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Disaster Management of Johnson&Johnson and Coca-Cola Evaluation Essay

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Introduction

On 30th September 1982, Johnson & Johnson Company’s boss received news that seven people had died after consuming cyanide-laced capsules of Tylenol in Chicago. The news spread expressly through the media to the extent of causing countrywide panic.

The company launched investigations to find out the causes of the deaths and ascertain the association of their product to the deaths.

The outcome proved that an individual had maliciously replaced the Tylenol extra-strength capsules with cyanide extra strength in the company’s packages and sold them to consumers to bring down the business reputation.

The company had a hard time trying to explain the situation to the public and its customers and convince them to continue trusting its merchandise. Although the strategy worked, the corporation lost many revenues. Even with such a scenario, the company did not prepare for the eventuality of another such attack.

In 1986, a similar attack took place. However, the company was more prepared and was able to deal with the problem. This occurrence redefined the rules of crisis management. Scholars have strengthened their thesis concerning this fact.

A different scenario in Europe put Coca-Cola in the same spot, making it lose market control to the level of banning its products and rights from markets. Unlike the Johnson & Johnson Company’s crisis, Coca-Cola had poor public relations, which cost it more to re-enter the market.

The scenarios in these two companies have given crisis control scholars two different points of view and allowed them to analyse the approaches in a manner that determines the method that is most appropriate for a particular scenario.

Every company must have crisis management embedded in its managerial strategy. Companies must learn to study the market and determine the threats as they occur so that they can do away with them as soon as they pop up to avoid losing business or tarnishing their brand names.

This paper will focus on these two crises to bring out the key points that determine the effectiveness of a response to a crisis and the failures that are associated with poor handling of such scenarios.

Crisis Management for the Two Companies

Johnson & Johnson Crisis

By 1982, Johnson & Johnson Company had commanded about 35% of the US counters analgesic markets. This accomplishment translated to about 15% of the total national revenues in over-the-counter drugs. By far, it had the controlling power. Thus, it acted as the price giver.

According to Rehak (2002), the results of cyanide incorporation in the Tylenol were catastrophic. Seven people died in the US. The situation resulted in a market-wide panic and reduction in the consumption of the company’s products. The information turned the population against the drug.

For a large period, the company’s drugs lost value. From another viewpoint, the company shares too went down almost to a recess. The events must have taught the company a major lesson. Following the end of this crisis that was poorly managed, another similar crisis faced the company in 1986.

One might wonder whether the company had no hint concerning catastrophe preparedness. The company was not ready to lose any more value in stock. It made a quick response to the crisis by recalling its products both in the home market and in the international front. This move was consumer-friendly.

It would go a long way in its future. Although the company had to spend over one billion dollars in correcting this mistake, it was recognised as the most consumer responsive company (Rehak, 2002). This achievement swayed the population to trust its products.

Clients were assured that the company was readily responding to their call in case of a crisis. As Rehak (2002) says, “It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge” (Para. 3).

Most painkiller consumers shifted their loyalty from other brands such as Perrier to Johnson & Johnson. This move by the corporation was a calculated one. The risks were too high.

The business would have faced a criminal impeachment that would have cost it more billions while at the same time losing the client base, products, and the market for future production. The reader might want to predict what would have happened if the company did not implement such a response mechanism.

The company’s well-calculated response saved it from this loss because any more deaths would have resulted in the company’s products being banned from many of the markets. This crisis would not have been controlled at this level.

The quick response created trust between the manufacturer and the consumer. By observing the consumer characteristics of wanting to consume nothing but the best, the firm understood that the shopper would shift to another product unless there was a compensating factor.

The recall was smart, as the consumer felt cared for and thus convinced to remain loyal (Curtin, Hayman, & Husein, 2004).

The company’s management forewent the short-term goals for the long-term ones by losing the billion dollars in recalls as a way of restructuring the company’s strategy (Rehak, 2002). Its ability to achieve the long-term goals at that moment entirely depended on how it would handle the situation.

Although silencing the problem came at a cost, the company assured customers of safety when enjoying its products. Since the clients were the same target bases for the company’s longer goals, it secured their returns in the end. The reader can confirm that the move was a game changer that had not been tried before.

Any backfiring would have cost the company more resources. The outcome was unpredictable and open to market forces. For crisis managers to undertake this method, they must have studied the market to know which move to play.

