A recall: Samsung’s prepared strategy

The company recalled its products, and its stock price is rising while it is expected to suffer as much as 2 trillion won ($1.8 billion) in loss. Samsung Electronics recalled the Galaxy Note 7 due to battery explosion.

Clearly, Samsung is at fault for failing to release a safe product. nevertheless, the shock on the market is less serious than expected because Samsung quickly decided to recall the model. A source at Samsung said that the company had studied and learned from similar events in other countries.

Precedent shows that the company should not delay response and should tackle concerns immediately. When a possible tampering of Tylenol became a concern in 1982, Johnson and Johnson announced a recall. It discouraged consumers from taking the painkiller and recalled a total of 31 million bottles in the United States. As a result, its market share plummeted, but the following year, it was the top-selling painkiller once again. When concerns were cleared, Tylenol continued to be a leading product.

It may not be widely known, but Samsung has been consistently studying recall strategies. Samsung Economic Research Institute’s 2013 report on “Recalls and Company Value” analyzed 101 cases of 38 listed companies that announced recalls from the year 2000 to 2010.

Companies that made passive, involuntary recalls suffered an average of 1.54 percent decrease in stock price on the day following the recall announcement while the companies that made proactive and voluntary recalls saw only 0.4 percent decline. In the cases of the latter, companies actually saw a 0.015 percent increase in earning rate three days later. The study shows that quick and proactive recall is the shortcut that minimizes the market fear and brings a brighter future.

To understand the market situation and apply the strategy in case of a problem, companies need to study and research market conditions and past cases. More Korean companies need to learn from Samsung’s case and devise a recall strategy. Of course, the best plan is not to produce products that need to be recalled, but sometimes, we need to prepare for the second worst scenario.