Impact Of Product Recall On Brand Equity

One year after Toyota broke the hegemonic position of GM for 70 years and became the biggest automobile manufacturer of the whole world in 2008, it was mired in the "Recall Scandal", suffering tremendous economic losses and crisis of confidence, meanwhile faced with its main competitors'counter-attacking, which made it utterly isolated. According to the 2010 Global best brand top 100 list the Interbrand published, Toyota's brand equity fell by 16% because of the "Recall Scandal", from 3,133,000,000$ in 2009 down to 2,619,000,000$. However, in the 1990s, Chrysler disconnected the endometers from its new vehicles during factory tests. When the news became public, Chrysler's brand equity increased by 20%. Both were product recalls, but their brand equity went in a different way. Thus, what's relationship between product recall strategies and brand equity?Based on the analysis of cases, this paper tries to resolve the above question by the relevant former research. First, this paper reviews the definition of product recall and its strategies as well as its influence, and also reviews the connotation, dimensions and measurement of the customer-based brand equity. Second, by case study of the Toyota's "Recall Scandal" Vs. Honda's recall(2002), Toyota's recall history, Firestone's recall and SanLu milk powder, it proposes hypotheses about the influence of product recall strategies on brand equity and the moderating effect of consumers'prior expectations. Last, it tests these research hypotheses using methods of experiment and survey, and finds that the positive influence of super effort strategy on brand equity is significant, and no moderating effect of customers'prior expectations; that when consumers'prior expectations are strong, voluntary recall strategy promotes brand equity of the firm faced with a potential recall, but when the consumers'prior expectations are weak, the result is just the opposite; that involuntary recall strategy lessens the brand equity of the firm faced with a potential recall less when consumers'prior expectations are strong than when weak; that whatever the consumers'prior expectations are strong or weak, denying the defect negatively affects the brand equity of the firm faced a potential recall significantly, and no moderating effect of customers'prior expectations.This paper recommends that companies should take the initiative of social responsibility, and then establish more positive consumers'prior expectations; when faced with a potential product recall, they must make a clear and positive recall strategy to maintain consumers'trust; Then, they need to accomplish the recall as soon as possible, completely eliminate security risks to obtain the consumer's understanding with sincerity. This paper has two main innovations:(1) based on actual cases, by the relevant former research, it discusses the influence of product recall strategies on brand equity; (2) and tests the moderating effect of consumers'prior expectations for the first time.