product recall case study

10 Biggest Product Recalls of All Time

If there’s one thing consumers, investors and companies can agree on, they hate recalls.

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If there’s one thing consumers, investors and companies can agree on, they hate recalls. In the least of cases, faulty products or contaminated foods are an inconvenience for the unlucky buyers. At worst, recalled products are linked to injuries, illnesses and even deaths. For manufacturers, recalls batter brand reputations, bottom lines and share prices.

It’s a nightmare for all involved.

“Defective products not only pose a serious safety risk to the public but can also cause significant financial and reputational damage to the companies concerned,” say analysts at global insurance company Allianz. “We are now seeing and experiencing recalls on a scale not seen before, bringing record levels of activity and costs.”

To put the scope of food and product recalls in perspective, we will look at some of the biggest recalls in history by cost. It should come as no surprise that the list is dominated by the automotive industry. Allianz notes that the sector accounts for more than 70% of the value of all recall-related insurance losses in a given year. The pharmaceutical industry also has the dubious distinction of making multiple appearances on the list.

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Recalls are listed in order of total estimated costs according to company reports, news reports and data from Statista.

#10: Johnson & Johnson’s Tylenol Recall

• Cost: $100 million

True, many recalls have since eclipsed Johnson & Johnson’s ( JNJ , $125.10) 1982 Tylenol recall in both scope and cost. Adjusted for inflation, the recall cost roughly $250 million.

But as the seminal event in the history of recalls, arguably none other has had a bigger impact.

Known as “the recall that started them all,” J&J set the standard for the way corporations are supposed to handle such events. In a case of product tampering, seven people in the Chicago area died after ingesting Extra-Strength Tylenol laced with cyanide. J&J spent more than $100 million to recall 31 million bottles of its best-selling product.

J&J’s swift and decisive action is credited with saving the Tylenol brand, which at the time accounted for 17% of the company’s profits. Although the stock priced swooned initially, it recovered within two months.

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#9: Peanut Corp. of America Salmonella Outbreak

• Cost: $1 billion

A decade ago, Peanut Corp. of America was an obscure, privately held peanut processor in Georgia. Then a massive salmonella outbreak changed everything. A wave of food-borne illness killed nine people and sickened hundreds. More than 3,913 different products from roughly 361 different companies had to be recalled. Major brands such as J.M. Smucker’s ( SJM ) Jif and ConAgra’s ( CAG ) Peter Pan were unaffected by the recall, but it didn’t matter. Wary consumer shunned peanut butter, driving down industrywide sales by 25%.

Peanut Corp. declared bankruptcy and went out of business. A former top executive was sentenced to 28 years prison for his role in the outbreak. Meanwhile, the Georgia Peanut Commission estimated at the time that America’s peanut producers would lose about $1 billion between sales and lost production as a result of the recall.

#8: Toyota’s Floor Mat Recall

• Cost: $3.2 billion
• Toyota ( TM , $124.50) car owners and shareholders suffered through one of the costliest recalls in history at the start of the new decade. The car giant was forced to recall 8.1 million vehicles because of the potential for gas pedals to get stuck in floor mats, as well as other concerns.

In the midst of the recall, the government said that unintended acceleration in Toyota vehicles may have been involved in the deaths of 89 people over the past decade.

In 2010, Toyota pegged costs related to the recall at $2 billion. Four years later, the company paid a $1.2 billion fine to avoid prosecution from the Justice Department for covering up what it knew about ill-fitting floor mats and other safety problems.

Toyota’s stock has been a market laggard since the recalls began. Shares are up 60% since Nov. 2, 2009. However, the Standard & Poor’s 500-stock index – which admittedly also was recovering from its massive 2007-09 plunge – has gained 155% over the same span.

#7: Pfizer’s Bextra Recall

• Cost: $3.3 billion

Pharmaceutical giant Pfizer ( PFE , $34.49) was floored in 2005 when the Food and Drug Administration forced it to pull Bextra, an arthritis painkiller, off the market because of possible heart risks and “life-threatening” skin reactions. At the time, Bextra was one of Pfizer’s best-selling products, with annual sales of $1.3 billion in 2004.

But that was only the beginning of Pfizer’s woes.

In 2009, Pfizer settled civil and criminal allegations that it had illegally marketed Bextra. Its $2.3 billion payout was the largest health-care fraud settlement and the largest criminal fine of any kind at the time. Between lost sales, fines, settlement and other costs, Pfizer took a hit of at least $3.3 billion on the Bextra recall, according to Statista.

Long-term investors who bought the dip after the September 2009 settlement didn’t make out so well either. Shares in Pfizer trail the S&P 500 by about 50 percentage points since then.

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#6: General Motors’ Ignition Switch Recall

• Cost: $4.1 billion

It was a year that anyone who owned a General Motors ( GM , $35.17) vehicle or GM stock would like to forget. Faulty ignition switches that could shut down the engine without warning, thus disabling power steering, brakes and air bags, were linked to at least 124 deaths and more than twice as many injuries. The defect impelled GM to recall 30.4 million cars worldwide.

General Motors said the recall cost $4.1 billion in 2014. Among its expenses, it spent $2.8 billion to repair recall vehicles, $870 million to settle death and injury claims, and $900 million in a settlement with the Department of Justice. It also took a charge of $874 million to account for the costs of future recalls.

GM stock lost about 15% in 2014 – a year in which the broader stock market gained more than 11%. And it wasn’t exactly an opportunity to buy low. Shares have essentially been dead money ever since.

#5: Samsung’s Galaxy Note 7 Recall

• Cost: $5.3 billion
• Samsung had high hopes for the high-end Samsung Galaxy Note 7 smartphone, but they went up in smoke.

The world’s largest smartphone maker was forced to discontinue and recall the pricey gadget after some of them started bursting into flames. The U.S. Consumer Products Safety Commission received 96 reports of overheating batteries and fires within the first two months of its August 2016 launch. Samsung was forced to recall 2.5 million of the devices, which were some of the priciest smartphones on the market.

