Definition of 'Product Recall'
The process of retrieving defective goods from consumers and providing those consumers with compensation. Recalls often occur as a result of safety concerns over a manufacturing defect in a product that may harm its user.
Investopedia explains 'Product Recall'
While the process behind a recall can vary depending on local laws, there are some general steps that occur. For example, if a pet food manufacturer releases a batch of product that may poison animals, the company will publicly announce the dangers of the food and request that its customers return the product to the firm, or simply discard it. Customers will usually be given a full refund or replacement. A public relations campaign is often created to handle the publicity surrounding the event.
Recalls may negatively affect a company's stock. Concerns grow over the company's capabilities when a dangerous product is released, and customers may turn away from purchasing its goods, leading to a decrease in sales.