Black and Decker

Background facts

1. Black and Decker replaced its culture from complacent manufacturing

mentality to customer driven marketing strategy.

2. B & D acquired GE’s small appliance’s business and successfully merged it

into its mainstream by effective marketing programme.

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 product’s Coffeemaker named Spacemaker fails quality

test and is to be decided on its fate.

Following are the background point of analysis

1. Organisational Strategic shift - B&D shifted its organizational strategy from

one of manufacturing only to customer centric approach. For this it acquired
GE for making dent in one of the HPG product line and gain market share.

2. Marketing strategy – Since HPG division is dealing with consumer durables

which are direct in nature unlike simple brick and mortar business, it needs to
take care customer’s priority in terms of likes, product attributes, aesthetics
and concrete deliverables in terms of utility value and value for money.
Hence, marketing strategy has been designed keeping in mind the future
market share with well research base.

3. External environment – With change in product line, organization has to take

much more precaution in terms of delivering safety value. This is necessary
as external environment in this case has drastically changed. One wrong
product or failure on safety norms can impose huge penalities on the
organization thus wiping out entire bottom line in addition of sudden death of
product life cycle. One of D&B’s competitor has paid huge price for the same.

4. Product life cycle – As against normal product life cycle, this product line is
completely driven by innovation. Innovation in product needs to provide
superior value as well as differentiation factor to the customer. This will
register product attributes in the mind of customer and consolidate brand
identity in the mind of customer. This branch identity gradually starts
connoting a certain set of value to the customer which product will deliver.
One wrong product report as enumerated will block Product life cycle and
lead to abrupt ending of the Brand recall in the minds of customer.
 5. Product recall strategy – CEO has ordered complete recall keeping in the
mind the above points apart from mixed attributes of further launches. Any
negative or wrong word of mouth is detrimental to further growth of the
existing product line as well as making in roads into new product lines apart
from coffee maker.

Focus on the following:

1.Product line

2.Brand identity, brand consolidation and Brand fortification.

3.Advantage of Product recall and its long-term benefits.

4.Methods and effective way of Product recall – Direct marketing team/

Agency / mass campaign / supply chain.

Considerations for B&D’s HPG after ascertaining faulty product

- Loss of life & property to the consumer

Much of the success of turnaround sales in the year 1988 was due to the fact
that B&D had transformed from being a complacent manufacturing mentality to
consumer oriented

one. The sale of this faulty product put the consumer’s life & property at risk.

- Prevailing Regulatory & Safety Standards

With several consumer laws & federal agencies such as Consumer Product
Safety

Division (CPSC), Food & Drug Administration (FDA), The Federal Trade
Commission

(FTC), etc. monitoring goods used by final consumers, there existed a legal
requirement of firms to report safety problems & hence a corporate
responsibility on the part of B&D to

remedy the situation & limit their liability to face legal penalties.
 - Litigation
HPG’s main competitor had recently settled a product liability suit involving a
fire hazard & settled out of court at $40 million. B & D faced the prospect of
very costly litigation.

- Legal action by a competitor

Pursuant to the first fire in Dec 1988, B&D became susceptible to competitors
using the tactic of legal action against them.

- Brand Tarnish
Known for its reputation for quality, value & innovations, this faulty product
held grave consequences of possible loss or reduction of consumer trust,
damage to the brand name & seriously affect customer loyalty, sales & market
share.

What salvage options did B&D have in this scenario?

1. B&D could run a ‘Repair at Home’ exercise in which a technician would visit
the homes of faulty product owners & fix the problem.
2. B&D could opt for a voluntary product recall.

Let’s take a look at the option selected by B&D & why:-

Almost 88, 400 coffeemakers had been distributed through trade & the precise
details of units sold through to consumer could not be ascertained. Estimating that
30-35% had indeed 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 owner’s details.

Not only would B&D find it difficult to contact the owners in this scenario, but would
have to wait to figure the solution before implementing, raising the stakes of risk &
liability. Moreover, the exercise would be a time consuming & costly one.
While evaluating a voluntary product recall B&D had the following considerations:-

- 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
- Personal & professional disappointment for B&D management & staff.
- Damage to the Company’s brand name
- Estimated time for the recall activity
- Several previous unsuccessful recall attempts
- First time, HPG had never recalled a product before

B&D decided to opt for a voluntary product recall.

Strategy adopted by B&D for product recall

- Although industry return rate average for domestic small appliances was at 5%,
B&D set a 100% return rate target.
- Provision of high incentives for consumers to return the product i.e. consumers
received an older coffeemaker as a replacement, or a refund or same model
replacement at a future date; thus ensuring a high return rate as well as
maintaining goodwill & reducing the likelihood of consumers taking a refund &
purchasing another manufacturer’s machine
- Large scope of the recall activity i.e. nationwide, across various media & direct
marketing
- A strong sense of urgency was assigned to the exercise

Steps taken/Process followed by B&D to roll out a successful product

recall

I. Internal liaisoning
Post the first fire report, David Wildman, Manager of the HPG Product Safety
& Liability Group was immediately informed.

The Safety & Liability group worked on replicating the problem & succeeded
in early December.
 The corporate legal department was notified & their involvement & advise
sought.

The Corporate Safety Manager was consulted who advised that CPSC be
notified & a recall program be developed & registered.

II. Immediate contact with affected consumer

David Wildman made immediate contact with the first affected customer,
provided reassurances & arranged for an immediate collection of the
faulty device pursuant to which investigation commenced on the cause of
fire.

III. Stop shipment

Within 5 days of the first fire report, B&D stopped all shipments of the
product.

