Sailing through the storm

A look at how well-known brands across businesses have plodded their way through controversies

In one of the large conference rooms at The Lalit in Mumbai back in September 2003, about a dozen people were glued to a large television set. As the Cadbury Dairy Milk logo cut across the screen, there were broad smiles all around and a quick round of handshakes was interspersed with high fives. A new ad campaign for the brand had just received the green signal from the top brass at Cadbury India. The efforts put in by advertising agency Ogilvy & Mather (O&M) had paid off and the commercial was set to go on air in a week’s time. Typically, for any agency, this period is one that brings with it a whole lot of relief, joy and nervousness. If the client management liked what it saw, it meant the agency had understood its brief well. The question, then, was whether viewers would like it and be motivated enough to buy the product. 

As everyone in the room settled in for dinner, there was no way to predict that a crisis would soon eat its way into Cadbury’s 70% market share. The ad film — created by future blockbuster Vicky Donor director Shoojit Sircar and set to music by director Vishal Bharadwaj — being fawned over that night was on air for barely a day before being pulled off, no traces of it remaining in public memory. Instead, what was all over the news were reports of an unprecedented amount of bars of Dairy Milk — which alone accounted for 30% of the market — turning up with worms in them.

A single phone call from Cadbury India managing director Bharat Puri to O&M creative head Piyush Pandey saying, “We have a problem,” changed the mood at the agency. Over the next nine months, the behaviour of both the company and the agency demonstrated the best possible case study for a brand coming up against a crisis and emerging stronger. And this, despite the fact that the company’s sales took a serious beating, accompanied by a serious loss of reputation to the brand. While Cadbury managed to persevere and soldier through the crisis, others haven’t been as successful. 

Falling flat

Ask Deborah Hileman for examples of mishandled crises and she immediately mentions British Petroleum’s (BP) Deepwater Horizon oil spill in April 2010. “It took seven days for the company to stop the leak and there was no communication from its senior management throughout that period,” says Hileman, president and CEO at the Denver-based Institute for Crisis Management. To make matters worse, a little over a month after the spill, BP CEO Tony Hayward made a comment on the spill, saying “I’d like my life back.” This came on the heels of a string of controversial remarks, through which he played down what was already being called as the biggest environmental disaster in recent history. “Hayward came across as being selfish and aristocratic. It was apparent that there was no consideration for the families of the 11 people who were killed,” says Hileman. 

What made the going even tougher for BP was its refusal to acknowledge its own mistake in the disaster. In financial terms, BP had to cough up $28 billion just for the legal settlement. In comparison, the company’s income in 2010 was $297 billion and that in 2014 stood at $353 million. Its net income for the most recent fiscal was $4.9 billion, compared with a loss of $4.8 billion in 2010 and $38 billion the following year.

Hileman thinks what has fundamentally not changed is that many large companies still tend to ignore smaller problems until they transform into crises. “What they don’t realise is that many issues turn into crises because of social media. If unhappy customers are not treated fairly or do not get a response, their message will go viral very quickly,” she says. This is something that companies with a Facebook page or a Twitter handle, for instance, are slowly coming to realise. The reason for this stems from companies being overwhelmed by social media and refusing to hire professionals to run this function. “Much of this is because the management lives in denial.’”

That said, 2010 was a defining year for crisis management, especially for some really big names. Daniel Diermeier, dean, Harris School of Public Policy at the University of Chicago, points out two big companies apart from BP that also faced the heat, with the events taking place in quick succession. One was Toyota, which faced a product recall in 2009 and another the following year. In all, over eight million vehicles were recalled in the US after reports of unintended acceleration.

Barely three months later, Goldman Sachs was in the dock after being accused of misguiding investors during the sub-prime crisis of 2008. Then, the US Securities Exchange Commission (SEC) said Goldman had omitted and misstated some key facts when it marketed its collaterised debt obligation product. Eventually, the company was asked to pay $550 million to settle charges relating to the product. “It was then that CEOs realised that if such iconic names could not handle crises like these, they didn’t stand a chance. Companies today react with a sense of awareness and would have been otherwise been quite complacent,” says Diermeier. 

Of course, there are some things that all companies should refrain from doing. Abraham Koshy, professor of marketing at IIM Ahmedabad, thinks the foremost principle in crisis management is to not question the credibility of the agency that has presented its findings. “That is a strict no-no and it is something that large companies are often guilty of doing,” he says. Koshy cites the pesticide-in-cola controversy that had first reared its head in 2003 and again three years later.

