Johnson & Johnson: The Tylenol Crisis

On September 30, 1982, James Burke, the CEO of Johnson & Johnson, received word
that several deaths in the Chicago area might be linked to one of the company's products.
Reports were sketchy at first, but authorities eventually determined that seven people
died from taking cyanide-laced capsules of Extra-Strength Tylenol. The news riveted the
nation's attention, and Burke faced the challenge of his career.

Tylenol is one of Johnson & Johnson's most successful products. The nonaspirin pain
reliever was developed in the mid-1950s by McNeil Laboratories and sold initially as a
prescription drug, primarily for hospital use. After Johnson & Johnson acquired McNeil
Laboratories in 1959, the company recognized the drug's potential and gained approval to
sell it as an over-the-counter medication. Sales 4 increased slowly but steadily, and by
1982 Tylenol had captured over 35 percent of the $1 billion analgesic market—over three
times the market share of its nearest competitor. The product provided 7 percent of
Johnson & Johnson sales and a whopping 17 percent of the company's profits,
Tylenol's success was achieved by heavy advertising and price reductions. Because the
only active ingredient, acetaminophen, can easily be manufactured, the drug was open
prey to competitors, and when Bristol-Myers introduced Datril in 1975, Johnson &
Johnson had to move quickly. The company protected its market share by slashing prices
by 30 percent and boosting advertising to $4 million in 1976 (from $142,000 the year
before). The figure rose to $40 million in 1982, and during the seven-year period from
1976 to 1982, Johnson & Johnson spent over $155 million to promote the Tylenol brand.
Developing a best-selling brand had been expensive, but by 1982 the company was
reaping the rewards of its investment.

The cyanide that caused the deaths was placed in capsules of Extra-Strength
Tylenol. Advertised as "the most potent pain reliever you can buy without a prescrip-
tion," the extra-strength product—which contains 500 milligrams of acetaminophen as
compared with 350 milligrams in regular Tylenol—was sold at the time in both capsule
and tablet form. Extra-Strength Tylenol was instantly popular, and by 1979 it accounted
for 70 percent of all Tylenol sales. The capsule form appealed to consumers because it
was easier to swallow and also because of an association of capsules with strength.
Capsules are susceptible to tampering, however, because they can be pulled apart and
refilled, and the fact that all of the deaths occurred in one area—and that only a few
capsules in each of the bottles contained cyanide—suggested that someone (who has
never been apprehended) look advantage of the ease with which capsules can be used to
kill.

James Burke and his staff quickly concluded that the tampering had not occurred at a
McNeil production facility, and so the company was not responsible for the cyanide
contamination itself. Still, the poisonings were associated with the Tylenol name, and
sales of the brand were dropping rapidly. The public reaction was fueled by confusion,
which was furthered by false reports of Tylenol-related deaths in several other states, and
the company feared a rash of copycat incidents, especially as Halloween approached.
Questions for Discussions:

1. Analyze the case & discuss the nature of crisis that had incurred?
2. How would you advise the CEO of Johnson & Johnson to respond to this crisis?
3. Should the product be recalled? What are the arguments for & against the recall?