Consumers pushed to alternative brands in light of Tylenol recalls
Originally posted on Monday, August 9 |By Julie Wernau
When seven people died from Tylenol capsules laced with cyanide in 1982, Johnson & Johnson CEO James Burke pulled Tylenol from shelves and went on "60 Minutes," painting the company as the victim of a madman. Within six months, Tylenol became the first product of its kind to use tamper-resistant packaging. In a year, Tylenol regained more than 80 percent of the market share it held before the poisonings.
"Johnson & Johnson's response was absolutely best practice," said Sheri Bridges, associate professor of marketing at Wake Forest University in North Carolina. "I've been teaching now for 20 years, and that example is always used as a case study of how a company should respond."
Today it's a different story over the company's handling of several waves of recalls of Tylenol and other over-the-counter adult and children's medications produced by J&J subsidiary McNeil Consumer Healthcare.
"This has been a much slower response," said Daniel Diermeier, a professor at Northwestern University's Kellogg School of Management. "There's been a lack of commitment, transparency or empathy, and who owns this crisis isn't completely clear."
New Brunswick, N.J.-based J&J leads the over-the-counter medication category, but consumer loyalty can be fleeting. Recalls over the last 11 months have led to widespread shortages, and retailers are marketing store brands as safe and effective substitutes. The longer shelves remain empty, the harder it will be for J&J to win back consumers, experts say.
"What's more important (than the financial damage to the company) is the damage it does to its brand name,'' said Damien Conover, an analyst with Chicago-based Morningstar Inc.
Consumers forced to use other products could decide never to go back, said Aparna Labroo, associate professor of marketing at the University of Chicago Booth School of Business. "If the effectiveness of the private label is not significantly different from the branded alternative, the consumer might stick with the cheaper alternative even when the branded product reappears on the store shelf," she said.
At a Walgreens in Chicago, Joan Gilkes, from Albany, N.Y., asked for Tylenol and was directed instead to a Walgreens brand pain reliever. "The ingredients are the same," an employee said. Gilkes bought the alternative product.
McNeil's Fort Washington, Pa., facility, where Tylenol products are made, has been shut since May. J&J is under federal investigation after a voluntary recall in April of 6 million bottles of more than 40 types of children's and infants' medications produced in Fort Washington, after some medications were found to be super potent or to contain tiny particles. Since November, there have been five voluntary recalls — the most recent on July 8 — of medications that had a "musty, moldy" smell.
The recalls have led to shortages of Tylenol, Benadryl, Motrin and St. Joseph Aspirin as well as lawsuits and hundreds of health complaints that have been sent to the FDA for investigation.
In the fiscal second quarter ended July 4, the recalls caused a 13.4 percent slip in J&J's over-the-counter pharmaceutical and nutritional products segment as sales fell to $1.14 billion. The Fort Washington facility produces about $600 million in products yearly, the equivalent to about 1 percent of the company's total annual sales.
Some J&J products could return to store shelves as production is shifted to other plants, but the fallout over the handling of the situation is expected to continue. The House Committee on Oversight and Government Reform, which launched an investigation in May, expanded its probe in June after Chairman Edolphus Towns learned from the FDA that McNeil allegedly sent contractors out to buy up certain adult Motrin products to remove them from store shelves. The company said in news reports that it attempted to purchase the products to avoid the disruption and confusion of a recall and that there was never a safety risk.
The FDA also has widened its investigation to include all McNeil production facilities after inspectors found quality-control procedures were not followed at the Fort Washington plant.
Last month, the company sent to the FDA measures it plans to take to improve quality, including installing new equipment and reorganizing operations at Fort Washington. That plan is not being made public because it contains proprietary information, said McNeil spokeswoman Bonnie Jacobs.
Meanwhile, some retailers say J&J's recalls have aided sales of their store brands. At Target, spokeswoman Erin Madsen said signs went up in June promoting its Up & Up brand as an alternative to McNeil products.
At a CVS, shelves reserved for adults and children's Tylenol and Motrin products point consumers to store brand products. "Looking for Tylenol? Try CVS/pharmacy brand for relief you can trust," boasted a sign.
"Suffice it to say that we've definitely increased the level of our CVS/Pharmacy brand product in our stores," said Mike DeAngelis, director of public relations for CVS.