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Product harm crisis management: Toyota case.

Coster Nkala

Walden University
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Product-harm crisis: the context of the Toyota case study.

Product-harm crisis is a highly publicized event caused by a product being found to be defective,

contaminated or even harmful to consumers. Cleeren, van Heerde, and Dekimpe (2013) pointed

out that these Product-harm crises have ever been occurring on several occasions around the

world. They further state that these crises can have a seriously detrimental effect on the affected

brand. Sometimes the goods or services that fall under the same category can be affected as well.

Germann, Grewal, Ross, & Srivastava (2014) state that more than 300 product recalls by the

Food and Drug Administration in 2012. They also point that the US Consumer Products Safety

Commission announced at least 250 product recalls in the same year.

The frequency in which these recalls happen is a clear indication that no manufacturing firm is

immune. In many cases, the crisis triggers a product recall on a voluntary basis or forced upon

the affected company by the government. Product-harm crises can cause a number of problems

such as major revenue and market share losses, lead to costly product recalls, and destroy

company brands that have been built over a long period of time.

According to Rajasekera (2013), Toyota, a Japanese multinational automotive manufacturer

headquartered in Japan, experienced serious product harm crisis that resulted in a product recall.

According to Strickland (2008), since its founding in 1937, Toyota was pursuing a

‘differentiation’ strategy. It was offering quality products and better customer service. Over the

years the company developed a sophisticated production system that allows it to produce

reliable, largely defect-free vehicles at low cost. Toyota has been the champion of the new
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manufacturing philosophy and has developed and refined it painstakingly over the intervening

years, resulting

in its widely reported just-in-time ( JIT) system of today. Its approach is very customer focused

and it obviously succeeded in this approach.

This success was evident as it became the second most popular automotive brand in America in

2007 surpassing local companies like Ford and Chrysler. The company earned huge profits, the

largest amount in the company's history and the largest ever for a Japanese company.

(Rajasekera, 2013). Rajasekera (2013) further points that this did not last long as the company

reported the first loss, during the 2008 recession. According to Rajaseka (2013), CBS News

reported that the seemingly unstoppable stream of recalls that resulted from emotionally charged

accidents, including 52 deaths allegedly attributed to a sudden acceleration problem followed.

The defects in Toyota vehicles were serious since they related to issues of safety. was seriously

damaged as a result.

According to Minto, 2010; CNN Online, 2010 (as cited by Rajasekera, 2013) on 21 January

2010, media around the world began presenting the stunning news of Toyota's recall of 2.9

million vehicles in addition to the 3.9 million recalled just a few months earlier. The reaction

from all corners was unprecedented in Toyota's history.

With the Internet and social media such as Facebook and Twitter in full force, the negative news

spread at unprecedented speed throughout the world. High negative media publication on the

event caused by a product being found to be defective and even harmful to consumers was a
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clear evidence of a product-harm crisis. The U. S. Congress invited Toyota president, Toyoda

for a hearing during the recall of 2009.

Problems the Toyota leaders must solve

Faced with serious product-harm crisis, Toyota leaders should identify some problems that are

supposed to be solved in order to turnaround the company. Some of these are discussed in this

section.

Toyota had invested a lot to build its brand reputation, which according to Rajasekera (2013) is a

store of goodwill. The leaders must work on redeeming the company’s reputation. Reputation is

an asset that Toyota should protect. Another problem to be addressed is that of bad publicity.

Toyota should work on maintaining public trust. Toyota should effect some changes in their

structuring. In my view, there should be a properly structured Marketing and public relations

departments that are responsible for marketing products and for public relations issues. Should

there been these two departments, the situation could have been handled in a better professional

manner than what happened. These departments would have probably managed to timeously

react when complaints are received.

Another challenge to Toyota leaders is the digitization of automobile functionalities, which is

increasing rapidly. The organization should invest a lot in Technology development. Information

technology has played a very important role in facilitating business in the global village.

Information technology could be used for quality checks in their production system and also as a
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media for communicating with their customers. The leaders are also faced with the problem of

quality control. This can be solved by retraining of engineering staff, adding more engineers to

quality circles and embracing TQM more vigorously.

Some of the organizational changes that Toyota leaders implanted following the crisis were

successful and some unsuccessful.

Toyota leaders tried to used connections with the political leadership but that did not help.