Coca-Cola’s 1999 Crisis

Coca-cola is a globalised company whose financial assets are estimated at 160 billion dollars. It controls most of the world soft drink market. In Europe alone, its market share is about 60% (Johnson & Peppas, 2003). This figure implies that it has the majority market share and thus a price setter.

Given that Europe acts as one trade bloc in most of its economic decisions, any crisis that hits a single nation can be felt in all the 15 nations in the union. A company such as Coca-Cola must thus be careful in its response to the crisis to ensure that it remains at the same controlling position of retaining its profits constant.

Confirming this assertion, Business Monitor International (2014) says, “The Coca-Cola Company (Coke) has been behind PepsiCo (Pepsi) in addressing the weakening industry structure” (p. 168).

Unfortunately, this happening was not the case in 1999. According to Johnson and Peppas (2003), while it tried to respond to the issue of drink contamination in its own approach, the company was unable to convince the nations that it had everything under control.

Managers had to face the challenge of explaining the contamination of imported drinks. Countries such as Germany were unhappy with the situation.

Reporting in New York Times, Andrews (1999) confirmed how, “a growing number of consumer groups in Germany and elsewhere complained that Coca-Cola had been opaque and unreassuring in its public explanations” (Para. 4).

They demanded the company to be receptive. In response, the company sent crisis managers to curb the spread of the disaster, as well as its return to its former position. The reader might want to know whether the goods were recalled as witnessed in the previous case.

However, unlike Johnson & Johnson Company situation, Coca-Cola did not recall the products. For instance, as Blanding (2010) reveals, steered by its Indian subsidiaries, the company placed an advertisement saying, “We can safely assert that there is no contamination or toxicity whatsoever in our brand of beverages” (p. 242).

Instead, it pushed to see that the products were sold citing that the drinks were not contaminated and that they could not affect the consumers’ health.

As a result, some of the trustworthy consumers remained loyal to the brand, although many nations and consumer protection groups pushed for the withdrawal of the products from the market.

The result was some nations banning the use of the products in some countries. For instance, Belgium-manufactured products were banned from German markets.

Andrews (1999) confirms this assertion by showing how, “German authorities began checking the origin of Coke products and removing any that had been bottled in France or Belgium” (Para. 4). Spain and Italy followed suit.

Implication

Following the extensive business and ecological problems that arose during the 1980s, disaster administration was introduced. GAO was in the forefront to bring the subject of crisis management on the table. This body “focused on three phases of the financial crisis management” (GAO, 1997, p. 1).

The aim was to assess damages that occur in case of a disaster and create mechanisms to deal with them while maintaining the companies’ financial status as close as possible to its former position.

From these expositions, the industrial crisis that hit the Johnson & Johnson Company had repercussions in terms of how it was handled. However, a similar crisis in 1986 redefined the company’s position and crisis management approaches.

In 1999, Coca-Cola was hit by the same kind of crisis. However, its slowness in response deteriorated its position, thus leading to major losses in the European region. In terms of loss of market control, Coca-Cola lost market since its products were banned from these major markets (Lyon, 2004).

Confirming this situation, Johnson and Peppas (2003) say, “the Belgian Health Ministry ordered that Coca-Cola trade-marked products be withdrawn from the Belgian market” (p. 18).

Considering that it controls 60% of the European soft drinks market, the company lost billions in dollars after consumers lost their trust in the company’s products.

In terms of investment loss, while the products were not recalled in some regions such as Germany, the company was unable to sell the products, despite sending administrative official to confirm to consumers that the products had, “no signs of contamination” (Andrews, 1999, Para. 14).

This observation means that it lost both the short-term and long-term investment. Since the products remained in stall, the production was slowed. Hence, the future of its sales was uncertain.

According to Johnson and Peppas (2003), the business was finally recalled from the market following the push from the Belgian Health department because of two unconnected reasons.

Firstly, customers protested of irregular flavour and aroma in the company’s bottles. Secondly, one hundred people became unwell following the consumption of the drinks (Johnson & Peppas, 2003). An approximate of fifteen million packaging containers was returned to the company.

Although Coca-Cola had existed for over one hundred and thirteen years before this event, it experienced decrease in consumer loyalty. It had gained massive consumer loyalty. Most consumers regarded its products to have the highest quality in soft drink manufacturing.

