The new trend of recall of defective goods is not something we had often heard about before. Barring the Aidu recall in the late 1980s, India has not witnessed such mass recall of the likes of Nokia batteries or the Mattel Inc toys. Nokia recalled last month 46 million BL5C batteries manufactured by Matsushita between December 2005 and November 2006. Mattel, till 5th September recalled 800,000 toys after detecting toxic paints on them. Also recalled recently were jewelry and tyres made in China.
The people in general and the owners of the recalled goods in particular have not expressed much discomfort with the idea of recall or at least such expressions have not received much media coverage. Everyone seems to be elated with the responsibility and concern shown by the MNCs towards the health and security of the customers. Indeed companies are spending millions to retain and expand their goodwill. With the recall process been simplified and there being multiple channels to initiate such recall, like an SMS, a toll free call or a mouse click and the replaced good been available at their doorstep, the customer indeed has little reason to anguish.
But the real question from the economist’s perspective is whether such recall and replace policy is adequately compensating the customers. From this point, the recall and replacement of a battery and a toy has different consequences.
Let’s see how different the case is. Th procedure works like this: When a customer gets to know that he possesses a good that is being recalled, he applies for the replacement. In case of a battery, a new one is delivered to the customer and in case of a toy, the customer is compensated by a coupon equivalent to the toy’s price. No, we are not considering the compensation when the recalled good s caused damage to the customer’s health or property and the related mental trauma, because, if such cases are confirmed, the company suitably compensates the customer for that.
Here we consider the gratification of possession aspect of the recall. We all gain utility from the mere sense of possession of a particular good, a watch, a gadget, a cell phone and all. This is gratification of possession of the good. For example, if we are offered to exchange our cell phone with its cash value, we would not go for the deal merely due to loss of utility prom parting ourselves with our possessed goods. Mere possession thus gives some utility in addition to the utility of that commodity.
Though the concept me seem somewhat new, it has been much exploited. Companies offer full refund option for many consumer durables in case the customers do not find them satisfactory, but the proportion of such items returned is negligible. We can purchase an air conditioner with the option of paying for it after a month or so only if we find it satisfactory, or else we have the option to return it. But we seldom do so and the companies knew it , only because we gain utility or satisfaction from the mere possession of the good.
Now we see how this applies to the recall method. When a battery is recalled, there is no loss of gratification of possession, because we develop a sense of possession for the cell phone and not for the battery. So, its replacement with a new battery is an adequate compensation (or perhaps more than adequate, as the customer gets a new one to longer standby time compared to the used one). But the possession of toys give utility to the owner and since the good considered here is ‘toy’ and the owner is a child below 10, the utility from possession is even greater. So though the replacement of the toy with a new one of equivalent price can compensate the loss of utility of the product, the loss of utility from possession gratification remains uncompensated here. Poor children.
The people in general and the owners of the recalled goods in particular have not expressed much discomfort with the idea of recall or at least such expressions have not received much media coverage. Everyone seems to be elated with the responsibility and concern shown by the MNCs towards the health and security of the customers. Indeed companies are spending millions to retain and expand their goodwill. With the recall process been simplified and there being multiple channels to initiate such recall, like an SMS, a toll free call or a mouse click and the replaced good been available at their doorstep, the customer indeed has little reason to anguish.
But the real question from the economist’s perspective is whether such recall and replace policy is adequately compensating the customers. From this point, the recall and replacement of a battery and a toy has different consequences.
Let’s see how different the case is. Th procedure works like this: When a customer gets to know that he possesses a good that is being recalled, he applies for the replacement. In case of a battery, a new one is delivered to the customer and in case of a toy, the customer is compensated by a coupon equivalent to the toy’s price. No, we are not considering the compensation when the recalled good s caused damage to the customer’s health or property and the related mental trauma, because, if such cases are confirmed, the company suitably compensates the customer for that.
Here we consider the gratification of possession aspect of the recall. We all gain utility from the mere sense of possession of a particular good, a watch, a gadget, a cell phone and all. This is gratification of possession of the good. For example, if we are offered to exchange our cell phone with its cash value, we would not go for the deal merely due to loss of utility prom parting ourselves with our possessed goods. Mere possession thus gives some utility in addition to the utility of that commodity.
Though the concept me seem somewhat new, it has been much exploited. Companies offer full refund option for many consumer durables in case the customers do not find them satisfactory, but the proportion of such items returned is negligible. We can purchase an air conditioner with the option of paying for it after a month or so only if we find it satisfactory, or else we have the option to return it. But we seldom do so and the companies knew it , only because we gain utility or satisfaction from the mere possession of the good.
Now we see how this applies to the recall method. When a battery is recalled, there is no loss of gratification of possession, because we develop a sense of possession for the cell phone and not for the battery. So, its replacement with a new battery is an adequate compensation (or perhaps more than adequate, as the customer gets a new one to longer standby time compared to the used one). But the possession of toys give utility to the owner and since the good considered here is ‘toy’ and the owner is a child below 10, the utility from possession is even greater. So though the replacement of the toy with a new one of equivalent price can compensate the loss of utility of the product, the loss of utility from possession gratification remains uncompensated here. Poor children.
