Product recalls can have a range of negative effects on organisations, and the damage is not always just financial in nature.
In fact, these issues can pose significant challenges to reputational risk management as well, as they greatly alter both public and shareholder confidence in a company's ability to operate. Product safety concerns have been a key focus of the automotive world lately, and exemplify the damage these events can cause.
While most people are aware of the effect product recalls can have on the company responsible, recent research has revealed these effects can ripple much further in some cases.
Automotive recalls affect competitors
The standard view for most corporate affairs professionals is likely to be that a recall crisis for one of their competitors is good news for their respective brand. However, in many cases, the opposite is true.
According to a recent report from the American Marketing Association, the negative press a product recall generates is not always limited to the offending brand. Such an event can negatively impact the industry as a whole.
These events not only hinder sales, but also foster negative sentiment around a brand, altering public opinion.
"Firms should keep an eye on a rival's recalls," the report's authors explained.
"Negative chatter about one brand spills over into negative chatter about another brand, and this effect gets aggravated for brands from the same country and size as the recalled brand."
How to manage a product recall
Organisations that find themselves in this difficult situation are tasked with managing a range of concerns, from compliance procedures, public communication and internal explanations to shareholders.
The Australian Competition and Consumer Commission (ACCC) outlined what defamed organisations need to do to remain compliant. There are a range of details the ACCC require of written recall notices, and organisations risk further reputational damage if this stage is not completed to the commission's required standards.
Organisations are required to provide the ACCC with the following:
- Full product descriptions, including serial and batch numbers where necessary.
- Description of the defect so the public is aware of what to look for.
- Details of why this defect creates a hazard.
- Contact information for concerned members of the public.
According to a white paper from The Grocery Manufacturers Association, organisations facing recalls can mitigate potential reputational damage by minimising the time it takes to detect these issues and notify the public.