Toyota Must Not Forget The Lessons Of Tylenol And Perrier Nor Warren Buffett’s Credo: “If You Lose Dollars For The Company I Will Be Understanding. If You Lose Reputation For The Firm, I Will Be Ruthless”

Philip M. Stone February 2, 2010 Follow on Twitter

How fast the mighty can fall. Toyota had become the world’s largest auto maker and the bestselling brand in the US but now it is circling the wagons against the onslaught of competitors looking to steal market share and customers worried their accelerator pedals may stick and cause crashes. Toyota’s only chance now is to learn from previous major recalls -- to be absolutely forthcoming and frank with the full truth to its customers, and pay whatever it takes to set things right. Then, and only then, does it have any chance to save the brand.

Most PR experts are giving the Japanese auto maker a failing grade for how it has handled its crisis so far. It had announced it had an accelerator problem, that it was stopping sales of most of its most popular  models, and it would fix the millions of cars out there that needed repairs – so far so good – but then it went absolutely silent on the details. Granted, it’s a huge problem to fix 2.3 million cars and plans have to be carefully formulated, but once you’re out there with a problem like this every minute not telling the public exactly what you’re doing makes things that much worse. No one, but no one, likes uncertainty, except perhaps your competitors.

Toyota’s competitors are not sitting on their hands given such an opportunity to boost sales. First it was the savvy marketing folks at GM offering a $1,000 rebate to any Toyota owner who terminates the lease and buys or leases a new GM car.  Others followed with similar deals. Toyota is said to be in a furious race with competitors to buy Google search words such as “Toyota recall” and the like so others cannot take advantage, and it has helped the US newspaper industry, which needs all the financial help it can get, by taking out full page ads explaining the problem, but the details on the fix were still lacking.

Brands can survive major recalls, but how well correlates with how forthright, honest and “good citizen” the brand shows itself to the consumer. The most striking example of how things were done right is the Johnson & Johnson 1982 handling of its Tylenol recall  -- something that same company should be taking a look at today as it handles, not so successfully,  a current recall problem. Back in 1982, apparently as part of an extortion attempt, seven Chicago area residents died after taking cyanide-laced Tylenol Capsules bought at a supermarket. Johnson and Johnson immediately cleared some 30 million Tylenol bottles – worth around $100 million -- from all store shelves nationwide and offered to swap any capsules consumers already had with new ones.

So, what did being such a “good citizen” earn the company? Initially its market share dropped from 35% to 8%, but it aggressively marketed that its new bottles were now tripled-sealed, telling consumers if any seal was broken the bottle should be returned immediately and there were some hefty price promotions. Within a year market share was regained. The key was being up-front and honest with consumers and not hesitating to do the right thing even though at enormous cost. It is because of that Tylenol case that today drugs, food and other items are sealed as they are to prevent tampering.

But perhaps more important for Toyota is to learn from the 1990s  Perrier fiasco that showed how not to do things at first. Perrier sparkling water was the “chic” drink in the US during the 1980’s and early 1990s. Little green bottles were the “thing” to be seen on up-scale restaurant tables. And it didn’t come cheap. But then – catastrophe. A lab in North Carolina found traces of benzene in 12 bottles. But the company’s initial reaction was to basically say not to worry. Explanations kept changing with the last being to blame a worker  who used a dirty rag during the filtering procedure, but that the French spring from which the water came was unpolluted.

By then the public was playing it safe – whatever the true reason might be if you don’t drink the water then no problem. So Perrier then had to undertake the ultimate step in the US and some European countries of recalling around 200 million bottles and then very publicly – that was good PR – destroying them so the public understood the old water wouldn’t get reissued later. Cost of the recall was said to have been around $150 million.

Once that was done the company launched a massive PR campaign under the “Perrier pleure …de joie” (cries of joy) tag which was a huge success in the eyes of ad agencies globally but it failed to gain back that leading market share. Ads used a clever play on words but perhaps ultimately failed to convince consumers against that old proverb, “One bitten, twice shy”, whereas Johnson & Johnson’s marketing  did overcome that problem.

On the Perrier corporate side the main issue seemed to be that the various global subsidiaries were trying to handle what was really a global problem which needed the parent Source Perrier to take charge. Instead the message was mixed depending on where you were in the world and that sometimes led to the media being given  wrong information – the ultimate faux pas. Perrier eventually got its act together and it did return but it had lost its luster, the little green bottles were no longer chic on restaurant tables, and its leading market share vanished. The parent company continued to do well in the US by introducing different brands, but the Perrier brand itself was never the same again.

Toyota needs to ensure it does better than that, but right now it is not managing its message – that doesn’t mean suppressing bad news, far from it for that loses much-needed credibility – but rather it has to be quick in getting the truth out there coupled with the exact plan of action. The first task is to put someone globally in charge of the problem and that the same message goes out to everyone no matter where.

Managing this crisis is going to cost Toyota several billion dollars and the open question will be whether it ever reclaims its reputation for reliability that stood it so well in the public’s eye – it was that “lack of reliability” that killed the US automakers for so many years, remember that old Ford advertising slogan in the 1980s “Quality is Job One”, to try and combat  that issue?  Toyota is expected to suffer around $500 million weekly in lost sales and there will be more fallout -- would you now, for instance, rent a Toyota at your favorite rent-a-car? – and all of that is before the lawyers get involved!

The very media that will do much to enhance its “necessary citizen” stance by reporting every detail of the recall also stands ready to benefit very substantially financially from the debacle. There’ll be more full page ads telling customers exactly how the recall program works, and then later when that situation is under control will come the major marketing blitz. Toyota, like other car makers, has cut way back on its advertising spend during the recession, but now it will have to go gangbusters in TV, magazine, and newspaper ads  -- probably increasing its spend by some 50% -- to assure the public that Toyota is back, and so is its reliability. It will probably be the best time ever to buy a Toyota brand as the company undoubtedly will engage in some heavy discounting to get customers back into the showrooms. Will that in turn force Detroit  to up its marketing spend?

All of which  brings us back to our Warren Buffett quote from 1991 when he became chairman of Salomon Brothers, “You Lose Dollars For The Company I Will Be Understanding. If You Lose Reputation For The Firm, I Will Be Ruthless”. Will Japanese culture  allow for the same?

Toyota President Akio Toyoda, attending the World Economic Forum in Davos, Switzerland last week (what on earth was he doing there instead of being back in Tokyo getting a handle on the problem?) told the NHK network, “We’re extremely sorry to have made customers uneasy. We plan to establish the facts and give an explanation that will restore confidence as soon as possible."  Makes you wonder what he is saying to his own people?