Case Study

Tylenol's Rebound

By Carl Cannon
Ref. : Case Studies in Business Ethics, 6 th Edition

It's "easier to turn water into wine than to bring back Tylenol. It is dead."

That obituary by the head of a large advertising agency came at the height of the
Tylenol crisis, which began a year ago this coming Friday. In the bitter wake of seven
deaths in the Chicago area from cyanide laced Extra-Strength Tylenol capsules,
millions of bottles were yanked off the shelves by panicky retailers, unsure of their
own liability, and by a confounded manufacturer, Johnson & Johnson. A product that
had become almost a household word virtually disappeared in the first weeks after the
tragedy.

From 35.4% of the over-the-counter analgesic market before the killings, Tylenol sank
to a shaky 18.3% at the end of last year, when the red-and-white capsules began to
reappear on the shelves. Johnson & Johnson, an international health-products giant
based in New Brunswick, N.J., saw its stock price plunge.

"TEXTBOOK" RECOVERY PLAN

But that ad executive has since profusely apologized. Today, through a recovery plan
that some say will be studied in textbooks on marketing, advertising and public
relations, the product that only 12 months ago was "buried" by doomsayers has more
than a 28.6% share of the $1.2-billion non-prescription pain reliever market, or more
than 80% of its total before the crisis.

Johnson & Johnson's management, its agency, Compton Advertising, the unique
confidence the public had in the product itself and even the news media share credit
for the resurgence of Tylenol. It came against difficult odds, against a backdrop of
national fear and a host of copycat crimes that not only threatened Tylenol but for a
time cast a pall over the entire non-prescription analgesic industry as well. It was
expensive Johnson & Johnson's massive product recall, media messages and tests of
the capsules cost it in the tens of millions of dollars. And it has permanently affected
the way non-prescription drugs are packaged as makers of everything from aspirin to
eye drops followed Johnson & Johnson's lead in tamper-proofing.
Within the first few hours after the poisonings were traced to Tylenol capsules,
Johnson & Johnson set up a task force of its top executives to first assess the damage
to the company and then determine how to overcome it.

Over the next two weeks, during which this task force and a Compton Advertising
team struggled to come up with a plan for recovery, outside marketing experts were
advising that the only course was to change the name and come out with a "new"
product. But there was legitimate concern that if such a tactic as merely reissuing
Tylenol under a different name were tried, the press would quickly learn of it and the
situation for the company would be worse.

There was no feeling within the company or within the agency that the name Tylenol
should be dropped, according to Richard Earle, Compton's senior vice president and
creative director, and Thomas Lom, senior vice president and managing supervisor for
the advertising agency, both of whom worked on the recovery plan.

Tylenol was introduced in the late 1950's to the medical profession and built its
reputation in those first years on being medically endorsed as a substitute for aspirin.
The company contends its research shows that 70% of the users of the product first
tried it on the recommendation of a physician. "With that kind of a profile as a
foundation, advertising for the product began in 1976," Earle said. "We did some
research and found that it was pretty well known among consumers then as a
substitute for aspirin. Over the years our commercials used ordinary people with
hidden cameras and showed the relief of actual headaches. The whole emphasis of our
campaigns was how well the product worked."

ADVERTISING CRITICIZED

It was a type of advertising that had been criticized by other Madison Avenue agencies
as both boring and insulting to viewers. Critics say consumers were not naive enough
to believe that people featured in the commercials were unaware they were on camera.
But sales results had proved these critics wrong. Viewers obviously not only believed
the advertising, but had faith in the product as well. This was later to stand the
company in good stead in the midst of the crisis when competing products saw an
opportunity to increase their market share at Tylenol's expense.

The first major decision by Johnson & Johnson, even before the crisis task force was
set up, according to a company spokesman who took part, was to pull two lots of
Tylenol capsules off the shelves in Chicago. The second was to halt all advertising. In
the next few days capsules were taken off shelves across the country.
Johnson & Johnson's next step was to launch consumer research, to judge how the
public perceived the company. "Then it was deemed necessary to make sure
consumers got rid of Tylenol capsules," a Johnson & Johnson spokesman said. To
accomplish this, Compton ran newspaper ads 10 days after the tragedy offering to
swap Tylenol tablets for Tylenol capsules. "The press had informed the public so well
that the whole country realized the danger was not in tablets, so the response was
good," Lorn said.

At the same time, decisions were being made to investigate tamper-resistant

packaging, to develop marketing strategies to rebuild the brand-coupons for
consumers and discounts for retailers-and to figure out the type of advertising to
employ once the crisis was over.

During this period the company also obtained a letter from the Food and Drug
Administration stating that the agency was satisfied that there had been no criminal
tampering with the product at the plant in which it was manufactured. "We were
encountering people in our research who still expressed some lingering doubt, who
thought perhaps the damage had been done on our premises," a company
spokesman said. Johnson & Johnson widely exhibited the FDA letter to the press to
try to erase the doubts.

