Another car recalled? Online press can be bad news for rivals

"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% 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 spillovers," Borah and Tellis write.