By Alex Balcombe, Partner at Harris Balcombe
John Lewis, Tesco, and Hotpoint have all been in the news in recent months over product recalls. They can affect your reputation and potentially cause long-term damage to your business. Dealing with the ensuing regulatory issues, while establishing out what actually went wrong to prevent it happening in the future, can be stressful, particularly when you’re also trying to manage your insurance claim.
One of the biggest concerns in product recall situations is damage to reputation. Will it cause people to turn away from your brand in the future? Will it affect their thoughts of your brand? And how will you deal with a potential loss in profits?
There are a number of reasons that products can get recalled – but usually it’s for safety or quality reasons, spanning from food contamination to fire risks. One of the more recent and widespread recalls came from the washing machines of Hotpoint and Indesit. It found that models it has been producing between 2014 and 2018 could have a defective door catch on certain models, which can lead to overheating during use.
They do have the potential to cause catastrophic losses to businesses. One extreme, global example was the Samsung Galaxy Note 7 recall, following the news that some of them were bursting into flames. The issue cost them $5.3 billion.
No matter what, you must be able to minimise the disruption of your business. From food to pharmaceuticals, how can you best handle a product recall situation?
Plan before it happens
Assume that every single one of your products could get recalled at some stage. It sounds extreme, but it’s far better to be proactive and have a plan in place ahead of time. Ensure that you have taken out the appropriate insurance, and make sure you also get advice on any issues that might affect liability, such as compliance with warranties and conditions.
It may not be your manufactured product that causes a recall, it could be something from a supplier. Make sure that, whether you’re in the automotive or grocery sector, you cover your bases and analyse health and safety standards before getting into business with them. If you can, tour their warehouse, check for reviews and thoroughly check to make sure there have not been prior issues with the stock.
Don’t sacrifice satisfaction for profit
One serious mistake some can make is to focus specifically on profit in the event of a significant recall. But this focus can actually be detrimental to your profits later down the line – especially if people can tell that you’re just focused on the bottom line.Sometimes you just need to take a revenue hit in the short term, to ensure that customers stay loyal. Offer a full refund if possible, pay for repairs, or offer other beneficial alternatives. Make it as easy as possible for them to return or dispose of the product.
Stay Visible
No one likes it when they don’t get answers. Don’t just issue one press release, then hide and avoid other communication. Social media can be a really good benefit, not a hindrance, for those who suffer product recall situations, as it allows you to keep contact with your customers and maintain messaging on your own terms. You might even find out about a defect from a social media message.
In the short term, you may need to hire extra staff to keep communications always on, especially if it is a safety issue. Hold a press conference, issue a statement, and being open will help you to maintain professionalism but also ease the minds of your customers.
Release thorough information
People want to know where to go from here, especially if it’s food, pharmaceutical or child-related. Do they need to get checked by a GP? Do estate agents need to issue certain advice to their tenants if they own a certain appliance? They may need specific or technical advice.
Make sure you educate and inform your customers – no information is too much information. But it must be easy to understand – write to your audience. If they can’t understand the corporate or business jargon you’re using, they might not understand the importance of the recall or actions they need to take.
Stay Legal – Don’t Cut Corners
Obviously you’ll get advice throughout (and hopefully before), but when a recall involves potential dangers, to your customers, you need to make sure that you’re complying by all legalities as government agencies will also likely get involved. Make sure that all steps are taken – any work to reduce this next time.
The insurance claim process can be tricky and time-intensive. A loss assessor can help with this full process by scrutinising your policy wording, and advising you on any issues that may affect liability, such as compliance with warranties and conditions. They will also work with your crisis management team and take part in practise runs to test that your crisis plans are effective and realistic – hence why it’s important to plan in advance.
They can also identify parts of the policy that protect against various setbacks. For example, it is common for major grocery retail chains to charge suppliers for costs incurred by the recall of their goods, such as removing products from shelves and the associated admin. If the insurer declines these charges, it is likely that the policyholder will lose their customer. Experts may be able to argue that these charges should be covered by the product rehabilitation term found in many policies because they will impact the business if they are not paid.
If the product recall is down to a supply chain issue, they will work you with and any supplier who may have provided a defective good, to make sure that the excess and other uninsured elements of the claim are covered.
Despite your commitment to being safe and offering high-quality goods, product recalls can still happen, especially when there’s a big supply chain involved and a myriad of places for something to go wrong. But don’t panic. Investigate the issue, report it, and handle it. If you follow the steps above, you’ll have a plan in place before it happens – and you’ll thank yourself later.
