What To Do During A Product Recall

Publications

What To Do During A Product Recall

Article |

Law360

Jonathan Judge, Derin Kiykioglu

You put countless dollars and hours into making the best possible product, and it becomes a hit. But something goes wrong, and consumers may be getting hurt. A recall becomes necessary.

As part of our series on managing product recalls, this article focuses on important steps companies can take during a product recall. The first step is to be prepared for a recall. We explained some strategies for how to get prepared in our first article on this topic.

Most publicly announced recalls tend to go through the U.S. Consumer Product Safety Commission. Although the CPSC can mandate recalls if a company does not take action on its own, many recalls are officially voluntary. If a company obtains information that a product fails to comply with safety standards or creates unreasonable risk of serious injury or death, the CPSC requires a company to immediately report — within 24 hours — that the product violates a safety standard, or could be unacceptably harmful to consumers. These reports are commonly described as “Section 15 reports,” a reference to the relevant section of the Consumer Product Safety Act.

Brief reporting delays are sometimes allowed for further investigation, but that route is best pursued under the guidance of experienced regulatory counsel. Too often, “brief” delays in reporting end up not being brief enough for the CPSC, thus exposing the company to a substantial civil penalty, which tends to be a minimum of seven figures when imposed.

It is important to note that companies are required to report potential defects and safety hazards even if they do not believe the situation warrants a recall. The CPSC has made clear that it is the agency’s job, not that of the company, to ultimately decide if a recall is warranted, and the CPSC cannot make that determination if it is not made aware of the situation. The majority of Section 15 reports do not actually result in recalls, meaning that it is often prudent to err on the side of reporting and explaining in the report why the company does not believe a recall is warranted under the circumstances.

Report to Authorities

Voluntary recalls can be “fast-tracked” if the company (1) agrees to conduct a recall up front; and (2) is prepared to implement a recall plan within 20 working days. Regardless, the CPSC will typically expect a so-called “full report” of the alleged defect or hazard, which should include:

  • Manufacturer information and product descriptions
  • Units involved and where they might be located
  • Product recovery/remedy plans
  • Any communications to retailers and consumers about the problem
  • A corrective action plan describing the company’s proposed remedial action

In addition to 14 questions companies must always answer, CPSC staff often add questions of their own. If the CPSC approves the proposed recall remedy, or successfully negotiates a different one, the recall will typically be approved for fast track implementation. In exchange for this cooperation, the CPSC will not evaluate the product formally for the existence of a defect, a reward that may have some value in litigation or public relations down the road.

If the reporting company is not inclined to voluntarily recall the product, or if the CPSC and the company cannot agree on an appropriate remedy, the case will proceed through the normal investigation process, culminating in either a preliminary determination of defect by the agency or an eventual closure of the file.

Communicate Effectively

Maintaining consumer trust during a recall is key. The best approach is for companies to communicate effectively by being (1) transparent, (2) consistent and (3) responsive.

When paired with swift action to remedy the situation, companies with carefully crafted recall messages increase the chances of maintaining — and potentially even surpassing — prior levels of consumer satisfaction. For example, Fitbit Inc. recalled its Force device in 2014 after consumers reported skin irritation related to wearing the tracker, but the company rebounded by taking the Force off the market and marketing new devices later that year. It later became the first wearable fitness company to go public with a 2015 initial public offering.

Companies must first communicate to consumers that a recall is happening. Managing recall communications is not unlike other marketing campaigns. Companies can use existing communications platforms to publicly acknowledge the recall, apologize and reinforce their commitments to consumer safety. Social media postings or notices in marketing materials help get the word out — for example, using parent-to-parent blogs to bring attention to toy and other juvenile product recalls.

Other companies form partnerships with entities already in contact with the consumer base. For example, Maryland has implemented a Department of Motor Vehicles notification system to spread the word about automobile recalls.

Companies need to be transparent in their communications with consumers or media. Transparency involves quick and candid responses in the face of a recall. Johnson & Johnson’s 1982 recall of cyanide-laced Tylenol is a business school case study, not only because it succeeded in removing the product from shelves and maintaining consumer trust, but because its CEO, James Burke, received the Presidential Medal of Freedom and was named one of history’s greatest CEOs by Fortune magazine after serving as the figurehead for the recall.

Burke cited trust as the cornerstone of business. After seven Tylenol consumers died, he rebuilt that trust by proactively discussing the recall and the company’s problem-solving strategy.

Be Responsive

Companies that acknowledge and act on consumer concerns show their responsiveness. As we wrote in our previous article, companies may want to designate a recall team with a chain of command similar to that of a marketing team, except that its end goal is retrieving a product as opposed to distributing it. It is better to do this before there is even a recall issue, but companies should put one in place for a recall even if they did not previously create one.

The recall team’s first “marketing” strategy should be to evaluate the situation and determine the speed, scale and type of recall. Recalls can take several forms, and most often include a fix of some kind; less often, products are replaced or refunds are offered.

In a study conducted by researchers at the Georgia Institute of Technology and the University of Manitoba analyzing toy recalls between 1988 and 2007, for example, researchers determined that manufacturing defects take less time to recall than design defects, because the source of the problem is easier to identify. Additionally, the study found that reactive recalls, those undertaken after a consumer’s death or serious injury, are more likely than preventive recalls to lead consumers to seek exchanges.

In other scenarios, companies may want to delay a proposed recall to conduct further or parallel investigation. In 2016, the National Highway Traffic Safety Administration allowed General Motors to delay its recall of air bags to give it time to prove that its product was as safe as marketed.

Like any effective marketing campaign, a recall campaign should continually look at how the process is going and check in with consumers to remain responsive. Are consumers aware of the recall? What do they — or other companies — recommend to fix the problem? What is the general sentiment toward the company in light of the recall?

Social media can help companies answer some of these questions. General Motors used social media to stay connected with dissatisfied consumers in the midst of its 2014 recall of 1.6 million cars. Ikea actively communicates with consumers through social media, and recently used it to share updates about its recall of collapsing Malm dressers. Companies that meet consumers where they are will be better poised to experience a more effective recall process.

The final installment in this series will consider what companies should do after product recalls.