Halo (Spillover) Effects in Social Media: Do Product Recalls of One Brand Hurt or Help Rival Brands?

Abstract

Online chatter is important because it is spontaneous, passionate, information rich, granular, and live. Thus, it can forewarn and be diagnostic about potential problems with automobile models, known as nameplates. The authors define “perverse halo” (or negative spillover) as the phenomenon whereby negative chatter about one nameplate increases negative chatter for another nameplate. The authors test the existence of such a perverse halo for 48 nameplates from four different brands during a series of automobile recalls. The analysis is by individual and panel vector autoregressive models. The study finds that perverse halo is extensive. It occurs for nameplates within the same brand across segments and across brands within segments. It is strongest between brands of the same country. Perverse halo is asymmetric, being stronger from a dominant brand to a less dominant brand than vice versa. Apology advertising about recalls has harmful effects on both the recalled brand and its rivals. Furthermore, these halo effects affect downstream performance metrics such as sales and stock market performance. Online chatter amplifies the negative effect of recalls on downstream sales by about 4.5 times.