Case Analysis: Black and Decker Corporation: Spacemaker Plus Coffeemaker (A)

By: Team Victorious Secret

Black and Decker Corporation: Spacemaker plus Coffeemaker (A)
Identifying the Problem: A fireplace was reported inside a Black & Decker Spacemaker
Plus Coffee maker by a customer .However, it was not a potentially dangerous situation
for the concerned consumer as the fire was limited to the coffee maker. As the issue was
probed further,it was found that
the product had met the requirements of the
Underwriters Laboratory (an independent testing unit) ,during the design test
stage.However, a laboratory test showed that ,even though there were two temperature
Control Units fitted on all coffee makers , there was overheating whenever the feed from
the reservoir to the heater element was clamped thereby depriving the unit of water and
hence overheat it.Hence,there was a substantial risk of a product hazard.There were two
problems facing the company: 1) Is there a need for product recall and what are the afterrecall success factors? 2) Should the recall be done via a cash-refund or a product
replacement?
Should the product be recalled or not?
Product recalls in U.S.A. were not uncommon as according to figures given in the case
annually on an average about 100 products were recalled.The following will help in
determining if an immediate recall was the need of the hour.
Gravity of the safety issues: According to the CPSC (Consumer Protection Safety
Commission) guidelines as under, lets analyze the seriousness of the safety problem.

Product Usage: The coffeemaker being an object of high utility in everyday

lives of various consumers there lies a significant scope of overusage/misuse
of the product.

Likelihood of an Injury: As it is an electric item, potential risk of short circuit is

always there. Also if the consumer is in proximity, it might be harmful to him.

Physical environment of defect manifestation: Coffee,being consumed multiple

times in kitnchens and various social locations like office cafeterias etc ,it has
significant risk of manifestation in multiple locations

Legal enforcements on product liability, public health and safety: Under the
United States Consumer Health Safety Act, knowledge of a health hazard
places the onus upon the manufacturer for immediate recall.

Number of defective products and population group exposure: No of potential

defective products percentage wise is 100% of all units PDC403 and PDC401
manufactured, while the population exposure involves potentially families in
various households.

Considering the above, the safety problem was indeed substantial and hence an
immediate recall was required.
Sources of serious product defects: According to the guidelines given by Consumer
Public Safety Commission (CPSC) a product would be recalled if a dangerous defect would
arise in

In product function
Product design
Product contents, design, finish, materials, instructions etc.

Case Analysis: Black and Decker Corporation: Spacemaker Plus Coffeemaker (A)
By: Team Victorious Secret
Since the company has detected a flaw in product construction and body design it would
highly advisable to recall the product as against being recalled by CPSC as that would
send a message of being cheating or hiding the flaw from the customers and which would
result in serious loss to brand image of the company
Risk of Legal Consequences: that if company does not recall its product or is ordered
by CPSC to recall the products it has to face many legal litigations which would be
cumbersome for the company.
Impact of a Product Recall

Future Sales Growth: The potential payoff for successful brand recall will be
that consumers will be attracted to the Spacemaker brand which will increase
the revenue for the Black and Decker Corporation.
Better Customer Relations and Brand Image: If the company voluntarily recalls
the product, it could send across a message to its consumers that they are
equally responsible towards safety of the consumers and are accepting their
mistake which would help those maintaining better relations, gaining the trust
and retaning the loyalty of the customers in long term.

Method of Product Recall:

Sooner is always better.

Take responsibility and minimize the damage. "Public backlash can occur
for two principal reasons: distress that a product is somehow defective, and
distress at the matter in which the recall was (or wasnt)
communicated. Company can minimize public backlash by being proactive
and transparent, virtually eliminating the second principal cause of distress."
Use every possible communications channel. "Recalls related to public
safety should be made using every possible communications channel, on- and
offline. Its better to over-communicate rather than take the risk that
important stakeholders miss the message."
Empower all employees with accurate information and consistent
messages.Every employee is now a PR rep for your company. Don't try to
control damage by restricting the flow of information internally -- be sure
every member of your organization is equipped with the information
necessary to represent the situation accurately and appropriately to anyone
who asks.
Don't wait for regulatory agencies to get involved. Bureaucratic
government processes "can often delay how much time passes before product
consumers and distributors are notified -- a delay which, in worst-case
scenarios, can cause injuries or deaths."

Cost Benefit Analysis:

Cash return or Product replacement: Here, product replacement ought to

be favored over cash refund because the cost of product replacement is
$229167 whereas the company will incur a cost of $633334 in case of cash
refund. Other than obvious cost advantages, there is a scope of increased
brand equity in case of product replacement. When consumers replace the
product and use the new coffeemaker:
1. They see that the company has taken complete responsibility for its product
thereby enhancing positive brand image.

Case Analysis: Black and Decker Corporation: Spacemaker Plus Coffeemaker (A)
By: Team Victorious Secret
2. When they see the new coffeemaker working as per requirement, they would
see that other than being responsible the company is competent in its core
domain.
So, a recall campaign if handled effectively can be a brand building exercise for
Spacemaker plus Brand.
Also, the cost of 4 million is effectively justified by preservation of brand equity which can
lead of increase of market share of Black and Decker from 14.9 % in Jan Mar 1987 to
23.3% in Oct Dec 1988 thereby displacing Mr. Coffee and emerging as dominant player in
the market.
Total units sold (by volume) = 25000. Total market= 200000
Now if the share becomes 22%, no of units sold = 44000
Net profit: (provided the ratio of PDC 403 to PDC 401 units remain the same): 3.4 million.
Adding the income from knife and mixer sales, this number will cross 4million thereby
implying the company will be in a positive financial condition if it effected a product
recall.