Many people will show their love this Valentine’s Day with a gift of jewelry or chocolate, but others will decide their warm, fuzzy feelings are best expressed through the glow of their favorite consumer product. Companies will enjoy seeing their merchandise fly off the shelves and make people happy. But what should a company do when that success – and the millions of uses that may come with it – suggests a product may pose an unforeseen risk?
A survey by the Relational Capital Group found that 91 percent of consumers understand that any company – no matter how well run – may experience a consumer product recall. And the reality is that companies cannot avoid every potential risk, especially when they deal with a wide range of audiences and consumer products. Thus, managing recall risk is as much about responding to them properly as it is to focus on prevention.
This is the first of our three-post series on managing product recalls. Here, we will outline what companies can do to prevent or plan for a potential recall. Our next two posts will address what companies should consider doing during and then after a recall.
There are several ways companies can reduce the risk of a recall.
- Pay close and consistent attention to consumer safety regulations and standards. By using consumer regulation standards as guides, companies can actively ensure that products are being safely produced, maintained, and distributed. The American National Standards Institute puts out industry standards, which, along with the company’s own record of past consumer complaints, may serve as a starting point in identifying potential problems. A product that does comply with safety standards is less likely to be blamed for an unfortunate incident; a product that does not comply with safety standards often has no defense at all.
- Develop a basic response plan. Although a company cannot plan for every possible recall scenario, it can plan the basics. Advance planning helps a company act fast if a recall occurs. This means designating a recall team and chain of command. A recall team should consider having a public-facing supervisor to serve as the face of the recall campaign. This same individual should also try to be the face of the company in other contexts, such as litigation defense and company representative testimony. And the person does not always have to be an engineer. In 2006, for example, Dell’s spokesperson took responsibility for exploding PC batteries even though Dell did not manufacture the batteries. His role and actions have been widely credited for allowing Dell to respond more accurately and rapidly to consumers.
- Communicate and establish relationships throughout the supply chain. This ensures that people at every level of product development and manufacturing are complying with the rules. A recall plan can only be effective if a company is suitably informed about every layer of the supply chain, from the largest component down to the nuts and bolts. Samsung faced a publicized delay in its Note 7 recall after it could not determine why its phones were exploding, a problem that might have been less significant had it communicated more regularly with each layer of its supply chain and been able to identify the problem more quickly.
- Establish an internal data management system. The recall team can use this to track goals and ensure effective communication throughout the recall. It should set an end goal for the recall – how many, or what percentage of, units does the company hope to repair or replace? This question is different for each industry. In the juvenile industry, for example, products are often used for only a brief time. Thus, recall response rates of 10 percent or less are common and may approximate the ceiling for success. In other industries, products are expected to last longer and often are used continuously. Here, a response rate approaching or even exceeding 50 percent has been known to happen. Previous recalls usually result in forms that track the number of units corrected. If you are unsure about the standard in your industry, compile a list of relevant recalls to your business, and use the Freedom of Information Act to request copies of the periodic correction reports filed with the responsible agency by the recalling party.
- Establish a clear chain of command. When responding to a recall is everyone’s responsibility, it is no one’s responsibility. Somebody has to be a decision-maker, and that person has to either be an executive with authority or have a direct line to an executive who does have authority. The data management system should include contact information for key players of the recall team – available both internally at the company and externally to affected consumers – so consumers can contact the team and the team can communicate within the company.
- Have a functional social media presence. Social media is one way companies can share their contact information. Last year, we posted about how consumers responded to the much-anticipated Hatchimals toy on social media after it failed to work as advertised. Spin Master, the Hatchimals manufacturer, also took to social media to respond to the complaints. It informed consumers that it had dedicated a separate consumer response team to take care of them, which showed that it cared about consumer concerns and was up for fixing the problem as quickly as possible.
- Have a plan for dealing with retailers. It is illegal to sell a product subject to a CPSC recall in the United States. Retailers with even a hint of a potential issue will often stop sale on a product; suppliers must recognize this, and provide clear guidance on what the problem is, how existing product will be taken back, and how improved product will take its place. Companies that lack a plan for retailer recall management can do fatal damage to a retail relationship, to the long-term detriment of the company.
Finally, companies can take additional concrete steps to plan for a recall. These include establishing relationships with media partners for crisis management, labeling products to enable tracking, and purchasing recall insurance. Recall insurance reimburses companies for financial losses sustained during the recall process, although its value proposition depends on your business model and your assessment of the recall risks. It can also help reimburse logistical expense and even help you find good recall providers.
Companies can also conduct mock recalls. Mock recalls ensure that recall team members understand their specific roles and that the company’s communication plan will reach the intended audience quickly and effectively. It has been estimated that less than 10 percent of companies actually practice carrying out their recall plans, so companies that conduct mock recalls are already ahead.
No one wants a recall to happen, but by following some of these steps, companies can be more prepared to mitigate the impact of one.