1982: The TYLENOL® Scare (a case study)

Summary of Facts

McNeil Laboratories first introduced Tylenol in 1955 as an alternative to aspirin, without aspirin’s side effects (page 387). McNeil Laboratories was bought by renowned pharmaceutical company, Johnson and Johnson (referred to as ‘J & J’ in this report), who continued to sell Tylenol. Mainly, J & J advertised to physicians, bringing their sales up to $50 million by 1974; following this, they had a successful national consumer campaign which was very effective as well (page 387). By 1982, Tylenol had control of about 35.3% of the over-the-counter analgesic (painkilling drugs) market, more than the market shares of some of its major competitors combined; by this time, Tylenol sales accounted for about 17% of J & J’s total profits (page 387). In September 1982, news came to J & J headquarters of cyanide deaths in the Chicago area connected to their “most important and profitable product, Extra-Strength Tylenol capsules” (page 387). This caused Tylenol’s market share to drop from 35.3% to a low of 7%, impacting the company heavily. An investigation ensued, and shortly after, it was concluded that J & J manufacturing was not responsible for the cyanide poisoning; the tampering had taken place after the product had reached stores in the Chicago area (page 389).

Statement of the Problem

In 1982, J & J’s Extra-Strength Tylenol capsules were unknowingly injected with cyanide, a deadly poison, by a person outside of the company; ingestion of the contaminated capsules led to the immediate deaths of many people in the Chicago area. This crisis put the Tylenol brand at risk, and put J & J in a position that jeopardized their image. J & J’s major problem is the loss of customer confidence and the resultant decrease in sales and profit.

Problem Analysis

It is necessary to eliminate any and all interceptions and tampering with any product on its distribution path from the manufacturer to the hands of the consumer. This is especially important in the health-, beauty- and hygiene-related pharmaceutical products industry because tampering with such products can put the consumer at risk. If the consumer is at risk due to the use of a particular product, the manufacturer of that product can be held liable for the losses that the consumer suffers.

Experts deemed, early on in the investigation, that J & J, a company that had built up an image of gentleness and safety for all its consumers, was not to blame for the criminal activity (product tampering) that occurred post-shipping of the product to Chicago stores. The Extra-Strength Tylenol capsules were manufactured in two separate McNeil plants, although the affected area was restricted to Chicago; this led investigators to the conclusion that the tampering happened after the product reached the stores in the Chicago area (page 389). Once the poisoned capsules were retrieved, the Food and Drug Administration (FDA) released the notion that a person, unconnected to J & J, bought the capsules at a drugstore, inserted cyanide in them and returned the bottles to the stores (page 389).

Evaluation of Alternatives

Regardless of the method through which the poisoning occurred, the company (J & J) and the brand (Tylenol) were the ones to suffer. J & J needed a way to revitalize their brand and protect their image. A few alternatives were brainstormed and analyzed.

  1. Do not take any action pertaining to the Tylenol capsules and wait for completion of the investigation by the Federal Bureau of Investigation (FBI); continue to advertise Tylenol products as usual.
PROS CONS
–          No Monetary Loss This will not cause any significant monetary loss for the company at the current moment.

–          Priority Focus By letting authorities handle the criminal case, J & J can focus on other issues in the company.

–          Costs Avoided The costs associated with recall and disposal of capsules will be avoided.

–          Image of Complacence If customers see that J & J is not doing anything about this case, it may cause them to believe that the company does not care about its customers.

–          Decreased Loyalty If J & J does not take action to ensure safety of customers, they may be forced to look elsewhere for Tylenol-like products.

–          Negative Publicity If potential and loyal customers see ‘normal’ Tylenol ads alongside news reports about the deaths, it will confuse them and give the brand negative publicity.

  1. Recall Tylenol capsules only from the affected area and offer those customers discounted Tylenol tablets instead; give discounts on future purchases of Tylenol tablets to all customers.
PROS CONS
–          Encourage Purchase By offering incentives to customers, they are more likely to the product.

–          Brand Awareness Offering coupons in numerous newspapers and magazines will increase brand awareness.

–          Ensure Safety Recalling and disposing of all the Tylenol capsules will help the company ensure the safety of its customers.

–          Advertising Expenses Offering coupons in the newspaper and magazines will be expensive.

–          Monetary Loss in Sales Company will suffer monetary losses if they offer free or discounted tablets.

–          Disposal of Capsules Company will have to take on the expenses that come from disposing of the recalled capsules safely.

  1. Conduct internal investigations to confirm that it was not a criminal act done from within the company, and find out who it was “on the outside” and continue advertising Tylenol products as usual.
PROS CONS
–          First-Hand Info If the company conducted research internally, they would have all the facts and details of the case, first-hand.

–          Image of Genuine Concern If customers see that J & J is doing all they can about this case, it may make them believe in the company.

–          Matter Resolution Their efforts, paired with FBI efforts, may help resolve the matter faster.