In this case, both Pepsi and Coke maintained that they had conducted their share of tests, thereby giving the impression that they did not care for an external agency’s opinion. “This is a dangerous thing to do since consumers view this as their nationalistic feelings being threatened. Multinationals do not understand this underdog phenomenon that is prevalent in India,” he adds. In many ways, the smart thing to do is to confront bad news and take immediate action. “It gives the impression of a company that is responsible. In the case of Maggi, a brand accused of using seven times more lead than is allowed in its packaged products, it was a knee-jerk reaction from the company,” insists Koshy. 

Maggi, which used to account for at least 70% of the ₹4,000-crore instant noodles market, is today off the shelves, with its fate uncertain. It is hard to forget instances such as that of worms being found in KFC’s chicken offerings at a Kerala outlet or the allegations of McDonald’s products being cooked in beef fat when the brand opened shop in India. Santosh Desai, managing director and CEO, Futurebrands, says that in such situations, it is all about transience. “Be it a brand disaster or anything that sounds spectacular, nothing lasts very long. The truth is that all of this leads to less stable brand curves for companies,” he says. The fallout is that a big brand can be destroyed anytime. “That is very worrying and it means that this can happen to any brand at any point.” 

Fighting fire

While brands have tried to put up a brave front, handling these crises hasn’t been easy in the least. Abhijit Avasthi, who was the creative director of O&M at the time of the worm crisis, describes the handling of the issue as characterised by a sense of urgency but not panic. “There were two measures employed early in the day. One was to introduce new packaging and the other was to communicate openly with the consumer,” he says. At that point, the brand was available at over seven lakh outlets, with the only form of storage being metal dispensers and coolers. Worms had been found in Dairy Milk in the first week of October 2003, just two months after Pepsi and Coca-Cola had been found to contain high levels of pesticide by the Centre for Science and Environment (CSE), a New Delhi-based public interest research and advocacy organisation. Sales of the colas and the soft drinks market in general had consequently dropped by at least 40%. 

The first report of worms being found in Dairy Milk had come from Mumbai. Food and Drugs Administration (FDA) authorities were quick to visit the company’s manufacturing plant in Thane as well as distributor outlets and storage depots. Eventually, the company received a green signal from the regulator three days after the news had broken out, certifying that the infestation was not something that could occur at the time of manufacturing. Just when it seemed as if the crisis had been averted, news trickled in there had been fresh cases in Nagpur. Within a week, Dairy Milk’s volumes were down by over 30%. For a company that had never dealt with a crisis of this magnitude, this was a completely new experience.

The crisis took a new turn when Maharashtra FDA minister Anil Deshmukh said Cadbury was also responsible for the storage of its products at retail outlets. The top brass at Cadbury, led by Puri, reached out to consumers through the media, saying there was no need to panic. A couple of days later, the company rolled out Project Vishwas, which saw Cadbury’s quality managers and sales staff visiting over 50,000 retail outlets in Maharashtra (190,000 in all across key states) to replace stock that did not make the cut. A key decision here was to improve the product’s packaging, introducing ‘purity sealed’ packs featuring aluminium foil in a poly-flow pack. This was sealed from all ends, reducing the chances of infestation. This process entailed an investment of ₹25 crore in new machinery.

Once these changes were in place, all that was left was to get the message across to the consumers, and this needed to be conveyed by a person with credibility. “In the campaign, Cadbury was clearly acknowledging the existence of a problem. The brand was very popular and people were willing to forgive the company,” says Avasthi. The ad film showed superstar Amitabh Bachchan walking through a Cadbury factory, talking about the new processes and saying that he was convinced about the product’s quality, eating the chocolate on screen for good measure. The commercial went on air in early 2004 and was followed by another one, where the actor shares a bar of Dairy Milk with his granddaughter, reiterating the quality of the product. Both these commercials were on air for two months, followed by the famous ‘Kuch Meetha Ho Jaaye’ campaign.

The decision to rope in Bachchan was a unanimous one by both Puri and O&M’s Pandey. “He was a well-known face, though he made it clear that he had to be convinced first. We took him to the Thane factory and he then agreed to do the commercial,” says Avasthi. All this worked for the brand, which regained much of the lost market share by mid-2004. For 2003, its net profit dropped by over 35%, compared with a hike of 20% the preceding year. From a peak market share of 73%, the period between October 2003 and the following January saw a dip to 69%; by May, Cadbury had moved to over 71%. “All this was possible because the Cadbury brand was trusted. The decision-making was really in the hands of four senior people in the company, who had the license to move really fast,” adds Avasthi.