Although the recall set Samsung back by several billion dollars, the diversified electronics giant was more than able to withstand the blow. The handset maker unveiled the Samsung Galaxy Note 8 the following year to strong reviews – and sales.

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#4: Firestone Tires and Ford

• Cost: $5.6 billion
• Bridgestone’s ( BRDCY , $20.72) Firestone Tire and Rubber Company suffered a near-death blow when allegedly defective tires installed on Ford ( F , $10.76) SUVs and pickup trucks were linked to 271 deaths and more than 800 injuries in the U.S. alone.

Firestone and Ford blamed each other for the tire failures, but ultimately both companies were on the hook. Firestone recalled 6.5 million tires, while Ford recalled and replaced 13 million.

The tire recall and corporate fallout cost Firestone-parent Bridgestone $2 billion. Ford told shareholders in 2001 that its recall of 13 million tires on its SUVs and pickup trucks would cost the company $3 billion. The company also faced $600 million in lawsuits. The Firestone brand survived the scandal but its 100-year relationship with Ford was severed.

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#3: Merck’s Vioxx Recall

• Cost: $8.9 billion

When Merck’s ( MRK , $53.41) Vioxx first hit the market in 1999, it was hyped as a revolutionary breakthrough medication for arthritis pain. And like Pfizer’s Bextra, it soon became a blockbuster hit.

Five years later, in September 2004, Merck was forced to pull the drug from the market after studies revealed that Vioxx greatly increased the risk of fatal heart attacks and strokes. By that point, 20 million Americans had already taken the drug. Later research estimated that 140,000 Americans had heart attacks from taking Vioxx, resulting in 88,000 deaths.

The costs in dollar terms were also staggering. The pharmaceutical giant settled a class-action lawsuit for $4.85 billion in 2007 and agreed to a $950 million settlement with the DoJ in 2011. In 2016, shareholders settled a class-action lawsuit with Merck for $830 million. Statista estimates that when all other expenses are included, the Vioxx recall cost the company $8.9 billion.

Shares in Merck initially tumbled 27% on the news and languished for two years before recovering to their pre-recall levels.

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#2: Volkswagen’s Diesel Engine Recall

• Cost: $18.3 billion

Customers and shareholders alike were stunned when redoubtable German car giant Volkswagen ( VLKAY , $37.87) was caught cheating on diesel emissions tests. Known as “Diesel-gate,” it emerged that the company had for years employed software that allowed its turbocharged diesel engines to cut their emissions to meet regulatory standards when being tested. Under real-world conditions, the engines emitted pollutants up to 40 times above levels allowed under U.S. standards.

The fallout was massive. VW recalled 11 million around the world and was forced to set aside more than $18 billion to cover recall costs, legal claims and other related expenses. Shares in VW, which trade over the counter in the U.S., tumbled on the news and took two years to recover.

However, VW stock also proved to be rewarding bet for investors who could stomach the risk. Shares are up about 67% since hitting a scandal-related low of $22.73 on Oct. 2, 2015.

#1: Takata Air Bag Recall

• Year: 2008 and counting
• Cost: $24 billion

Call it the recall from hell. What started quietly almost a decade ago has since ballooned into the biggest recall in history. Faulty air-bag inflators made by now-bankrupt Takata were used by virtually every major automaker on the planet. The issue: The inflators can explode and eject a shrapnel-like material that has been linked to at least 20 deaths.

The National Highway Safety Transportation Board expects the recall to include more than 37 million vehicles involving 49.5 million inflators in the U.S. alone. Globally, 100 million inflators are under recall. Regulators say it could take until 2023 to recall and fix every vehicle with a faulty Takata air bag.

In 2016, Takata estimated total recall costs of $24 billion. But that figure still could change in the years ahead.

Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.

A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts. 

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Toyota’s Recall Crisis: What Have We Learned?

• Jeffrey Liker

In August, 2009, the improper installation of an all-weather floor mat from an SUV into a loaner Lexus sedan by a dealer led to the vehicle’s accelerator getting stuck, causing a tragic, fatal accident and launching the most challenging crisis in Toyota’s history. This iconic company, synonymous with safety and quality, was vilified by the […]

In August, 2009, the improper installation of an all-weather floor mat from an SUV into a loaner Lexus sedan by a dealer led to the vehicle’s accelerator getting stuck, causing a tragic, fatal accident and launching the most challenging crisis in Toyota’s history . This iconic company , synonymous with safety and quality, was vilified by the American press , the government, and expert witnesses to plaintiff lawyers. Details usually unworthy of public attention, such as internal memos disagreeing over public relations strategy, became smoking guns that convinced the press and the public that Toyota vehicles had electronic problems causing runaway vehicles — and that the company was hiding this from the public.

• Jeffrey K. Liker is a professor of industrial and operations engineering at the University of Michigan and is author, with Timothy N. Ogden, of Toyota Under Fire .

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The Hidden Cost of a Product Recall

Drivers on Interstate 25 in Colorado have been speculating about the fate of hundreds of Volkswagen cars sitting in a lot near Pikes Peak International Raceway. It’s one of 37 sites in the United States where the automaker is storing 300,000 diesel cars it recalled after admitting to cheating American emissions tests.

Volkswagen estimated that fines, repairs, and legal costs would total more than $30 billion . And worse, the company ceded its command of America’s diesel car market—producing more than one-third of the models available in 2015—to companies such as General Motors, Ford and Mazda, which expanded their diesel lineups .

Large recalls are the ultimate nightmare for senior executives at companies with considerable research and development (R&D) operations. Beyond the staggering remediation and legal expenses that recalling companies incur, there are also costs to rework manufacturing processes and stem reputational damage. In one of the costliest recalls in history, Johnson & Johnson spent more than $100 million in 1982 (more than $260 million in today’s dollars) to recall 31 million bottles of Tylenol capsules and re-establish the brand.

"Product recalls slow many types of innovation for the firms that experience them.”

There’s also a second, less studied wave of damage, as competitors ramp up product development efforts to snap up displaced customers and solidify market share gains. This double whammy makes recall prevention and effective remediation more important than previously thought, says Ariel D. Stern , an assistant professor of business administration at Harvard Business School, where she is the Hellman Faculty Fellow in the Technology and Operations Management Unit.

