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Introduction to Crisis Management and Johnson & Johnson’s Reputation
Crisis is an event that might result in unexpected and unstable situation such as traffic mishaps and earthquake. It often occurs unpredictable even without wrongdoing, and leads to business failure. It reported that almost all crisis lead to a great reputation damage (Dilenschneider, 2000). However, crisis could also be the seed of success when crisis management in position. According to the definition of Wikipedia, crisis management is the process by which an organization deals with a disruptive and unexpected event that threatens to harm the organization or its stakeholders. Crisis management is different from risk management since it concentrates on potential threats from the practical process till it occurred. The case shows a superb crisis management example of Johnson and Johnson in 1982 when one of their major product Tylenol involved in a criminal case. While later, Johnson & Johnson had some lapse on consumers concern responding.
The Tylenol Crisis: An Overview
Johnson and Johnson (J&J) is a multinational corporation that produce and develop medical devices, pharmaceutical and consumer health products (Wikipedia). Since most of the product of J&J is health-related, the company worked years to cultivate the safety and trustworthy image. In 1955, J&J bought the laboratory that introduce Tylenol, and made it the largest selling health and beauty aid in drug 1979 through 20 years heavy advertising. In 1982, Tylenol made up of 35.3% of the over-the-counter analgesic market, 7% of companys sale and 17% of corporation profit.
Immediate Response and Three-Phase Crisis Management Plan
In Sept. 1982, people were killed because of poisoned Tylenol capsules. Cyanide, a kind of highly toxic chemical, was found in these capsules. When the crisis happened, Johnson & Johnson suddenly made a plan that had 3 phases and hoped that the plan could help Johnson & Johnson to recover the loss and to bring Tylenol back, which are:
- Phase 1: Figure out what actually happened.
- Phase 2: Access and contain the damage.
- Phase 3: Get Tylenol back to market.
Actions of phase 1. Open communication channels. At the very first time, Johnson & Johnson opened its communication channel to the public to make sure the public can get announcements directly from the company, rather than rumors. Investigate the accident. Johnson & Johnson found out that maybe someone bought some Tylenol capsules, poisoned them and returned the bottles to the stores. Johnson & Johnson was cleared of any mistakes so far, but it did not mean the company can ignore the accident because a company needs to do more than being innocent to build reputation and trust.
Actions of phase 2. Recalled products. Simultaneously with phase 1 actions, Johnson & Johnson recalled all Extra-Strength Tylenol capsules across the US, which were 31 million bottles and were worth more than $100m dollars. And the company warned customers do not use Tylenol capsules until the fact came out.
Actions of phase 3. Conduct a market survey. J&Js surveys showing that though many customers realized the maker of Tylenol was innocent, they still think that Tylenol was involved with troubles so they were not going to buy Tylenol anymore. For breaking through the dilemma, Johnson & Johnson implemented several initiatives. Change packages for safety. New triple-sealed packages were used, with a warning Do Not Use If Safety Seals Are Broken . Rebuild the trust with customers. Johnson & Johnson spent lots of money on advertisement and promotion, trying to bring frequent costumers back. The company made TV commercials to explain how much Johnson & Johnson value this brand. The company also distributed coupons to encourage customers purchasing Tylenol tablets, which are more difficult to be poisoned. Focus on distribution channels. This was the companys original strategy when Tylenol first entered the market. The company offered higher-than-average discounts to retailers, and persuade doctors and pharmacists to recommend Tylenol tablets to their patients and customers.
8 months after the death happened, Tylenol almost regained its market share. However, 4 years later, another accident happened in New York as the same way as the first crisis despite Tylenol had changed to a safer package design, and this time Johnson & Johnson totally abandoned capsules and would only manufacture tablets and caplets. This time Tylenol spent 4 months to recover the market share it lost.
Strategic Actions to Regain Consumer Trust
Based on the companys reaction, we have identified five significant factors of J&Js crisis management.
First of all, the company took quick corrective actions. Referring to the above facts, the organization cooperated with the police and recalled all Tylenol cross the country. It was criticized that it was overreaction since the incidents were centralized in Chicago. However, it was the safest way to reduce adverse impacts when the actual cause was not established. By doing so, the organization was able to prevent further temptations and copycat crime. The organization also had massive advertising campaigns offering to replace capsules with the Tylenol tablets at a sizable discount. This action avoided public perception of other units of the brand.
The second move of the firm was effective communications with the general public. 1800 hotlines was opened to the customers in order to fulfill the information vacuum. The hotlines was built not only to answer questions but also update the latest message. The fact is the company side story which was expected by the managements were supposed to deal with the public interest (Berge, 1990). It emphasized that a quick response is an effective approach to control the organization (Carney and Jorden, 1993).
