Apple's BP Moment: Will Steve Jobs Cap the iPhone Credibility Leak?

BP AppleStop me if you've seen this movie before. The plot unfolds something like this: Disaster strikes when an esteemed, well-established company becomes embroiled in a high-profile product-defect crisis. As word about the defect spreads, each passing day brings new revelations that the problem is real, that executives were warned about potential flaws in the product's design long before the crisis began, and that there's no solution in sight.

Amid the ensuing media frenzy, officials retreat into a defensive crouch by stonewalling reporters, issuing non-denial denials, spewing disinformation, or trying to silence and discredit outspoken critics. The story gets worse and worse, day by day. Like a slow-motion train wreck, you can't help but watch as the bad news gradually destroys years of meticulously accumulated brand equity.

That's what happened to BP (BP) in the early weeks of the Deepwater Horizon disaster. It's what happened to Toyota (TM), during the early weeks of the sudden-acceleration crisis. And now it's happening to Apple (AAPL), amid the unfolding saga of the iPhone 4's already infamous antenna-reception defect. Attempts to change the subject? Check! Silencing potential critics? Check! What's next?

A Steady Drip of Disclosures

The latest news in the iPhone tale ushers in an ominous phase in the narrative. Today, Bloomberg reported -- how did we know this was coming? -- a senior engineer at Apple warned CEO Steve Jobs about potential problems with the iPhone's antenna design well before the device went on sale. This, of course, comes just days after Consumer Reports released an analysis confirming the iPhone 4's antenna problems, and the product-testing publication's embarrassing refusal to recommend the smartphone as a result.

Talk is spreading about a potential recall of the 1.7 million iPhone 4s already sold -- a recall that Bernstein Research analyst Toni Sacconaghi estimates would cost Apple $1.5 billion. Apple's once-pristine brand is suffering.

As Sacconaghi wrote, "Perhaps the bigger, longer-term concern for Apple investors is the emerging pattern of hubris that the company has displayed, which has increasingly pitted competitors (and regulators) against the company, and risks alienating customers over time."

Channeling Tony Hayward

Sound familiar? Paging Tony Hayward, the gaffe-prone BP CEO! At least Steve Jobs hasn't complained that he wants to get his life back. Yet.

%%DynaPub-Enhancement class="enhancement contentType-Themed List Content fragmentId-26741 payloadId-126640 alignment-right size-medium"%% Apple has one last chance to bring the situation under control, and that will be Friday at 10 a.m. (Pacific Time), when the company plans to hold a hastily announced press conference to talk about the iPhone 4.

What exactly will Apple discuss? The famously tight-lipped company seems determined to remain that way, so it won't say in advance. Apple may try to refute its critics with data showing that the iPhone 4 works just fine, thank you very much. Steve Jobs might go into salesman mode to assert, yet again, that the iPhone 4 is the 'best mobile device evar!'

Or Apple may admit there's a problem and announce a full recall. Or Apple may admit there's a problem and offer customers who purchased iPhones a free case -- a less expensive solution that has been shown to remedy the antenna problem.

How to Make the Headache Go Away

The latter two scenarios would be preferable because as the chronology unfolds, time is running out for Apple to regain the customers' trust and restore its reputation for product excellence.

Apple could repeat BP's mistake by continuing a pattern of denial and defensiveness. Far better, however, would be for Apple to have a Tylenol Moment, by emulating the long-ago example of Johnson & Johnson (JNJ), which proactively recalled 31 million of bottles of the company's famous pain reliever in 1982 after it was determined that some bottles had been subject to tampering -- a deft move that fostered goodwill and restored confidence in the Tylenol brand. (Pity the drugmaker didn't move with the same speed over its massive recalls this year of Tylenol, Motrin and Benadryl.)

Apple may not need to go to the lengths J&J did in 1982. To avoid BP's ignominy, it must simply tackle the iPhone situation head-on, with candor and transparency, while vowing do whatever it takes to solve the problem once and for all. That's the only way this drama concludes with a happy ending.
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