In 1982, seven people in the Chicago area died after they bought and consumed Extra Strength Tylenol capsules. An investigation determined that the capsules had been laced with cyanide by parties unknown.
Johnson & Johnson, the makers of Tylenol, responded by immediately removing all Tylenol products (even those not involved) from shelves across America, at a cost of $265 million in 2020 dollars. They offered to replace at no cost any products consumers had already purchased. They did not restock stores until they could repackage with new, tamper-evident seals and safeguards.
In the aftermath of the crisis, the Tylenol brand’s market share plummeted from 35% to 8%. But within a year, Tyleonol had regained and surprassed its previous market share. Today, this case is used in business schools as an example of how to respond to negative publicity. Even though Tylenol is just generic acetominephen, it still enjoys non-commodity pricing power because of consumer’s positive associations.
In contrast, in 1994 Professor Thomas Nicely of Lynchburg College reported to Intel some strange results in calculations he was performing with Pentium chips. Intel, after some delays, acknowledged the bug, but minimized the issue, initially saying it was a rare condition and most users would not experience the bug. Under pressure, Intel agreed to replace faulty Pentium chips but only if users could demonstrate that they were affected by the bug.
This news broke not long after Intel’s initial Pentium sales campaign, which featured the “bunny suit” commercials, lavish channel spending on promotion, the Intel Inside campaign, and that tedious four-note theme. All of that massive spending could not outcompete nightly CNN stories, David Letterman “Top Ten Pentium Bugs” monologues, and wide news coverage. After more heel-dragging, Intel announced it would replace any Pentium chip on demand (an offer very few customers bothered with), but the damage was already done. In the end, Intel took a $730 million (2020 dollars) charge.
What do these two episodes in business history teach us?
1. If you have bad news, don’t cover it up. If you’ve been hacked, or if you have some unexpected downtime, customers and potential customers appreciate honesty. For example, BuyVM (a well-respected provider) once had a set of bad power supplies that took down many nodes. The BuyVM team worked long and hard to get everyone’s service restored, and through it all kept posting regular updates. As a result, they received a lot of praise for their transparency.
On the other hand, there have been many providers who denied or minimized problems have seen their brands damaged when the truth comes out because it breaks trust.
2. Sweeping things under the rug costs more in the long run. If Intel had immediately said “yes, errata in chips is common, we acknowledge the error, and we’ll replace any defective chip,” there would have been little coverage outside of obscure engineering journals and very few customers would have taken them up on it. By resisting any concession, Intel eventually spent $730m and enduring brand damage.
3. One piece of bad news is better than many pieces of bad news. It’s painful to announce “we had some nodes go down” or “we got hacked”. But it’s better to get all the bad news out at once than to die by a million cuts as new revelations dribble out daily.
4. Brands can recover from everything except broken trust. Things don’t get much worse for a brand than “our headache medicine can kill you”. Yet, J&J bounced back through honesty and focusing on the customer experience rather than short-term profits. If you take a blow, acknowledge the issue, think long-term, and put your customers first.
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I also enjoy using LEBs! I have an empire of little guys for VPNs, larger guys for apps, and big guys for databases and storage. When I'm not in front a screen I'm into German Shepherd dogs, quality knives, target shooting, theology, tabletop roleplaying games, and forest hiking.
I enjoy writing technical articles here on LowEndBox to help people get more out of their systems. You can find me on LowEndTalk @raindog308
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Honesty and Transparent will be the less cost solution if something bad every happened. It not only can show the capability that the company can handle the mistakes, but also give clients the confidence to trust them even more in the future.
I couldn’t agree with you more, John!