Reputation is a valuable company asset. In Weber Shandwick’s “The State of Corporate Reputation in 2020: Everything Matters Now,” global executives attribute an astounding 63% of their companies’ market value to their reputation alone.
Any attack on a company’s reputation is called a reputational risk. These risks can bleed profits, cause legal headaches, and send investors fleeing. This underscores the importance of having a comprehensive reputation management strategy at the ready.
In this article, we’ll explain what reputational risks are and how you can successfully incorporate reputational risk management into your existing processes.
- The Importance of Reputation Today
- Understanding Reputation Risk Management
- Key Factors in Reputation Risk Management
- Managing Reputation Risk Effectively
- Tools for Monitoring Reputation
- Crisis Management Tactics
- Building a Strong Brand Identity
- Digital Media’s Impact on Reputation
- Future Trends in Reputation Risk Management
The Importance of Reputation in the Digital Age
With information spreading like wildfire in the digital space, reputation risk management is becoming a crucial component of corporate strategy. Reputational risk management safeguards your organization’s image to avoid any fallout with stakeholders and financial losses.
The stakes are even higher for tech companies. Due to the speed at which technology is advancing, concerns have been raised about their market dominance and the unethical use of their products. This has resulted in tremendous scrutiny from the public eye and governments.
Trust in tech has also dropped to record lows in the past years. This is owing to the industry’s collection and processing of sensitive user data. In a 2023 study by cybersecurity company Vercara, a staggering 75% of consumers were ready to discontinue their support for a company following a cybersecurity lapse. Further compounding the issue is the presence of reputation risk management, which is common across all industries.
What is Reputational Risk?
Reputational risk is any action or event that can damage the public’s perception of a company and negatively affect its finances and survival. Once negative perception takes root, it can quickly undermine a company’s standing that took years to build. Oftentimes, this damage can be difficult to reverse.
The Consequences of Ignoring Reputational Risks
Neglecting reputational risks can have a number of detrimental effects, such as:
- Decrease in loyalty and trust
- Financial losses
- Unfavorable press coverage
- Stricter regulatory inquiries
- Difficulty finding and keeping talented
- Legal liabilities and lawsuits
A good example is X, formerly Twitter. Following some damaging decisions from Elon Musk, the social media platform has lost close to 15 million users and $75 million in annual revenue due to boycotts.
Another social media platform that has taken a hit on reputation is Facebook. It all started with the Cambridge Analytica scandal, which cost Facebook millions in fines and damaged its reputation due to intense litigation. The company’s platform has been struggling to recover since. The public and government continue to raise concerns about the platform’s involvement in the unethical use of the platform. A 2022 report ranked the lowest in Trust scores–57.
Factors That Contribute to Reputational Risk
There are several potential reputational hazards. In general, they can be classified into two types: internal and external.
1. Internal Factors
The biggest threats to a company’s reputation come from within. Internal risk factors can stem from the direct actions of the company, its employees, and its partners. These factors include:
- Product Quality
Let’s examine our own consumer behaviors. When you receive a faulty product, how do you react? You will likely do one of two things: return the product or avoid purchasing from the same business in the future. You might even leave a negative review for good measure.
This highlights a crucial point: high-quality products are essential for promoting repeat purchases and maintaining a strong brand reputation. Investing more resources in your product before its release can stave off complaints and refunds. When you consistently provide exceptional products, you build trust in your company. This trust encourages positive reviews and fosters positive word-of-mouth, a key driver of sales and reputation.
- Customer Service
Customer service is also closely tied to a company’s reputation. Your customer service department acts as a representative of your brand, shaping your brand customer perception, especially when addressing and resolving concerns. In a report by Zendesk, good customer service is what makes 3 out of 5 consumers loyal to a brand.
So, poor customer service can have detrimental effects on your reputation. Recall the times you’ve been put on hold or faced unresolved issues after a frustrating call with CS representatives. These scenarios are enough to drive consumers away from your brand. In fact, a study found that 86 percent of consumers will abandon a brand they trust after just two poor customer service experiences.
- Employee and Leadership Behavior
Out of all the internal factors, employee and leadership conduct hold the most sway over reputation. This is because they directly influence the other factors and can compound their effects.
Public perception is significantly shaped by the actions of company leaders. In one study, 70% of consumers would boycott a brand if they disagreed with its leaders or actions. This is no surprise, as in the public’s view, an executive’s behavior reflects a company’s principles.
Employees at all levels also play a role in upholding their organization’s reputation. Unprofessional behavior, careless social media posts, and even off-duty infractions can all reflect negatively on the company.