“Product recalls slow many types of innovation for the firms that experience them,” Stern says. “At the same time, we see that competitors are likely to accelerate their own innovation activities to take advantage of these weaknesses.”

Stern, along with Indiana University Assistant Professor George P. Ball and Georgetown University Professor Jeffrey T. Macher, set out to quantify the innovation risks and opportunities that recalls pose in one of the most R&D-intensive industries, medical technology. Product failures in medtech, where the cost to bring a device to the market can top $90 million, can not only hobble a firm, but cause catastrophic harm to patients.

“The extremely high profit margins in medical devices offers a setting in which the risks are often overwhelmed by the potential rewards to innovate, especially when competitors face their own product failures,” according to the team’s working paper, Recalls, Innovation, and Competitor Firms: Evidence from Medical Device Firms , released in January.

Bigger recalls, bigger reactions

Using 13 years of US Food and Drug Administration data and a novel set of competitor classification algorithms, the team created a detailed history of product development submissions and recalls in the medical device industry. That allowed the researchers to evaluate how a recall’s severity and proximity—the degree of product market overlap between recalled and competing products—may stall or speed innovation in a product market. Among their findings:

A recall can delay a company’s incremental innovations by six months. Medtech product development teams typically focus on a single product category or line, allowing them to apply their expertise more efficiently. However, recalls force these teams to shift their attention from making meaningful improvements to addressing flaws. The revenue impact can be significant, the researchers say.

Competitors ramp up major innovation efforts in response to rival recalls. Large-scale new product development projects cost more, take longer to complete, and require specialized teams to manage complex processes, such as clinical trials in patients. However, if a medtech firm can bring a new product to the market even one month earlier following a rival’s recall, it could bring in an additional $10 million in revenue.

The more severe a recall, the faster competitors speed up innovation. Major product failures, such as ones that can lead to serious injuries or even patient fatalities, provide the biggest opportunities for a competitor to grab market share. A well-timed incremental or major innovation can provide the toehold a company needs in a competitive market.

“Low-risk mistakes, like a typo on a label, constitute reasons to recall a product, but those aren’t driving the big responses that we see by firms and their competitors,” Stern says. “It’s the really severe recalls, where perhaps the materials turned out to be unsafe or there’s a major malfunction that are leading to competitor responses.”

Prevention is key, but preparation also matters

The team’s research suggests that recall prevention is even more valuable than previously thought, given the higher stakes of product failures. Companies would also be wise to develop more internal expertise to not only manage their own recalls but react quickly to those of rivals. Two specific steps could help most R&D-centric companies:

• Create recall recovery teams . A specialized group of managers with deep knowledge about a company’s products and the recall process might keep a company from diverting time and resources from product development efforts, thereby undermining the roll-out of future innovations.
• Develop competitor recall intelligence tools. Companies that develop the capabilities and tools to react quickly to other companies’ recalls stand to gain more when market opportunities present themselves.

While Stern’s past research has focused primarily on innovation in health care, these new findings could apply broadly to any company that invests heavily in R&D, even those in industries that lack a formal recall process.

“Whether your firm is making phones or drones or self-driving cars, recalls can divert efforts from subsequent innovations and spur your competitors to take advantage of the market opportunity,” she says.

Danielle Kost is senior editor at Harvard Business School Working Knowledge.

Image: Jarretera

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Navigating a Product Recall: A Guide for Product Marketers

Turn a product recall into a chance to rebuild trust and bolster your brand – learn how in our in-depth guide.

"A well-handled product recall can transform a crisis into an opportunity for brand enhancement."

Life as a product marketer can be as unpredictable as a rollercoaster ride, and every now and then, you may find yourself in a situation that can feel like a free-fall: a product recall. When this happens, your marketing skills will be put to the ultimate test. How you navigate this crisis can make or break your brand's reputation. Let's dive into the sea of uncertainty together, and chart a course that can help you turn the tide.

The Gravity of a Product Recall

A product recall is like a ticking time bomb. It's not a question of if it will explode, but when . According to the Consumer Product Safety Commission, there were over 300 product recalls in the U.S. in 2021 alone. That's almost one recall per day! If you think this could never happen to your brand, think again. It's a universal challenge that transcends industries and markets.

Preparing for the Inevitable

Product recalls are often unexpected, but that doesn't mean you can't be prepared. It's like carrying an umbrella on a sunny day. You might not need it, but if a storm suddenly hits, you'll be glad you have it. Here are some steps you can take:

Form a Crisis Management Team: This is your A-team that will take the lead when a crisis hits. It should include members from various departments such as product management, public relations, legal, and of course, marketing.

Develop a Recall Plan: Create a detailed, step-by-step plan that outlines what to do in case of a product recall. This should include everything from identifying the problem, to notifying customers and regulators, to managing the recall process.

Train and Test: Regularly train your team on the recall plan and run simulations to identify any potential issues. This will ensure that everyone knows what to do when a recall happens.

The Anatomy of a Recall

Once a recall is initiated, it's like a complex dance where every step counts. Here's a typical sequence of events:

Identification: The first step is identifying that there's a problem. This can come from customer complaints, quality checks, or even a whistleblower.

Evaluation: Once a potential issue is identified, it needs to be evaluated to determine if a recall is necessary. This involves understanding the severity of the issue and the risk it poses to customers.

Notification: If a recall is deemed necessary, regulators and customers need to be notified. This is where transparency and timeliness come into play.

Execution: Finally, the recall process is executed, which involves retrieving the defective products and offering customers a refund, replacement, or repair.

Navigating the Storm

Once a recall is underway, your role as a marketer is crucial. You're the ship's captain in a storm, and how you steer will determine whether you sink or swim. Here's how you can navigate:

Communicate Clearly and Timely: Clear and timely communication is key. Don't try to hide the issue or downplay its severity. Be upfront and honest with your customers and the public.

Be Empathetic: Show empathy towards your customers. Understand their concerns and frustrations and address them head-on. Remember, they trusted your brand and now feel let down.

