Do Product Recalls Work?

India Retail News
April, 2013
Do product recalls work? A new study in the Journal of Marketing, published by the American Marketing Association, suggests that product recall programs are beneficial to society as it often galvanizes action within a company and reduces accidents in the future.
While product recall programs have existed in the United States since the 1970s, the value of these programs has frequently been questioned. Critics of the product recall program in the automobile industry suggest that recalls actually increase the number of accidents because of the extra driving needed to fix problems. A team of researchers from the University of South Carolina and University of North Carolina (Kartik Kalaignanam, Tarun Kushwaha and Meike Eiler) examined the value of product recall programs. The researchers evaluated major product recalls experienced by 27 automobile makers between 1995 and 2011. The researchers find that product recalls leads to higher reliability and lower accidents in the future. It turns out that organizations rarely have the motivation to improve reliability beyond a certain threshold. Product recalls serve as the catalyst for changing the organization's practices which may not happen otherwise.
Furthermore, the researchers find that the learning outcomes are better when the products in the firm's portfolio share manufacturing plants, suppliers and components. One of the criticisms often leveled against auto-makers is that the practice of lean manufacturing is in some way responsible for frequent lapses in product quality. The researchers of this study say that the evidence does not support this speculation. They, in fact, suggest that lean manufacturing enables firms to recover better from product recalls.
Interestingly, the study also finds that brands of lower quality are more likely to improve reliability after a recall. The researchers suggest that brands of higher quality are often in denial about lapses in quality and are less motivated to respond to product recalls. Product recalls may be a silver lining for lower quality brands to improve their competitive position in the market. If recalls lead to more reliable products, isn't it better to have more and more recalls? Not really, say the researchers. The message is that there is need for careful pre-market screening of products. This is not much of a priority for firms as they have the desire to grow rapidly. Growth and product quality, as we know, are rarely lock-in-step. The value of product recalls lie in curbing a company's desire to grow at the expense of quality.