Impact Of Product Recall On Perceptions Of Consumers Marketing Essay

Product recall is the process where the company acquires defective products from consumers and provides them compensation. Product recall arises whenever there is a safety issue regarding the manufacturing defect in a product that may possibly harm its user (Investopedia, 2010).

Companies are increasingly being aware of the fact that product recall can have an adverse effect in their day-to-day operations. Past examples show that many companies have failed to protect its reputation and some have handled it quite well. Johnson & Johnson’s handling of the Tylenol case in 1982 is considered by many as a good example of crisis management. It was the serious case of cyanide poison in the product. But the way they handled public relations is praised by many. Similarly, in the case of Perrier bottled water in 1990, the situation was quite opposite. The product was recalled due to traces of benzene. The flow of unclear message to the public led to serious consequences and hence damaging the company’s reputation. (Smith, 2010)

When products are found to be below standard quality (according to standards set by federal agencies) or pose a serious threat to a consumers’ well- being, then the product has to be recalled. Product recall starts when the defect is found by the manufacturer, distributor, importer, retailer, an end user or a federal agency. In this case either the company acts quickly and recalls the good or is pressured by federal agency or it may be both the conditions. (Magno et al, 2010)

There are numerous occasions of product recall resulting to the financial loss as well as loss of market share and serious damage to brand image. The outcome is serious and hence this field has generated small amount of interest for systematic research. The objective of this research proposal is to observe the impact of product recall on future buying behaviour of consumers and their perception of the brand image. There have been various discussions in this topic. Case studies regarding the recall, the responses and the consequences have generated interests of many researchers in this area. Several researches have been undertaken. These above incidents build a base for this particular research proposal.

Some previous studies by Smith et al. (1996) indicate previous recall experiences to provide as a standard for managerial actions during recall situations. Also further study observes impacts of product recall such as on company stock price. A study by Dawar and Pilutla (2000) observed that in product recall situations, if the companies did not act responsibly then the effect will be seen in brand equity which will decrease. Also, the consumers’ level of commitment has a huge moderating influence on possible change in attitude towards the brand (Ahluwalia et al, 2000). This shows that the company is less vulnerable to negative publicity if there is presence of higher consumer commitment to a brand. These studies also prioritize the significance of companies getting ready or prepared to face and deal with product recalls. Each and every company should have their own plan and implementation strategies to manage such crisis. (Magno et al, 2010)

Product recall always pose a serious threat to manufacturers as they can damage the corporate reputation, profitability and brand integrity. Hartman (1987) categorises product recalls into three different types, based on the stock percentage involved in the crisis:

Major Recall: over 20% of the stock of model recalled,

Medium Recall: between 10% and 20% of the stock of model recalled,

Minor Recall: less than 10% recalled.

In product recall a firm has to bear direct costs (notification costs and costs to correct defects) and indirect costs (damage to brand equity, lower profits, etc.)

Therefore, past cases of product recalls determine that success or failure of a product crisis management is heavily influenced by:

Public relations (especially with the media): Media plays a huge role in conveying positive and negative messages to the consumers.

Firm’s reputation: Companies with high reputation may be less vulnerable to negative consequences.

Crisis response: Accepting or denying responsibility of the crisis has a major influence on the crisis situation as well as the brand image and reputation. Open communication will help in generating trust among media and consumers. Being transparent in what-is-to-be-done and what the company is doing will matter the most. (Magno et al, 2010)

Industry Background

While many companies have been facing the continuous challenge of product recall, it has also been hard for consumers. Due to the news of recurring recalls all over the world, the question of consumer brand loyalty arises. Product recall is a disaster for the firm and its stakeholders because it will cost them time and money as well as the company reputation and brand image will be affected. In the light of this statement, it is difficult to understand consumers’ perceptions during and after product recall. Therefore, the objective of this research is to find out what and how the consumer thinks and behaves during and after the crisis.

Upon successful completion, this research might be helpful in further study in the subject matter. It might help firms understand the consumers’ perception and behaviour during and after product recall. It might also help firms to analyse and plan for future crisis situations and crisis prevention.

Research aim, hypotheses and objectives

The aim of this research is to understand how a consumer thinks or behaves after a product recall. The perception can be positive as well as negative. It also tries to find out consumers’ level of trust after product recall. This research can also act as a basis for companies who are planning to formulate crisis management plan.

Hypotheses

The research will look upon the following hypotheses:

Consumers’ perception is positively related to their behaviour toward the company after recall, if the company has managed the recall situation in a responsible and sensible way.

Consumers’ perception is negatively related to their behaviour toward the company after recall, if the company has managed the recall situation in an opportunistic way.

Objectives

To determine the adverse as well as the positive outcomes after product recall.

To analyse the importance of public relations.

To analyse the consumers’ buying behaviour after product recall.

To analyse the brand loyalty and awareness in consumers after product recall.

Research Methodology

There are many instances of product recall in the United Kingdom. From past news, books, journal, internet and observations, it has been found that many company both domestic and multinational have recalled their product from within the UK. It has had adverse effects on many companies’ brand image as well as many companies have handled the crisis well.

The sources of data for this research will be from various sources both primary and secondary source. Books, journals, internet, databases, archives, interviews, observations, reports and records will be consulted. I am hopeful that I am able to access all the relevant data which is required for my study. I have considered a provision of 2 weeks in case of unexpected delays during my study.

Face-to-face and telephone interviews will be conducted because the data generated from these sources will presumably have less deviations. Different age groups will be approached for consultation. A list of questionnaires will be provided to targeted consumers. Financial statements of companies will be consulted to analyse the deviation in the past few years before and after product recall. I think approaching retail stores such as ASDA, Sainsbury’s, TESCO, PC World, Currys and other major shops will prove helpful in my study. Small businesses will also prove very helpful in collection of data. Field surveys will definitely be an important part of this study. Different age group can be approached for personal interviews. My main area of data collection will be Central London because it is the heart of commercialisation.

The information generated from various resources will be analysed and calculated using appropriate mathematical tools. The end result will be shown in tables, graphs and charts to encourage easy understanding of information, although deviations will be present since the process of Sampling will be used while collecting data keeping in mind the availability of time. The research design of this study is descriptive as well as analytical. The conclusion will be both inductive and deductive in nature because this research requires logical reasoning based on observations.

To ensure validity and reliability, the research focuses on checking the authenticity of the source of data before using it. Data and information which are not from reliable source will not be observed upon. The research will also use recommended Harvard Referencing style used in the body of text as well as in the end of the document.

The Research Aim, Hypotheses and Objectives all come under the same research topic and they help create a strong base for the completion of the research. The contents in all of the three headings are all linked with each other because the findings in any one of the three headings will help in completing the next one. Or it can also be said that one door leads to the next one.

The resources needed to complete this research are money, data, technology and time. This research needs financial support as the work will include travelling, use of communication tools such as telephone and mobile for queries and telephone interviews. Data can be accessed primarily as well as secondarily. A Laptop or PC with internet connection is needed for the successful completion of the research. There are printing costs and also binding costs involved.

Having looked at all of the factors, it is favourable for me that I will complete the research on time.