That element of speed was conspicuously absent when Limca had to confront the rumours surrounding brominated vegetable oil (BVO) in the late 1980s. BVO, an ingredient that helps in emulsifying citrus-flavoured soft drinks, had already been banned by then in about 130 countries over worries that it could lead to heart disease, iodine deficiency and cancer. At that point, soft drink manufacturers in India were using substantially higher amounts of BVO than permitted — around 50 parts per million compared with the limit of 15 parts per million. There was a lot at stake for the Parle Group-owned Limca, which was the largest-selling soft drink in India.

The brand had about a 40% market share, with Thums Up bringing in another 35%; adding the contribution of a smaller brand like Gold Spot, Parle controlled 85% of the market. The moment the news about Limca containing BVO came to light, the company’s sales took a beating and market share dropped by over 15% in a year.

Ramesh Chauhan, then the big boss at Parle and now chairman of Bisleri International, underplays the BVO issue and says Limca was quick to rework its ingredients. “Gold Spot also used BVO. Limca was in the news because it was the largest-selling drink,” he insists. According to him, the task on hand was to find a substitute for BVO without affecting Limca’s taste. “That did not work and it took a while before we got it right,” says Chauhan. All this coincided with Pepsi’s entry into India. According to Chauhan, there were no product recalls and much of the lost market share was regained over a year. Kurien Mathews, chairman and managing director, Metal Communications, and co-author of Brands Under Fire, says Limca was quite defensive at the time. “It paid the price for its reticence. The company should have been more communicative and open,” he says. Eventually, Limca and other Parle-owned brands were acquired by Coca-Cola in 1994. 

Different strokes

The impact of a crisis varies from brand to brand and it could often mean a direct hit on the company’s financials, its stock price or market share. However, there are other unexpected results as well. Diermeier refers to the Toyota recall, where there was a direct impact on the resale value of cars that were already on the road. “These cars had nothing to do with the recall but that was the extent of the collateral damage,” he says. It is estimated that the drop in resale prices was nearly 15-20%. “This was unfamiliar for a brand that always enjoyed high resale values.” In an early 2011 study, Nasa said that faulty electronics could not be blamed for the unintended acceleration in Toyota vehicles. “Involving Nasa to prepare an independent report on the issue was a very good idea but it was too long in the making to have an impact on customer perceptions,” adds Diermeier.

Clearly, no sector is immune to a crisis, though food or FMCG brands appear to be most susceptible. Vinita Bali, former managing director, Britannia Industries, maintains that FMCG brands get higher salience primarily because of their pervasiveness, though each business deals with its own risks. “Car manufacturers have to deal with brakes failing or air bags not opening on impact, oil companies have dealt with oil spills and medical device companies have to deal with failed performance of implants,” she says.

To her mind, the reputational damage in a crisis is far more significant than the loss in revenue or share. “The intangible factors of trust and credibility take much longer to restore and that is where the authenticity of the brand and company plays a major role,” adds Bali. The ability to emerge stronger is not only about responding to a crisis. Diermeier cites the instance of the Taj Mahal Hotel in Mumbai, which took care of its employees post-26/11. “This was when the hotel was in the middle of a terrorist attack. This is no different from a natural disaster such as an earthquake and its actions had a very positive effect on the brand,” he says.

To this day, there has been no better handling of a crisis than that of Tylenol, a Johnson & Johnson (J&J) brand. In 1982, seven people were killed in Chicago after consuming Extra-Strength Tylenol, which was laced with cyanide. Painkiller Tylenol was J&J’s largest-selling drug and brought in 17% of the company’s profits for the first three quarters of 1982. Prior to the crisis, it was the most successful over-the-counter product in the US. With over 100 million users and a market share in excess of 35%, it was selling more than the next four painkillers put together. It later came to light that some people opened strips of the medicine, replaced Tylenol with cyanide-laced capsules, resealed the packs and then placed them in some pharmacies in the Chicago area.

J&J was unaware of the deaths till a reporter in Chicago called for a comment. Led by chairman James Burke and a seven-member strategy team, the task on hand for the company was to reach out to consumers and ask them not to consume Tylenol. Production and advertising was immediately stopped and 30 million Tylenol bottles withdrawn, first from Chicago and then across the US. It was Burke who was the face of the company throughout the crisis, dealing with queries posed by consumers and the media. “Tylenol represents a great example of leadership and how the CEO took charge of the situation,” says Diermeier. 

What worked was the transparency that J&J demonstrated, along with the ability to move swiftly. Less than a day after the matter came to light, the company set up toll-free helplines manned by its employees and sent telex messages to hospitals, doctors and the trade. The recall took place in less than a week’s time. For the company, the recall of Tylenol and its subsequent relaunch cost a tidy $100 million. The extent of the crisis was so intense that J&J’s share in the analgesics market dropped down to 7%. A year later, that figure climbed to 30%. A key initiative here was the introduction of tamper-proof (better known as triple-seal tamper-resistant) packaging.