Reach publicity made a significant positive impact on the crisis management which means the company was willing to disclosure the investigation of the criminal incident. In the first days after the early death, CEO James Burke worked with the national news magazines like 60 minutes and talk shows to reach Americans efficiently. Using TV allowed the public to put a face to the problem, shorten the distance some perceived J&J was putting between the company and the crisis.
Although there was a link between Tylenol and injury and death, the company still kept faith in the Tylenol. Due to the high proportion of the companys profitable capacity, Tylenol can not be abandoned. Otherwise, the market share would be taken by its competitors if the company failed to bring the brand back. Before reintroducing new Tylenol, the company conducted a survey about customers attitude towards Tylenol; the company even ran a TV program to regain its loyal customers trust. It proves that the customers are biased to revise their initial expectations because of the favorable reputation (Traut-Mattausch et al., 2004).
The company also tried to protect the public image of socially responsible and caring enterprises. Social responsibilities are defined as a sense of responsibility of a firm has for a society that beyond its commitment to maximizing profits.
According to J&Js credo, the firms responsibilities were for customers, medical professionals using its products, employees, the communities where its people work and live, and its stockholders. Therefore, its important to keep the safety and health of its general public to safeguard the public image. The responsibility had become the compass which guided the companys decisions.
To protect public health from further damage, the firm recalled all Tylenol, offered an exchange of tablets, and developed a triple-seal package. To comfort public panic, the company disclosed most current and accurate information, promoted that the firm prioritizes humans life above short-term profits. With these actions in place as well as its cooperation with authorities, the new industry safety standard for tamper-resistant package had been developed for over-the-counter drugs.
Bringing back the brand is not done by one action; it required the coordination of different departments of the firm. In Johnson&Johnsons case, good public relations, effective communications, protections of public image, publications of the cause of disasters, and the prevention of further accidents are all essential to save a brand. With these actions in place, aggressive promotional efforts could fuel the recovery.
After discussing the actions Johnson & Johnson did to pull back customers and its brand, the connection between six stages of crisis management and the actions will be compared in this part.
The fist two stages of crisis management are avoiding the crisis and preparing to manage the crisis. These are procedures to be planed before the crisis actually happens. In the process of avoiding the crisis, there is a method called Business Impact Analysis. BIA focuses on the effects or consequences of the interruption to critical business functions and attempts to quantify the financial and non-financial costs associated with a disaster (Rouse, 2019). In the case of Johnson&Johnson, it only mentions the informal meeting held by chairman and president every two months, which cannot provide adequate plans or preparation to withstand disasters. There is no analysis and procedures to examine possible scenarios.
Recognizing the crisis is possibly the most critical and difficult stage. The purpose of this stage is to understand how important the crisis is and how the markets look upon it. Johnson&Johnson did quiet well by conducting survey to see customers attitude towards Tylenol and using TV commercials to publish the process of investigations as soon as possible to gain confidence of the public.
Then, the continuing processes are containing and resolving the crisis. Containing basically means take decisive actions to pull back its customers and Resolving is to push the actions and measures continuously. Only by appearing in public view frequently and stating the facts clearly, the efforts can be seen by Public. What Johnson&Johnson did was recall all the products and investigate causes behind the death. Additionally, investigations are disclosed in a timely manner with strengthened package safeguards.
After perfectly following the stages as mentioned previously, companies can profit from those stages such as regaining the trust from the public and rebuilding their brand. Johnson&Johnsons market share reaches back to 35 percent 8 months after the crisis happen and the consumers are willing to trust the brand again.
Evaluation of Johnson & Johnson’s Crisis Management Effectiveness
Speaking about the advantages of J&Js crisis management, the following should be highlighted. Firstly, it begin with clear objectives and have a plan. The company objectives during this crisis are to identify the issues, assess and contain the damage and the brand survives. The written phrases included specific actions that would be taken in the event of the crisis. The three phrases clearly pointed out the objectives of the events and revealed the key point which they mostly cared about. According to Barton (2001), the best practice of crisis management contains a precise crisis management plan and pre-draft some crisis messages. It helps to react quickly and handle the rumors effectively.
Secondly, be honest and open. Since generates more negative media coverage than a lack of honesty and transprency. Therefore, being as open and transparent as possible can help stop rumors and defuse a potential media frenzy. This transparency must be projected through all communications channels: news interviews, social media, internal announcements, etc. Weaker attributions of crisis responsibility will result in less reputational damage from the crisis (Coombs and Holladay, 1996, 2002; Klein and Dawar, 2004). In this case, the company turned to the social media and provided the accurate and true information. It showed a positive attitude of problem solving orientation to the public. On the contrary, Woolwooth spokesperson passed the buck to strawberry farmers when responding to the media. However the government posted that it was owe to the responsibiliy of retailers in package process.
