When we talk about the world of business, reputation is something that all brands are concerned about. And reputational risk is one of those surprises that are often unwelcome and can strike without warning. Every company, big or small, can find itself grappling with reputation-threatening scenarios that appear out of nowhere. It's a familiar challenge, one that forces business leaders to navigate the aftermath of these unexpected crises, often leaving them at a loss for strategic actions.
In this post, we'll unfold all you need to know about reputational risk, the situations, and how you can manage them to shield your business's reputation from future harm.
What Is The Reputational Risk?
Reputational risk refers to the potential harm or damage to a company's reputation that can result from various factors, including negative publicity, public perception, customer sentiment, or any event that could negatively impact how stakeholders view the company. It is an intangible risk that can have tangible and long-lasting consequences regardless of size or industry. These risks can be totally unexpected and can occur with little to no warning, and may deter a company’s ability to earn revenue or improve the customer base.
Risks to a company's reputation can be:
- Direct: Risks occurred due to the company's actions or internal issues.
- Indirect: Risks occurred due to actions/mistakes of employees of the company.
- Peripheral: Risks due to actions of partner organizations.
- External: Risks due to external actors like customers and past employees.
Why Is Reputational Risk Management Important?
Reputation is often considered a company's most valuable asset. In fact, 86% of consumers will pay more to buy from a brand that has a positive reputation. While a strong reputation can attract customers, investors, and top talent, a damaged reputation can lead to customer attrition, reduced market value, and difficulty in attracting capital. This may lead to consumers losing faith in your business, impacting all areas of operation.
Besides, with social media being an active weapon both to mitigate reputational risk and to aggravate it, businesses need to be more vigilant about what they are putting out and general public sentiment around it. This is essential as consumers can now easily take to their accounts and share negative experiences with global audiences. Thus, it's not only important to understand the importance of online reputational management but also the causes that trigger such risks.
What Are The Causes Of Reputational Risk?
In a survey conducted by Deloitte, roughly 90% of over 300 executives surveyed ranked reputation as the most significant risk area for companies while 88% said that their companies were actively managing reputation risk. But before managing this risk, it's important to be aware of the wide range of factors that can actually trigger reputational risk for companies.
They can be:
Lacking Quality Of Services And Products: Lapses in product quality, process, or services can significantly lead to reputational risk, especially when customer expectation is more than what you are already offering. For example, in manufacturing, a faulty product or mishandling of customer data could also lead to a loss of confidence in your business.
Poor Workplace Operations And Ethical Lapses: Unethical behavior, fraud, or scandals involving executives or employees can damage a company's reputation. This can include actions of upper management, the CEO, and third parties receiving noticeable backlash from the media. For instance, having a rude customer service employee when customers ask for help can lead to serious reputation damage.
Controversial Business Type: Some businesses come with inherent reputational risk because of the products they market. This included alcohol, tobacco, and related companies due to the dispute regarding the negative health effects of their products.
Crisis Events: Natural disasters, accidents, product recalls, and data breaches can all trigger reputational crises. This includes brand crises like the ones faced by Maggi or Tanishq that stirred controversy among the public, calling for negative reactions from the public.
- Social Media And Online Virality: While social media is a great platform to build a good public image, it can also lead to reputational risks if used incorrectly. Negative information can spread rapidly on social media and online platforms, amplifying reputational damage. For instance, the one Dove had faced after launching their controversial ad campaign on Facebook.
- Competitor Actions: Rival companies or competitors may engage in smear campaigns or unethical practices to tarnish a company's reputation. For instance, the one that Google Pixel recently posted on Instagram takes a dig at Apple’s shortcomings, where it portrays the iPhone as outdated, inexperienced, and dumb.
- Customer Complaints and Service Issues: Poor customer service, unresolved complaints, or product quality problems can lead to reputational issues. It's very important to cater to your customer’s concerns and needs; otherwise, they can resort to socials to report an issue that can tarnish your company’s reputation significantly. To control the same, you can always resort to customer experience management that helps you mitigate the same.
