I’ve been thinking about John Westerveld’s recent post, BlackSwan, and, specifically, a key point. John summarized one of the key tenets from Nassim Nicholas Taleb’s book, "The Black Swan: The Impact of the Highly Improbable," by saying the goal isn’t to try and predict a Black Swan event, but rather, instead, to build robustness against negative events and the ability to exploit positive events.
One example of that ability to quickly recognize and then seize opportunity can be seen in the actions of companies responding to the numerous recalls of Tylenol and other over-the-counter adult and children’s medications produced by Johnson & Johnson subsidiary McNeil Consumer Healthcare.
A recent article in the Chicago Tribune points out that while J&J leads the over-the-counter medication category, recalls over the last 11 months have led to widespread shortages—and retailers have been quick to seize the chance to market their store brands as safe and effective substitutes. What’s more, consumer loyalty can be fleeting. So the longer shelves remain empty, the harder it may be for J&J to win back consumers.
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. And, there have been five voluntary recalls since last November of medications that have a musty or 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. The other significant consequence is that as the fiscal second quarter ended July 4, the recalls were responsible for a 13.4 percent slip in J&J’s over-the-counter pharmaceutical and nutritional products segment, with sales falling to $1.14 billion, the Tribune reports.
What’s interesting is how other companies are responding.
For example, in the Tribune article, Target spokeswoman Erin Madsen said signs went up in June promoting Target’s Up & Up brand as an alternative to McNeil products. And at CVS, shelves reserved for adult and children’s Tylenol and Motrin products point consumers to store brand products. A sign reads: “Looking for Tylenol? Try CVS/Pharmacy brand for relief you can trust.”
The company has definitely increased the level of CVS/Pharmacy brand product in its stores, Mike DeAngelis, director of public relations for CVS, told the Tribune.
While that’s good news for those companies—as well as the manufacturers who produce products for them—the flip side of the coin for J&J is that customer loyalty can be fleeting.
Once consumers are forced to use other products, they may decide to not switch back to the other brand, Aparna Labroo, associate professor of marketing at the University of Chicago Booth School of Business, told the Tribune. For instance, if the effectiveness of the private label is not significantly different than the branded alternative, the consumer might stick with the cheaper alternative even when the branded product reappears on the store shelf, she said.
What about your company? Does your supply chain allow you to seize unexpected opportunities? Can you ramp up production quickly to meet sudden demand? What’s more, can you continue to meet that new level of demand?