Toyota embraced the use of social media, as a way to keep an eye on the public mood when a

significant issue occurs that affects a large number of people, such as the present recall, which

raised emotions among many of Toyota's customers. Toyota seems to have realized the

importance of SNSs early on. As soon as the recall crisis began receiving media attention,

Toyota quickly put together an "Online Newsroom" and a "social media strategy team" to

coordinate all the media releases from different organizations of the company, such as public

relations, customer services, and dealers. Toyota became successful by using this strategy as

evidenced by less number of negative feedback from customers and the increase in the Facebook

page following. Toyota managed to gather real-time information about customer’s feelings and

complaints.

President Toyoda publicly apologized for the crisis event that had occurred. However, it showed

less positive impact. His explanation before the U.S Congress was received mixed feelings from

the public. Although given in the form of an apology, Toyota seemed to be sorry for a tarnished

image more so than failures of product, thus a clear sign of tears of a crocodile.
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Strategies that Toyota might use to manage this product-harm crisis and recover brand

loyalty in the global market.

Companies that operate in a volatile environment confront the challenge of keeping pace with

constant changes in their external environment. Pan and Chen (2014) contend that in order for

companies to sustain their competitive advantage they should be able to respond to the threats

they encounter in such environments otherwise they perish or face the insurmountable task of a

turnaround. Toyota might have used the following strategies among others to manage the

product-harm crisis and maintain its brand loyalty competitive advantage.

Firstly, the leaders should work on recovering the company brand reputation, which is an

intangible asset to the company. This can be done by implementing some changes that include

establishing the public relations department and through strong advertisement campaigns that are

focused on redefining quality standards and through investment in corporate social

responsibility. Toyota seemed not done so to sustain its acquired reputation. Building a brand

reputation will promote product commitment.

The leaders of Toyota should work on maintaining product commitment shown by the customers

during the pre-product recall period to support other strategies. Ahluwalia et al. (2000), as cited

in Germann, Grewal, Ross Jr, Srivastava (2013) found that loyal consumers will resist negative

information about well-liked brands. Committed consumers are very biased when processing

negative information regarding the brand that they are committed to. They counter argue the

negative information, which, in turn, reduce the effect of negative consumer negative attitude
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change following the learning of the negative information. Toyoda should ride on the glory of

being the market leader to protect its goodwill.

Cleeren, van Heerde, and Dekimpe, (2013) found that negative publicity increases the

effectiveness of both brand’s advertising and category advertising. (Cleeren et al, 2013). Klein

and Dawar (2004) assert that the organization’s perceptions of corporate social responsibility

efforts reduce the likelihood that the manufacturer is blamed for the crisis which, in turn,

reduces the likelihood that the recalled brand is adversely affected.

Secondly, leaders should invest heavily in information technology. Information technology has

played a very important role in facilitating business in the global village. Information technology

could be used for quality checks in their production system and also as a media for

communicating with their customers.

Toyota leaders should also implement some changes in their organizational structure by creating

a very strong quality assurance, and marketing departments.

It would not suit Toyota to adopt any other strategy other than the differentiation approach they

are currently pursuing. The differentiation strategy is working so it is not necessary to change

this approach. For continued growth, leaders should be looking to consolidate this position. They

should also look at product development and market development. It would be prudent to

maintain this strategy as it has been successful to date.

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REFERENCES

Cleeren, K., van Heerde, H. J., & Dekimpe, M. G. (2013).Rising from the ashes: How brands
and categories can overcome product-harm crises. Journal of Marketing, 77(2),58–77.
doi:10.1509/jm.10.0414

Germann, F., Grewal, R., Ross, W. T., Jr., & Srivastava, R. K.(2014). Product recalls and the
moderating role of brand commitment. Marketing Letters, 25(2), 179–191.doi:10.1007/s11002-
013-9250-5

Klein, J., and Dawar, N. (2004), “Corporate Social Responsibility and Consumers’ Attributions
and Brand Evaluations in a Product-Harm Crisis,” International Journal of Research in
Marketing, 21 (3), 203-217.

Pan, W.-H., & Chen, Y.-L. (2014). A case study of the corporate turnaround strategies.
International Journal of Organizational Innovation, 7(2), 63–78.

Rajasekera, J. (2013). Challenges to Toyota caused by recall problems, social networks and
digitisation. Asian Academy of Management Journal, 18(1), 1–17.

Thompson, AA., AJ Strickland & Gamble, JE. (2008) The Quest for Competitive Advantage:
Concepts and Cases. 17th Edition. New Delhi: McGraw-Hill.