IV. The Recall System

The Announcement

- New 800 customer service telephone number managed by an

independent agency & overflow to be managed by AT&T was set up
- 120 company-owned service centres were assigned for accepting
returned units
- On Dec 15 a notice of recall was sent by fax or certified mail to
retailers, distribution centre managers & sales force.
- Stress was placed on the exact models that were being recalled
- Internally within B&D, a memo was sent to all employees, advising
them of the recall & soliciting names & addresses of known owners to
be provided to Wildman.
- ON Dec 16 a recall letter was sent by certified mail to the 3,000
customers who had returned owner registration cards.
- Incentives : Owner of the Spacemaker Plus coffeemaker, were given
three options: to take or send the unit to a service center and receive a
replacement coffeemaker when available, plus the free machine; to
 take or send the unit to a service center and receive the full suggested
retail price as a refund, plus the free coffeemaker; or, to return the unit
by mail to Black & Decker using a prepaid label to be sent by HPG, if
unable to get to a service center. Only if these options were refused
was the customer offered the option of returning the unit to the retailer
for a refund of the purchase price. While the suggested retail price of
$111.98 for the PDC403 and $79.98 for the PDC401 was to be
refunded, the units generally retailed at around $99 and $69. (The
SDC1 generally retailed at around $36–$39.)
- A formal press release was issued to major newspapers, wire services
&,key consumer & hardware trade publications.

The time of the year & the absence of any serious incidents involving
the product

attracted a very low response from the media or consumer attention.

Targeted Approach

Disappointing results from the announcement prompted the management to

appoint a specially established team with clear ownership of the problem.

Gael Simonson, Director of Brand Marketing & Strategy Devt. was roped in &
along with Ken Homa, the Vice President of Marketing, they concluded that
the effectiveness could be greatly enhance by direct marketing.

The challenge was to reach & persuade consumers to act. The next challenge
was to establish with precision the number & location of the units. A tracking
system was developed to monitor units still in the distribution system as well
as those in the process of being returned.

Two of HPG’s external agencies were assigned the task of coming up with a
more effective communications campaign while an internal team developed
the direct marketing proposal.
 Combination of PR & Direct Marketing

Among the various options presented, a combination of the public relations

option & direct marketing was employed.

Public Relations Option

- Quick attack publicity program including 3 press releases

Wire services (news wires to reach print & broadcast media
nationwide)

Leading weekly news magazine

Newspapers (national & top local dailies in target markets)

Additional dailies & weeklies in smaller target markets

Television network feeds including cable

Top local news stations

Radio (public service announcements)

Employee & shareholder communications

Point of purchase materials

- A Press Kit was sent by fax, federal express & mail containing the press
release, a photo of the coffeemaker, a background of B&D’s commitment
to quality, afety & service & positioning them as a responsible corporate.

- Two consumer surveys to measure consumer attitude & awareness & the
success of the recall program.

- Signs were placed for six weeks in major stores carrying the coffeemaker
urging owners to call & confirm ownership & agreement to return the unit.
Tear off pads on the signs with the 800 number were provided so the
information could be taken away.
 - Close contact with the CPSC was maintained to assist in distribution of
press material & to get CPSC recognition of HPG’s program as a standard
for the industry as well as to ensure compliance with regulations.

Direct Marketing Option

- Breakthrough concept for B&D, this marketing tactic ‘individualized’ the

recall
- Brainstorming session was held internally to find ways to identify owners
and/or sources that would provide owner information & then send them
letters. 70, 000 likely owners were generated.
- This approach required a sophisticated database to track consumers &
returns. The marketing team with the help of Information Systems team
was assigned this responsibility. Later temporary workers were brought
in.
- Each potential owner was sent a letter & reply form soliciting their
ownership & agreement to return the faulty unit.
- The letter also solicited details of other possible owners
- Five attempts would be made to reach each potential owner. Only after
they returned the card saying they had never owned the product were
they taken off the database.
- Some highly probable owners who would not respond to mailed requests
for info were contacted by telephone.
- Reminder call and/or reply paid card was sent to store managers to
ensure the unit had been removed from display, establish the location of
sold units & ensure all stock units had been sent back.

Target Marketing

Poor performers campaign / Non responders campaign was developed

targeting geographic groups of consumers with low response rates e.g.
release titled Milwaukeans Slow to Return Recalled Products, supported by a
letter from Dennis Heiner was sent to news directors, radio stations, etc

Secret Shoppers were suggested to locate units still within the trade & a
sweep of 212 stores was conducted.
Outcomes

- As of Nov 1, 1989, 76,588 units had been returned, accounting for 87% of
the units distributed. 50738 came from dealers & 25850 from consumers – a
whopping 92% return rate.
- Of the 18,346 consumer returns direct to B& D, (the remaining units had
been returned to stores), 47.3% requested and received replacement
coffeemakers. This indicated
consumer satisfaction with the product, and reduced HPG's out-ofpocket
costs, as it was

not refunding the retailer's margin. A December survey of 512 owners

involved in the

recall found 70% "very satisfied" and 94% "very or somewhat satisfied."
Consumers

claimed to have learned about the recall (based on a form completed at the
service

center), in the following ways

Letter: 30%

Newspaper: 5%

Radio: 9%

TV: 12%

Other: 24%

Conclusion

The handling of this recall could significantly affect HPG's image and leading
position in the

small appliance market.

The SpaceMaker Plus coffeemaker recall campaign by B&D created new standards,
new

methodology, new criteria, and new expectations for a difficult and sensitive
scenario.