Reputational damage: How to protect your client’s imageBy Lawrence Dy
- The cost of reputational damage is steep: it can result in lost revenue, increased operating capital or regulatory costs, or even full destruction of shareholder value.
- Damage to your client’s reputation might happen as a result of bad reviews online, poor customer service, or a data breach, among other things.
- It's important to prevent reputational damage and if it occurs, to help your client recover from it as quickly as possible.
When a business loses financial or social capital as a result of reputational damage, the results can be detrimental. The damage can come from any number of issues, but ultimately, its source is a negative shift in perceptions from a stakeholder group, often linked to their perceptions of the company's performance, behavior, or communications style. This damage can result in lost revenue, increased operating costs, or destruction of shareholder value.
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Understanding how reputational damage typically occurs is important for all brand managers and marketing agencies seeking to maintain a good reputation. While its impact is often severe, there are steps that you can take to prevent it from occurring in the first place, and to help your client recover from it when it does happen.
Understanding reputational damage
Reputational damage can happen for a variety of reasons, including regulatory preaches, misbehavior from management or leadership, employee indiscretion, cyber-attacks, or negative customer reviews and social media posts online.
If a company's reputation is hurt, it can take years to regain the trust of stakeholders and consumers. And even worse, legal and regulatory ramifications aren't uncommon after sustaining reputational damage, which could equate to fines, lawsuits, or even intensive government investigations.
Having a reputation management plan in place can help your client identify potential risks to their business. This plan should prioritize transparency and ethical behavior, as well as strategies for building trust among consumers and stakeholders.
That said, it's just as important to have a crisis management plan to quickly respond and protect your client’s reputation when threats do arise.
Causes of reputational damage
Your client’s reputation can sustain damage for a variety of reasons and it can occur both internally and externally. In this section, we're diving into some of the most common causes of internal and external reputational damage.
Internal reputational damage occurs when issues arise from within your client’s business, or even your own organization. This can happen because of the actions of the management team, employees, or even other stakeholders.
Here are some of the more common internal factors that might cause reputational damage:
- Ethical violations: If you or your client engage in fraud, bribery, or corruption, internal damage is likely to occur. Your customers and your team expect you to operate with integrity and honesty and deviation from this can quickly lead to a loss of trust.
- Poor quality: If you're offering products or services that aren't up to par when compared with your client’s competitors or what you've advertised, expect their reputation to suffer.
- Lack of transparency: Building trust with customers and stakeholders requires a high level of transparency in your client’s operations and your day-to-day financials. A lack of transparency creates suspicion and hurts your client’s reputation.
When damage to your client’s reputation comes from sources outside their business, it's considered external reputational damage. This can come from their competitors, customers, or external stakeholders.
Some of the more common external factors that can threaten a business’s reputation include:
- Negative media coverage: Poor consumer reports or negative reviews from influencers and media personalities can harm your client’s reputation substantially. This is especially true when the report includes accusations of safety violations, environmental damage, or unethical behavior.
- Cyber-attacks: Cyber-attacks often lead to data breaches that put your client’s customers' private data at risk.
- Economic factors: If your client is operating a business during a recession or financial crisis, they might suffer reputational damage, especially if their business is considered to be responsible for or negatively affecting the economic downturn.
Impact of reputational damage
Reputational damage can have significant consequences for businesses. In this section, we'll explore the financial and stakeholder trust impacts of reputational damage.
The cost of reputational damage can be steep for businesses. In fact, more than 25% of a company’s market value is tied to its reputation (Deloitte) and as such, any damage to a brand’s reputation can quickly tank its share value. To make matters worse, reputational damage can quickly result in a decline in sales, loss of customers, and even difficulties in hiring new employees. Depending on the severity of the damage, these consequences can be severe and long-lasting.
Having the trust of stakeholders is important for every business. Your client’s stakeholders can drive up your market value but when they choose to walk away and divest their holdings in the business, market value can decline quickly and steeply. That can happen when customers stop seeing value in the business, when employees become disengaged, or when your client’s business engages in unfavorable business practices or displays poor behavior.