Then the counterattack-a low-key one-began. "We wrote some ad copy which was
essentially a corporate statement," Earle said. "We felt the public should be told that
Tylenol would be back. We wrote a commercial early but it was held up and not aired
for about four weeks."

The reluctance was born of uncertainty, according to the Compton team. "The
company had worries of stirring everything up. So we did some research. Starting a
week after the tragedy, we began to conduct man-on-the-street interviews to get a good
reading of the general mood of the country. Over the next four weeks, we interviewed
more than 800 people in 12 or 15 cities and found little negative feeling against the
company itself. Many said they would buy Tylenol again if it were packaged iii.
tamper-proof containers.

"But Mr. Burke (James E. Burke, chairman and chief executive of Johnson &
Johnson) wanted to go slowly. He decided not to rush in. There were some concern
over the timing. It was very close to Halloween and we were afraid it might spark a
‘copycat’ crime," Earle said.
AIRED "ROADBLOCK" AD

It was finally concluded that, since the Tylenol killings had been so extensively covered
in the press and since Compton's research showed that the public wanted to hear
from the company, the commercial should be run. "Our statement was rewritten many
times," Lom said.

The first Tylenol commercial after the killings was what ad agencies and networks call
a "roadblock": A viewer would see the same commercial no matter which of the three
television networks was being watched at, say, 9 p.m. The ad featured Dr. Thomas N.
Gates, medical director of McNeil Consumer Products, the Johnson & Johnson
subsidiary that produces the analgesic. Gates, obviously used as a symbol of
reliability, urged trust in the product and promised tamper-resistant containers.

"We thought about that spot hard and long," acknowledged a Johnson & Johnson
spokesman. "There was some risk that it would be interpreted as being too
commercial. After all, there were no capsules on the shelves for people to even buy.
But, fortunately, it did what the country was expecting from the company and told
them Tylenol would be back and it would be safe."

Long thought was given, too, to the press conference by Burke in which he
announced-five weeks after McNeil Consumers Products withdrew 22 million bottles
from the market that Tylenol would start to reappear on store shelves in triple-sealed,
tamper-resistant packages.

"We had more than 200 inquiries from the media and there simply was no other way"
to answer them all, a company spokesman said. Burke appeared in New York and was
linked by television to 29 other cities across the country. He said it was a "moral
imperative" not to be destroyed by a "terrorist" act. And Johnson & Johnson emerged
with the perception of being a responsible company and a champion of consumers.

GRANTED ACCESS TO MEDIA

Both Earle and Lom acknowledge that "a lot that might have been handled by
advertising at this time was handled in a public relations sense." They mean that over
these weeks Johnson & Johnson executives made themselves extremely available to
the press. Burke and aides accepted virtually any and all appearances on talk shows,
for instance, in an attempt to get across the company's viewpoint.
Still, according to one of those involved, the Johnson & Johnson task force agonized
over a request for an appearance on "60 Minutes" because of the combative and
sometimes abrasive style of questioning often used on the show. Among the seven key
members of the Burke task force, two voted against the appearance. "We
discussed it at length, and decided we had nothing to hide and the rest of the press
had done a very complete job, and we thought `60 Minutes' would, too."

Burke not only appeared, but CBS reporter Mike Wallace and a camera crew were also
allowed to attend and film a strategy session of the task force. In the telecast, as it had
publicly and editorially most other places, the company won empathy from its plight.

It was a plight that would have sunk a smaller and less diverse company than
Johnson & Johnson. If Tylenol had been its lone product, the story probably would
have been different. As it was, Johnson & Johnson took a $100-million pretax write-off
on the Tylenol losses for 1982. Tylenol contributed an estimated 7% of Johnson &
Johnson's worldwide sales of $5.4 billion and between 15% and 20% of its profits of
$467.6 million in 1981.

Still, despite Tylenol's vulnerability, competitors made surprisingly small headway in

grabbing off chunks of its market share. For one thing, some of their products, too,
were adulterated in a wave of copycat incidents at the height of the scare. Consumers
were frightened by then of most analgesic capsules.

There was apparently an amazing level of brand loyalty. Anacin, the next-biggest
seller, picked up only an estimated 1% to give it a 13.5% market share, and Datril's
share remained at less than 1 %.

A Johnson & Johnson official said the company is currently in litigation with some of
its insurance firms over whether or not the company was covered for such product-
tampering resulting in deaths.

Finally, the company was confident enough to return to pretty much the same type of
advertising it had done before the crisis-non-actors with headaches. On Jan. 3, a San
Diego woman appeared in an ad, expressing her trust in the brand. An announcer
pointed out the new tamper-resistant packaging, but the crisis was never mentioned.

"We reviewed our advertising campaign just the other day," a company spokeswoman
said last week. "We decided to go with the same thing with about the same level of
spending."

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