Product recalls: Money and reputation at stake

From Samsung’s colossal decision to recall their flagship Galaxy Note 7 smartphone to Toyota’s recall campaign of various car models within the UAE market, these campaigns have the potential to dominate headlines
17 May 2017 | 15:09

BEIRUT: When a major brand reveals a serious safety problem with one of its products, the resulting product recall not only undermines consumer trust but potentially destroys a brand’s reputation.

From Samsung’s colossal decision to recall their flagship Galaxy Note 7 smartphone to Toyota’s recall campaign of various car models within the UAE market, these campaigns have the potential to dominate headlines.

This past year was an interesting one in many respects, “The product recall and contamination market continues to evolve and develop in 2016, with several high-profile events regarding product safety in the news,” according to a report by Aon, a U.S.-based risk management firm.

The report says while consumables will continue to make up the vast majority of product recalls, non-food consumer product recalls such as electronics and appliances, increased 12 percent in the third quarter of 2016 to nearly 41.3 million units.

“Much of this spike — though not all of it — can be attributed to the Samsung Galaxy Note 7 smartphone recall announced in September of 2016. The Samsung event was definitely the most widely publicized recall of the year due to the potential for batteries to overheat and result in serious injury or fire,” the report highlighted.

Although global product recalls seem to be on the rise in recent years, recall campaigns are almost unheard of in Lebanon and some countries in the MENA region.

“The fact that Lebanon is barely affected by these campaigns is mainly due to the country’s small market size, which accounts for a fraction of the total sales of a company’s product,” an Economy Ministry official told Annahar.

But even when imported products are affected by a global recall campaign, rarely do local agents make the recall announcement public. Instead, most of them choose to directly notify their clientelle, the ministry official, who spoke on condition of anonymity, told Annahar. "This is due to their small clientele base," he said.

The law requires dealers to only report the recall campaign to the Economy Ministry, the official added. Asked why the ministry doesn't make the recall announcement public, the official said it was more convenient to have the dealer directly contact owners of affected products due to Lebanon's small market size rather "than make a fuss" in the media.

Earlier in March, Toyota declared an international recall campaign of 2.9 million units of their RAV4 and Corolla Axio due to potentially faulty airbags and Sienna minivan due to faulty sliding doors.

The news made global headlines, however, “the recall campaign doesn't affect vehicles imported to Lebanon,” said Maria Boustany, Manager of Marketing and HR at Boustany United Machineries Co. (BUMC), the exclusive distributor of Toyota and Lexus in the country.

Boustany highlighted that during a product recall campaign, affected customers are contacted directly via telephone to inform them of the safety measures needed and given an appointment at their nearest service center, which is offered free of charge for both labor and the necessary parts.

“BUMC also provides an official announcement to the government, directly through the economy ministry, while direct contact with concerned vehicle owners is the most efficient plan of action since we have a complete database of our clientele,” Boustany told Annahar.

She also noted that if Toyota vehicles that aren’t imported by BUMC – but brought into the country via an independent seller – are affected by a certain recall campaign, the company would fix the defective vehicles free of charge. “All Toyotas vehicles are under the umbrella and care of BUMC regardless of their origin, although we stress that buying a Toyota from the distributor is always the safest option,” Boustany added.

Another leading automotive distributor in Lebanon – who chose to remain anonymous – confirmed that they undertake the exact same procedures of recalling faulty vehicles.

When product recalls occur, brands could suffer from financial and reputational damage. “The immediate financial impact of the recall process and any lawsuits that accompany it is typically quite high, while a hit to a brand’s reputation can drive that cost even higher,” said Dana Zoor, media relations executive at Beirut-based Rowat Public Relations firm told Annahar.

Ultimately, Zoor highlighted that a brand’s biggest challenge in the face of a product recall is regaining consumer trust; while the media moves on, customer mistrust can linger for a much longer time. “Sometimes the turnaround can be achieved by using good and timely PR or a change in the manufacturing process that demonstrates to consumers that the problem has been fixed,” she added.

The best way brands can recover is to own the situation. "Brands need to prove that the underlying issue has been resolved, that they have done the right thing by any hurt or affected customers and that they have invested in systems and training to prevent the problem from ever happening again," said the PR practitioner.

One thing is certain: rebuilding a brand following a product recall takes time and effort. The process requires a long-term focus on reputation, not just the next quarter’s sales figures.

According to the report by Aon, recalls of potentially dangerous or defective products are on the rise, in the United States, and around the world. “The drivers of this trend include increasingly aggressive government regulators with enhanced authority to pursue recalls, a technology that makes it easier for consumers to complain about unsatisfactory products and an ever more complex and far-flung global supply chain that is harder for manufacturers to control,” the report added.

As recalls rise, the stakes for businesses involved also grow, in both monetary exposure and damage to reputation; companies can rise or fall depending on how they navigate this tricky terrain.

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