The Full Repercussions of a Product Recall.

The financial impact of a product recall is immediate: the costs associated with notifying customers through advertising, retrieving the defective products and disposing of them correctly can be huge. In 2018, Ford Australia issued a recall of approximately 43,000 vehicles due to a defect that could cause the vehicles to catch fire. The recall was estimated to have cost the company around $300 million.

But there are hidden consequences, some of which can be very long lasting. For example, legal costs and damages claims from affected customers. In 2017 Fisher & Paykel agreed to pay $25 million to settle a class action lawsuit brought by consumers who had purchased defective washing machines that were prone to catching fire.

If it transpires that the product’s safety compliance is in doubt, then there’s the high likelihood of a substantial fine being levied by the ACCC (Australian Competition and Consumer Commission), which in certain cases can reach multiple millions of dollars. And SMEs commonly fall foul of ACCC scrutiny. In 2019, Thermomix Australia was fined $4.6 million when one of its popular kitchen appliances was found to have a defect that could cause hot liquid to escape and burn users.

Over the long term, the effects are possibly even more painful. A product recall can significantly damage a company’s reputation. Customers lose confidence in the company’s ability to produce safe and reliable products, which can lead to a loss of trust and a decline in brand loyalty. To add insult to injury, a company’s competitors may well use a highly publicised product recall as an opportunity to divert customers to their own brand.

It has been estimated that up to 80% of a company’s total financial losses are incurred long after the offending product has been removed from the shelves. A decline in sales and loss of market share can impact the company’s bottom line for years.

Finally, one of the overlooked but still significant effects of a product recall is its negative impact on employee morale, particularly if employees feel that the company’s reputation has been damaged or if they are involved in the recall process. This can lead to a drop in productivity, increased staff turnover, and other workforce-related issues, all of which comes with an associated financial cost to the company.