Reputation should be managed as a financial asset

Globally, we have trust issues.

All you need to do is watch the news or scroll through Twitter for five minutes to witness examples of mistrust, mistruths and misinformation. And, Canada is not immune; we struggle with trust in our government, news media, social media and businesses. As Canadians, we should all be concerned, but why is reputation and trust management so important for marketing and communications professionals in particular?

Reputation has historically been difficult to measure, as it presumes some correlation between a good or bad reputation and sales or stock value. However, our industry is getting better at quantifying this intangible asset so we can better understand the implications when a business takes a hit.

A study by the World Economic Forum reports that more than 25 per cent of a company’s market value is directly attributable to its reputation. Furthermore, in its annual study on global reputation risks, Aon reports that damage to reputation and brand is the number two risk for companies in North America. It’s not surprising if you consider the damage and erosion of trust that that have been caused by reputation events in recent years. We live in a time where a reputation crisis can be caused by an inflammatory tweet by a CEO about taking a company private, a passenger being dragged off an airplane caught on video or even an individual or brand’s alignment with a certain political party. The combination of our 24/7 news cycle and widespread use of social media can have long term negative consequences for both brand equity and sales. 

You should care, trust me.

Back to why this is important. It’s important because readiness to handle reputation and brand risk is falling year-over-year (51% in 2017 to 47% in 2019 according to the Aon study), but loss of income associated with these risks is up (10% in 2017 to 11% in 2019).
There are also a number of examples that demonstrate a correlation between reputation events and financial performance:

  • Following the Cambridge Analytica scandal, in July 2018, Facebook lost nearly one-fifth of its market value, erasing the entirety of the company’s 2018 gains. Despite its improved financial results in 2019, the impact caused Facebook’s brand value to fall for the second year in a row, slipping 12 per cent to $39.9 billion according to Interbrand’s Best Global Brands survey.
  • A simple tweet on August 7, 2018 by Tesla CEO Elon Musk - “Am considering taking Tesla private at $420. Funding secured.” - sent social media, and the market, into a panic. The tweet caused Tesla’s stock price to rise for a short time, before falling dramatically when Musk announced on August 24 that the company would not be going private.
  • Following the tragic aircraft crash and subsequent grounding of its 737 MAX fleet, in March 2019, Boeing's stock lost more than $40 billion of market value from its 2019 peak.

Building a good reputation also has an effect on marketing efforts. With trust, consumers are more likely to believe what they hear and take action. They are primed, based on past experience where the company has delivered on its promise, to believe it will do so in future.  

Finally, trust and reputation are important because they have an impact on future purchase decisions. In a study by Ipsos, 87 per cent of respondents indicate they are likely to take the reputation of a company into account when purchasing a product or service.

How do you (re)build trust?

So how do you manage your trust and reputation brand asset? Quite simply, do the right thing.

There are some good studies, like this Ipsos one, which identify the most impactful trust drivers, but if I can summarize them, it comes down to doing the right thing when it comes to your customers and stakeholders. Be reliable, responsible and transparent, and act on your good intentions. And, if a crisis does happen, the same rules apply.

For the most part, customers of B2C and B2B companies react in similar ways. Successful B2B companies know that brand trust is the secret to meaningful and profitable relationships with clients. Approaching client management and business development with open and meaningful conversations will generate goodwill and build relationships; however, the tone and subject matter does vary slightly. The most trusted B2B brands will be ones that understand and work to build their corporate reputation, deliver personalized content and have a “help” rather than “sell” focus.

The other difference between managing trust and reputation for B2C and B2B companies is recognizing the potential lifespan of an issue or crisis. B2B has a longer sales cycle than B2C; decisions are often made over longer periods of time and as a result, bad publicity, or reputational issues, also have longer lifespans. A few news cycles may not be enough to erase the issue from the memories of your customers.  

Although an intangible one, trust is a valuable, financial asset for all organizations and as an asset, should be a strategic priority and actively managed with positive marketing and communications activities.

Janine Allen is a Chartered Marketer and CMA B2B Council member and senior vice president, general manager and partner at Kaiser Lachance Communications Inc.

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