Tuesday 4 May 2010

Brand Recalls: How Can We Measure Their Effects?

Product recalls are a common enough feature of modern life. More rare, however, are those product recalls that seem to pose a risk to the value of the underlying product brand. In this vein, the most notable recent product recall is the multi-sourced recalls of certain Toyota vehicles that took place over the last few months. Marketing and branding pundits in legion have expressed their view on the possible impact of these recalls on the Toyota brand and name.

The ink is still not yet dry on the potential fall-out of these recalls, but another recall, in quite a different industry, hit the headlines late last week, namely the recall by the FDA (U.S. Food and Drug Administration) of certain Johnson & Johnson products, including children's Tylenol. One account of this recall was published by Barry Silverman under the title "Latest Tylenol Recalls Past Crisis" on the brandchannel.com site here. The recall was occasioned by certain "manufacturing deficiencies" that could result "in potency, purity or quality" problems.

Fast-backward to 1982, and to the granddaddy of all recalls, namely the Tylenol crisis of that year, when the product was found to contain cyanide, due to tampering by third parties, resulting in the death of several people. The response of J&J is considered the textbook example of how to deal with a consumer product recall, including transparency, responsiveness, and a meaningful set of actions, including the widespread recall of the product from the shelves at a cost of $100 million dollars (a lot of money at the time, remembering that this was nearly 30 years ago) and the development of the tamper-proof bottle.

It does not appear that any material harm has occured to consumers of the products subject to the current recall. Still, the current scorecard by the pundits of the J&J response reveals a more mixed assessment than the tragic recall of 1982. Let's consider several observations in this regard as reported in the "brandchannel" article.

1. "This time, it seems, Johnson & Johnson's McNeil Consumer Healthcare unit, which makes children's Tylenol, has been less responsive. 'The recall quickly became a flashpoint for some parents,' reports The New York Times. 'Some people said they felt frustrated in their efforts to obtain more information from the company. Others said they had lost confidence in the products. This is at least the fifth recall for consumers of McNeil products in less than a year because of quality control issues.' "

[How does The New York Times know that J&J has been less responsive this time? Did they have some baseline to evaluate this, or what? Also, how many consumers knew that this is the fifth recall in less than a year? What evidence did they have for this loss of consumer confidence?]

2. "Obviously, when recalls are conducted because of a quality problem on the part of the manufacturer, it can shake consumer confidence. The recent spate of highly publicized Toyota car recalls is proof enough that such actions can do a lot of damage to a brand's image."

[Actually, I heard a Bloomberg podcast late last week that suggests that Toyota vehicle sales have held up quite well recently, despite the recall. If so, how exactly has the damage to Toyota's image manifested itself?]

3. "The interesting side effect of the children's Tylenol recall is that the maker 'will have to work to counter increasing consumer skepticism about whether they should pay more for name-brand children's medicines when there are lower-cost drugstore brands available'. Michael Braun, an assistant professor of marketing at the M.I.T. Sloan School of Management, told The New York Times, "They are going to have to go to greater lengths. The greater the harm to the reputation, the more expensive it is to fix it."

[This is an interesting point, if true, which certainly distinguishes the J&J situation from that of Toyota. That said, I wonder how much evidence, other than anecdotal evidence, is there to show a migration from a branded product to a generic substitute in such a situation. Is the move brand/product-specific, or can it have a more general effect on consumer preferences for drugstore products?]

4. "With the recall spreading to Canada (and still spreading confusion in the U.S., judging by comments on Twitter and Facebook), the company may want to be more proactive to reassure parents that their children aren't at risk."

[Meaning what exactly?]

In reading this report, so close to the time of the actual recall, I have two final observations. First, to what extent does the radical difference in ease of communications now, as compared to 1982, create a hightened danger of a self-fulfilling prophesy about the relative success of the current J&J recall campaign? Second, how can pundits get their analytical arms in real time around the impact of the current recall on the J&J brands? Stated otherwise, does the immediacy of the reporting moment give undue evidence to the weight of anecdotal evidence on the success of the J&J recall and the effect on its brands? I suspect we may need the perspective of time to get a proper answer.

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