Whenever a company has to retrieve, repair, or replace defective b2b or b2c consumer goods, it is not only a costly fix, but the recall can, as well, have a highly consequential and long-term effect on customer behavior. We’ve seen this in the automotive industry, of course, but also in consumer electronics (Keurig recently recalled 7.2 million single serve machines due to claims of overheating and also discontinued “My K-Cup”, resulting in declines in sales and in its stock price, and Apple had to recall some iPhones due to hardware, casing, and assembly problems in its Asian plants), food (in 2014, Tyson recalled over 75,000 pounds of chicken nuggets after possible plastic contamination was discovered), and medicine.
There is very little question that customer perception of product quality has an emotional core, and that this creates, or undermines, trust: http://customerthink.com/how-much-do-product-quality-and-service-quality-influence-customer-behavior/
The recalls of Toyota, General Motors, and Honda have gotten a lot of attention; and now, the quality issue virus has spread to Takata, a major worldwide supplier of vehicle air bags. Not only have Takata’s U.S. air bag recalls cost the company billions of dollars (potentially increasing to a full year’s worth of corporate revenue), and its place as a leading automotive safety supplier, but it has seriously impaired relationships with auto manufacturers. And, with the recalls being expanded to perhaps 34 million U.S. vehicles (representing about 30% of all vehicle recalls), this also impacts the image of such brands as Honda, Fiat, BMW, and others.
Financially, some analysts have estimated that the company’s global air bag market share will fall from 22% to 11% by 2020. This may threaten Takata’s very existence as an enterprise.
As vehicles have become more sophisticated over the past few years, with sensors controlling components like brakes, air bags, and steering wheels, the opportunity for potential product failure, and accompanyingt consumer distrust, has also accelerated. Exploding air bags have been the tip of the automotive recall iceberg. In 2014, U.S. auto manufacturers, and especially General Motors, have seen record recalls. Here is just a sampling of the recalls:
- GM – Power steering failure
- GM – Fickle tail lights
- GM – Unreliable seat belts
- GM – Transmission problems
- GM – Unreliable air bags
- Toyota – Air bag disabling steering wheel
- Hyundai – Roll-away problems with Sonata
- Honda – Flaming Odyssey problem
- Nissan – Seats don’t detect occupants
- Ford – Electronics can disable air bags
GM has seen its image and reputation take massive hits. Ignition switch flaws in older GM sedans led to almost 50 deaths and even more injuries. During 2014, GM recalled over 25 million vehicles in the U.S., representing almost half of all recalls. In addition to impact on consumer opinions and buying intentions, investors are concerned with effect on earnings per share and operating cash flow, which can depress stock prices.
The other area of product recalls, and their impact on consumer confidence, being considered in this post is ethical and over-the-counter drugs. As an example, in the early 2000’s, Merck recalled arthritis medication Vioxx because of the risk of heart attacks for patients using it. The recall cost Merck close to $5 billion in settled claims and lawsuits, and it seriously undermined the company’s previously positive image with physicians and their patients.
Specifically, we will be looking at how Johnson and Johnson has gone from positive recall strategies going back 30 years, to recent damages to its image and reputation through slow and inadequate response stemming from a series of problems.
In 1982 and again in 1986, J & J executed a superior communication campaign to restore its image and reputation by quickly reacting to the Tylenol cyanide poisoning incident. Having been involved in the consumer research program to rebuild customer confidence, I observed this firsthand. In 2010, however, the Mc Neil Consumer Healthcare unit of J & J recalled about 288 million items, including adult and children’s pill medications and around 136 million bottles of liquid Tylenol, Motrin, Zyrtec, and Benedryl. That same year, 12 million bottles of Mylanta were recalled (labeling issues), along with 492,000 boxes of Acuvue TruEye contact lenses, and 13 million packages of Rolaids. So, not just a lot of volume, but multiple product categories.
J & J began to be seen as engaging in aggressive marketing efforts, with relatively little regard for, or focus on, the well-being of customers and patients. An independent analysis found over 60 ethical practices raised by J & J quality control and patient complaint issues.
The ongoing manufacturing and quality management issues J & J has had at most of its McNeil manufacturing plants, and elsewhere (Corail hip system, Natracor for patients with congestive heart failure, etc.) have negatively impacted the company’s reputation. As one study concluded: “…these developments may represent a major change from what consumers have come to know and expect from a company that has been held in high regard by the buying public for decades.” This is not the kind of commentary any company wants to see made public, and it reflects the potential viral impact recalls can represent.
