Toyota car crisis: How to handle a product recall

Toyota has once again found itself having to recall a significant number of its cars due to product fault – and with its reputation again being questioned, we watch with interest to see if it has learnt any crisis communication lessons from its last PR disaster.

Summarising the perilous position that the Japanese car maker finds itself, Nirmalya Kumar, Professor of Marketing, London Business School, says: “The decision by Toyota to recall 3.4 million cars due to a fault with an airbag is once again firing up the social media world. Today’s news is compounded by the fact that globally, Honda is recalling 1.13 million cars, Nissan almost 500,000 and Mazda 45,000. The internet has added a new layer of visibility, speed and culpability to mass product failures and ensuing product recalls. You could say that social media can make or break a company in crisis.”

He continues: “Companies need to realise that such crises are about more than simply minimising legal liabilities. The challenge is not to allow a product recall to threaten the entire brand or company. Research indicates that negative news is devastating; on average, the media impact of negative news has quadruple weight when compared with positive news. Intel’s 1994 Pentium microprocessor recall allegedly cost $500m alone. Coca-Cola posted a 21% drop in income linked to its European contamination scare and recall of 17m cases of Coca-Cola from five countries in 1999. Firestone’s Ford-related tyre recall is estimated since 2001 to have wiped out more than half its parent Bridgestone’s profits and dragged down the share prices of both companies.”

And the impact of negative news can be compounded by a slow or weak crisis communications response from the brand.

In 2010, when Toyota was forced to recall millions of its vehicles over concerns that the accelerators could get trapped by loose floormats, the auto firm was lambasted for the way it responded. It wasn't until seven months after the initial fatal crash, and three months after the product recall, that Toyota held a news conference about the problem. By this time there had been a 16% drop in sales, with monthly sales dropping below 100,000 for the first time in over a decade. And that’s not to mention the damage that was inflicted to its reputation and consumer trust.

But product recalls need not turn into a brand crisis. They can even be an opportunity to build the brand, provided they are handled appropriately.

“A mishandled public response can cause more damage than the problem it addresses in the first place. Remember, Bill Clinton or Three Mile Island?” says Kumar. “On the other hand, a well-managed corporate response, such as Tylenol’s handling of the terrorist capsule poisoning incident in the early 1980s, can leave the brand even stronger. Similarly, Lexus’s handling of a recall immediately after the launch of the brand in the USA generated tremendous customer goodwill and positive press for the new brand. Our research has identified “four Cs” of product recall management that should guide companies in troubled times: be candid, contrite, compassionate and committed.”

Minimising the damage

So how can a business handle a product recall to minimise damage to its brand reputation and restore consumer trust?

Chris Clarke, general manager of Kwittken, highlights Dell’s reaction to the problem of exploding PC batteries in 2006. He says: "Dell and its exploding computers [battery recall] was the largest recall in the history of consumer electronics, and a good example of how to best handle an issue. Dell has since become a model for how a company can rapidly and accurately respond to its customers by:

• Using open dialogue and clear communication. Communication channels included a customer service line and a website with details and instructions for customers.
• Taking responsibility. Dell handled the crisis even though the batteries were manufactured by another company.
• Demonstrating responsibility as a brand when things go wrong. Dell recalled the batteries despite the incident occurring in six out of 20 million batteries in the marketplace.”

Kumar also shares the following advice:

• Be candid – address the problem openly and head on. “Unfortunately, hope often trumps reality,” he says. “Many companies wish their problems would stay under the radar screen, they stonewall the public, or even worse, issue outright denials. Exxon famously responded with “no comment” in wake of the Valdez oil spill. Merck went as far as instruct its sales force not to disclose information over the Vioxx crisis. Understandably, companies may feel threatened by a deluge of press inquiries, but speed and clarity of response is essential. The media may be converted into an ally, and internally, it is vital to maintain staff morale.”
• Be contrite and assume responsibility. “Johnson & Johnson immediately took responsibility over the tampering with Tylenol, even though it was hardly to blame. In contrast, Exxon confused the issue of taking responsibility with taking blame. The level of contrition expected by the public varies with whether the recall is an outcome of a malicious attack, accident, or an internal quality failure. Of course, culture matters here. After the Japan Airlines crash that claimed 520 lives in 1985, JAL’s chief executive publicly apologised and tendered his resignation. While, ultimately, it is important to ascertain where responsibility for the failure lies, the burning need of the moment is that the company is seen to take responsibility.”
• Be compassionate, be personal. “Press releases simply will not do. Johnson & Johnson managers were seen weeping on television cameras as they attended victims’ funerals. In contrast, Lawrence Rawl, Exxon’s chairman, waited two weeks after the oil spill to fly to Alaska. Sadly, all too often the only personal attention the affected receive is being ambushed by company lawyers and photographers.”
• Be committed – this requires a cross-functional response team with top management and should not be a public relations exercise. “The team’s priority should be immediately to assess the source and potential impact of the crisis. Who was hurt? Does it require free servicing, partial recall or total recall? Once the program is announced, how will the company wholly commit itself to making the process as customer friendly and effective as possible? Obviously, preparation helps. A well prepared company goes beyond buying crisis insurance. It has mechanisms, people and policies to help avoid and manage crises. The brand also needs to consider how to get back on its feet. J&J introduced triple tamper-proof seals on its packaging, coupons and deep price cuts to win back the market, and seminars by its sales force to doctors. Goodwill still has to be converted into sales.”

Kumar adds: “The product failure is a moment of truth. A poorly-managed response can unmask a brand promise as a hollow boast. But a well-managed product recall converts the crisis into a chance to demonstrate a company’s regard for its customers. Business as usual rarely offers such opportunities. It’ll be interesting to see whether these Japanese car firms will seize the opportunity or crack under pressure”.

However, there is a sting in the tail for Toyota. No matter how robust its response to the present crisis, it may pay dearly for its past mistakes.

Research by the Institute of Business Ethics has discovered a pattern amongst those that have successfully rebuilt their reputations internally and externally. The damage to reputation trustworthiness when something goes wrong is mitigated by two things - he way the company responds to it, and the other thing is prior reputation of trustworthiness.

Dr Nicole Dando, head of projects at the Institute of Business Ethics, explains: “You can clearly see how trust is impacted by the way brands respond. But if you have a strong reputation prior to the event, and a strong relationship, then the good will from stakeholders will mean they will be more forgiving. However, if you have a history of things going wrong then you’re going to get hit more. For instance, when Toyota had its problem, there had been pre-existing mistrust because there had been a series of recalls prior to the big disaster. And then when it responded very slowly and didn’t show remorse early enough, it meant that trust was diminished and its reputation was hit.”

It would appear that irrespective of any good work that Toyota does today, it may still fail to restore its tattered reputation...