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Impact of Product Recalls Examined in Auto Industry

While product recalls are frequent in the automobile industry, some firms have questioned their merits. To assess the value of product recalls, Dr. Meike Eilert, assistant professor of marketing in the College of Business Administration, and colleagues examined the role of product recalls as a catalyst to stimulate organizational learning. The authors also studied whether and when product recalls resulted in a reduction of future accidents and recalls to evaluate the value of product recalls.

“Although the goal of a product recall program is to enhance safety, little is known about whether firms learn from product recalls,” Eilert said. “This study tests the direct effect of product recalls on future accidents and future recall frequency and their indirect effect through future product reliability in the automobile industry.”

Meike Eilert

Dr. Eilert teaching marketing students

Eilert and her colleagues analyzed 459 make/year observations involving 27 automobile makers between 1995 and 2011. The authors found product recalls can indeed impact organizational learning and lead to improvements in product reliability which reduces the number of accidents and recalls in the future. However, not all firms learn equally well from product recalls.

“The findings suggest that increases in recall magnitude lead to decreases in future number of injuries and recalls,” she explained. “This effect, in turn, is partially mediated by future changes in product reliability. Interestingly, this study also finds learning is more likely to occur for brands of lower quality than higher quality.”

This research enhances the understanding of the value that product recalls provide to firms and public safety in general. The value of product recalls lie in curbing a company’s desire to grow at the expense of quality as growth and product quality are rarely lock-in-step.

“The Impact of Product Recalls on Future Product Reliability and Future Accidents: Evidence from the Automobile Industry” was published in the Journal of Marketing in 2013. Coauthors of this study include Kartik Kalaignanam of the University of South Carolina and Tarun Kushwaha of the University of North Carolina.
Published: January 22, 2015