Towards the end and beginning of year 2009 and 2010 respectively, Toyota Motors, the Japanese car manufacturer made the headlines for all the wrong reasons after announcing the recall of more than 8 million vehicles worldwide due to faulty acceleration pedals. For the first time in a decade, Toyota’s monthly vehicle sales slid 16% after the recall and those of its competitors climbed. General Motors Co. recorded an impressive 14 percent gain and Ford Motor Co a hefty 25 percent increase in sales as both automakers targeted defecting Toyota customers.
This massive recall tainted the company’s reputation. Once regarded as the reputable builder of high-quality reliable vehicles with a long-lasting life, Toyota found itself in a self-dug hole, too deep to dig yourself out overnight. Since the recall, Toyota seems to be doing well in mending broken relationships, with its long-serving loyal customers. Sales in the European markets have rebounded and the trend is forecast to continue, although there are questions still to be answered after a recall on October 21 of 740,000 vehicles with potentially unsafe brakes.
BMW of North America announced a recall on October 26 of more than 150,000 vehicles because of potential problems with their fuel pumps. The day before, Honda Motor Co. had announced that it was recalling two of its vehicle models, the Odyssey and Acura RL made from 2005 to 2007 because of brake problems.
Customers value quality when they purchase your products or services. Quality is one of the most important foundations on which to build a strong, trustworthy and long-lasting relationship with your consumers. It takes a lot of time, patience, endurance and energy to build such kind of relationships but only a negative headline story to destroy that. Quality control should constantly top the list of the managers’ agenda.
As a manager, it is important to identify and understand the cost of producing a quality product. This will also help you understand better where money is being spent. The costs could be internal failure costs, external failure costs, appraisal costs or prevention costs. It is better to spend more money on Research & Development of new products than on recalls, complaints, returns, and replacements.
As the reputation of the organisation is important for attainment of business strategic objectives, it is an intangible asset that needs to be taken good care of. Having built that stellar reputation over a long period of time, you wouldn’t want to lose that overnight. In the midst of a bad crisis, the key to ensuring long-term survival of the business is how the management team and other personnel respond.
An organization that is intent in surviving a product recall without causing much damage to its reputation needs to implement the following strategies:
1. Recognize the problem and avoid panicking: When the number of product complaints or product-replacement queries are on the rise, instead of announcing a nationwide or worldwide recall immediately, completely analyse the problem first. It is important that you identify the root-cause of the problem within the value chain. Have in hand all the facts and figures pertaining to the situation. This will help you answer any serious questions that will come forth in the future, in particular, questions from customers, regulators and other affected parties. Taking time to reflect on the situation will ensure that no decisions are made hastily that will later come back to haunt the business.
2. Continue communicating with customers: As the final consumer of the product, consumers will always appreciate being kept in the light of recent developments to the situation. Engage your customers, find out how they genuinely feel about the product recall, whether they are happy with the way the situation has been handled, if not, ask them what they would have preferred to be done differently. Apologize to them and if need be, offer them an alternative product.
3. Establish a Business Continuity Plan: The fact that you are dealing with a recall for a particular product does not entail that you down tools and development of other products. If possible, set up a team dedicated to dealing with the product recall and have their day-to-day responsibilities covered by other team colleagues. With the business continuity plan, always make sure that it is constantly checked and reviewed to avoid the plan losing touch with current the business environment developments. Also make sure that you understand the regulatory standards governing your product or industry as this might have a bearing on the amount of fines, penalties, compensation claims and other payments you are liable to pay.
4. Stop selling the affected product(s): Sometimes managers are caught in the midst of the events, having to deal with the media, angry customers, competitors and other issues that they forget to pull the product(s) off the shelf. The problem with failing to remove the product off the shelf is that, some customers may buy the product even after the recall announcement then later on claim liability on the grounds that they made the purchase before the announcement. This will increase your total liability bill which is an additional burden you are trying to avoid.
5. Check the insurance cover: The probability of facing legal claims after the recall is potentially high. Does your insurance provide cover for such claims?