2. External Factors
External factors, on the other hand, are threats that result from events outside a company’s control. These factors are further influenced by the actions of your consumers, the media, competitors, and malicious entities.
- Social Media
The virality of social media can be a powerful tool to reinforce your brand’s image. When customers share glowing reviews or testimonials, they are quickly shared, liked, or commented on. These can quickly propel your customers’ sentiments to a wider audience and attract potential customers.
Social media, however, is a double-edged blade. The very platforms that help build a brand can quickly bring it down. A single post from a customer or employee, whether accurate or not, can escalate rapidly as it spreads. In one report, 52% of participating businesses had already suffered from damaging posts, wiping out sales and market values.
- Media Coverage
Good press can help strengthen your public perception. Similar to social media, it can create a ripple effect that can attract new consumers and investors. Look at Apple’s carefully managed media presence. They never fail to utilize media coverage to solidify their position as a leader in innovation.
The real power, though, is in the adverse media. In a 2019 study, the effect of negative news was three times more powerful than positive ones.
The media’s glare can be unforgiving. Negative press is often sensationalized and can severely tarnish one’s image. Scandals, data breaches, or ethical lapses can all be headline material, quickly turning your stakeholders against you. One negative news article can even cost you 22% of prospects.
- Market Perception
Market perception is driven by how the general public views your company. It is further influenced by social media and media coverage. A positive market perception can give you a competitive edge and attract more business.
In relation to competition, market perception is also influenced by your competitors. Any competitor’s product launch or controversy can shift market perception. Industry controversies involving competitors can swing perceptions your way. On the other hand, product launches and new offerings can drive customers towards competition if you fail to adapt.
Strategies for Effective Reputation Risk Management
1. How to Develop a Comprehensive Reputation Management Strategy
Reputation management is proactive. It involves actively shaping how your brand is perceived and maintaining this positive image over time. Here’s a step-by-step guide to managing your reputation:
- Step 1: Know Your Company’s Values
Begin with a solid foundation of strong company values and ethos. These core principles define your brand identity and guide your messaging. When your actions and statements align with these values, you create authenticity and credibility among your stakeholders. Moreover, company values help you navigate environmental, social, and political issues, ensuring your stance is genuine rather than opportunistic.
- Step 2: Know Your Stakeholders’ Values
You should have a clear idea of your stakeholders’ values. What do they believe in? What are their non-negotiables? These all shape their perception of your company. Then, compare your values to find common ground and navigate potential conflicts. While it’s important to listen to and occasionally be accountable to your stakeholders, don’t compromise your core values. Attempting to please everyone will only weaken your reputation and leave you constantly chasing public approval.
- Step 3: Assess Your Current Reputation
Conduct a reputation audit to understand your current standing. Start by researching key areas: Google and social media. Search for mentions of your company, including products, executives, reviews, controversies, and relevant news. Scan major social media sites for likes, comments, reactions, and relevant hashtags. This process helps gauge overall sentiment towards your company—positive, negative, or neutral. Do this regularly so you can prepare for possible attacks on your reputation.
- Step 4: Identify Key Personnel
Identify the right people to manage customer interactions:
- Tracking Reviews and Comments: Typically handled by sales or customer service representatives.
- Evaluating the Need for Responses: Managed by marketing team members, who decide when and how to respond to comments.
- Providing Responses: In smaller companies, this might be an SMM specialist, a sales representative, or any skilled employee.
- Defending the Company’s Position: Any knowledgeable specialist familiar with the brand’s voice can handle this task.
Make sure these individuals have the necessary tools and understand the guidelines for interacting with your stakeholders.
- Step 5: Master the Art of Responding
Now, it’s time for the daunting task of responding to backlash. Instead of shying away from them, view negative comments as opportunities to improve your service or product. Follow these guidelines:
- Develop response templates to speed up and automate your work.
- Maintain a consistent, personalized, professional, and courteous tone across all channels.
- Craft responses carefully, starting with a greeting and addressing the client by name.
- Offer bonuses privately in response to negative comments, such as free shipping or discount coupons.
- Prioritize quick responses to alter the public’s perception swiftly.
Remember to stick to your core principles. Consistently grounding your responses in your values helps maintain public trust, despite massive backlash.
- Step 6: Amplify Positive Feedback
Share positive comments as content on your social media channels. Include the full review and a link to the original site or page to ensure authenticity. This helps build credibility and acts as a powerful endorsement for your brand.
