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Toyota Recall: Better to Lose Profits and Save Face


Toyota's safety recall, (followed by Honda, then Peugeot Citroen) of an additional 2.3 million cars made me think about the intersection of customer service and financial prudence. Toyota's repairs to correct a mechanical fault will cost the business hundreds of millions of dollars in lost profits.

Why is Toyota spending this money now when it will obviously damage the business's bottom line?

  • Customers vote with their wallets - In 1982 Tylenol made a $100 million gamble and recalled its best-selling pain reliever after it discovered its products, laced with cyanide by a criminal, were linked to several deaths in Chicago. It put its brand reputation on the line. And although Tylenol initially lost $100m, it regained market dominance within a year.
  • Loyalty is fragile - Toyota recognises that today's customers are tomorrow's prospects and that satisfied customers, through the magic of word-of-mouth marketing, are a powerful force for new sales. Its Scion brand is effectively the starter-home of cars for Toyota. Loyal followers today translate into Lexus buyers of tomorrow. Exploiting buyer loyalty and violating that established trust to minimise losses would lonly open the doors to competitors. It's a losing gamble on the future.
  • Customers value honesty - Do you remember how automotive company Ford and tyre-maker Firestone handled safety concerns? In an effort to escape blame, they called each other's reputation into question. Soon consumers and television pundits began calling Ford's Explorer the Exploder. The public outcry and maelstrom attracted front-page news and prime time spots on CBS's 60 Minutes. We all wanted an answer to the question, "what were you thinking?"
We may never know whether Toyota's motives for the recall were financial, legal, or out of a genuine concern for customers. From a financial point of view, Toyota's investment in the recall is strong validation that acting in customers' best interests will cost less than litigation costs and potential lost sales.

The pivot point is that not only do customer service and profitability intersect, they overlap. Serving your customers is financially sound because it ultimately serves your best interests. If your company starts acting otherwise, you can be sure your company's "Exploder" is not far behind.

How has your company invested in customers to increase profitability?
(Photo: MJTR, CC2.0)

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