Black and Decker

Group-15
Background facts
1. Black and Decker replaced its culture from complacent manufacturing mentality
to customer driven marketing strategy.
2. B & D acquired GEs small appliances business and successfully merged it into its
mainstream by effective marketing program.
3. B&D majority sales was in US with 52% followed by others with Household Product
Group (HPG) division as the main focus area for future contribution margin.
4. One of the mainline products Coffeemaker named Spacemaker fails quality test
and is to be decided on its fate.
For successful product recall strategy
Readiness
Checklist

For recall readiness, the company must first ensure upper management
support for recall preparedness; senior managers must instil an
organization-wide recognition of the importance and seriousness of good
product recall strategies

Communica
tion

Communication is the most important segment in the process. Progress

of the recall and the steps being taken to fix the problem must be
reported to stakeholders; this will maintain stakeholder trust and loyalty.
Additionally, Black & Decker must reassure the stakeholders that the new
process being put in place is safe. This will increase consumer confidence
in the product and company

Sooner is
always
better

Recall is done the best way if it is done as soon as possible. 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

Don't wait
for
regulatory
agencies to
get
involved

The success of the recall also depends on how much time passes before
product consumers and distributors are notified -- a delay which, in
worst-case scenarios, can cause injuries or deaths. Then, the consumer
courts can impose very high penalties.

Evaluating the decision to recall the product should be based on the cost of recall and/or
the opportunity cost lost in sales.The company through the retail distribution channel had
distributed 88400 coffeemakers. Estimating that 30-35% had been sold, there would be
around 25,000 units with consumers across 90 million households across the US, only
10% of which had submitted warranty cards bearing owners details.
There were several considerations made:

Obligation under the United States Consumer Product Safety Act to recall a
product when there was knowledge of a substantial product hazard.
Low industry standard of return rate for small domestic appliances at 5%
The cost of recall at a 25% return rate was estimated at $ 4 million, excluding
opportunity costs of lost sales.
Damage to the Companys brand name
Estimated time for the recall activity
Several previous unsuccessful recall attempt
HPG had never recalled a product before

Black and Decker

Group-15
Hence, company decided to go for a voluntary product recall
Calculations-Consumer recall
Assumption:
25000 units sold @ 25% response
Product variants
PDC403 @ $40
PDC401 @ $30
Replacement (current manufacturing prices)
PDC403: 25000*25 %*( 2/3)*40 = $166,667 {Sales of PDC403 is twice that of PDC401}
PDC401: 25000*25 %*( 1/3)*30 = $62500
Logistics
Freight, label & administration charges = $100/unit
Total cost for consumer recall = Logistics + replacement (PDC403+ PDC401) = $0.855
million
Calculations- Retail recall
Assumption:
63400 units for refund (& rework)
Lost margin
63400*30 = $1.9 million
Logistics
Freight, refunds on joint administration = $0.5 million
Rework cost
63400*10 = $0.635 million
Total cost for retail recall = Lost margin + logistics + rework = $3.035 million
Total cost appx (with current manufacturing price) = consumer recall + retail recall =
$3.89 million