Also, update early and often – It is better to over-communicate than to allow rumors to fill the void. Issue summary statements, updated action plans and new developments as early and as often as possible.
Next, cooperation with social media – the social media is one of the most important channels of communications. Be sure to establish a social media team to monitor, post and react to social media activity throughout the crisis.
Then the other one is Keep employees informed – maintaining an informed workforce helps ensure that business continues to flow as smoothly as possible. It also minimizes the internal rumor mill that may lead to employees posting false reports on social media.
Finally, communicate with customers – they do not want customers and suppliers to learn about the crisis through the media. Information on any crisis pertaining to the organization should come from the company first. We can see the company do some research to estimate the remaining market share and gave coupon to customers to recall the previous sold product. It made a sense of responsibility which won trust in customers. Two hot lines approaches also worked well.
In contrast to the crisis management, Johnson & Johnson has been performing poorly in the risk management. Even though it is generally believed that Johnson & Johnson did an excellent job in the crisis management for the Tylenol case, we cant ignore the fact that the same incident happened again 3 years later, which indicated Johnson & Johnson has negligence in analyzing the risk.
First of all, it is debatable that the contamination in the existing packaging should be recognized as unforeseen event considering how easy it could be to open the capsule and replace the content. Whether this crisis is a result of bad risk management in the first place is controversial. Secondly, as we mentioned, up to this day, there is no one responsible for the poisoning. The FDA suspected the it happened in retail; thus J&J changed the packaging and seal. They chose to ignore the chance that the contamination could happen in the manufacturing which underestimate the likelihood of this risk, especially after considering the increasing cost for produce tablet and the amount they spend on crisis management, the company might recognize that making a complete transition from capsule to tablet is not the best decision. However, as J&Js products were associated with gentleness and safety, one would expect they have more social responsibility in preparing such risk management and identify these risks in a more comprehensive way. If they chose to acknowledge the possible wrongdoings in the manufacturing process and developed this caplet form after the first incident, the second one will never happen. It seems like the additional cost is inevitable, and their reputation was damaged again with the cost for the second crisis management.
Apart from this case, the case study also introduced another incident in 1998 due to the lack of warning label in the package, a 5 years old kid died of liver failure because she was overdose in Tylenol. After paying millions of legal settlements, the company redrafting the labelling and include the warning. This is another example that Johnson & Johnsons risk management is ineffective. They often underestimate or neglect the risk, by ignoring the existence and make no action, or choose not to disclose to the public, and prevent themselves from additional costing or affecting the existing sales. Whether they did it intentionally or not, it has become a habitual behavior when they identify it as unrewarded risk or has adverse publicity. As a large company that manufactures and markets a broad range of health care products, any omissions in the risk identification could result in severe consequence, in the non-financial aspect, it could result in death or health hazards, and loss of the public trust; in the financial aspect, the crisis management is always costly and the company may spend more in lawsuits or settlement. In addition, it will drive down the companys share price and affect the companys financial report in long term. As the case introduced, the Tylenol case still got impact in Johnson & Johnsons financial report 10 years later. The irony is the company is still experiencing the same issues. As doing our research we found that Johnson & Johnson was fined again in August this year because they deceptively marketing an addictive painkiller, and last week they had a recall on their contact lenses as they may contains rough particular that damage the surface of the eye.
We could notice the style of behavior changed after 1989 since its the year that James Burke resign the chairmen, these later incidents suggested that Johnson & Johnson was obviously no longer the customer-responsive firm as before, which imply how the change of management level could affect the companys response and its image to the general public by having different strategies in risk management and crisis management.
Reference
- https://en.wikipedia.org/wiki/Crisis_management
- https://en.wikipedia.org/wiki/Johnson_%26_Johnson
- Dilenschneider, R. L. (2000). The corporate communications bible: Everything you need to know to become a public relations expert. Beverly Hills: New Millennium.
- Carney, A., & Jorden, A. (1993, August). Prepare for business-related crises. Public Relations Journal 49, 3435.
- Traut-Mattausch, E., Schulz-Hardt, S., Greitemeyer, T. and Frey, D. (2004), Expectancy confirmation in spire of disconfirming evidence: the case of price increases due to the introduction of the Euro , European Journal of Social Psychology, Vol. 34, pp. 739-60.
- Rouse 2019, Techtarget, accessed 30 September 2019, https://searchstorage.techtarget.com/definition/business-impact-analysis
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