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The moderating effects of prior trust on consumer responses to firm failures

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  • Raju, Sekar
  • Rajagopal, Priyali
  • Murdock, Mitchel R.

Abstract

Our paper examines how prior trust moderates consumer and firm responses to a firm's failures. We document that relatively high prior trust in a firm can help firms better recover from the negative effects of denying versus accepting failures, but that trust offers greater protection against competence as compared to ethical failures. We also consider the effects of two responses to ethical failures - external attribution and monetary compensation - and demonstrate that these responses may be viable alternatives that yield consumer perceptions that are as favorable as denying ethical failures. Finally, we show that reticence - neither confirming nor disconfirming a failure -elicits the least favorable post-recovery consumer responses. Our findings suggest that it may be possible for a firm to recover from an ethical failure even after accepting the failure, which is an important contribution since little prior research supports a successful recovery from ethical failures.

Suggested Citation

  • Raju, Sekar & Rajagopal, Priyali & Murdock, Mitchel R., 2021. "The moderating effects of prior trust on consumer responses to firm failures," Journal of Business Research, Elsevier, vol. 122(C), pages 24-37.
    • Handle: RePEc:eee:jbrese:v:122:y:2021:i:c:p:24-37
    DOI: 10.1016/j.jbusres.2020.08.059
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    2. Palmeira, Mauricio & Hartmann, Nathaniel N. & Chan, Eugene & Sekar, Samuel B., 2023. "Don’t blame the powerless: The impact of hierarchy on reactions to responses to ethical scandals," Journal of Business Research, Elsevier, vol. 165(C).
    3. Lord Ferguson, Sarah & Smith, Claudia & Kietzmann, Jan, 2022. "Hands-off? Lessons from high-touch professionals about going virtual," Business Horizons, Elsevier, vol. 65(3), pages 303-313.
    4. Kuang, Di & Ma, Baolong & Wang, Hong, 2022. "The relative impact of advertising and referral reward programs on the post-consumption evaluations in the context of service failure," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).

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