Provide a Solution: Offer a clear solution to your customers. Whether it's a refund, replacement, or repair, make sure it's easy for them to access.

Case Study: Samsung's Galaxy Note 7 Recall

Remember the saga of the Galaxy Note 7? Samsung's flagship phone was recalled not once, but twice, after several of its units spontaneously combusted due to a manufacturing defect in their batteries. Samsung first announced an informal recall on 2nd September 2016, followed by a formal recall on 15th September 2016. The initial strategy was to replace the faulty phones with new ones that used batteries from a different supplier. However, when these replacements also started catching fire, Samsung was forced to recall the Galaxy Note 7 worldwide on 10th October 2016, ultimately deciding to cease the production of the device permanently a day later. As part of their damage control, Samsung took several steps, like distributing multi-layer fireproof boxes with packing instructions and issuing software updates to disable the phones' functionality. They also planned to recycle reusable components from the recalled models and release refurbished models where applicable.

The recall took a massive toll on Samsung's business. Their operating profits for the third quarter of 2016 were projected to be down by 33% compared to the previous quarter, and Credit Suisse analysts estimated that Samsung would lose at least US$17 billion in revenue from the production and recall of the Galaxy Note 7.

Despite these staggering figures, Samsung managed to weather the storm. They handled the crisis with transparency, regularly updating customers about the situation and providing clear instructions on how to return the faulty phones. Their swift and decisive action, coupled with their sincere apology, helped to mitigate the damage to their brand reputation.

Lessons from the Trenches

Recalls are a marketer's nightmare, but they also offer valuable lessons. Here are some key takeaways from Samsung's experience:

Be Transparent: Samsung was open about the issue from the beginning, which helped to build trust with customers and regulators.

Act Swiftly: Swift action can limit the damage. Samsung acted quickly to recall the faulty phones and cease their production.

Communicate Regularly: Regular communication keeps customers in the loop and reassures them that you're doing everything you can to resolve the issue.

Offer a Clear Solution: Samsung provided clear instructions on how to return the faulty phones and offered refunds, replacements, or repairs.

Apologize Sincerely: An apology goes a long way in rebuilding trust. Samsung's sincere apology helped to soothe customer frustrations and rebuild their trust in the brand.

After the Storm: Rebuilding Your Brand

Once the recall is over and the dust has settled, it's time to rebuild. Your brand may be bruised, but it's not broken. Here are some steps you can take to restore your brand's reputation:

Analyze What Went Wrong: Understanding what led to the recall can help prevent a similar issue in the future. Conduct a thorough analysis to identify the root cause and implement measures to fix it.

Re-establish Trust: Trust is the foundation of any brand, and it's likely been shaken. Re-establish it by showing your customers that you've learned from the experience and have taken steps to ensure it doesn't happen again.

Focus on the Positive: Highlight the positive aspects of your brand and your products. Remind customers why they fell in love with your brand in the first place.

Maintain Open Communication: Keep the lines of communication open with your customers. Show them that you value their feedback and are committed to meeting their needs.

Navigating a product recall is no easy task, but with the right strategy and approach, it can be managed effectively. The key is to be prepared, act swiftly, communicate clearly, and put your customers first. By doing so, you can weather any storm and come out stronger on the other side.

Remember, a product recall isn't the end of the world. It's a test of your brand's resilience and a chance to show your customers that you value their safety and satisfaction above all else. Yes, there will be bumps along the way, and yes, your brand may take a hit. But with transparency, empathy, and a commitment to making things right, you can turn a crisis into an opportunity to strengthen your brand's reputation and deepen your relationship with your customers.

So, to all the product marketers out there, remember this: A product recall doesn't define your brand. How you handle it does. Be prepared, be transparent, be empathetic, and above all, be there for your customers. You've got this.

Q1: Why is it essential to have a product recall plan?

A1: A product recall plan is a roadmap that guides your company's response when a product defect is identified that could harm customers or significantly damage your brand reputation. This plan outlines the steps your company will take, who is responsible for each step, and how you'll communicate with customers and regulators. Having a plan in place helps ensure a swift, organized, and effective response, minimizing harm to customers and damage to your brand.

Q2: Who should be part of the crisis management team?

A2: The crisis management team should include representatives from various departments within your company, including:

• Product : To understand the technical details of the product issue
• Marketing : To manage customer communications and protect the brand
• Legal : To ensure compliance with laws and regulations
• Sales : To manage relationships with retailers and distributors
• Customer Service : To handle customer inquiries and complaints
• Operations : To manage the logistics of the recall

Each member plays a crucial role in ensuring the recall process runs smoothly and effectively.

Q3: How can we identify a potential product issue early?

A3: Early identification of a product issue is key to managing a recall effectively. Some strategies for early identification include:

• Customer feedback : Monitor customer complaints and reviews closely. These are often the first signs of a potential problem.
• Quality checks : Regular testing and quality checks during production can help identify issues before the product reaches customers.
• Supplier audits : Regular audits of your suppliers can help ensure they're meeting quality standards.

Q4: What factors should we consider when deciding whether to initiate a recall?

A4: The decision to initiate a recall should be based on the severity of the product issue and the risk it poses to customers. Factors to consider include:

• Health and safety risks : If the product defect could cause harm or injury to customers, a recall is likely necessary.
• Regulatory standards : If the product fails to meet regulatory standards, a recall may be required.
• Brand reputation : If the defect could significantly damage your brand reputation, you may choose to initiate a recall.

Q5: How should we communicate with customers during a recall?

A5: Transparency, timeliness, and empathy are key when communicating with customers during a recall. Here are some guidelines:

• Transparency : Be open about the nature of the problem, the risk to customers, and what you're doing to fix it.
• Timeliness : Communicate early and often. Update customers regularly on the progress of the recall.
• Empathy : Show understanding and concern for the inconvenience or worry the recall may cause customers.

Q6: What are some common mistakes companies make during a recall?

A6: Some common mistakes include:

• Delaying the recall : This can make the problem worse and damage your brand reputation.
• Downplaying the issue : This can erode trust and make customers feel like you're not taking their safety seriously.
• Poor communication : Failure to communicate effectively with customers can lead to confusion and frustration.

