The effects of brand equity and failure severity on remedy choice after a product recall

Purpose: There is limited insight concerning a firm’s remedy choice after a product recall. This study aims to propose that failure severity and brand equity are key antecedents of remedy choice and provides empirical evidence for a non-linear relationship between pre-recall brand equity and the firm’s remedy offer that is moderated by severity. Design/methodology/approach: This study uses field data for 159 product recalls from 60 brands between January 2008 to February 2020 to estimate a probit model of the effects of failure severity, pre-recall brand equity and remedy choice. Findings: Firms with higher and lower pre-recall brand equity are less likely to offer full (vs partial) remedy compared to medium level pre-recall brand equity firms. Failure severity moderates this relationship positively, i.e. firms with low and high brand equity are more sensitive to failure severity and then select full instead of partial remedy. Research limitations/implications: This research reconciles contradictory arguments and research results about failure severity as an antecedent of remedy choice by introducing brand equity as another key variable. Future research could examine the psychological process of managerial decision-making through experiments. Practical implications: This study increases the awareness of the importance of remedy choice during product-harm crises and can help firms and regulators to better understand managerial decision-making mechanisms (and fallacies) during a product-harm crisis. Originality/value: This study theoretically and empirically advances the limited literature on managerial decision-making in response to product recalls.