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How Does a Product Recall Affect Your Business


Product recalls are the process of recovering and replacing faulty consumer goods. When a business issues a recall the cost of recovering and replacing the goods falls to the business or the manufacturer. Not only does the business suffer due to the cost of replacing the goods, their reputation also gets damaged in the process.

The number of product recalls has increased considerably during the past decade or so. Larger companies issuing recalls can have multi-billion dollar losses. Product recalls can affect several industries including automobile, food, medicine and consumer electronics. More and more companies are looking into hiring a field marketing agency, to get reports on their businesses from their customer’s point of view – so that they can avoid situations like this.

Though larger companies often have strong aftereffects, smaller companies have lasting financial consequences. While larger companies are able to withstand the short-term effects, small companies generally cannot sustain brand degradation and financial losses.

Financial Repercussions

Due to consumer protection laws, suppliers and manufacturers must accept any product recall costs. Through lost sales, government sanctions, lawsuits and replacement costs, the process can end up being a multibillion-dollar transaction. The losses can lead to a decrease in stock prices as well. On top of that, refunds have to be made to customers and products have to be taken from distributors, thus resulting in a profit decline.

In addition to the standard costs, businesses might also find that there are some hidden financial costs. These could include the cost of employee retraining and turnover, higher insurance premiums, liability expenses, and higher prices to make up for the reduced amount of commodity supplies.

Depending on the contract between the parties, it varies on who foots the bill. The quickest way to get money back is through making a successful claim on your company’s insurance policy.

What Can Be Done?

After a product has been recalled, there’s little the company can do about changing that. So instead of the company failing, they can choose to take a strategic approach to managing the recalls. This approach can help keep your company afloat and start gaining your customers trust again.

Many, if not all, companies in this situation face their reputation on the line. So, the focus for the company is to reassure their customers through their stellar customer service. Hiring a product recall company can help you speed up the process of getting your service back on track, and allow you time to assure customers of a speedy response. These product recall companies can ensure that your products are withdrawn from distribution centres, wholesale outlets and retailers. The main goal of the product recall company and your company is to get new products back onto the supply chain and through the testing and examinations.

While the product recall companies, like Tactical Solutions, are dealing with the product replacements – your company can focus on rebuilding trust with your customers. It is vital to assure your customers that the issue is being fixed and that it will never happen again.

Prevention Tips

Though most companies start to deal with recalls once they happen, it’s important to place prevention methods to help you further down the line. These tips will ultimately save you time, money and the reputation of your business.

  • Review existing insurance policies and ensure that product recall is covered with a focus on the loss of profit and business interruption.
  • If not, consider a stand-alone product recall policy.
  • Review commercial contracts for effective guarantees – ensure suppliers have sufficient insurance.
  • Plan in advance for allocating a team to deal with the responsibility and logistics.


Consumers are forgiving, so if a firm acknowledges the problem, apologizes, and tries their best not to make the same mistake again – consumers will continue to have brand loyalty. How a company handles product recalls can make or break the business. If they handle it well, it can turn into an advantage for the company. It might also increase consumer satisfaction from where it was pre-product recall. The sooner that a product is recalled the better, because it can obviously leave customers in doubt as to why they haven’t been told sooner that a product was unsafe or unfit for consumption. It may be an embarrassing thing to undergo for a company, but customers will trust you if you hold your hands up and admit your failure rather than trying to cover it up when you have the power to rectify the situation.

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