The Cost of a Recall

The total cost of a product recall is often hugely underestimated. In addition to the more obvious practical costs, there are many intangible costs that can mount up to make a product recall very costly.

A product recall can have an enormous impact on brand reputation which can cause long term effects on sales and can even cause a business to go under. Many companies choose to mitigate the financial impact via recall insurance, but this cannot cover all the costs.

Try estimating the cost of recalling your leading brand using our Cost Estimator tool:

How can we help you?

If you develop, manufacture or distribute consumer products anywhere in the world today, you need to talk to RQA.

Cost Estimator

(m = million)

Cost Type Limited Local Recall Widespread Multinational Recall Comment
Consumer Hotline
Cost:
$0 $0.3m
Call center costs can easily escalate to very large figures when involving multiple territories and languages.
Cost of Shutdown
Cost:
$0 $5m
If your plant is shut down due to contamination or compliance issues, costs can escalate rapidly.
Crisis PR & Social Media Campaign
Cost:
$0 $0.25m
You may need to hire an outside PR firm to manage the message to different constituents. Social media monitoring and response will also be escalated.
Disposal
Cost:
$0 $0.4m
Disposal by certified destruction may be required if the product contains certain contaminants.
Fines
Cost:
$0 $1m
Fines imposed by regulatory authorities related directly to a product recall.
Packaging Redesign
Cost:
$0 $0.1m
Many recalls are due to errors in labelling and costs for new packaging can be significant.
Point of Sale Notices
Cost:
$0 $0.05m
These need to be produced and then distributed to stores internationally.
Post Recall Advertising
Cost:
$0 $2m
The cost of advertising on traditional and social media to reassure consumers following a recall and to rebuild trust in your brand.
Recall Notices
Cost:
$0 $0.1m
This may just be a notice on your web site or depending upon the product and risk recall notices, may require publication in newspapers and magazines.
Repair / Correction
Cost:
$0 $1m
In some cases, (non-food) products may be corrected rather than being returned or disposed of. This may involve teams of professionals visiting domestic or industrial locations.
Retailer Charges
Cost:
$0 $0.15m
The retailer chains may charge administrative fees to cover the cost of notifying store networks and removing product from shelves.
Shipping & Logistics
Cost:
$0 $0.5m
Recalled product may be sent to centralized warehouses for sorting or to await destruction. These warehouses will often be additional contracted capacity.
Specialists / Labs etc.
Cost:
$0 $0.2m
Laboratory testing often forms a key part of the investigation process, sometimes involving unusual and highly expensive tests requiring premium turnaround.
Value of Loss of Contract
Cost:
$0 $20m
Companies may lose the contract to supply following a recall; especially if the manufacturer is unable to restore confidence in the safety or quality of their processes.
Value of Recalled Product
Cost:
$0 $10m
The value of the product being recalled can be very high. If a recall is due to a faulty component or contaminated ingredient, the value of the finished product may be the value of the component. This can come as a big surprise for component / ingredient manufacturers.
Value of Unaffected Recalled Product
Cost:
$0 $1m
Value of product may also include batches of products that are recalled that may not be affected by the recall. If traceability capability is poor, over recalling may be high.
TOTAL COST (USD):

Hidden Costs

Other costs after the initial recall action to add into your final bill:

  • Reduced sales
  • Reduced profits
  • Increased regulatory scrutiny by government authorities
  • Increased testing and quality assurance / safety procedures
  • Unfavorable resolution of litigation
  • Ongoing legal fees
  • Prosecution of members of the board of directors in relation to product safety breeches
  • Risk of increased insurance premiums
  • Cost to reputation
  • Reduction in share price and therefore company value
  • Cost to change or correct manufacturing process
  • Increased threat from competitors

Second tip:
In the long term, the biggest threat to your company could be intangible brand damage. How you respond to the product recall can determine whether it becomes a major crisis and damages your brand in the eyes of your consumer and investors. Alternatively, a well-managed product recall is quickly forgotten and will keep your company from becoming a case study for poor crisis management.

Prevention, planning and execution are essential to a “successful” product recall or crisis. Leading insurance providers subscribe to this philosophy and offer their insured a percent credit of the net premium that may be used towards Crisis Management services and consultancy provided by RQA, Inc. RQA offers a comprehensive range of risk mitigation and recall response services.