Question

Imagine you work for the Worldwide Tire and Rubber Company as a marketing executive. You have just been informed that a new tire made by your company has a very slight chance of resulting in a blowout which could cause a serious accident. The Engineering Division assures you that the total number of people that could be hurt by this product defect is at most 5. The problem has been corrected, but there are still 5 million of your tires out there with this slight defect.

The Legal Department asserts that it would be cheaper to do nothing and see what happens. If 5 people are injured, the maximum cost to the company would be approximately $20 million in settlements. The product recall of 5 million tires:

Scenario A: would cost at least $500 million, would generate a huge amount of bad publicity that would hurt future sales, and the effect on the price of the stock would be devastating to shareholders. Certainly, there would be no money for executive bonuses.

What are the alternatives? What are your recommendations? Why do you recommend this course of action?

Answer 1

There are two alternatives that are present before the company. The first alternative is to do nothing with the hope and the expectation that no one will get injured in the best case scenario. In the worst case scenario this alternative is based on the expectation that only 5 people will get injured. The second alternative is to recall all the 5 million tires and rectify the product defect.

My recommendation, as a marketing executive, would be to recall all the tires. The recommendation is based on two primary reasons. Firstly this is the ethical thing to do. The tire company has a responsibility towards its customers to ensure their safety and the safety of their families. Thus they have a moral and ethical obligation to recall tires to rectify the current defect to ensure that no one faces any chances of getting injured. The second reason is that if people do get injured then the brand equity of the company will get damaged. The company will be accused of being careless, irresponsible and will not be regarded as a socially responsible entity. In the long run this will have severe negative ramifications for the company. As the brand equity and goodwill of the company nosedives future sales will also nosedive and the company will find itself in a situation of falling revenues. This situation will create financial difficulties for the company and the company will find it extremely difficult to come out of this situation.

So keeping in mind the best interests of all the stakeholders and keeping in mind the company’s ethical and moral responsibilities I would recommend the company to recall the tires. This alternative will not only serve the best interest of the customers but will also help the company to maintain its brand equity and goodwill among the customers.