Saturday, September 29, 2007
The recall scam: why companies win even if their products are recalled
Harvard Business School professor John Quelch writes:
Mattel has been criticized heavily for having to recall not once but twice in as many weeks 20 million toys manufactured in China with lead paint and/or loose, potentially dangerous magnets.
Clearly Mattel did not have sufficiently tight quality control procedures in its supply chain to compensate for the extra risks of outsourcing to relatively new Chinese subcontractors. Clearly there were design flaws in the toys with the magnets that could come loose.
But Mattel deserves praise for now stepping up to its responsibilities as the leading brand in the toy industry.
Professor Quelch and other business writers seem to think Mattel is handling the recall well. He writes also:
Ultimately, the success of the recall will be determined by the percentage of affected products that are returned. Anything less than 90 percent within 3 months for a child safety hazard will represent failure.
As long as the 2 recalls to date are the whole of the problem and not the tip of an iceberg, Mattel's brand reputation should survive.
Let's see... 20 million hazardous toys, 90 percent recalled. That's 2 million still out there. I wouldn't call that a success. That's 2 million children at risk, but Mattel's brand reputation should survive? Not.
Mattel may literally be getting away with murder.
The company offered parents coupons good only for other Mattel products in exchange for the known hazardous toys. Maybe parents don't trust the company enough to buy any more of its products. Who knows what risk the replacement toys might bring. This is not the best incentive to return the dangerous items.
Clearly, the company has totally failed to protect children, and a recall does not remove the hazard they have created. Marketing gurus such as Quelch are talking about damage control for the corporations, not for the children. Shame on them.
Outsourcing to China with lax quality controls in place is good for executive salaries and for the stock price. So we have a triumph of greed over responsibility here. Those who still believe that the "free market" looks out for the best interests of consumers should be called on the stupidity of that claim.
Other lead-painted toys have been discovered in stores. I hope Congress will consider legislation that penalizes corporations beyond requiring recalls when/if they are caught. Mattel realizes profits on every toy not returned, and is compensating parents with its own products at first cost. Suppose they were required to forfeit the retail price of all toys still in the distribution chain?
That sort of penalty might cause companies to think twice before abandoning basic quality control on their products.
Hey, if you haven't written or called your Congresspeople recently, why not drop them a note on this. Let's start a consumers' revolt.
Marketing gurus such as Quelch are talking about damage control for the corporations, not for the children. Shame on them.
They are business professors, not sociologists. They are paid to talk about brands--not about children. Perhaps they picked the wrong career, but given what they are now, I think it is appropriate that they recognize they don't have any particular expertise at telling us what the likely effects on children are and stick to what they know.
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Re the main point, I'm all in favor of Mattel having to pay something for the recall. I don't know if those penalties should necessarily be tied to the retail price of the product though. Why should a company that produces a lower price product pay less for the same violation that a company that produces an expensive product does?
I hadn't thought about that. There ought to be a significant penalty of some kind, though.
Since not everyone returns recalled goods, companies get away with a small profit. Or maybe no one catches up to them and they get away with it.
There should be some penalty with teeth, methinks.
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