In their quest for excellence, many companies try to amaze their customers with superior products and even better service. More than a few have extended that philosophy to their crisis planning, offering free products, cash, generous coupons and other compensation to atone for the inconvenience consumers suffer in a product recall.
But a new study conducted by University of Connecticut marketing professor Stefan Hock finds companies that over-compensate customers in a product-recall crisis may actually be “creating unintended negative consequences and damaging their reputation.”
Hock’s study, titled “The Crisis-Response Match: An Empirical Investigation,” highlights the importance of selecting a crisis response that aligns with the degree of severity of a product recall.
“While attempting to exceed expectations may seem like a favorable decision, it can be counterproductive, both in the eyes of customers and shareholders,” Hock notes. According to Hock, this is likely because consumers become suspicious and wonder if the company is hiding something or if the problem is much more severe than expected.
The research, which was tested on approximately 600 people through a fabricated scenario, found that ratings took a “significant dip” when the manufacturer offered either “overly-generous” or “stingy” compensation. All in all, the study found the best response is “well-matched to the situation and involves accepting the appropriate amount of responsibility.”
The study also found that if the recall was the result of a supplier error, not the product manufacturer, research participants were far less likely to hold the recalling company responsible.
The discoveries of Hock’s research are crucial for companies and manufacturers across all industries to consider for two reasons:
- It gives companies a better understanding of consumers. It offers insight into consumer behaviors, reactions, and preferences when it comes to the way you handle a recall. Taking these new findings into account when developing a recall crisis plan will allow you to carry out more effective recalls that will further appeal to your consumers, maintaining their trust. As a result, companies can mitigate the reputational damage of recalls and preserve brand loyalty among their consumers.
- It’s a reminder that a recall is complicated, and its severity is critical to a crisis plan. Not all recalls are equal, and the way you manage one truly matters in the eyes of your consumers. Recalls can range from an inconvenience of a product that doesn’t work to a life-threatening defect. That’s why the severity of it should be taken into account in the planning stages of your crisis plan and when determining compensation.
If you find your company facing a recall and want to succeed in this competitive environment, you must consider how your actions will affect consumers’ thoughts and feelings about your brand. Neither over or under compensating consumers will serve you well. But finding the right balance based on the individual recall’s severity will.