MATTEL RECALLING DOLLS TO PATCH UP IMAGE

EL SEGUNDO, Calif.-Mattel Inc. is self-insured for the costs of recalling its Cabbage Patch Snacktime Kids dolls, which on at least 100 occasions have munched on children's fingers and hair rather than toy food.

Risk management experts agree the recall is a good move, noting that Mattel faced more of a public relations exposure than product liability risks.

As part of the voluntary recall, which comes one week after it said it would put a warning label on all remaining and new dolls, Mattel is withdrawing the product from all retail shelves across the United States, discontinuing distribution and offering a full cash refund of $40 to consumers for any returned doll.

Since the Snacktime Kids doll was introduced in August 1996, about 700,000 have been distributed and 500,000 have been sold, Mattel said. In addition to the cost it will incur from retailers, Mattel could pay out as much as $20 million if all 500,000 dolls are returned by consumers.

The dolls have mechanical mouths, powered by batteries, intended to eat plastic food that comes with the dolls. In at least 100 instances, though, children's fingers and hair have been caught in the moving mouths. No serious injuries have occurred, though.

"We have no idea how many will come back," said John G. Pinner, assistant treasurer for the El Segundo-based toy manufacturer. "It could end up being a considerable amount of money. I can't think of anything this size over the 30 years that I've been here that has happened. It certainly hurts, but it's part of the cost of doing business," he said.

Product recall coverage that would have covered Mattel's costs is available, but Mr. Pinner considers the coverage "not very prudent" for Mattel, considering its track record of product safety and the price of the coverage.

Instead, Mattel, which reported $3.21 billion in 1995 revenues, will retain the entire cost of the recall, incurring the expenses as a charge against earnings.

The recall "is strictly something we're doing because of the fact we feel it's the proper thing to do," Mr. Pinner said. "There have been absolutely no serious injuries," he stressed.

"Nonetheless, we remain deeply concerned with the satisfaction of all our consumers and in maintaining their long-standing confidence in the safety and value of our toys," Jill E. Barad, Mattel's chief executive officer, said in a release.

Risk management experts agree the recall was a good move that will reduce public relations exposures.

"I don't see (the doll) as a major product liability exposure," said Ron Nichols, president of Countrywide Services Corp., a product liability claims management firm in St. Louis. "It's more of a public relations exposure simply because when you think of Mattel, you think of the premier toy company in the U.S. You don't think of toys that cause hair to be pulled out or bruised fingers or any other problems that result in complaints."

Indeed, pulling the product back "does not make sense from a risk standpoint" because the risk of serious harm is not great, said Richard S. Betterley, president of Betterley Risk Consultants Inc. in Sterling, Mass. It makes sense from a business standpoint, though, "because the damage it causes by leaving the product so suspect in the minds of consumers."

Overall, "I would salute them," said J. Steven Hunt, managing director of corporate risk control consulting at Sedgwick James Inc. in Columbia, S.C.

"It's very expensive to recall. To me, they are doing the right thing," he said. Manufacturers that try to cover up incidents or try to downplay them "are just asking for trouble from a liability standpoint," he said.

However, some risk management experts question why the risk of hair or fingers being caught in the doll's mechanical mouth was not detected during pre-market testing.

"From a product liability perspective, if you are a manufacturer putting a product out to be used by young children, the degree of responsibility increases substantially in respect to making sure the product is safe," said Mr. Nichols of Countrywide. "The big question here is whether (Mattel) fully complied with the added degree of responsibility they had.

"It seems to me, since it became such a big problem all of a sudden, if they had done testing as they say they did, they should have discovered it," Mr. Nichols said.

"The funny thing is, it just didn't occur to someone," said Mattel's Mr. Pinner. The doll was market tested by 3- to 5-year-old children as well as engineers, and "nothing came out of those tests."

"It's a good exercise in how the inability to see the future can come back to haunt you," commented Mr. Betterley.

Experts disagree on the adequacy of Mattel's initial decision to put warning labels on the packages as opposed to recalling the dolls when the incidents first gained media attention.

A Mattel spokeswoman said the labels were put on the packages to make parents aware of how to turn the doll off if needed, and to warn parents to take extra precaution if a child has long hair.

The warning label, while logical, was "the wrong step," according to Mr. Betterley. Manufacturers should "get a product off the shelf immediately when it begins to get (negative) attention by the national media," he said. A warning label "does not make a damaged reputation go away."

"One thing that I thought was a little unusual was once it became obvious there was a problem, (Mattel) was a little slower to address it specifically with a recall," agreed Mr. Nichols. "What good do warnings do when the product is used by a 2-year-old child who can't read" or a neighbor's kid who plays with the doll and whose parent has not warned him or her about the danger?

"I don't think a warning label is the answer," he said.

Sedgwick's Mr. Hunt, however, said, "The nature of the case merits (a warning label)."

In contrast, he said, "if the first case was a death case, I would have gotten on T.V. and told people to pack it up and send it back."

Warning labels are a "classic thing to do," he said. "Obviously children can't read. But parents supervise children, and that's a way to educate parents to use the doll in the intended fashion not unintended."