Rebuilding stakeholder trust can be a long and difficult process. It requires a concerted effort to address the issues that led to your client’s reputation becoming damaged, as well as a commitment to transparency and open communication with their clients and stakeholders.
Preventing reputational damage
Reputational damage is expensive and time-consuming for any business it affects. While it's impossible to completely eliminate the risk of reputational damage, there are steps you and your client can take to prevent it from happening.
Effective crisis management
Develop an effective crisis management plan that you, your team, and your client can refer to when your reputation is threatened. If it's within your means, assign a designated crisis management team that's trained and ready to act when crises do occur. Make sure this team is prepared to review the plan regularly and incorporate updates whenever necessary to ensure it remains relevant.
Ethical business practices
If you consistently maintain ethical business practices, you can dramatically reduce the threat of reputational damage. These practices should include being transparent and honest with customers, employees, and stakeholders, as well as treating everyone you encounter with respect.
Following these practices can help you prevent damage to your client’s reputation and ensure that negative allegations about their business are kept to a minimum.
Case studies of reputational damage
Reputational damage is devastating to any business, as well as to the individuals who operate and work for it. Let's take a look at some real-world reputational damage examples with companies that crises and how we can learn from their experience.
Scandals can be incredibly damaging to your reputation. One example of that is Volkswagen's emissions scandal (Car and Driver). In 2015, consumers learned that Volkswagen installed software in their diesel cars that enabled cheating on emissions tests, leading to a massive recall of and a $4.3 million fine from the U.S. government. While the company experienced a high level of damage to its reputation, its crisis management plan enabled them to eventually regain the trust of customers and stakeholders.
Wells Fargo experienced a similar scandal in 2016 (Harvard Law) when the company was found to have opened millions of unauthorized accounts, charging customers for services they didn't request. That scandal resulted in a $185 million settlement with the U.S. government. The CEO resigned and since then the company has been continuing to rebuild its reputation among financial consumers.
Social media backlashes
Thanks to social media, customers can more easily express their opinions and share stories about the brands they interact with. When it comes to brand reputation, that also means companies have yet another threat to consider when attempting to mitigate potential damage.
In 2017, a viral video showing a passenger being forcibly removed from a United Airlines flight (New York Times) sparked outrage online. Consumers lashed out via social media and the company endured severe reputational damage. United Airlines was forced to pay $1.1 million to the passenger and lost countless customers.
Pepsi faced similar backlash after releasing an ad featuring model and reality TV star Kendall Jenner handing a cold Pepsi to a police officer at the height of the Black Lives Matter movement (New York Times). The brand was quickly accused of trivializing social justice issues and across social media, consumers deemed the ad insensitive and disrespectful.
These cases highlight the importance of understanding human rights and social justice in customer service and marketing.
Recovering from reputational damage
If your business has suffered reputational damage, don't panic. There are things you can do to rebuild trust with your client’s audience. Let's talk about two key strategies: public relations and trust building.
One of the first steps to take after a reputational crisis is to implement a public relations strategy. A good strategy can help you regain trust in your client’s business and repair brand image.
Here are a few key elements of a good public relations strategy:
- Be transparent: Be open and honest about what happened and how it’s being addressed.
- Apologize: If your client’s company made a mistake, help them own up to it.
- Communicate regularly: Keep your client’s audience in the loop about how they’re addressing the issue and how they’re making changes to prevent it from happening again.
- Highlight positive news: Share positive news about your client’s company to shift the focus away from the negative.
Rebuilding trust takes time, but there are steps you can take to speed up the process. Consider these strategies:
- Deliver on promises: Work with your client to consistently follow through on the commitments they’ve made, whether they're to stakeholders, employees, or customers.
- Provide excellent customer service: Help your client wow their customers with unparalleled customer service. Consider extra things they can do to keep their customers coming back.
- Offer incentives: If customers were affected by your client’s reputational crisis, suggest offering incentives for continuing to trust them with their business.
- Monitor your online reputation: Keep an eye on what people are saying about your client’s brand online. Respond to negative comments and reviews in a timely and professional manner.
Remember, it takes time and effort to rebuild trust after a reputational crisis but it's worth it in the end.