Corporates in crisis

In the modern world everything is under scrutiny and is a discussion point in a flash. The virality of communication is a double edged weapon.

It gives tremendous scope for instant promotion and conversely instant fall from grace. We will be discussing cases of companies forced to bite the bullet – facing the ire of the customers who made the companies rich and famous.

Volkswagen issue: Volkswagen is facing huge fines and its reputation is in pits following revelations that the company cheated diesel emissions tests in the USA for several years.

It did so through a clever piece of software that could identify when it was being tested and reduce harmful exhaust fumes so it looked as if the cars met requirements, when in fact they didn’t.

Volkswagen was caught by independent testing carried out by a clean-air advocacy group, The International Council on Clean Transportation, tested the Volkswagen cars because it thought they were such a great example of how diesel could be a clean fuel. The trick deployed by Volkswagen is called the switch.

The switch is extremely clever. It tracks the position of the steering wheel, vehicle speed, how long the engine is on and the barometric pressure.

If these inputs match the ones commonly found in vehicle testing, the software cuts harmful emissions to pass the test. If it sensed that the car was being driven on a road rather than in a lab, it switched to a separate calibration that turned off the exhaust controls.

Volkswagen admitted the fraud on September 3, 2015 to the EPA (Enforcement and Compliance Assurance) and the CARB (California Air Resources Board).

On September 18, the EPA went public with its findings. The fine that could be imposed on Volkswagen could be as high as $37,500 per vehicle for the violations, a total of more than $18 billion.

The company is facing potentially huge financial penalties in the United States. Enquiries are also taking place in several other countries.

Volkswagen has already set aside €6.5bn to cover the costs of recalls and pay for efforts to rebuild the brand. However, the real total cost may end up being considerably higher.

The biggest cost will be Volkswagen's reputation. The company has been caught deceiving not only the regulators, but consumers as well. The "clean diesel cars" it sold in the US have been publicly exposed as nothing of the sort.

Its reputation will have to be rebuilt. Volkswagen’s vice chairman Berthold Huber admitted to the same in a press conference. "We are aware of the economic damage that we have suffered, but above that the damage to trust among Volkswagen customers that has occurred, we have decided to make a clean break and start a fresh," he said.

Maggi noodles case: Maggi was the product that Indians under the age of 30 grew up with. It popularised the instant snack concept in Indian homes.

It was synonymous with ‘2 minutes’. It was the perfect product for the Indian homemaker, easy to prepare, nutritious and affordable. The quantity of noodles were just enough for the child to feel full till the next meal.

It was the ideal snack and most Indians first tryst with cooking was with Maggi noodles. Maggi was so popular that in Dehradun and in many parts of North India any snack point serves Maggi.

It had emerged as one of India’s five most trusted brands in a consumer survey conducted in 2014. Thus it was sad to see Maggi noodles disappear.

Maggi instant noodles were banned in June 2015. India’s food safety regulator, Food Safety and Standards Authority of India (FSSAI) banned the brand when its tests showed that the noodles contained excessive levels of lead.

Nestle pulled out its Maggi brand of noodles from sale from all over India. The ban was a huge blow to the company, which has been selling Maggi products for over three decades in India and has 80 per cent of the country’s instant noodle market.

The value of Maggi noodle stocks withdrawn from the Indian shelves was estimated at `210 crore. Another `110 crore worth of Maggi stocks were in factories and with distributors according to Nestle. The total loss amounted to `320 crore.

Ford Figo advertisements: A series of controversial advertisements made by the WPP advertising agency, a subsidiary of JWT India for Ford Motors blew up on Ford Company in April 2013.

The most controversial of the three posters for the Ford Figo, meant to popularise the Indian hatchback’s spacious trunk, showed former Prime Minister of Italy, Silvio Berlusconi flashing a victory sign while driving a vehicle with three scantily clad, gagged women in the trunk.

Two other versions show the reality television star Paris Hilton kidnapping the Kardashian sisters and the other ad showed Formula 1 driver Michael Schumacher abducting three of his rivals.

The public indignation, protests and outcry prompted the resignation of the Chief Creative Officer and Managing Partner at JWT India, and the Creative Director at Blue Hive, a WPP unit dedicated to managing the Ford business.

The advertisements in question were never used for a Ford campaign, but were uploaded by JWT employees on Ads of the World an international advertising website which gives awards for advertisements submitted by users.

They were immediately removed from the website, even after which they quickly spread through social media and attracted criticism for their overboard message.

Coke and Pepsi Pesticide issue: In 2003, the Centre for Science and Environment (CSE) a non-government organisation (NGO) came out with startling revelations.

It said that aerated waters produced by soft drink manufacturers in India, including multinational giants PepsiCo and Coca-Cola, contained pesticides that can contribute to cancer and a breakdown of the immune system. Tested products included Coke, Pepsi, and several other soft drinks.

CSE found that the Indian produced Pepsi's soft drink products had 36 times the level of pesticide residues permitted under European Union regulations and Coca-Cola had 30 times the level. CSE said it had tested the same products in the US and found no such residues.

Coke and Pepsi are at each other’s throats all the time and fight pitched battles, glamourised in the media as “Battle of the bottle”. They refuse to acknowledge each other.

But once the crisis broke out Coke and Pepsi hosted a joint press conference where they claimed that their colas were pesticide free. Their bonhomie and camaraderie proved the point – It’s all about money!

In 2004, an Indian parliamentary committee backed the CSE's findings, and a government appointed committee was given the responsibility of developing the world's first pesticide standards for soft drinks.

Coke and PepsiCo opposed the move, arguing that lab tests aren't reliable enough to detect minute traces of pesticides in complex drinks like soda.

They also alleged that Indian farmers use pesticide very heavily and that traces of pesticide percolate down to the water table below. Their argument was that as they use the ground water that has traces of pesticides already it is quite possible that these pesticide traces could be present in soft drinks.

Coca-Cola Company has reacted by seeing to it that its plants filter water to remove potential contaminants and says that its products are tested for pesticide and that they must meet minimum health standards before they are distributed.

It is reported that Coca-Cola and PepsiCo registered a 10 per cent drop in sales after the pesticide allegations were made in 2003.

Johnson and Johnson’s Tylenol: It was the most successful over the counter (OTC) product in the United States in the eighties with over one hundred million users.

Tylenol was a leader in the painkiller segment accounting for one-third of the total market. In September 1982, a person or a few people (unknown) replaced Tylenol’s extra strength pills with cyanide laced capsules and put them in the shelves of some pharmacies in Chicago. The poison laced capsules were purchased and seven people died.

Coming out of initial shock J&J’s first action was to alert the consumers across the nation not to buy any type of Tylenol products. J & J withdrew capsules first from Chicago and later from the US even though full withdrawal meant loss of over 100 million dollars of sales.

Next J&J released full page advertisements in all major publications admitting full responsibility even though they were not directly responsible. This came as refreshing change from companies that involve in subterfuge, litigation and even deliberately blame somebody else for their problems.

J&J used the media to communicate their actions. J& J introduced their new triple safe sealed packaging; a glued box, plastic seal over the neck of the bottle and foil seal over the mouth of the bottle with in six months of the crisis.

J& J has recovered completely and regained market share and its reputation as one of the most trusted brand of OTC product in USA.

J&J’s handling the crisis is an example of how to react to emergencies which threaten to swallow everything that a company has carefully nurtured and created over decades or sometimes over a century of market operations.

J&J’s Tylenol case study is seen as a stellar example of societal marketing, a concept where the company cares as much about the society as it cares for its customers and itself.

By:Dr M Anil Ramesh