These are some of the most common yet fundamental types of reputational risks that most organizations may come across at different stages of their business growth. It's okay to have risks, but what's not okay is to be unaware of ways to mitigate them as and when they happen. To minimize reputational risks, you must ensure you have all areas of risk management covered. How and why we’ll let you know next.
How To Mitigate And Manage Reputational Risk?
1. Identify And Assess The Risks
The first step in mitigating and managing reputational risk is to identify and assess potential risks. This involves conducting a comprehensive risk analysis, examining both internal and external factors that could impact your company's reputation. Internal factors might include the quality of your products or services, company culture, and compliance with regulations. External factors may encompass market competition, customer sentiment, and the overall economic environment. To identify potential reputational risks in the near future and categorize them according to their severity, you can have a meeting with stakeholders, review search engine results, and keep a tab on recent news articles and social media posts about the company.
2. Create A Reputational Risk Management Plan
No risk is the same. Thus, once you've identified and assessed them, you need a reputational risk management plan. This plan can be broad or short depending on the risk type, as each requires a different response as per the situation. The plan should outline a crisis management strategy that delineates roles and responsibilities during a crisis, outlines communication plans, and identifies key stakeholders to engage with, emphasizing prevention and preparedness. For a well-structured plan, ensure that you regularly review and update the same for evolving risks so that your team knows how to respond swiftly and effectively when reputational threats emerge.
3. Assess Your Business Operations
Reputational risk often stems from operational issues, making it essential to assess your business operations regularly. To identify any gaps between stakeholder expectations and company performance, it's advisable to conduct quality control checks, ensure ethical practices, and maintain transparency in your business processes. Regular audits will help you identify areas where operational improvements are needed to mitigate reputational risks. By monitoring your company’s regular progress, you will be able to compare your current reputation to the baseline that you previously established.
4. Train Your Employees
Your employees play a vital role in safeguarding your company's reputation, as they are the pillars of your company’s foundation. Their behaviors, actions, and decisions will have a direct and indirect impact on how people perceive your company, both externally and internally.
This is why it's a good idea to Invest in comprehensive training programs to have all employees of your company (and even contractors, if possible) check on company policies around social media, press, and speaking about the organization in public.
The more transparent and customer-centric values your company has, the better you will be able to dodge potential reputational risks. For instance, check out how Starbucks trains their employees on product knowledge and how to conduct themselves on socials.
5. Use ORM Tools
Keeping track of all the conversations and mentions regarding your brand on socials can help you avoid any reputational risks altogether. We always recommend investing in Online Reputation Management (ORM) tools, as they can be a really good investment for monitoring and managing your online presence. These tools are literally value for money as they help track mentions, reviews, and discussions about your company across digital platforms and social media, negating the possibility of any reputational risks.
You can pivot to Statusbrew as we help companies having similar concerns. With our easy-to-use reputation management tool, you can manage reviews on Google My Business, Google Play Store, App Store, Trip Advisor, TrustRadius, Yelp, and more from a single dashboard, besides managing communications on social and messaging channels like Facebook, Instagram, YouTube, TikTok, LinkedIn, Twitter, Whatsapp, etc.
Here are the reputation management features we offer:
- Notification of all negative reviews.
- AI-powered sentiment analysis.
- Auto-assign reviews for a specific location to store or area managers.
- Automatically route reviews to a particular inbox/team member.
- Team collaboration to handle customer queries.
- Controlled team member access
- Manage reviews and customer queries at a large scale.
- Auto-hide spam and trolls across your socials.
- In-depth brand reputation insights.
6. Invest In Public Relations
This is the last and final investment you should make when you have exhausted all your options, and things have gone far with your brand. It's then time to remedy the damaged situation to get back in the good graces of customers, employees, and other stakeholders who may be turned off by recent changes in your reputation. You can then use marketing and public relations hand-in-hand in times of crisis to manage media interactions and assist in reputation repair efforts. A well-executed PR strategy not only helps in mitigating reputational risks but also strengthens your brand's resilience, ensuring that your reputation remains strong even in the face of adversity. For instance, check out how KFC’s PR team responded when the brand was embroiled in the Chickengate controversy.