- Step 7: Analyze and Adjust
Lastly, track your results to understand how people perceive your brand and identify areas for improvement. If you receive a bad review, ensure you fulfill any promises to improve and update your stakeholders with your progress.
2. Investing in Employee Training and Engagement
Your employee’s behavior is tied to your workplace culture. A positive workplace that nurtures open communication and development can indirectly benefit your reputation. Effective training improves performance, leading to better products and services. Investing in employee development also shows you’re committed to growth, attracting top talent and investors.
You can get the most out of training by aligning programs with your values and utilizing gamification. Besides that, continue to keep the content updated and practical, which helps make sure that employees stay current with industry trends. Lastly, have KPIs to measure so you can determine if your programs are effective.
Tools and Technologies for Monitoring Reputational Risk
Companies can also turn to third-party platforms and data analytics to assess their exposure to reputational risks.
1. Reputation Monitoring Tools
There are numerous platforms available to help you monitor your reputation. These tools are typically categorized depending on the metric you want to monitor. These include:
- Social media monitoring and listening
These tools track mentions of your brand, products, or key personnel across major social networks. They can also provide tools to analyze sentiments and help you understand your customers’ conversations. While these tools are essential for most tech companies, they’re especially useful for SaaS companies gauging customer satisfaction, hardware companies monitoring product buzz, and AI companies tracking ethical debates.
- Review management
These platforms aggregate reviews from various sites. In addition to collecting reviews, they allow users to respond directly from the platform, removing the hassle of visiting multiple sites. SaaS companies and e-commerce platforms can benefit the most from these tools.
- News and web monitoring
Similar to social media listening tools, these platforms are vital for all tech companies, but especially those in cybersecurity or AI/ML. These tools track media coverage, industry trends, and competitor mentions, giving companies an early heads-up on potential PR issues or security breaches.
2. Using Data Analytics for Reputation Management
Data analytics can be used to track and analyze reputation-related metrics through sentiment or competitor analysis. Sentiment analysis gauges public sentiment by monitoring mentions of your brand. On the other hand, competitor analysis can highlight your strengths and weaknesses in comparison to your competition. This allows you to plan and respond promptly to your reputation challenges.
Key metrics you can measure include:
- Share of Voice (SOV): Measure how much of the industry or brand conversation you own compared to competitors. A higher SOV means greater visibility and influence.
- Engagement Metrics: Track likes, shares, comments, and clicks on your content.
- Media Coverage: Examine the volume and tone of media mentions.
- Review Ratings and Volume: Monitor ratings and reviews on platforms like Google and Yelp.
- Social Media Follower Growth: A steady increase in followers shows growing interest and potential influence.
- Website Traffic and Referral Sources: Analyze your website traffic sources. High traffic from reputable sites or search engines typically means good public perception, but it can also signal an attack.
Crisis Management and Damage Control
1. Identifying Potential Reputation Crises
How do you spot a PR crisis before it happens? First, pay attention to subtle changes in customer sentiment. Sudden spikes in negative comments or a noticeable drop in engagement can be early indicators. You should also look out for patterns—repeated complaints about the same issue, growing dissatisfaction with employee feedback, or increasing mentions of your brand in a negative light.
While reputation crises often happen without any warning, they might appear when you have stringent monitoring in place. Risk indicators can also emerge from within your company. Internal conflicts, lapses in quality control, or delayed responses to customer queries can all contribute to a brewing crisis.
2. Steps for Effective Crisis Management
Here’s a simple guide you can use to handle a reputation should the need arise:
- Immediate Assessment and Acknowledgment – The first step is to quickly gauge the situation. Understand what’s happening and how big the problem is. Don’t hide. You must acknowledge the issue swiftly and publicly. This shows that you’re not only aware but also taking it seriously.
- Assemble a Crisis Management Team – Gather your trusted crew. Form a team with clear roles, such as PR experts, legal advisors, senior management, and relevant department heads. Everyone should know their part in the plan.
- Develop a Clear Message – Craft a message that is transparent, honest, and empathetic. Address the issue directly, own up to any mistakes, and explain what steps you’re taking to fix things. Consistency is key, so make sure this message is the same across all platforms.
- Engage with Stakeholders – Communication is crucial. Promptly reach out to your customers, employees, investors, and the media. Use multiple channels to ensure your message gets through.
- Monitor and Respond – Keep an eye on how the situation unfolds. Monitor social media, news outlets, and other platforms. Respond to comments and questions quickly to show you’re committed to resolving the issue.
