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Implosion of a brand: What can we learn from Toyota's crisis mismanagement?

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12th Feb 2010
Managing editor MyCustomer.com
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As Toyota struggles to repair customer trust and its brand reputation in the wake of its vehicle recalls, Neil Davey explores what went wrong - and what we can learn from it.

It’s a nightmare scenario for any company. You discover that one of your leading products – a product owned by millions of consumers - has a potentially fatal flaw. You’re facing damage to your brand, damage to your corporate reputation and damage to consumer trust. Most importantly, the safety of your customers is at risk. So, what do you do?
The path that Toyota took is likely to be something that it will reflect on with regret. Which leads us to ask another question: what should it have done?
A quick recap of recent events:
  • In June 2009, Katsuaki Watanabe is replaced as CEO by Akio Toyoda, grandson of the manufacturer’s founder. He is stinging in his criticism of the way the company has been run, saying it had "become too big and distant from its customers". Only weeks later, Toyoda is informed of a fatal accident involving a brand new Lexus – with a stuck accelerator identified as a possible cause. Toyoda offers his condolences. 
  • In November, Toyota recalls around 4 million vehicles in the US following concerns that the accelerators could get trapped by loose floormats. The following month, the US National Highway Traffic Safety Administration (NHTSA) meets with Toyota executives to seek assurances that prompt action will be taken.
  • In January, Toyota informs the NHTSA that the pedal may have a sticking effect, and after pressure from the Administration, the manufacturer announces further recalls and halts the sale of eight models.
  • February sees the US Transportation Secretary Ray LaHood concede that although Toyota has started taking responsible action, "it unfortunately took an enormous effort to get to this point." The next day LaHood seems to suggest that Toyota owners should stop driving – though these remarks are retracted and attributed as a misstatement. A new problem also surfaces, as around 500,000 Prius and Lexus hybrid cars are recalled due to concerns over their braking. The company finally begins to publicly address the issues, crafting a letter to customers that runs in major daily newspapers and on its website, followed by a second letter days later, and then a US television commercial. Toyoda also appears at a news conference to apologise for the problems, promising that a taskforce featuring independent sources will review quality.
What has been the impact of this to date?
From a purely financial perspective, the event has had a significant impact on Toyota. It has estimated that its losses will be upwards of £1bn in costs and lost sales due to the recall, though the reported braking issues with the Prius and Lexus models could push this figure still higher. January saw it report a 16% drop in sales, with monthly sales dropping below 100,000 for the first time in over a decade. But there is also the damage that has been inflicted to its reputation and consumer trust.
"There can be no greater threat to a brand than the possible chipping of the foundations upon which it has built its reputation," explains Laura Haynes, chairman of brand and communications agency Appetite. "In the case of Toyota, the quality of its product, the honesty of its claims, and continuous improvement are at its core, and the recent recalls could shake the bedrock of the brand. The five principles upon which the brand has been built – change, Kaizen (improvement), Genchi Genbutsu (go and see), respect and teamwork - are well known and have been the basis of the brand for some time. There is no doubt that some damage has been done, but it is now, in the way in which it handles this crisis, the openness of its communications and effectiveness of its solutions that will determine whether it comes out a stronger brand for the future or a name surrounded by doubt and distrust."
Certainly its handling of the situation thus far is pitching the organisation perilously close to the latter. So let's look at where it has gone wrong.
Where did Toyota go wrong?

The slow public response to the problem was a major mistake from the outset. It wasn't until seven months after the fatal crash that Toyota held a news conference about the problem, when their management of the situation should have sprung into action as soon as the accident occurred. 

"Toyota broke the cardinal rule in crisis management: assume the worst," says Judith Ingleton-Beer, CEO of IBA International. "Companies often don't realise they have a problem until it hits the media fan – and nowadays, Twitter, bloggers and YouTube beat most lumbering corporations to it. From a disgruntled employee to toxic waste – assume the worst. 

"The fact that the media was able to get hold of this and force Toyota into a defensive position suggests that the company did not understand the scale of the problem or the potential size of the risk," adds Haynes.

"Retaining confidence is imperative to corporate reputation so product recalls have to be done with purpose, consistency and transparency. Say upfront what the problem is because otherwise the vacuum will quickly with damaging speculation, especially in this age of 24/7 news channels and real-time social media," saysPaul Charles, COO at Lewis PR and formerly director of communications at Virgin Atlantic.
"If there is one key lesson to learn from this fiasco it is that brands need to apologise quickly and mean it. Consumers are growing increasingly perceptive and can smell a cover-up a mile away. Any delay in coming clean and expressing regret is rightly regarded as evidence of being out-of-touch, uncaring or incompetent.”
However, when the apology came, many felt it was insufficient.
 
