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Do You Want To Build A Snowman?

Do You Want To Build A Snowman?

It’s that time of year again. Summer is a distant memory, Autumn lasted all of five minutes and the Christmas holidays seem a long way off. A friend of mine commented this week that November has “no redeeming features whatsoever”. I tend to agree. Winter, with its wind, rain and cancelled transport, has landed on us with a thud. And we’re not the only ones.

Since news of the emissions issue broke, VW has appeared in the news almost daily, with updates on the alleged scale, impact and cost to the company featuring regularly. We have seen this before: an issue arises with a company and a media storm surrounds it.

Bad experience shows that the impact of a product liability issue actually hinges on the manufacturer’s reaction. Manufacturers who handle the situation constructively, dealing with the problem head on, and in an open and proactive manner, can actually turn badwill into good. The approach taken in those early weeks of a crisis will be crucial to the brand’s ability to recover.

Take Tylenol as an example. In 1982, seven people died in Chicago as a result of Tylenol capsules being laced with cyanide. Five of the bottles recovered caused death, with a further three identified to have been tampered with.

Johnson & Johnson, as manufacturer of the product, was in crisis, and faced the loss of its leading share in the market. The company halted production and advertising of Tylenol immediately, and instituted a nationwide recall of an estimated 31 million bottles, at a cost of $100 million. In addition, Johnson & Johnson invested in national advertisements warning individuals against consuming products containing paracetamol, and offered to exchange capsules purchased for tablets which had been cleared as safe to consume.

The market share, which dipped from 35% to 8% in the immediate aftermath of the recall, recovered in less than a year. Johnson & Johnson was widely commended for its response, and Tylenol went on to become the most popular over the counter painkiller in the US. At the time, the Washington Post commented that “Johnson & Johnson has effectively demonstrated how a major business ought to handle a disaster”.

Perrier had a similar situation on its hands in 1992, when low quantities of benzene were discovered in its bottles of water. There was no danger to public health and no individuals suffered as a result of the product contamination. The same cannot be said for the Perrier brand.

Perrier’s response was to institute a recall of 70 million bottles in the US, stating that this was an isolated incident and blaming the issues on a cleaner who had apparently used the wrong solution on the machine used to fill the bottles. When contaminated bottles were then discovered a short time later in Denmark and Holland, Perrier had to change its story.

It transpired that a blockage in the filters of a carbon dioxide pipe at Perrier’s global water source had caused the issue, which had been undetected for six months. A red-faced Perrier was forced to announce a worldwide product recall, and state that its own poor quality control had caused the issues, rather than someone else’s error. In addition, Perrier had no option but to admit that its water did in fact contain carbon dioxide – something that appeared entirely contrary to its long-accepted claim of being a “naturally sparkling” mineral water (words that were subsequently dropped from its product labels).

Perrier’s credibility was in tatters. The company had blamed someone else for its own problem, while attempting to downplay the scale of the issue. Perrier collapsed. Its UK market share of almost half dropped to less than 30%, the share price plummeted by 37% and by 1995, sales were half of what they had been at their peak in 1989. Worse, trust in the brand was gone. The company was taken over by Nestlé and it took more than five years before consumers would trust the brand again.

In times of crisis, a company’s reaction is key. The manufacture of products for public use brings with it an inherent risk. In many cases, the existence of an issue may be out of the company’s hands. What follows, however, is within its control. A brand suffering some initial negative press due to a product issue has the option of taking responsibility for the issue, acting quickly and proactively dealing with the problem. Handling a situation constructively may actually increase confidence in the brand. Embrace the chill and build a snowman. Deny the issue, hide and wait for the storm to pass, and you will only increase the likelihood of an eternal winter.

Pauline McCulloch
Senior Solicitor

This article was published in The Herald on Monday 16 November 2015.