Q7: What can we learn from the Samsung Galaxy Note 7 recall?

A7: The Samsung Galaxy Note 7 recall teaches us the importance of transparency, swift action, regular communication, and a clear solution. Despite the significant financial impact, Samsung managed to retain customer loyalty through their handling of the recall【8†source】【9†source】.

Q8: How can we rebuild our brand after a recall?

A8: Rebuilding your brand after a recall

takes time and a dedicated effort. Here are some steps you can take:

• Apologize : A sincere apology can go a long way in rebuilding trust with customers.
• Analyze : Conduct a thorough analysis to identify the root cause of the problem and implement measures to prevent a similar issue in the future.
• Communicate : Keep your customers in the loop about the steps you're taking to fix the issue and improve your processes.
• Re-engage : Once you've addressed the issue, focus on re-engaging customers with positive messages about your brand.

Q9: How can we prevent a product recall from happening in the first place?

A9: While it's impossible to guarantee that a product recall will never happen, there are several steps you can take to minimize the risk:

• Quality Control : Implement strict quality control processes during production.
• Supplier Vetting : Thoroughly vet your suppliers to ensure they meet your quality standards.
• Testing : Regularly test your products for safety and performance.
• Feedback Loop : Create a robust system for collecting and analyzing customer feedback, which can often reveal issues before they become widespread.

Q10: How should we handle international recalls?

A10: International recalls can be complex due to varying laws and regulations in different countries. Here are some general guidelines:

• Understand Local Regulations : Each country has its own regulations regarding product recalls. Understand and comply with these regulations in each market where your product is sold.
• Communicate in Local Languages : Ensure your recall notices are translated accurately and appropriately into the local language of each market.
• Work with Local Authorities : In many cases, you'll need to work with local authorities to conduct a recall. This can include regulatory bodies, consumer protection agencies, and possibly law enforcement.
• Logistics : Consider the logistics of retrieving defective products and providing refunds or replacements in each market.

Remember, these are general guidelines. You should always consult with legal counsel and recall experts when handling an international recall.

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Product recall case study: Collagen catastrophe

Collagen supplement recalled after customer chokes on piece of plastic

A nutraceutical company has been manufacturing a collagen supplement in various flavours since 2018. Their sales have been steadily increasing to their present day forecast of £10m. In the last few years, their core range has been stocked in major retailers alongside direct-to-consumer sales.

The brand was caught off guard when a customer called to complain that they choked on a piece of plastic in the collagen powder as their co-manufacturer recently assured them that everything at the manufacturing plant was in good order. As the investigations began, the severity of the issue began to escalate as the company received an influx of calls and emails. Meanwhile, it was desperately trying to determine the true extent of the issue.

After a short time, the co-manufacturer managed to find the culprit – a conveyor belt in the production process had been fraying, leaving fragments of material in the collagen powder products that had been shipped out to retailers and customers. The co-manufacturer established that the machinery was last checked around 28 days ago, and to be sure of product safety all product lines produced within this time should be recalled.

The nutraceutical company immediately issued a recall notice and got in touch with affected customers and retailers to try to mitigate the situation. A significant amount of product was impacted by the recall, with around £1m worth of product recalled from shelves. For consumers who purchased directly from the company, a temporary hotline was set up so they could get in touch about the recall event, which cost £100k for set-up and staffing. The company also spent £750k on reworking the recalled collagen product through a sieve process to test if it was fit for sale.

To limit the fallout, the brand spent £50k on crisis communication experts and £200k on rehabilitation costs to limit the impact on business interruption. While this had some success, the nutraceutical company still suffered from £200k loss of sales as a direct result of the product recall event.

In total, the company lost £2.3m.

Luckily, the nutraceutical company was able to mitigate its financial loss because it had a product recall policy with CFC. CFC’s product recall coverage provided them with a vital first party indemnity policy when they needed it most.

Product Liability

One customer affected by the product issue was a self-employed music teacher. Regrettably, when consuming the product, a piece of plastic fragment damaged their oesophagus. Given their occupation, they suffered a loss of income over a 6-month period as they were unable to use their voice without pain for prolonged periods of time.

While the initial claim was for injury caused by the product, the product liability line of the coverage also provided indemnity for physiotherapy sessions to assist with the teacher’s return to work, as well as the loss of earnings throughout the 6-month period. The combination of these payments amounted to just over £120k.

Since the nutraceutical company also had a life science policy with CFC, CFC’s dietary supplement product was able to provide them with comprehensive liability cover against third party claims.

There are many exposures facing a manufacturer of supplements. A comprehensive offering that covers not just product liability, but also product recall, will help protect companies when the manufacturing process doesn’t go according to plan.

To find out more about CFC’s product recall policy, please contact the team at [email protected] .

Did you know our life science team offers research and development, medical device and dietary supplement products? To find out more about CFC’s life science offering, please contact the team at [email protected] .

*The companies and circumstances in this case study are fictional, but the scenarios are realistic and reasonable based on our experience.

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Don’t Panic: How to Handle a Product Recall Like a Pro

There are few failures that can be as devastating to a company as a product recall. From a faulty item that doesn’t work to a defective product that poses a life-threatening risk for consumers, there are a range of reasons why a company might need to remove an item from public circulation. While businesses can position themselves to minimize such an event through quality assurance and risk management , every leader needs to have a product recall procedure in place.

Discover how digital communication can help your company survive a crisis such as a recall.  

What Is a Product Recall?

A product recall is the process of contacting consumers to alert them of a defective product or unsafe food or drug item and ensuring as many of the distributed items are taken back or disposed of. Often, a recall occurs because a product is subject to failure (or a food is contaminated) which creates a public health and safety hazard.

A recall will also have a corrective action plan which can be:

• A complete removal from circulation
• Repairs made to a product
• A product is replaced by another from the manufacturer

From food processing to pharmaceuticals to automotive manufacturing to children’s toys, every industry has its own recall management system, regulations, and compliance procedures. 