Real-Life Examples Of Reputational Risk Management
To let you understand better, we have let out the three most significant examples of reputation crises and how the brands managed to mitigate the same with whopping success. This will give you a clear idea of what kind of reputational crisis can actually surface and how you can make your way out of it.
1. Kendall Jenner Pepsi Ad
While Pepsi is one of the most popular and favorite beverages globally, it too was not spared from backlash on social due to the release of an ad campaign featuring Kendall Jenner. The ad became immensely controversial as it portrayed Jenner leaving a modeling gig to “join the conversation,” which she and her fellow marchers seem to “win” after she hands a police officer a Pepsi. People took to social media to express their negative opinions, while TIME magazine labeled the ad as “a glaring misstep.”
Pepsi’s Action: Initially, Pepsi defended its campaign on the grounds of global harmony, but in less than 24 hours, they pulled the ad and apologized with a Tweet stating that “Pepsi was trying to project a global message of unity, peace, and understanding. Clearly, we missed the mark, and we apologize.”
This immediate action was the first and most important step in their crisis management process, and it paid off. Today, the world has largely forgiven Pepsi’s brand crisis, which proves that the right action on socials can help mitigate reputational crisis to a great extent.
As a brand gets bigger and acquires customers, they are bound to find it difficult to tackle customer queries and complaints at large. However, Nike has proved itself to be an exception as it strides to elevate its digital customer experience. With a huge dedication to excellent customer service, Nike's customer service Twitter account supports anyone 24/7 in English, Spanish, and French, committed to responding quickly and transparently to protect their reputation in the face of adversity.
They have rightly gauged the evolving nature of reputational risk management in today's business environment and thus leverage online platforms to offer great ways to provide timely support to customers. Here’s one example.
Thus, Nike is big on social listening and monitors their socials meticulously to avoid any reputational risk and ensures that no negative review is left unanswered.
3. Balenciaga Controversy
Even Spanish luxury brands like Balenciaga were not spared from a reputational risk crisis back in 2022 when the brand launched an advertising campaign for its summer 2023 children's clothing line. The controversy arose in October 2022 as the clothing line portrayed children wearing stuffed animals with harnesses and leather straps around them, which the public quickly associated with elements of BDSM.
the brand "Balenciaga" just did a uh..... interesting... photoshoot for their new products recently which included a very purposely poorly hidden court document about 'virtual child porn'— shoe (@shoe0nhead) November 21, 2022
normal stuff pic.twitter.com/zjMN5WhZ0s
The images went viral like wildfire on social and the brand was accused of advocating child abuse and child pornography. Several celebrities like Kim Kardashian, the company's ambassador, spoke out against the campaign, demanding the removal of the repulsive and disturbing campaign.
Balenciaga’s Action: In February 2023, finally, Balenciaga’s creative director, Demna, spoke out in an interview with Vogue and publicly apologized to those hurt by the fashion house’s actions. Balenciaga also announced that it would partner with the National Children’s Alliance (NCA) for the next three years, besides implementing new editorial controls and educational programs to ensure this action is not repeated in the future.
They took full responsibility for the matter and published an apology via Instagram Stories that stated, “We take this matter very seriously and are taking legal action against the parties responsible for creating the set and including unapproved items for our spring 23 campaign photoshoot. We strongly condemn the abuse of children in any form. We stand for children’s safety and well-being.”
Risk It Or Whisk It!
As Warren Buffer iterates correctly, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
In an age where information travels at the speed of light, and public perception can make or break a company, reputational risk management is no longer optional but a critical aspect of business strategy. Companies that prioritize ethical behavior, transparency, and proactive reputation protection are better equipped to weather reputational crises and maintain the trust and loyalty of their stakeholders.