What Is Reputational Cost?

What is reputational cost? Our guide explores risks to your reputation and what it takes to build and maintain a positive online reputation. 

Reputation is everything. It’s how people perceive your brand and company. Reputation is about how much respect and admiration the public has for an individual person and/or brand. It’s about building a good name which in turn can make or break a brand reputation or that of an individual. If not continuously nurtured and managed, there is tremendous reputational risk for a company.

What Does It Take to Build a Strong Positive Reputation?

Building a company’s reputation takes time. The stronger your brand’s reputation, the more people will trust your products and services and advocate for you. Your brand’s perception can be influenced by a number of factors — from your value proposition to product quality; customer service; the company’s culture and employee policies; brand partners and affiliates; philanthropy; and environmental, social, and corporate (ESG) governance.

Building your company’s reputation involves the following:

• developing and maintaining your brand identity
• serving your clients well with a focus on customer loyalty
• paying close attention to both your offline and online reputation
• regularly engaging with both your customer base and targeted demographic for new client acquisitions
• responding to all reviews — good and bad
• listening to your customers
• asking for advocates from customers and influencers
• being transparent and honest

According to an article in Harvard Business Review, a company with an excellent reputation not only succeeds with its customers and is able to get a premium for its products or services; it also attracts better employees and talent. At the same time, however, the Harvard Business School article notes that most companies are not proactive when it comes to managing reputational risk but rather are reactive — only taking action when something bad happens. Organizations take a crisis management approach rather than one that involves a risk management process.

Once an incident occurs and there is fallout and reputational damage, that is when a business takes action to rehabilitate its reputation. Maintaining a good corporate reputation and the value creation a business has worked so hard to achieve involves continued reputational management (more on this later) including anticipating and mitigating risks.

First, Consider Reputational Costs

As you are building your brand to reflect your company’s core values, you must take into account the potential reputation costs that come with one negative event, a misstep in public relations, or a product or servicing failure, etc., and the need to have strategies in place in managing reputational risk. A negative reputation or poor reputation can result in a significant change in one’s balance sheet, a downturn in market value for a company, stock price changes (for public companies), damaged investor relations, and loss of business success and additional costs — depending on how widespread and impactful the event or incident is.

For example, look what happened to Chipotle after its E. coli outbreaks at 11 restaurants several years back. The company experienced a massive drop in its stock price over a three-year period. It dealt with its bad reputation, immediately going into crisis management mode with its “For Real Campaign” reminding its customer base why it loved its foods so much. It leveraged social media, including Instagram, to gain back customer loyalty.

The food chain also agreed to pay a $25 million fine. Chipotle’s reputational risk was significant due to the outbreaks and it worked to undo the reputational damage the chain experienced.

Managing Reputational Risk, Impact of a Bad Reputation

In the example above, Chipotle’s reputation was on the line after 1,000 people became ill as a result of an E. coli outbreak, and it reacted to rehabilitate its damaged reputation. Chipotle was able to restore confidence in its products once consumers were reassured food safety was a priority for the food chain. This was a perfect example of crisis management in repairing the brand’s reputational damage.

But what is also needed is a risk management process in place to keep track of how people perceive your company, if that perception is accurate and, if not, how you can improve and better align how the brand is perceived with reality so that you may lessen the negative impact of a potential incident or event.

A Strong Risk Management Process Helps Minimize Reputational Costs, Manage Corporate Reputation

According to the Harvard Business Review article, in managing one’s corporate reputation, the risk management process involves the following:

• Evaluating your company’s real character: Does your company live up to the reputation you’re portraying, the way in which consumers perceive your business, your products, your financial performance? Or does a gap exist between how consumers perceive the organization and what you deliver?
• Closing reputation-reality gaps: If gaps exist, work on closing them by improving the business’s capabilities, behavior, and performance.
• Monitoring changing beliefs and expectations: Understand how beliefs and expectations evolve by having your pulse on how priorities shift over time. Take surveys of employees, customers, and different stakeholders to determine whether a reputational gap is taking place or widening. This will also allow you to take measures to maintain a positive corporate reputation and pivot if necessary based on changing societal values.
• Putting a senior-level individual responsible for reputational management: Assessing your corporate reputation, identifying and closing any gaps, and monitoring societal shifts that may impact your reputation doesn’t occur in a vacuum. Put someone in charge of managing your corporate reputation and ready to handle any potential reputational damage to your brand.

How to Boost and Maintain a Great Corporate Reputation

Having happy customers is at the top of the list of establishing a positive and respected corporate reputation, as simple as this may sound. There are also key strategies both large companies and small businesses can employ to maintain a good reputation.

• Establish a strong online presence if you don’t already have one. Your website should reflect your brand identity and its values.
• Ask your happy customers to share their experiences with online reviews. This will go a long way in boosting your company’s reputation.
• Monitor all online reviews. As we previously mentioned, respond to each review, including any negative reviews. Try to rectify the reasons behind the negative review and turn that customer into a happy one. You don’t want your company judged by negative press and misinformation and, in turn, developing a bad reputation as a result. Your online reputation is critical today. Comments on social media, Google reviews, Yelp reviews, Amazon, etc. can be detrimental to your good reputation.
• Keep listening to what is being said and printed about you and your company. An online reputation management (ORM) company can help you keep tabs and take action to mitigate any negative content. An ORM can also continually place positive content online to help tell your story, including sharing your company’s results, your company’s culture, the experience of your customers, the talent and quality of your employees, and overall why consumers do business with your organization.

 

Interested in learning more about building and protecting your online reputation? Read more on our blog!