Build Preparedness into Operations With a Recall Management Solution

The best way for a business to handle a recall is to have a built-in system to prepare for the possibility while simultaneously employing strategies to avoid recalls altogether. Leaders should use an enterprise resource management system—a digital hub to integrate operational processes, streamline communication, and compile information to efficiently manage normal workflows and swiftly handle a recall if, and when, it happens. 

Three ways to use a digital workplace to be prepared for and mitigate recall risk include:

1. Train employees to spot issues before they become recalls

A mobile-first resource management system gives employees—particularly frontline workers who have their eyes on the production process—access to internal data that can help them spot problems with equipment or production and serve as a platform for internal reporting of issues that can lead to recalls. 

2. Handle recall document management

A digital hub also enables recall document management where companies can store recall information and make it easily accessible. Examples of recall document management include: Consumer Product Safety Commission’s Recall Handbook or the Organisation for Economic Cooperation and Development’s resource page .    

3. Create a collaborative workforce for a smoother recall

A mobile workplace connects an entire organization from top to bottom. When workers can collaborate with one another across departments, and across levels, it creates a collaborative environment capable of exchanging information quickly and freely. For product recalls this means fast reactions and quicker problem solving, key factors in minimizing the impact to consumers and limiting disruption to operations.

Takata: A Product Recall Case Study

Takata was a Japanese manufacturer with a long history and a good reputation. Started in 1933, the textile manufacturer evolved into an automotive parts company. They were pioneers of seat belt manufacturing and crash simulation testing to ensure the safety of their products. In the 1980s they began to make airbags. By the 2000s they had a 20% market share. 

In 2008, reports of airbags exploding when deployed, causing injuries and deaths, led to an initial recall of 3.6 million cars. But automobile manufacturers who installed Takata’s product in vehicles began independently contacting their customers and recalling cars. Finally, an investigation by the National Highway Traffic Safety Administration led to a complete product recall. That meant 40 million vehicles across 19 car manufacturers—the largest automotive recall in history. 

As of July 2020, more than 75% of these airbags have been replaced according to the NHTSA. But it was more than Takata could handle. It had previously survived a seatbelt fiasco in 1995, but the airbag recall shuttered the company for good. The price tag when all was said and not-yet-done? $26 billion, and growing.

How Recall Management Software Supports Product Recall Communication

The success of a product recall hinges on fast product retrievals with minimal risk to customers and limited disruption to operations. That all boils down to having a solid digital communication strategy and corresponding recall management software.

A product recall communication strategy needs to emphasize the most important points:

• What is being recalled
• Why the product is being recalled
• How you will remedy the situation

A digital communications platform creates a single hub that contains product recall procedures and serves as a recall document management system. The software must facilitate the three most important factors when communicating with stakeholders about a recall:

• Transparency

In Takata’s case, they broke all three cardinal recall rules. As the New York Times reported, the company discovered potential airbag defects as early as 2004 when they conducted internal testing, four years before they communicated these issues to regulatory agencies.

5 Tips for an Effective Product Recall Procedure

Every year, thousands of products are recalled worldwide. Navigating the complex compliance procedures while maintaining public trust and continuing operations can be challenging. 

Because of this, companies should follow these basic steps for product recalls. 

• Notify regulatory agencies. Your organization should know the proper recall protocols for your industry and products, like filing a rep ort with the FDA or Consumer Product Safety Commission within 24 hours of discovering the potentially defective food or product. 
• Isolate your product. Remove the item from the production line to avoid cross-contamination and inadvertent distribution. Determine the most cost-effective and sustainable way to dispose of defective products.
• Contact consumers and stakeholders. A product recall is a crisis, and a company should have a crisis communication plan in place as part of your standard operating procedure. This should include a strategic plan for identifying and contacting consumers and effective communication methods, like emails, social media, press releases, and retailer communication. You can also utilize strategic plan templates to make this process easier. 
• Respond and remedy. Have a recall command center to handle customer phone calls and emails to remedy the situation quickly and effectively. Offer a refund, repair, or replacement, and address every customer’s concerns. Employ a digital recall management solution to handle reverse logistics, like notification management, coordinating appointment scheduling for customer returns, and tracking incoming merchandise against sold units.
• Maintain brand integrity. One misstep can yield irreversible damage to your company’s reputation. Make sure to be transparent and accountable to maintain public trust. Consider hiring a public relations firm for a large-scale recall.

3 Ways to Reduce the Impacts of Product Recalls

The impacts of a product recall can be severe. A company’s reputation, financial viability, and survival can depend on how prepared they are and how they handle a recall. One study even demonstrated that product recalls are a major disruption that reduces a company’s capability to innovate while dealing with the crisis. A recall also creates an opportunity for a competitor to jump in with a competing product when yours is taken off the market. 

The best strategy? To reduce your risk of creating and distributing potentially harmful products in the first place  Here are three strategies to minimize the likelihood of defective products. 

• Go lean. Taking a lean operations management approach can eliminate extra steps from your processes to keep a company hyper-focused on what’s needed in their production. Take a hint from Nike who reduced shoe defects by 50% due to their commitment to continuous workflow improvement.
• Implement a solid safety culture. Build a workforce committed to quality and safety by making them core values of your company. Engaged workers take greater pride in their work and are more likely to go above and beyond, ensuring more focus on the products they’re making. 

• Diversify your workforce. A recent study discovered that companies with females in leadership positions were quicker to the draw when recalling a product. Specifically, they reported issues 28 days sooner. Immediate action reduces the fracture of public trust, can save brand reputation, and, in extreme cases, save lives. 

The best business strategy for a company that processes, manufactures, or distributes any kind of good is to be prepared with a recall plan. With good communication practices, an engaged workforce, and a lean operation management approach, companies can mitigate their risk of a product recall.

Learn how better communications can help your product recall procedures. Download Beekeeper’s Ultimate Operations Management Strategy playbook.

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• Business and industry
• Business regulation
• Product safety

Historical product recall case study

An independent research report.

