Product recalls can be a nightmare for companies, the extent of the repercussions rises exponentially with the firm size. It is one of the most negative events firms face in the market place. Recalls such as that of peanut butter in 2009 and the massive lead-related toy recall by Mattel in 2007 were etched in consumers’ psyches because of heavy media coverage. Latest in the list is Tyson Foods, recalling more than 36000 pounds of frozen chicken nuggets after consumers reported finding soft, blue pieces of rubber inside the popular food.
The recall applies to the company’s Panko Chicken nuggets that were available in five pound plastic bags for consumption in every major retail stores in the US. Consumers are being urged to look for bags with the “best by” date of Nov. 26, 2019, the Case Code 3308SDL03 and a time stamp ranging from 23:00 through 01:59. The consumers are advised to discard the products or return back to the sales channel in exchange for a refund.
Major Product Recalls in the Past
Firms from various industries such as food, chemicals, automobiles, toys and many others are invariably affected by product recalls. The number of recalls have seen a substantial increase over the past decades and is increasing even now. Perdue Foods recalled 68000 pounds of frozen chicken nuggets after consumers reported finding chunks of wood inside of the product in January 2019.
Automobile recalls in 2014 reached a record of 63.5 million vehicles in 800 separate recall campaigns. According to The National Highway Traffic and Safety Administration (NHTSA), the average number of auto recalls per million registered vehicles in the Unites States has risen steadily, from 3.10 in 1980s to 8.25 in the 1990s and 11.79 between 2000 and 2010. This is significant, given that each auto recall leads to an economic loss of $20 million or more.
The Toyota recalls in 2009 and 2010 that resulted in serious accidents and loss of life is estimated to have costed the company over $1 billion. Topps, one of the largest makers of hamburgers in the United States, went into bankruptcy after the recall of 21.7 million frozen hamburgers in September 2007. The stock price of Merck, one of the largest pharmaceutical manufacturers, plummeted from $45.07 to $33 when it recalled a medication called Vioxx on September 30, 2004, the company’s largest single-day price drop ever.
Impact of Product Recalls
Despite the loss in profit, customers and goodwill, the waves of product recalls can give a hard hit on the entire industry. The scandal against one firm can set the spark for the consumers who suspect the authenticity of the rival firms who play in the same segment. The chatter spreads through online platforms which forces the regulatory authorities to go for a massive audit spanning the industry. This leads to a significant slowdown in the industry and erosion of share value.
Lessons for Firms
Firms should closely monitor the recall events of rival firms from the same country and of similar size. The negative word of mouth can spill over from the recalls of adjacent brands and the tension should be more for brands from the same country and of the same size as the recalled brand. Hence, as soon as a rival has a recall, firms should try to avoid comparisons with firms that are undergoing a recall crisis, in order to avoid perverse halo or negative spillover.
Firms should continuously survey the consumers to find which brand they associate them with to be the most similar. Having deduced this information, it is important that they differentiate themselves from the most similar brands in some way or the other. The absence of such a differentiation can lead to the crisis in the similar firm percolating into your firm. For instance, as pointed out before, two weeks before the nugget scandal of Tyson Foods, a similar product recall was made by Perdue who played in the same segment.
Further, managers should have a multi-channel communication strategy with different level of media richness in order to effectively respond to product recalls. For instance, online social platforms with high media richness can improve the consumer sentiments during a product recall. On the other hand, print media can help in better forecasting of financial commitments arising out of a recall.
Lastly, the level of product diversity can enable the firms to withstand the huge pressure during the recall event. The absence of such a diversity should be enough to turn down the organisation upside down.
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Byun, K. A., & Dass, M. (2015). An investigation of the effects of product recalls on brand commitment and purchase intention. Journal of Consumer Marketing, 32(1), 1-14.