Don’t lose your customer during a product recall

We are in the middle of the largest recall of Toyota cars that we have seen in a lifetime, which currently stands at over 8 million and counting. For years, U.S. automakers have been the ones fighting a reputation for being less reliable than their Japanese counterparts, with the best-known recalls generally involving U.S. cars such as Ford Explorers with tire problems. While its competition is enjoying some schadenfreude, Toyota is using every means including Youtube to help rebuild the trust with customers. The latest recall involving jammed accelerators may ironically mean brakes being applied to the growth of the world’s largest car maker. During a speech in autumn, Toyota president Akio Toyoda mentioned that “Toyota has become too big and distant from its customers” and was on the verge of “capitulation to irrelevance or death“. A candid admission for a chief exec, but the question remains, how much will others learn from Toyoda’s humility?

Product recalls are not isolated events. The US Consumer Product and Safety Commission website lists recalls and warnings for hundreds of consumer products every month. A product recall can cause devastating damage to a company’s brand name and profitability. No matter what its size, industry, location or reputation, a company can be left in ruins if it does not manage a product recall well. These days, customer activism and advocacy groups coupled with the ubiquitous social networking mean companies can no longer use geography to cover up a product recall. Recently Maclaren strollers which conducted a selective product recall in US was forced to issue customer advisory to its UK customers after a media storm.

So how can companies ensure that product recalls don’t adversely affect their standing in the eyes of the consumer? According to a study by Georgia Institute of Technology and the University of Manitoba examining more than 500 toys recalls between 1988 and 2007 Recalls undermine trust in a specific brand and it can take the company a long time to recover from the damage to its reputation. Interestingly the study also concluded that 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. An HBR blog on Maclaren recall suggests four simple steps that Maclaren could have done:

  • Engage a reputable, independent, outside investigator;
  • Hire a crisis management expert;
  • Call the babies’ families;
  • Announce the recall in paid advertisements.

To minimize the costs and mitigate the associated risks of such an incident, companies must proactively assess and manage their product recall risks. Active management strategies like ‘Mock Product Recalls’ and ‘Track and Trace’ can help an organisation prepare. In the unfortunate case of a recall, companies should learn from 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. Subsequently, the firm undertook a series of operational and design measures to ensure that such tampering would not occur again. The J&J action is therefore considered as a textbook case of how to rebuild trust while manage a recall.

PS: Link to an excellent article on how to stop a car with a jammed accelerator.

(This blog appeared in Capgemini’s Customer Experience Blog in Feb 2010)