A product that malfunctions, has serious flaws or, worse, poses a danger to consumers can be a serious threat to a company's success. In addition to hurting profits, a product recall is likely to damage an organization's reputation, which can be even harder to repair than financial losses.

Earlier this month, an investigation by the Food and Drug Administration revealed widespread salmonella contamination of eggs across the United States, leading to a series of recalls that has resulted in nearly half a billion eggs being pulled from shelves and the introduction of stricter food regulations. In addition to the human cost of tainted-food illnesses, these recalls are likely to cause problems for the affected egg producers for the foreseeable future.

If a product recall is unavoidable, there are a number of steps a company can take to address the problem, reassure customers, recover its reputation and reduce the likelihood that similar mistakes will be made in the future.

"Despite a business owner's staunch commitment to safe practices, product recalls can and do happen. Given how many parties are typically involved in getting a consumer product to market, there are a myriad of places for something to go wrong," Inc.com explains. "In fact, more than 2,500 product recalls occur in the United States each year."

The first step in performing an effective product recall is to prepare an emergency plan. Make sure you know the specific regulatory and legal standards governing your product or industry. Next, establish a chain of command that clearly defines the responsibilities of everyone involved in the product recall. Setting up a special "task force" to handle all recall-related measures can help with this process.

The next step is to identify the problem and its extent. "First, find the root of the issue. Was it a problem with the product design, or is it a manufacturing defect? From there, you need to quantify the damaged goods," Inc.com advises. "Depending on what your investigation reveals, you may have a legal duty to report it to the government agency that regulates your industry."

Also, be sure to review the U.S. Consumer Product Safety Commission's recall checklist to make sure you cover all your bases.

Most product recalls are voluntary, with companies coordinating their investigation and safety measures with federal agencies. In rare cases, the government will force a company to take a product off the market, although in most situations, the company will do so itself when it identifies the potential risks.

"The cost of a recall varies widely by industry and product type. A company that manufactures low-end jewelry will typically see less than 10 percent of their customers send the product back to have it refunded or exchanged," CNNMoney.com explains. "If it's an appliance, the return rate shoots up to 30 percent to 50 percent. But if you sell a medical device — or, say, a Toyota — where a life could be in the balance, returns shoot up considerably."

Crisis management firm Wilson Consulting offers the following recommendations for navigating a product recall:

• Cooperate with stakeholders. Customers, suppliers and government agencies will all be involved in the recall process, so make sure to work with them rather than taking an adversarial stance.
• Act quickly. When dealing with a faulty product, it's crucial to react swiftly and confidently to pull the item and reassure the public that you have the problem under control.
• Don't point fingers. Trying to shift blame onto someone else will only hurt your company's image, so focus on fixing the problem first and leave the reprimands for later.
• Don't wait to have your hand forced. Hesitating for too long or trying to argue your way out of a recall may lead to the government forcing your product off the shelves.
• Don't focus on the money. Recalls are usually expensive, but the cost of mishandling a recall can be much higher. In many cases, your company's financial future depends on how well you deal with the crisis rather than the initial expense of doing so.
• Reach out to customers. Consumers who purchased your product are likely to be upset over the recall. Try to maintain their loyalty by offering them something in return.
• Apologize if it's called for. An admission of guilt is different from an apology. It's OK to say you're sorry, even if it's only for inconveniencing your customers.
• Communicate openly. Try to answer questions from the media, customers and your own employees. Not providing information creates a vacuum for rumors and horror stories.
• Investigate the problem. Be sure to trace not only the source of the faulty product, but also its full extent through your distribution network.
• Be prepared. Having a crisis plan is a necessity that will help cope with unexpected circumstances in an effective manner.

"Recalls undermine trust in a specific brand and it can take the company a long time to recover from the damage to its reputation, but it doesn't have to take a long time if the company uses good crisis management tactics," Manpreet Hora, an assistant professor in Georgia Tech's College of Management, said in a study analyzing 500 recalls. "Consumers are forgiving, so if a firm apologizes, acknowledges the problem, and doesn't make the mistake again and again, consumers will continue to be loyal to that brand."

Earlier

Building (and Rebuilding) a Reputation

Strategic Actions to Improve Food Safety

Effective Recalls and the Perilous Easy-Bake Oven

I Would Like to Publicly Say: 'My Bad.'

Resources

Salmonella Enteritidis Outbreak in Shell Eggs
U.S. Food and Drug Administration, Aug. 26, 2010

How to Survive a Product Recall
by Peter Vanden Bos
Inc.com, June 24, 2010

Recall Checklist
U.S. Consumer Product Safety Commission, Jan. 1, 2001

Surviving a Product Recall
by Geoff Williams
CNNMoney.com, April 20, 2010

Ten Tips to Surviving a Product Recall
by Steve Wilson
Wilson Group Communications, 2003

Toy Returns: Study Reveals What Companies Should Do to Recover
by Abby Vogel
Georgia Institute of Technology, May 11, 2009