Corporate Social Responsibility: What Business Owners Should Know about Product Recalls
A dangerously defective product is every company’s worst nightmare. A product you sold – or worse, a product you manufactured –did or could have cost an unsuspecting consumer’s mobility, eyesight, a limb, or even his or her life. How should business owners and managers exercise their corporate social responsibility and handle the difficult situation of being involved in a defective product accident, or even the chaos of dealing with a product recall?
Hundreds of consumer products prove to be dangerous each year in the more than 15,000 categories of products that the United States Consumer Products Safety Commission (CPSC) is responsible for regulating. Though the federal agency announces product recalls in an attempt to protect consumers, dangerous products still cost the nation $900 billion each year in injuries, deaths, and property damage, the CPSC reported. The CPSC announces product recalls are every day, but the recall process remains shrouded – and it can be every bit as confusing for retailers and manufacturers as for consumers. If your company cares about corporate social responsibility and is facing a recall, here’s what you need to know to keep your business – and your professional reputation – going strong.
What to do When the Products You Sell Are Recalled
Being a retailer in the midst of a product recall is tough. Most consumers don’t have the option to go directly to the company that manufactured the hazardous product, and instead, they have to go through your business to exchange their defective products for refunds. “Don’t shoot the messenger,” you may want to say to the flock of annoyed, even indignant customers. It’s not your fault that the manufacturing company was negligent in designing, assembling, or testing their product, but the situation could result in financial losses for your company, and it’s vital that you maintain your corporate social responsibility values to avoid damage to your reputation.
The good news is that consumers are more likely to take out their frustrations on the manufacturing company rather than the retailer. Your company’s short-term financial outlook might be bleak, especially if the recalled item was a popular seller and you have lost both the money you were forced to issue in refunds and the profits from making additional sales. However, a product recall can offer you the opportunity to improve your relationship with customers. A May 2013 incident highlighted an ingenious example. When an E. coli outbreak in certain Farm Rich brand food products led to a recall, Kroger grocery stores went into action, Patch.com reported. The company used its existing loyalty program – one of the ever-popular cards that many retailers use either to offer consumers special incentives or as a requirement for getting sale prices – to notify customers who had purchased one of the recalled items. After all, this is the kind of news that consumers want to hear before they make the mistake of using that dangerous product.
Though this particular example involves FDA-regulated food products rather than CPSC-regulated consumer goods, you can steal the idea for your non-grocery retail store. If your company is already running a loyalty card system, consider implementing such a procedure to deal with any recalls that come up – and don’t wait until the problem happens to start devising a plan. Put the email addresses and phone numbers you have collected to good use. On the other hand, if you’re not currently running such a program, this possibility is another reason to consider it, and a great selling point for potential enrollees.
If the recalled product is a big seller, a recall doesn’t just upset your customer base, empty out your till for refunds, and tie up your customer service personnel – it also decimates your inventory. Educate yourself and your staff on the problem that led to the recall, and share this information with any customers who come in looking for the recalled product. By letting them know the dangers instead of just shrugging off their questions, you can encourage consumers to be happy that the recall is protecting their families rather than aggravated that they can’t get the products they wanted. If a similar product (that has not been recalled) is available, consider offering a “manager’s special” discount on the item to entice customers who were loyal to the recalled brand to step out of their comfort zone (and make sure your business continues making sales).
How to Recover from Manufacturing a Defective Product
By and large, manufacturing companies are often resistant to the idea of issuing recalls. Cost is a major factor. On average, a product recall cost $540,000 in 2006, “twice that of the average product litigation settlement,” reported legal directory HG.org. While dangerous products continue to place people at risk, some companies gamble on the defect being an isolated incident, and hope they’ll never have to shell out that $540,000 in either a recall or multiple lawsuits.
Unfortunately, not only is this strategy socially irresponsible – exposing unsuspecting consumers, even children, to these safety hazards – but it could also damage the business’s reputation in the long term. This means more than a short-term dip in stock value – it could cost you your company’s future.
If your business manufactured a defective product, take control of the situation as soon as possible. The first step is to apologize. It looks better to be proactive than reactive, and handling the circumstances correctly could eventually strengthen your company’s consumer relations in the long run. In fact, researchers at Georgia Tech’s College of Management reported 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,” reported Science Daily. Additionally, go out of your way to notify retailers as soon as possible, and keep extra staff on hand to deal with any influx of phone calls, online inquiries, and letters you receive from disgruntled consumers. Train your employees to communicate carefully and let customers know why the product was recalled and what your company is doing about the problem. To keep the trust and loyalty of your consumers, remind them that their safety is the most important thing to your business. You may even choose to make a gesture of good faith, such as publicly pushing for changes within the industry or donating funds to a relevant charitable organization.
Whether you’re the retailer or the manufacturer, dealing with a defective product is a hassle. Though it may be easier to do the bare minimum required to deal with a recall, putting a little extra effort into handling the situation is well worth your time. Instead of looking at the recall as a crisis, use it as an opportunity to show consumers that you are committed to their well-being.
Richard Console is a personal injury lawyer with Console & Hollawell PC. To learn more about recalls, including consumer products, visit http://www.recalls.gov/.
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