PDF , 1020 KB , 72 pages

This study was commissioned by the Office for Product Safety and Standards from Kantar. Its objective was to provide evidence of the factors that support and hinder product recall processes, to inform policy interventions that will improve the effectiveness of recalls in the future. It focused on five in-depth case studies involving interviews with up to five actors and relating to small electrical items, large domestic appliances, the automotive sector, the food sector, and online marketplaces. This was supplemented by 15 stakeholder interviews and consumer research with an online community of 24 participants.

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Prevention and management of product recalls in the processed food industry: a case study based on an exporter's perspective

2006, Technovation

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Measuring the short-term spillover impact of a product recall on a brand ecosystem

• Original Article
• Published: 10 July 2015
• Volume 22 , pages 323–339, ( 2015 )

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• Robert Mackalski 1 &
• Jean-Francois Belisle  

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This research examines the short-term impact of a product recall on a brand ecosystem by investigating the following questions: How do product recall spillover effects spread to (i) the recalled brand’s related product categories, (ii) competing brands, and (iii) private label brands? Studying the 2003 Land O‘Lakes butter recall case using a difference-in-differences model, our research shows that negative spillovers occur within the same brand family, carry over to private label brands and then quickly dissipate, but do not carry over to competitor brands. Managerial implications and directions for future research are provided.

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Acknowledgements

The authors wish to thank the JBM reviewers for their constructive comments and recommendations. The authors also wish to acknowledge the valuable feedback given to them in the early versions of this article by Demetrios Vakratsas, Jui Ramaprasad, and Omar Toulan, professors from the Desautels Faculty of Management at McGill University.

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This paper has been corrected online: 21 July 2015 Please visit the corrigendum for details: doi: 10.1057/bm.2015.23

Land O’ Lakes press release

Voluntary Recall of LAND O’ LAKES® Salted Stick Butter In One-Pound Packages.

ARDEN HILLS, Minnesota, 27 July /PRNewswire/ – Land O’Lakes Inc. today initiated a voluntary recall of approximately 3500 cases of LAND O’ LAKES® Salted Stick Butter in one-pound packages because it may contain small fragments of metal. There have been no reports of injury or illness associated with the consumption of the product covered by this recall.

The affected product was distributed in Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Mississippi, Montana, Nebraska, North Carolina, North Dakota Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming. The product was sold to consumers in retail grocery stores between June 11, 2003, and July 27, 2003.

The recalled product potentially affected has one of the following production codes:

    (Date) KE 107P

    (Date) KE 108P

    (Date) KE 109P

The code can be found above the Nutrition Facts on the package.

The voluntary recall is only for the product with the production codes noted above. No other butter products or production codes or any other LAND O’ LAKES® products are part of this voluntary recall.

‘We are initiating this precautionary recall because the safety and health of our consumers are our first concern,’ said Jack Gherty, Land O’Lakes president and chief executive officer. ‘We’re working with the FDA to ensure any product that has not yet been consumed is removed from the marketplace and consumers’ homes as quickly as possible.’

All the product was produced at Land O’Lakes Kent, Ohio, manufacturing facility.

Consumers who have purchased LAND O’LAKES® Salted Stick Butter in one-pound packages with one of these production codes are asked to return it to the place of purchase for a full refund.

Consumers with questions may contact the company toll-free at 1-877-585-2365 or visit our website at www.landolakes.com/ for further information.

Website: www.landolakes.com/

Graphical representation of states affected by the Land O’Lakes butter recall

States affected by the recall: Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin and Wyoming.

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Mackalski, R., Belisle, JF. Measuring the short-term spillover impact of a product recall on a brand ecosystem. J Brand Manag 22 , 323–339 (2015). https://doi.org/10.1057/bm.2015.19

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Received : 19 May 2015

Revised : 19 May 2015

Published : 10 July 2015

Issue Date : 01 May 2015

DOI : https://doi.org/10.1057/bm.2015.19

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Product recall and liability insurance: How automotive businesses can limit their exposure to losses

By Ichiro Seino , 

Marsh Japan

As Asia’s automotive industry outpaces competition in innovation and technology, the risks of product recall and liability have never been greater. Recently, regulators in China ordered a massive recall of 1.1 million vehicles from an automaker over a braking defect. 1

Meanwhile, securing adequate product recall and liability insurance capacity and/or coverage pose additional challenges to automotive companies. For original equipment manufacturers (OEMs) and parts suppliers, there is a considerable gap between the product recall insurance limit they can obtain (up to US$10 million in most cases) versus the costs of a recall event, which typically exceeds the limit by ten times or greater.

Parts suppliers face further stress as they typically bear most of the product recall liability in their contracts with OEMs. For instance, a Korean battery manufacturer bore 70% of the costs of a US$890 million recall, which lowered its operating profit for the year by nearly 24%. 2  

Combined, these factors can have a severe impact on the automotive company’s balance sheet following a recall. In Japan, a company’s defective airbags led to its bankruptcy following the recall of about 122 million vehicles worldwide at the cost of US$12 billion, 3   with legal liabilities estimated at US$15 billion (including US$850 million for automaker compensation). 4

How do automotive companies respond to the existential threat of product recalls beyond their insurance coverage? These three case studies reveal how an established risk advisor and insurance broker with local industry and claims expertise across the globe, powered by proprietary data and analytics, can play a key role.

Uncovering critical coverage gaps in existing product recall policies

Regular risk profile updates through risk analysis can help uncover potential exposure ‘blind spots’. With the help of insurance placement experts, automotive parts suppliers can also obtain optimal insurance limits covering both local and global markets:

Case study #1: Securing more comprehensive coverage at the same cost for a major EV battery manufacturer

Having suffered a sizeable claim that their product recall insurance policy might not fully cover, a major EV battery manufacturer in Asia approached Marsh to review their existing coverage and ensure its solidity.

Marsh’s regional casualty team first conducted an in-depth analysis of their existing policy wording and highlighted the gaps and deficiencies in relation to the client’s risk exposure. Based on the analysis, Marsh presented the client’s risk to insurers with an updated risk profile and managed to obtain more comprehensive coverage at the same premium and deductibles as the previous policy. The coverage obtained was also at the full capacity required to cover the client’s exposure globally and comply with their OEM partners’ requirements.

