Steps firms can take to recover from product recall

Steps firms can take to recover from product recall

A product recall can significantly affect a company’s bottom line and its reputation, but a swift recall and restitution to purchasers can minimize harm to the company – and even improve customer satisfaction.

A study examining more than 500 toy recalls between 1988 and 2007 suggests ways that firms can minimize the business impact of a recall. The results of the study, conducted by researchers at the Georgia Institute of Technology and the University of Manitoba, were described on May 2 at the Annual Conference of the Production and Operations Management Society.

This research was funded by the Social Sciences and Humanities Research Council of Canada. “Recalls undermine trust in a specific brand and it can take the company a long time to recover from the damage to its reputation, but it doesn’t have to take a long time if the company uses good crisis management tactics,” said Manpreet Hora, an assistant professor in Georgia Tech’s College of Management.

“Reducing the time it takes to recall a product will have a positive effect on consumers’ willingness to purchase other products from the same company and if the recall is handled well, the stock price may recover to the same level as before the incident.”

The best example of how to deal with a product recall is the Tylenol tampering case in the 1980s. Johnson & Johnson demonstrated that the safety of consumers was paramount by swiftly recalling the product, cooperating fully with regulators, and communicating openly about the issue, the researchers noted.

Subsequently, the firm undertook a series of operational and design measures to ensure that such tampering would not occur again.

According to Hora and Hari Bapuji, an assistant professor at the University of Manitoba, effective recovery from a product recall begins with the way in which the company announces the recall.

The firm should engage the public and immediately disclose all relevant recall and replacement information as soon as possible.

Even if the recall was the result of a purchasing, out-sourcing or off-shoring decision, the company should take shared responsibility for the error, the researchers say.

“Consumers are forgiving, so if a firm apologizes, acknowledges the problem, and doesn’t make the mistake again and again, consumers will continue to be loyal to that brand,” said Hora.

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