Tylenol Maker Faces Difficult Task to Rescue Product
Tylenol maker Johnson & Johnson, three years after establishing a standard for how well a company can react to a product disaster, may face longer odds rescuing Tylenol capsules this time, company officials and experts say.
Most experts have given New Brunswick, N.J.-based Johnson, whose McNeil Consumer Products Co. unit makes and sells Tylenol, high marks for its handling of this week’s Tylenol capsule tampering incidents in Westchester County, New York. But, they predict, scared and confused consumers will defect to other products nonetheless.
Loss of Business
“Since this is the second time around, they (Johnson) will lose some business,” said David Sacks, vice president of Morgan Olmstead investment house in New York. “I’d say at least $50 million in sales will be lost to other companies.”
Company officials expressed concern Friday that the latest incident may harm the reputation of other Tylenol products, such as tablets, that were not involved in the tampering incidents. Johnson & Johnson had total revenue of $6.1 billion in 1984. An estimated $525 million is generated annually by Tylenol products, with capsules accounting for about one-third of that.
Stock Drops
Worried investors continued to drive down the company’s stock in trading Friday on the New York Stock Exchange. Johnson & Johnson was the most actively traded issue--more than 9 million shares traded hands--dropping $3.75 a share to $48 at the close. The stock lost $5.50 on the week.
Analysts were similarly downbeat following Tylenol’s link to seven Chicago-area deaths in October, 1982. In the two weeks after that tragedy, retail orders for Tylenol capsules plunged 25% and rivals in the $1.2-billion pain-relief business redoubled their advertising and marketing campaigns in an attempt to overtake the nation’s most popular analgesic.
Yet, in what has come to be cited as the textbook example of crisis management, Johnson & Johnson resurrected Tylenol from its sales slide and, proving the analysts wrong, reclaimed leadership in the non-aspirin pain reliever market.
Johnson & Johnson undertook an aggressive public relations campaign that cost more than $100 million. Its McNeil unit established a 24-hour toll-free hot line for consumer information on Tylenol products, switched to the most tamper-resistant packaging ever used, gave away millions of coupons toward the purchase of Tylenol and maintained open lines of communications with journalists and government investigators.
The company has pursued much the same strategy in the latest incident.
“I think Johnson & Johnson is betting on its strong reputation,” said David Drobis, president and chief executive officer of Ketchum Public Relations, a leading New York-based firm. “They know how to handle a crisis situation. They have the trust of consumers, and I don’t think the blame is going to be laid at their doorstep.”
Still Johnson officials acknowledge they face an uphill battle to bounce back now.
“What has happened in Westchester County and in 1982 in Chicago is an act of terrorism pure and simple,” Johnson & Johnson Chairman James E. Burke told a news conference Friday at company headquarters. “Capsule medications are not the only form of product at risk. All of us in society must work and work together to solve this terrible problem.”
Burke said surveys conducted this week found a “sizable number” of Tylenol capsule users did not know if they would ever resume using the product. Although the surveys found “a high residue of good will for the (Tylenol) capsule,” he predicted that “there is no way this incident will not have an adverse economic impact.”
And rival makers of pain relievers, who were caught off guard by the 1982 poisoning of Tylenol capsules, will be more aggressive this time in trying to capture whatever market share that Tylenol capsules lose, experts say. “They have done their homework this time,” said one analyst, who did not want to be identified.
In 1982, after a short truce, the other well-known acetaminophen brands--American Home Product Corp.’s Anacin-3 and Brystol-Meyers’ Datril--launched campaigns that dealt with safety issues. Both companies reported gaining some ground on Tylenol, which is the most expensive brand of acetaminophen.
