The impact of product-harm crises on customer acquisition and retention: The role of marketing instruments

Gawrisch, Katharina ; Schreiner, Thomas ; Stahl, Florian

(e.g. translator, editor)
Dekimpe, Marnik
Document Type: Conference presentation
Year of publication: 2019
Conference title: 2019 INFORMS 41st Annual ISMS Marketing Science Conference
Location of the conference venue: Roma, Italy
Date of the conference: 20.-22.06.2019
Publication language: English
Institution: Business School > Quantitatives Marketing und Konsumentenverhalten (Stahl 2013-)
Subject: 330 Economics
Abstract: The last two decades have witnessed a dramatic increase in the number of product-harm crises. Consequently, the differential impact of such scandals on the market shares of brands and companies is of great interest to academics and particularly to practitioners. In this paper, we study how product recalls affect customer acquisition and customer retention – two key components of customer lifetime value (CLV) – in the U.S. automotive industry. We use NHTSA data on about 13,000 recalls of automobiles during 2000–2008 and actual purchase and brand switching data on more than 700 car models of 39 major brands. Further, this research addresses the role of marketing instruments (pricing, advertising expenditures, distribution intensity, and product quality) in shaping the effects of product-harm crises. We estimate a multinomial logit market-share-attraction model while correcting for potential endogeneity. We find that customer acquisition is hit far less hard by performance failures than customer retention. However, prospects appear to be more price sensitive in the context of a product-harm crisis than existing customers. Moreover, in line with the expectancy violation effect, prospects may react more negatively to recalls of products associated with a higher quality. Finally, the authors identify marketing instruments to mitigate the effects of product-harm crises, e.g., the results show that advertising is effective to attenuate the negative consequences of a product recall on customer acquisition/retention.

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