As Companies Have Found Out the Hard Way, Consumers Have Very Long Memories

Reputations, it is said, take a lifetime to build and a second to destroy. Reputations can be rebuilt over time. But it requires assiduous attention to detail and an unwavering dedication to doing the right thing. 

For example: Johnson & Johnson faced a major crisis in 1982 when people died after taking Tylenol that had been laced with cyanide. I was a network news executive at the time and my focus shifted from the deaths to a bigger question: What can J&J do to survive this?

They owned the problem…at an estimated $100 million dollar cost (about $250 million in today’s dollars). They launched an immediate nationwide recall, pioneered tamper-resistant packaging, and cooperated fully with authorities. Their swift and transparent response made them the gold standard in crisis management.

In 2015, Volkswagen was caught using defeat devices to cheat on emission tests. They responded by launching a thorough investigation, replacing their CEO and offering compensation to affected customers. They also paid billions of dollars in fines and suffered through a near-fatal drop in sales. 

I know first-hand just how effective their handling of the problem was. Our eldest daughter reluctantly surrendered her beloved “Jenny Jetta” and used their compensation to buy another brand. Today, she’ll tell you that VW is one of the few companies she’ll always trust to “do right” by customers. 

Samsung’s Galaxy Note 7 smartphone had batteries that could overheat and catch fire. They launched a thorough investigation to find and eliminate the problem. Ultimately, they recalled millions of the devices. They’re still around, primarily because of how they handled the crisis, not despite it.

Unfortunately, not all crisis management is that successful. 

The Peanut Corp. of America was a virtually unknown, privately-held peanut processor in Georgia until a massive salmonella outbreak in 2009 killed nine and sickened hundreds. Before it was contained, 3,913 different products from 361 different companies had to be recalled. Frightened consumers drove peanut butter sales down twenty-five percent industry wide. Peanut Corp. declared bankruptcy and a former top executive was sentenced to 28 years in prison. But the reputational damage – to peanuts – was far deeper. The Georgia Peanut Commission estimated the costs to peanut producers in lost sales and production at $1 billion dollars.

In 2010 one of the most expensive auto recalls in history happened because of floor mats. The government said 89 people had died in the prior decade after their gas pedals got stuck in Toyota floor mats. “Unintended acceleration” led to the recall of 8.1 million vehicles. Toyota estimated costs at $2 billion in 2010. Four years later, Toyota paid an additional $1.2 billion fine to avoid prosecution for covering up what it knew about the ill-fitting floor mats and other safety problems.

For any GM stockholder, 2014 was a horrible year. Faulty ignition switches were blamed for shutting down engines. Those shutdowns disabled power steering, brakes and air bags and were linked to 124 deaths and more than twice as many injuries. GM recalled more than 30 million cars worldwide costing the company $4.1 billion dollars. Costs included $2.8 billion in repairs, $870 million in death and injury settlements, and a $900 million settlement with the Justice Department. GM also took an $874 million charge to account for the costs of future recalls. GM stock lost about 15% -in a year when the overall market gained more than 11%. 

What causes these kinds of situations? In many cases, it’s the result of “quality fade,” a manufacturing term describing how product quality is gradually reduced by manufacturers. It can be caused by pressure to lower costs, to increase a competitive advantage, or simply drive higher profit margins. Sometimes, increased production demands can lead to lowered inspection rates. 

There are myriad reasons, but the outcome is ultimately the same: reliability suffers and consumer confidence erodes. In critical application products, those failures can actually endanger lives. 

When quality questions are raised — whatever the reason — consumer trust and brand reputation decline, legal and regulatory risks skyrocket, as do return rates and warranty claims. Perceived competitive advantages are quickly offset by a resulting lack of trust. 

If questions aren’t answered, retailers may deeply discount or simply discontinue the product. That limits their potential liability while protecting their own reputations.

Consumers, after all, have very long memories.