A product recall is every company’s worst nightmare. But for tiny Matrixx Initiatives (MTXX)–maker of Zicam cold remedies–the June 16 recall of two of its products was particularly painful. The company’s herbal nasal gel and swabs, recalled because of reports that some patients lost their sense of smell after using them, accounted for 40% of Matrixx’s $112 million in sales last year. Matrixx’s stock dropped a sickening 70% to $5.78 on the day of the recall.

Luckily, Matrixx’s acting president William Hemelt had a lot of advice from three board members who know a thing or two about responding to a product crisis. Chairman William Egan, and directors Lori Bush and Michael Zeher are all veterans of Johnson & Johnson, the company that is still held up as the model of good corporate citizenship for its handling of the 1982 Tylenol scare. “We talked about Tylenol many times,” Hemelt said in a phone conversation a week after the Zicam recall. Hemelt’s most important takeaway: “Being up front with people is a good idea.”

Matrixx executives have spent the last week doing some big-time damage control. They had a shareholder meeting on the 18th, and have been busy updating the Zicam Web site to keep customers fully informed. Click on that site today and you’ll see a video of Hemelt himself urging customers to return any gel or swab they may have for a complete refund. “Your safety has always been and will continue to be our number one priority at Zicam,” Hemelt says in the video. He adds that the company has requested a meeting with FDA officials to “show them our extensive safety data.”

What’s particularly challenging for Matrixx, however, is that Zicam is one of only three brands it owns, so its entire corporate identity is tied up in it. And even though there are still 17 Zicam products on store shelves, the overall brand image has taken a serious hit. Hemelt hopes that communicating openly with customers will be the key to restoring the brand’s cache. On June 22, the company took out a full page ad in the New York Times that blared “Thanks to our millions of loyal Zicam users! We’re still here for you!” It pointed readers to the Web site, where they could also download a coupon.

And Matrixx has been out front about its legal liability, with a Web site it dubbed zicamlawsuits.com. It sounds like a site that a voracious product-liability lawyer might invent to recruit patients who want to file claims. But in fact, Matrixx put the site up as a repository for documents from the 10 federal lawsuits that have been filed against the company. “We’ve been very successful in this litigation,” Hemelt says. “We’re trying to correct misinformation.”

Will the massive PR push be enough to save the brand? Even Hemelt can’t say for sure. He hopes the lull before cold-and-flu season will give him some time to save face with customers, before they start looking for relief from their sniffles. “We will take whatever steps we can afford to protect the brand,” he says. Unfortunately, though, he’s lacking one of the biggest assets that saved J&J after the Tylenol crisis: lots of other strong brands to soften the blow.

The original is here: BusinessWeek – Management IQ