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Promotions as competitive reactions to recalls and their consequences

  • Chen Zhou
  • Shrihari Sridhar
  • Rafael Becerril-Arreola
  • Tony Haitao Cui
  • Yan Dong
Original Empirical Research
  • 17 Downloads

Abstract

Firms may profit from responding to competitors’ product recalls, but relatively little is known about the nature and efficacy of these reactions. The authors empirically (1) test the link between a major recall (by Toyota) in the automobile context and competitors’ promotional responses and (2) assess the effectiveness of promotional responses and how it varies across brand tiers. They find that though Toyota recalls induced competitive promotions of approximately $850 on average, the competitive promotional reactions did not significantly affect sales on average. However, the results differ substantially by brand tiers. While 50% of premium brands increased promotions, only 36% of nonpremium brands did so. Among premium brands, 86% benefited from promotional reactions; in contrast, the effects of promotions on sales were nonsignificant or even negative for most nonpremium brands. These findings suggest that well-established results on promotional behaviors and their effectiveness may not hold in the context of recalls.

Keywords

Product recalls Competitive reactions Promotions Quasi experiments 

Notes

Acknowledgements

The authors thank the Darla Moore School of Business for financial support. They also thank Gary Lilien, Marnik Dekimpe, Venkatesh Shankar, Linli Xu, Yi Zhu, Seshadri Tirunillai, Cem Ozturk, Fue Zeng, and participants at the Marketing Science Conference 2016 for their valuable comments.

Supplementary material

11747_2018_611_MOESM1_ESM.docx (535 kb)
ESM 1 (DOCX 535 kb)

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Copyright information

© Academy of Marketing Science 2018

Authors and Affiliations

  1. 1.Darla Moore School of BusinessUniversity of South CarolinaColumbiaUSA
  2. 2.Mays Business SchoolTexas A&M UniversityCollege StationUSA
  3. 3.Carlson School of ManagementUniversity of MinnesotaMinneapolisUSA

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