How the Crises were Well Managed

Following the identification of the crisis and an overview of the course of action of the two scenarios, this section will make a chronological review of the management of the crisis. It also presents short-term and long-term outcomes in an attempt to see the effect of their approaches.

The section will also define a working plan that will compare the approaches of theories of crisis management and conclude on their effectiveness.

Which is the most effective crisis management approach? To answer this question, it will work to investigate, determine, and analyse the approaches to give a detailed conclusion and suggestion as to the most effective approaches.

Following the lift of the ban in Belgium, the company had to discuss the way forward. For instance, it was “to take immediate steps to remedy those problems” (Johnson & Peppas, 2003, p. 18). He announced that the company would embark on aggressive marketing campaign in Europe to regain consumer trust.

He held forums, giving samples, and holding dances and music parties where the attendees were given free drinks (Johnson & Peppas, 2003). The company also held a summer tour around Europe to promote the brand.

A competition around Europe in which 72,000 customers would win different prices was undertaken Johnson & Peppas, 2003). This strategy was very effective since consumers had to guzzle many of the products to participate and win. The products regained their popularity throughout Europe in this promotion.

From this plan, the key role of crisis management as part of every management strategy became evident. Coca-Cola Company may have failed to foresee this crisis. However, it was not prepared to deal with the crisis. What it did was to solve the aftermath of the crisis.

Did it have a team that was ready to respond to the problem immediately before it escalated? Controlling the aftermath became more expensive than it should have been if such a team were in place.

As Ferrell, Fraedrich, and Ferrell (2010) assert, perception becomes a reality and that unless a situation is curbed as it emerges, it escalates to bigger issue.

The governments finally lifted the ban, which was a reassuring point to the people upon considering that the community respected and expected them (governments) to protect their interests.

As Johnson and Peppas (2003) confirm, “the Company began moving to resume production of high-quality products while maintaining efforts to recover and destroy all existing products” (p. 19).

Brand image preservation was a key requirement. Using its website, the company initiated public education (Johnson & Peppas, 2003). The factors were generalised to fit all countries. The brand was also more informative on the containers.

This information assured the public that the company was taking steps to ensuring that such incidents were outdated.

In terms of value-added components, the company was able to convince the public that its product had value-added components that could make it out win its competitors (Johnson & Peppas, 2003). For instance, it embarked on quality merchandise whose prices were affordable.

The company built public confidence in its leadership. For instance, with the coming of the vice-president to assess the situation in Belgium, the corporation showed a lot of care on the side of its clients and management. This outcome was a positive social responsiveness.

Tylenol had dominated the over-the-counter bazaar in America for years. In fact, as Markel (2014) says, “Before the 1982 crisis, Tylenol controlled more than 35 percent of the over-the-counter pain reliever market” (Para. 10).

However, the company chose to withdraw it from the market to show that it was not ready to risk public lives. Kaplan (n.d) presents the role that public relations played in the process of addressing this disaster. This move reversed the public view.

Instead of seeing Tylenol as the cause of its issues, esteemed clients and stakeholders regarded the company as the victim of the disaster. Thus, they remained loyal to Johnson & Johnson Company’s brand. This move was significant and effective.

It allowed the company to forego its short-term goals while at the same time re-emerging to fulfil and achieve its long-term goals as Johnson and Peppas (2003) confirms.

This move that cost the company millions of dollars also saved it more billions that would have otherwise been incurred while struggling to join the market a new after the crisis. In response to the crisis, the company engaged in informative advertisement plans.

Using the media, the company communicated to the public concerning its plan to produce quality and standard. For the Coca-Cola Company, this strategy reduced and eliminated the possibility of further casualties.

Confirming the above achievements, Johnson and Peppas (2003) assert, “By the beginning of August, research indicated that core users of Coca-Cola brand products reported the same intent-to-purchase levels as before the crisis” (p. 20).

For Johnson & Johnson, the move also reduced the cost of repaying and compensating the victims. Introduction of the triple packaging seals for commodity safety purpose was also an excellent strategy.

Reporting for the New York Times, Pace (1982) says, “The business stock rose from $1.50 yesterday, to $47.25, in trading on the New York Stock Exchange” (Para. 8). This parcel had a fastened container, a synthetic material, and a close up that guaranteed safety of the content.

