ama.

org

https://www.ama.org/publications/JournalOfMarketingResearch/Pages/halo-effects-in-social-media.aspx

Halo (Spillover) Effects in Social Media: Do Product Recalls of

One Brand Hurt or Help Rival Brands?
Key Takeaways
We analyzed daily traffic, topic, and sentiment on more than
1,000 automotive websites following recall announcements
for about 16 months.
A recall event increased negative chatter for innocent
competitors of the same country and had damaging effects
on their sales and stock market performance.
Online chatter amplifies the negative effect of recalls on
sales nearly 4.5 times.
We examine whether a focal firms product recall has a
perverse halo of negative online chatter for
competitors, which then damages those competitors
sales and stock market performance.
Perverse halo is extensive, and it occurs for nameplates within the same brand across segments and across
brands within segments.
Online chatter amplifies the negative effect of recalls on downstream sales by about 4.5 times.
Research
Product recalls damage a firms reputation, trust, and brand equity with consumers and lead to losses in sales and
market value. However, prior research on the effect of recalls on rival brands is very scarce. No prior research has
focused on the effect of recalls on online chatter about rival brands and whether the negative chatter about the rival
leads to damaging effects on their sales and stock market performance. Main hypothesis: Does negative chatter
about one brand increases negative chatter about an innocent rival and thereby decrease its sales and stock market
performance.
Method
We analyzed daily traffic, topic, and sentiment on more than 1,000 automotive websites following recall
announcements for 48 car models over a period of about 16 months. The car models belonged to the following
brands: Toyota, Honda, Nissan, and Chrysler. Using time-series models, we analyzed the following:
Whether negative chatter about one car model due to its recall increased negative chatter about another car
model and if this increased negative chatter led to decreases in sales and stock market performance.
If apology advertising about a recall by the recalled brand affected negative chatter for the recalled brand
and its rivals.
The word-of-mouth multiplier effect of recall on sales.

1/4

Findings
Perverse halo, a phenomenon whereby negative chatter about one car model increases negative chatter about
another car model, is extensive. Only 26%33% of effect of negative chatter is truly brand-specific, and within a
brand 56% 91% of effect of the negative chatter is shared among its car models. The direction of the perverse halo
is asymmetricthat is, it is stronger from the dominant brand to a less dominant brand. Perverse halo is strongest
between brands of same country. It also affects a rivals sales and stock market performance. Finally, online chatter
amplifies the negative effect of recalls on sales nearly 4.5 times, and apology advertising about recalls hurts a
recalled brand and its rivals.

Figure 1: Effect of Negative Chatter about Product

Recall on Toyota Stock Returns

This figure illustrates the results of the effect

of Toyotas, Hondas and Nissans concerns
on Toyotas abnormal returns. We find that a
one-unit shock in Hondas concerns has a
significant and negative impact on Toyotas
abnormal returns with an accumulated effect
of -18 basis points. In dollar terms, this drop
translates into a loss of about $7.3 million
from Toyotas average market capitalization.

2/4

Figure 2: Perverse Halo Between Japanese Brands

This figure shows the perverse halo among Toyota, Honda, and Nissan. We find a
considerable three-way perverse halo (26%) among the three Japanese car brands. We find
the highest two-way perverse halo between Toyota and Honda (50%) and Honda and Nissan
(50%), followed by Toyota and Nissan (43%). Most importantly, we find that for each brand,
exclusivity (i.e., isolation from all perverse halo) is rather low at only 26% for Honda and 33%
for both Toyota and Nissan. That is, only 26%33% of the effect of negative chatter is truly
brand-specific
Implications
First, recalled firms need to consider apology ads carefully because such ads can backfire, as they may increase
attention to and elaboration about the crisis. Second, firms from the same country and of the same size should keep
an eye on a rivals recall events. Third, firms from a different country and of a different size could emphasize their
strengths and unique qualities relative to the recalled firm. Finally, the recalled firm needs to monitor and manage
online chatter. We find that the negative effect of the focal car models recall event on its own sales gets amplified
nearly 4.5 times due to recall chatter of both the focal and the rival car model.
Questions/Exercises for the Classroom
Does negative online chatter of one brand spill over into negative online chatter of another brand? (Use
Twitter or other social media sites to check and analyze the sentiment of 3-4 tweets that discuss rival brands
when a firm has product recall)
Does negative online chatter of one brand spill over into negative online chatter of another brand? Will same
country brands get affected more? (Use Twitter to check and analyze the sentiment of 3-4 tweets that discuss
rival brands of same and another country when a firm has product recall)
What is the effect of apology advertising about recalls on the online chatter of the recalled brand and its
rivals? (Analyze advertisements that are shown during recalls by a recalled brand. What are your perceptions
about recalled brand and its rivals?)
Full Article
Abhishek Borah and Gerard J. Tellis (2016), "Halo (Spillover) Effects in Social Media: Do Product Recalls of One
Brand Hurt or Help Rival Brands?" Journal of Marketing Research, 53 (2), pp. 143-160.
doi: http://dx.doi.org/10.1509/jmr.13.0009

Abhishek Borah is Assistant Professor of Marketing, Foster School of Business, University of

Washington (e-mail: abhi7@uw.edu).

3/4

Gerard J. Tellis is Professor of Marketing and Management & Organization, Director of the Center for
Global Innovation, and Neely Chair of American Enterprise, Marshall School of Business, University
of Southern California (e-mail: tellis@usc.edu).

4/4