John Philip Jones, professor emeritus, Syracuse University, and a well-known name in advertising, remembers Burke appearing on national television to state his point of view. “He made it clear that the horrible problem was not in any way the company’s fault but that it was going to make immediate and specific plans to relaunch the brand in such a way that further contamination would not be possible,” he says. According to Jones, there were some noteworthy points in J&J’s actions. “It took charge of the situation and accepted immediate responsibility for the tragedy, communicated plans for the relaunch clearly and authoritatively and, most importantly, conducted the launch itself,” he explains. 

Driving change

With 60,000 cars on the road, things were looking good for Tata Indica back in the nineties. This much-awaited passenger car from Tata Motors (or Telco, as it was known then), a company known for its commercial vehicles, had created a lot of noise when it was launched on December 1998. On that day, market leader Maruti Suzuki dropped the price of its flagship car, the Maruti 800, by a handy ₹25,000. It was obvious that the competition was not sitting tight and the years of research that Tata Motors had put in were not going unnoticed. When bookings commenced the following month, the response was almost euphoric. There were 1.15 lakh fully paid bookings that had already brought in ₹3,000 crore.

The delivery of the Indica started in April and by December 1999, the company was selling close to 5,000 cars each month. It seemed like the ₹1,700-crore investment in the new project was a great idea. Then trouble knocked on the door in October 1999, though in a small way, when complaints started to trickle in. The car did not start easily, there was a lot of noise from the engine and even trouble in winding the windows up or down. Slowly, bookings were cancelled and there a visible drop in the number of enquiries at dealer outlets. 

By February 2000, it was apparent that Tata Motors had a full-blown issue to deal with it. “There was negative word of mouth during that period, which had to be addressed,” says MG Parameswaran, executive director, FCB Ulka Advertising, the agency that was handling the Indica account. The crisis was so acute that by September, the car was selling barely 2,000 units a month. That was not to suggest that the company had not responded. In fact, it had set up customer clinics across 100 cities and towns by April that year.

A group consisting of 20 members from four departments – production, quality control, marketing and service — met 45,000 Indica owners who were facing problems, with a simple promise of fixing everything free of cost. This was through the process of retrofitting and the entire effort was under the direct supervision of Ratan Tata, then group chairman. “The strategy was to move with speed and be transparent in communication,” points out Parameswaran. “The Tata brand name was a good example of that and Indica buyers were happy with the way the company responded,” he adds.

By October 2000, all the problems had been fixed and Tata Motors was already working closely with vendors to deliver a more robust Indica. “As part of the strategy, there was no brand communication between June and December from the company, barring some dealer advertisements,” recalls Parameswaran. The new offering was called Indica V2, and was unveiled in January 2001. There was no question of relaunching the same car. “The idea was to give it a different nomenclature to indicate an Indica that was different,” he says. Within the company, the situation was grim and the loss of ₹500 crore for 2000-01 could not have come at a more inappropriate time. This was inevitably blamed on the failure of the Indica, though it was really on account of the slump in the commercial vehicles market.

In the midst of all this, the V2 was slowly lapped up and by April, it was selling in excess of 4,000 units per month, touching 7,000 a month by the end of 2001. In terms of communication, Tata Motors’ print advertisements spoke of why the car was better, highlighting key features. The television commercial saw the car undergoing torture tests and emerging unaffected. The efforts paid off and that year, it sold more than any of its competitors. “Brands often face crises. It is important to communicate and come back confident, which is what the Indica did,” says Parameswaran. 

It is clear that a lot goes into managing a crisis and the quantum of work cannot always be anticipated. Hileman says companies in the US undertake simulation tests to prepare employees for crises. “It is quite common in companies such as Southwest Airlines, where the management shuts down the IT system and then reacts as if it was a real-life crisis,” she explains. Hileman admits that while companies are making contingency plans, much of it is still on paper. In a dynamic world, where social media decides what is right or wrong (the latter getting in more responses), large companies need to identify ways to not just deal with crisis, but also identify them. But that is easier said than done in today’s environment.

A simple and effective way of doing this is by monitoring social media on a real-time basis. While all that is doable, there is a fundamental shift taking place, the import of which needs to be understood clearly. This shift relates to the product life cycle of a brand, or the four distinct stages that products go through, starting from introduction to their eventual decline. This life cycle has been contracting over the years, and sometimes, the products simply die out. “In that sense, the idea that a brand launched now will last for 100 years seems almost impossible,” sums up Diermeier. That should certainly be food for thought for companies whose fortunes are intricately linked with their brands.