–          Waste of Time This would take up the company’s time, which could be used in taking next steps to contain the problem.

–          Waste of Money This would take up a lot of money in conducting internal research when all these things were already being conducted by the FBI.

–          Waste of Human Resources This would take a fairly large team of people from within the company to get to the root of the problem.

  1. Recall all Tylenol products in the USA and discontinue the brand completely; reintroduce it with a different name and image.
PROS CONS
–          Fresh Image Starting fresh can help J & J re-evaluate their marketing campaign, if needed.

–          Market Advantage The company can still do better than their competitors because they already had experience with a similar product line (Tylenol); they can use the principles learned in the marketing and sales of Tylenol in future marketing and sales plans.

–          Ensure Safety Recalling and disposing of all the Tylenol capsules will help the company ensure maximum safety of all its customers; this is necessary in the case that more than one product has been sabotaged.

–          Reset Customers Loyalty Reintroducing it as a new brand may cause J & J to lose all or most of the brand loyalty for Tylenol they have built over the years.

–          Expensive To recall all products and discontinue the brand entirely, it is very expensive; the company would suffer losses.

–          Feed the Scare If the Tylenol brand is discontinued entirely, it may confirm media suspicions that it was an internal and unavoidable scam; it will create more fear regarding all the Tylenol products and cause customers to doubt J & J in the future.

Recommendations

J & J spent years building up a reputation of gentleness and care (page 388) and this was jeopardized when the Tylenol crisis took place in 1982. To assist J & J in dealing with the loss of customer confidence and the resultant decrease in sales and profit, it is my recommendation to the company to pursue alternative 2: to recall capsules only in the affected area and offer those customers discounted Tylenol tablets instead, as well as to give discounts on future purchases of Tylenol tablets to all potential customers. With this, J & J will capture new customers and hopefully re-attract old ones by offering incentives to them in the form of coupons; coupons will make customers more likely to buy the product. Moreover, offering in numerous newspapers and magazines will increase brand awareness. The recall itself will not waste any money, as it will be centred only in the affected area, but it will ensure the safety of all its affected and at-risk customers. Although the company will have to take on advertising costs and a few monetary losses that will come as a result of disposing of the recalled contaminated capsules, these costs are minor in helping the brand regain its publicity and image.

Alternative 1, although it does not cost the company any money, will give J & J an image of complacence as it has no involvement with solving the problem, on the part of the company; customers will think that J & J does not want to own up to and take responsibility for the crisis that has taken place. This, in turn, may decrease customer loyalty and cause sales to decrease further.

Alternative 3 will provide J & J with an image of genuine concern for the crisis through their involvement in solving the problem; this will likely impress the customers who care whether or not the businesses they interact with have a sense of social responsibility. But, due to the fact that the investigation is already taking place, investing in internal investigation would be a waste of time, money and human resources for J & J. In terms of money and time, there is no point in repeating what the FBI is already doing. In terms of internal investigators, these people will either be hired specifically for this task (which involves pay costs) or be from other departments (which means that because they are assigned to this new temporary job, their old tasks will be left incomplete, which may result in overall losses or inhibition of processes for the company, overall).

Alterative 4, although it would give Tylenol a brand new image, is not the best way to go about solving the customer crisis J & J has on-hand. J & J’s focus should be to help customers believe in the brand again, by reminding them of the original image of gentleness, responsibility and care. Moreover, it would be extremely expensive and unreasonable to recall not just capsules, but all Tylenol products from everywhere, in order to discontinue the brand. Through a monetary point of view and brand representation point of view, this is not the option that J & J should go with.

Implementation

Alternative 2 is extremely straight-forward and can be implemented almost immediately.

Task Procedure
Recall Tylenol capsules in the Chicago area and offer those customers discounted Tylenol tablets instead. Conduct telephone surveys, online questionnaires and do public service announcements telling people who bought Tylenol capsules in the last 3 weeks (or other appropriate time period) to send their capsules back to J & J, in return for coupons on tablets.
Dispose of Tylenol capsules Safely destroy and/or dispose of all batches of possibly contaminated capsules that have been recalled.
Give discounts on future purchases of Tylenol tablets to all customers. Put ads in magazines, newspapers and TV commercials advertising Tylenol, as a brand, and touching upon the issue of the poisoning; assure customers that they can trust Tylenol again because the issue is under control; give coupons on Tylenol products.

Through implementation of these procedures, J & J should be able to build brand recognition and customer loyalty, and in turn, recover their sales figures, without suffering heavy monetary losses and further brand damage.

Please note: This case study report was originally submitted to my high school for evaluation by my instructor in the course, Fundamentals of Business Management. It was later posted to this blog. This study has been completed for academic purposes, in 2011-2012. Readers are encouraged to ask questions and do their own research before deriving extreme conclusions or judgments about the topic at hand.

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