Using multiple conferences at corporate headquarters, the company advertised the new plan of securing its packaging materials and immediately gained public, despite the move amplifying the business operations costs (Pace, 1982).

Scholars such as Pace (1982) and Markel (2014) have viewed the strategy that Johnson & Johnson Company adopted as the forgiveness and sympathy method. It reacted in a manner that depicted how it was sorry for the mistake.

This strategy worked perfectly. Soon after, the company was the best performing. Rectification was witnessed based on the steps the company took to ensure that this event did not happen again.

By introducing the three-seal package, the company showed the public its willingness to change the scenario and continue doing business with its venerated clientele. The sympathy strategy was such that the public viewed the crisis as a deliberate attack by an outside force.

This tactic won sympathy for the company from the public, which meant that it (the public) would help it (the company) to regain its position and thus disassociate it with poor drugs.

Changes to be made for Future Resilience

Evaluating the two approaches, both companies were able to deal with the crisis at hand in different ways to achieve the same objective. The difference was only witnessed in the cost of averting the crisis.

The whole study on Coca-Cola revolves around the fact that the company was not quick enough to solve the issues as compared to Johnson & Johnson Tylenol Company. The ease at which one company discovered the problem determined the incurred costs.

Both companies failed to put in place a crisis management team before the crisis happened. They should have put up this department in their management strategies to ease the response. If this plan were in place, the number of casualties in both scenarios would have been less.

The companies have ever since considered having a crisis response team following the lesson they got from the two events. Coca-Cola Company should have considered consumer protection a priority over profits. It did not withdraw its products from the market until its brand was banned.

This step was only a control measure, rather than a management strategy. It only responded to the crisis while not addressing its consumers or issuing a statement that would have created a sympathy situation.

On the other hand, Johnson & Johnson Company accepted it fault given that this incident was the second crisis of the similar manner. With reference to the 1982 case, the company waited without issuing a control mechanism until the occurrence of the second problem to initiate the protocol.

The company was profit conscious and hence the reason why it did not want to recall its products because that move would have reduced its returns.

Conclusion

Coca-Cola is among the most recognised businesses in the world for its sale of soft drinks. However, the paper has made it clear that the company did not attain its excellent global rank in a day. It has had to learn from the many crises that have come its way.

Many scholars who have been studying this company for decades have associated the turbulent experiences as the root behind the company’s social responsiveness, better customer services, and the globally-recognised brand name.

Similarly, Johnson & Johnson Company remains the best business in terms of social responsibility. With reference to the crisis under study, the company adopted the right procedure by choosing to recall its products, irrespective of the cost.

It did the right thing by accepting that it was in the wrong and that the consequences it faced were short-lived. Thanks to these companies, the public is aware of the step it should take if such a situation re-emerges.

It is best to remain objective in solving the situation, regardless of the cost since every company works for its consumers. All companies’ interest should be to make the lives of the consumers better. These tips proved efficient in dealing with the management of Johnson & Johnson and the 1982 and 1999 Coca-Cola crises.

Reference List

Andrews, E. (1999). International Business; Coke’s Chief Apologises for Response on Contamination. The New York Times. Web.

Blanding, M. (2010). The Dirty Truth Behind The World’s Favourite Soft Drink. New York, NY: Penguin Group.

Business Monitor International. (2014). The United Kingdom Food & Drink Report Q1 2015. Web.

Curtin, T., Hayman, D., & Hussein, N. (2004). Managing a Crisis: A Practical Guide. Basingstoke: Palgrave Macmillan.

Ferrell, C., Fraedrich, J., & Ferrell, L. (2010). Business ethics: Ethical decision-making and cases: 2009 update. Mason, OH: South-Western Cengage Learning.

GAO. (1997). : Four Financial Crises of the 1980s. Web.

Johnson, V., & Peppas, S. (2003). Crisis Management in Belgium: The Case of Coca-Cola. Corporate Communications: An International journal, 8(1), 18-22.

Kaplan, T. (n.d). The Tylenol Crisis: How Effective Public Relations Saved Johnson & Johnson. Pennsylvania: Pennsylvania State University.

Lyon, T. (2004). Crisis Management: Coca-Cola in Europe. Michigan: University of Michigan.

Markel, H. (2014). . Web.

Pace, E. (1982). . New York Times. Web.

Rehak, J. (2002). : The recall that started them all. We.

Simpson, M. (2013). . Web.

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