The latest enterprise risk management news from around the world

How reputation risks can spill over…

When a major car manufacturer recalls one of its models, the news spreads all over social media, with most consumers bad-mouthing the recalled model. But it turns out that the bad-mouthing is not limited to the offending vehicles. According to a new study in the Journal of Marketing Research, much of the negative chatter extends or ‘spills over’ to rival models, bringing their brands into question during the process.

"We find that as much as three-quarters of the negative online chatter is shared with other brands," write the authors of the study, Abhishek Borah (University of Washington) and Gerard J. Tellis (University of Southern California). "In other words, there is what we call a 'perverse halo' effect. Rather than rival brands looking good by comparison, bad press about the recalled brand quickly becomes bad press about rival brands."

The authors constructed a dataset of online chatter about forty-eight recalled models made by four automobile manufacturers: Toyota, Honda, Nissan, and Chrysler. The recalls occurred between January 2009 and April 2010. That period saw a high number of recalls (in 2010 alone, more than 20 million vehicles were recalled) and coincided with the highly publicized recall of Toyotas that spontaneously accelerated.

The authors found that the rival bad press, among other things, reduces sales overall, with a 1 percent increase in negative chatter about a rival brand leading to a monthly loss in sales revenue of $3.8 million for the recalled brand.

"Firms should keep an eye on a rival's recalls. Negative chatter about one brand spills over into negative chatter about another brand, and this effect gets aggravated for brands from the same country and size as the recalled brand. So, we speculate that as soon as a rival has a recall, firms should lie low and avoid comparisons with firms undergoing a recall crisis, thereby minimizing perverse halo effects or negative spill overs," Borah and Tellis write.

The paper, ‘Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?’ is by Abhishek Borah and Gerard J. Tellis.


Want news and features emailed to you?

Signup to our free newsletters and never miss a story.

A website you can trust

The entire Continuity Central website is scanned daily by Sucuri to ensure that no malware exists within the site. This means that you can browse with complete confidence.

Business continuity?

Business continuity can be defined as 'the processes, procedures, decisions and activities to ensure that an organization can continue to function through an operational interruption'. Read more about the basics of business continuity here.

Get the latest news and information sent to you by email

Continuity Central provides a number of free newsletters which are distributed by email. To subscribe click here.