Smith, Relationship Manager

About the authors

Con Korkofingas is a lecturer at Macquarie University, Sydney, Australia. He teaches a number
of quantitative marketing subjects and researches in the area of customer satisfaction and
forecasting. He is interested in cosmology, philosophy, sports, and overseas travel.
Corresponding author: Con Korkofingas, Department of Business, Division of Economics
and Finance, Macquarie University, Sydney, NSW 2109, Australia.
T +61 (02) 0985 8545
E ckorkof@efs.mq.edu.au
Lawrence Ang is an associate professor at the Macquarie University, Sydney, Australia. He
teaches a number of marketing subjects and researches in the area of advertising and customer
relationship management. He loves fine food and wine and pretends he can cook.
T +61 (02) 0985 9135
E lawrence.ang@mq.edu.au
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