Additionally, Marsh set up a recall workshop to help the client understand the complexity of the product and its exposures. From start to finish, Marsh played an integral role in helping the client identify risk gaps, key issues and obtaining a more comprehensive insurance coverage to enhance their protection against potential loss.

When data-driven effort and industry expertise are put towards improving the automotive company’s risk profile, insurers may potentially be more open to providing additional capacity with preferential terms and conditions.

Fulfilling automotive businesses’ growth ambitions with seamless cross-border service

Automotive companies aspire to grow their business and establish a client base outside their local market, where product recall and liability regulations may differ. This case study shows how these companies can safeguard their interests while seizing new business opportunities — enabled by automotive risk management and insurance broking expertise that coordinate seamlessly worldwide:

Case study #2: Facilitating a major Asian auto OEM’s expansion into US and Europe

Intending to expand its operations into North America and Europe, a major Asian EV OEM was unsure of the regulatory risk exposures in these jurisdictions and the appropriate risk management and insurance approach. 

Marsh offered an end-to-end solution to identify and manage the client’s liability risk exposures. First, Marsh organised a workshop covering claims, exposure analysis, legal frameworks in different countries, coverage options, global program structures and functions, contractual analysis, methodologies to reduce risk exposure contractually, and industry practices to aid the client in understanding their risks. 

Following that, Marsh conducted benchmarking and risk analysis to establish the client’s maximum possible loss, as well as adequate insurance limit and retention. With clarity on their risk picture and the coverage and capacity required, Marsh helped source sizeable capacity from Asian and London markets to structure and place a Global General Liability Program with a US$100 million limit.

Throughout the process, the OEM client benefitted from the seamless cross-border coordination of Marsh teams, which helped them obtain the coverage to meet the client’s needs at an optimised cost of risk, and established a global program with full in-country support across all jurisdictions.

Supporting automotive businesses with claims expertise

When a product recall claim occurs, automotive parts suppliers may face severe challenges and disputes arising from the determination of liability. This case study shows how an EV battery manufacturer called upon Marsh to conduct an in-depth investigation with a root-cause analysis to fairly attribute liability:

Case study #3: Helping an EV battery manufacturer limit losses in the determination of liability dispute

Customers of an automaker’s electric vehicle (EV) experienced battery fires, resulting in a government regulator ordering a full product recall of affected EV models. A dispute arose on which party was liable for the defect. 

Marsh’s Claims Solutions team provided an expert to conduct a full root-cause analysis. This established potential issues in the battery manufacturing processes that could have caused thermal runaway and resulted in the battery fires. Marsh’s Claims Solutions team then used this information to establish that liability was an issue for the client, requiring coverage above full policy limits or in excess of US$35 million. 

In this instance, Marsh’s claims expertise was vital to attributing liability for the recall and establishing the quantum above policy limits through additional root-cause analysis, demonstrating entitlement to full policy limits.

Mitigate your product recall risk with an integrated approach

An effective risk management strategy for product recall is vital in reducing an incident's negative financial and reputational impacts on your company. As the above case studies show, safeguarding automotive businesses from potentially catastrophic product recall and liability losses requires risk advisory expertise backed by proprietary data and analytics capabilities, encompassing the following:

• Business continuity management: Robust operational processes and verified quality control backed by a product recall plan that is independently reviewed and regularly tested, incorporating process and governance, information management, stakeholder management and resourcing.
• Enterprise risk management and risk quantification: Financial impact modelling and supply chain analysis (e.g. due diligence, supplier selection and traceability, contractual reviews and risk allocation) to identify and accurately quantify product recall risk exposures.
• Crisis management: Incorporating planning, training key staff, establishing key roles and responsibilities for recall scenarios, and facilitating realistic recall scenario-based exercises. Implementing a crisis communications and response plan that can be effectively operationalised, with or without Marsh’s support, according to the client’s needs.

Limit your exposure from automotive product recall and liability losses with Marsh’s risk advisory and insurance broking expertise.

Schedule a chat with a Marsh Automotive and EV representative today.

1 Engadget. (2023). Tesla recalls over 1.1 million cars in China over braking flaw 2 Nikkei Asia. (6 March, 2021.) LG Chem agrees to cover most of Hyundai's $900m EV recall 3 Eurofenix. (Winter 2016/2017). Takata: The unfortunate recall 4 Reuters. (Jun 2017). Japanese airbag maker Takata files for bankruptcy, gets Chinese backing

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@Royed Updates

Case study: product recall due to labeling error.

In the pharmaceutical market we find many cases where product recall takes place due to labeling error. Here is an example.

Company XYZ is voluntarily recalling two lots of Brand ABAC (methocarbamol tablets, USP) 750mg tablets 100 count bottle pack to the consumer level. The products have been found to have incorrect daily dosing information on the label due to a labelling error which misstates the daily dose as “two to four tablets four times daily” rather than the correct dosage of “two tablets three times daily.”

Patients who follow the directions on the bottle may experience significant drowsiness or dizziness which would put them at risk of falls or an overdose which could result in seizures, coma, or death.

Brand ABAC 750mg Tablets contain the active ingredient methocarbamol and are indicated as an adjunct therapy to rest, physical therapy and other measures for the relief of discomfort associated with acute, painful musculoskeletal conditions. Brand ABAC 750mg Tablets are packed in bottles of 100 tablets with package labeling featuring the product name, strength, lot number, expiry date and the National Drug Code number NDC xxxxx-xxxx-xx.

The recall includes the following product lots: Brand ABAC 750mg, 100 Count Bottle pack, Lot XXXXXXX, Expiration Date: <date>; and Brand ABAC 750mg, 100 Count Bottle pack, Lot YYYYYYYY, Expiration Date: <date>.

Comapny XYZ must notify distributors and retailers in writing through Inmar, Inc. Inmar is arranging for return of all recalled products.

Distributors and retailers that have product which is being recalled should stop distributing and dispensing and return to the place of purchase.

This Product Recall is being made with the knowledge of the United States Food and Drug Administration (FDA).

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