"They started with a handicap by getting late to the game - and then they made it a lot tougher for themselves," says Lou Hoffman, president and CEO of The Hoffman Agency. "One of the mistakes early on that Toyota made, and I think a lot of companies in crisis mode make, is they think that it is purely an intellectual exercise and it’s not. Sure people want to understand technically what is wrong with the brakes and what you’re going to do to fix it and what kind of confidence you can give them that the fix will work. But there is also an emotional component with it. People want to feel like you care and that you are engaged and that you are sorry. What are you doing starting the letter by talking about your heritage! That is not the way to start things and it went downhill from there.
"This is the biggest car company in the world. I've got to believe they have got competent communicators working for them and there was nothing competent about the letter. It seems to me that the only logical reason for such a poorly crafted letter had to be from allowing too many people – and in particular legal – muck with it."
In the meantime, news conference appearances were also adjudged to have failed to deliver the contrition or sincerity that the public demanded. As Ingleton-Beer highlights: "There was no deep bow, a standard fixture in Japan when a firm declares it is responsible for its mistakes, and no apology. Just a little-known Toyota executive in charge of quality, Shinichi Sasaki, explaining part of the reason Toyota decided to use US autoparts maker CTS's accelerators was to help contribute to the local U.S. Economy. Trying to pass the buck?"
Public statements by Toyoda were similarly unconvincing - perhaps because of the publicity-shy Toyoda’s lack of experience in front of the world’s media – while other Toyota employees failed to difuse the situation, as Charles recalls.
"Businesses conducting recalls definitely need cohesive communication or crisis management plans if they are serious about keeping the trust of their customers. Spokespeople have to be good under pressure and properly briefed when they speak to the media. I was staggered to hear a Toyota UK representative admit in a Radio 5live interview that he couldn’t remember the full list of the Toyota models involved in the current problems. The fact that the meltdown has now entered a second week – rare in today’s corporate world - also shows how unprepared the company was."
On a more positive note, Toyota started to deploy social media tools to communicate with its customer base, including Twitter and YouTube.
"The fact that the company is using more democratic channels to maintain a dialogue with its customer base reinforces its intent to ‘make good’: it is addressing associated concerns and keeping its customers updated and engaged in dialogue rather than the more traditional use of ‘one-way’ statements to the press," says Haynes.
Others, however, aren't as convinced that Toyota has learned from its mistakes. "Toyota has put out a TV commercial to try to diffuse the situation, and if you break it into elements, I think the elements are pretty good," says Hoffman. "But it is how they lead it. They lead wth heritage and I think - what are you doing! When their second letter came out I had hope that they were going down the right track, but I'm not so sure now..."
What can we learn?
So what can we take away from all of this? Paul Robertson, head of crisis management, risk and business continuity services at PricewaterhouseCoopers, emphasises that while product recalls can be extremely challenging, a well thought through approach can actually positively impact future growth prospects – an excellent example of which is Johnson & Johnson’s Tylenol recall, arguably the most effective crisis management on record and something that “made a hero” of the company, according to the New York Times.
"Decisions can be made well in advance of any recall about how it will be dealt with, how communication channels will be used and who needs to be involved and engaged," says Robertson. "These will combine to ensure a faster, more detailed and more successful response in comparison to those organisations that react only after an incident has occurred."
The five-step approach recommended by PwC comprises the following:
  1. Dealing with product recall is an aspect of corporate crisis management which should be a key part of an organisation’s business continuity programme and regularly tested. Too often the focus of such programmes is on traditional risks such as fire or flood but reputational damage can be far more harmful to relationships with customers, consumers and business partners and should be addressed with appropriate vigour and pre-planning.
  2. Mitigating the impact of a product recall is not just about the response, but arguably more a question of preparation, so companies need to ensure roles, responsibilities, response structures and logistics channels are in place in advance so that management can communicate and take action the instant a product problem arises.
  3. When an incident occurs, it must be escalated quickly. The company needs to confront the situation immediately, understand the legal position, see things from the customer’s point of view, not just that of their organisation and ensure that all stakeholder concerns are identified and addressed.
  4. Ensure that the precise technical nature of the problem is understood so that what has occurred and how the recall will be dealt with can be explained clearly. This may involve considerable research and the engagement of third parties, which needs to be factored in to advance preparations.
  5. There must be communication from the most senior level of the business, and this must be honest, show concern for those affected and express a strong commitment towards solving the problem. The communication should be used to reaffirm the company’s core beliefs and values around quality and customer focus.
"When product recalls happen, they should be comprehensive, immediate and public," says Charles. "Anything else fuels suspicion or anxiety. The bottom line is that brands need to treat consumers like grown-up human beings, not numbers, and act with integrity and alacrity."
Will this advice come too late to save Toyota?
"It will be difficult for the company to recover as the storm continues," says Daniel Dumoulin, co-founder and partner at branding agency Sundance. "Toyota will need to engage with its customers to regain their trust. Opening up the discussion and allowing consumers to have their say, through forums and social networking sites, for example, is a first step in drawing them back into brand Toyota. This needs to be swiftly followed by a demonstration as to how consumer feedback has effected change and how the company will behave going forward. Safety is a key message for car manufacturers, so the brand will have to revisit its whole communications strategy – both internally and externally – to build up the safety messages and to regain the lost trust from loyal customers."
Haynes, however, remains optimistic that the car manufacturer hasn’t done irreparable damage to its brand or customer trust – and that in the long-term it will have learned a painful lesson.
"Toyota is an organisation striving to be true to its brand in the face of a problem and media backlash. It needs solve the problems, but also to understand and manage the public and media concerns with openness, integrity and perspective," she concludes.
"If handled correctly, I think it will take a bit more than this to seriously dent the reputation of the company that has a global reputation for producing what are regarded the most reliable and dependable vehicles available; typified by Top Gear’s indestructible old HiLux and the new model recently driven to the North Pole."

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By mdandu
27th Feb 2010 21:23

Toyota took too long to accept the problem which I believe they should have taken immediate action to prevent loosing trust from their customers, and probably it would have been less cost involved

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By sarahmark07
15th Nov 2010 07:44

Cheers to the author for giving me some solid ideas.

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By hjussila
14th Oct 2011 04:26

Management problems might not be obvious at the beginning, but over time, the lack of management skills will become a glaring fact when the company stumbles. This has been an interesting read and good analysis. I loved it, thanks for sharing your insights!

Harri - http://www.time-management-solutions.com

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