- Implement Solutions – Take immediate action to address the problem. Make these actions visible to the public to rebuild trust and credibility.
- Review and Learn – Once the storm has passed, take a step back and review how you handled the crisis. Identify what worked and what didn’t. Use these insights to improve your crisis management plan for the future.
Building and Maintaining a Strong Brand Identity
A strong brand identity goes beyond visual identity. It embodies your company’s core values and mission, influencing how the world perceives you.
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Establishing a Strong Brand Identity
Building and maintaining a strong brand identity requires consistency across all platforms. Reflect your values in every aspect, from marketing materials to customer service. Additionally, regularly update your brand guidelines to stay relevant and resonate with your audience. Remember, a strong brand identity evolves with your company and the market.
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Engaging with Customers and Stakeholders
Reflect on your own experiences as a consumer—how did a company’s attentiveness and authenticity impact your view of their brand? Engagement requires actively listening and a genuine interest in your stakeholders’ needs. Prioritize their concerns and be transparent, whether you’re interacting on social media or face-to-face. You can also use any interactions as a chance to enhance your services by asking for feedback.
Digital Media’s Impact on Reputation
As we mentioned earlier, digital media and social media have incredible power in building and destroying public perception.
1. Reputation and Social Media
A strong online presence can significantly enhance your reputation, while missteps can quickly lead to negative consequences. Here’s how to effectively manage your social media presence and interactions:
- Make sure your branding, tone, and messaging are consistent across all platforms.
- Post frequently and interact with your audience to keep your brand top of mind.
- Share valuable, relevant content that reflects your brand’s values and engages your audience.
- Use tools to track mentions of your brand, so you can respond quickly and appropriately.
2. Responding to Online Feedback
It’s important to know how to respond to online feedback, both positive and negative, to prevent things from getting worse. Here are the best practices for handling online feedback:
- Positive Feedback
- Thank the reviewer personally.
- Share or highlight positive reviews on your platforms.
- Engage further by asking about their experience.
- Negative Feedback
- Respond promptly and acknowledge the issue.
- Apologize if necessary and offer a solution.
- Take the conversation offline or move communications to a more private channel.
- Follow up to ensure the issue is resolved.
Legal Considerations in Reputation Management
Knowing the various laws related to reputation can help you decide whether to address issues through reputation risk management or more legal channels.
Defamation laws, for instance, address false statements that harm a person’s reputation. These laws distinguish between slander (spoken defamation) and libel (written or fixed defamation), with online defamation often falling into the latter category.
Compliance with the General Data Protection Regulation (GDPR) can help protect your users’ data and ensure that you adhere to data privacy laws. If you do decide to take reputation issues to court, here are some tips that might help:
- Stay updated with relevant laws and regulations to avoid legal pitfalls.
- Maintain detailed records of all communications and actions related to the issue.
- Hire legal counsel.
- Address potential legal liabilities promptly to avoid further damage.
Collaboration with External Agencies
If you don’t have the expertise or knowledge required to handle reputation crises, you can partner with professional reputation management agencies. These agencies are experts at managing corporate reputations. They have the necessary tools needed to monitor any reputational risks. Before partnering with an agency, make sure to see if they have experience working with clients from your industry. Moreover, they must be on the same page with your goals to avoid any confusion.
Future Trends in Reputation Risk Management
Even more advanced tech will transform reputation risk management in the next decade. The current social and political climate will also necessitate changes in communications.
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Emerging Trends and Technologies
As tech continues to lean towards AI, companies will use natural language processing (NLP) and machine learning (ML) to gauge public opinion and predict issues. Predictive analytics can also help proactively address reputational concerns. Tech companies can prepare by training AI-focused teams and staying current with the latest regulations.
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Adapting to Changing Consumer Expectations
Even now, consumers demand transparency and prompt announcements on stances regarding environmental, social, and governance issues. Companies must embrace radical transparency, sharing behind-the-scenes insights and being honest about shortcomings. Therefore, it’s important to regularly update communications and stay informed of current events to ensure the company’s messaging aligns with public expectations.
Final Thoughts
Reputation is an incredibly valuable asset that requires careful and continuous management. A single PR crisis can cause significant, potentially irreversible damage to your company. By adopting a proactive approach to reputation risk management, you can mitigate these risks before they materialize and safeguard your brand’s integrity.
Integrating the strategies outlined in this article into your current risk management plans will strengthen your reputation. This will enhance your ability to anticipate, identify, and address potential threats, ensuring you remain resilient and respected in the digital age.
