Why is reputation important in business?
Richard Branson says “Your brand name is only as good as your reputation,” and with that one sentence, he pinpoints the importance of a good business reputation. According to the ICCO World PR Report, CEOs are investing in corporate reputation, considering it their most valuable asset. The report was based on the responses of 3,000 PR agency heads worldwide. The three most important issues for companies with 1,000+ employees and $10m+ turnover across 12 countries are purpose, corporate reputation (41%), sustainability and climate change (60%), and diversity and social inclusion (55%). Therefore, if you are looking to successfully start or grow a business, you need to get a handle on the question- why is reputation important in business?
Why is reputation so important?
1. Affects the bottom line
A company’s reputation has a direct impact on sales, and therefore profitability. Having a solid reputation in the market is the best foundation for building a solid customer base, promising stellar sales revenues. On the other hand, a negative reputation can sink all marketing attempts.
2. Retains customers
Consumers tend to stay loyal to organizations with a good reputation. Research has shown that corporate image and reputation are major drivers of customer loyalty and the reward of customer loyalty is customer retention.
3. Saves on marketing costs
A direct result of positive customer retention is these customers will naturally spread the word about the company they love. Organizations that have a good reputation, can save a fortune on marketing because satisfied customers effectively act as brand ambassadors through positive online reviews and word-of-mouth marketing.
4. Attracts top talent
A company’s reputation is a key factor in attracting top talent. Ambitious professionals who can make a difference through playing a leading role in an organization are also the people who would do their due diligence and only apply for positions in companies with a proven reputation of excellence. If you want to attract top talent to scale your business to the next level, your business should already have an unassailable reputation. Most job seekers (69%) won’t apply to companies that have online reputation issues.
Modern-day factors influencing company reputation
The buying demographic has shifted from baby boomers to millennials and Gen Z. These younger consumers have different values. They want companies to have a purpose beyond making money. They demand that organizations adhere to sustainable practices, don’t harm the environment, and are socially inclusive.
And these demographics are tech-savvy. They grew up with the Internet and know how to uncover the truth – companies that feign green practices are soon found out. Take for instance the fast fashion brand H&M that was accused of greenwashing. The company received considerable backlash for its Conscious collection, which it claimed was made from sustainable materials.
Gen Z and millennials are the most ethnically and racially diverse adult group in US history, and having grown up with the internet, they are more socially aware than previous generations. According to a McKinsey study, 75% of Gen Z consumers will boycott companies that discriminate against race and sexuality across advertisement campaigns.
These values will be increasingly important as younger consumers become more influential. Companies that can prove they have incorporated purpose, sustainability, diversity, and inclusion will have built a reputation that will attract young consumers.
The role of online reputation
Today, one’s reputation does not only live in the minds of those that know you; it lives online in the public gaze. And the same goes for the reputation of governments, public entities, corporations, and businesses.
Online reviews have become a key factor in shaping corporate reputation. In fact, consumers trust online reviews more than advertising campaigns, with nearly 40% of consumers distrusting advertising campaigns.
The latest online reputation statistics reveal the importance of a positive online reputation.
- Online search is the most trusted source of information about people and companies for 65% of internet users.
- 85% of consumers trust online reviews as much as personal referrals, but they read as many as seven reviews before trusting a business.
- 90% of consumers admit that positive reviews influence their buying decisions.
- Almost 75% of consumers trust a company that has positive reviews.
- 60% of consumers don’t want to engage with a business that has negative reviews.
- 49% of consumers will only use a business if it has at least a four-star rating.
- Bad news travels faster and further than good news – more people will tell friends and family about a bad experience with a brand than a good experience.
It stands to reason that the reputation of a CEO will affect the entire organization’s reputation. Highly-regarded CEOs boost their firm’s reputation, while CEOs who receive negative press coverage damage the enterprise’s reputation.
In days gone by, company heads were not so much in the public eye; they could get away with a lot behind closed doors that won’t go unnoticed today. These days, with the constant news cycles and the power of social media platforms like Twitter, the entire world can form an opinion of a company leader and by implication, the organization under their leadership.
A company leader’s reputation is important because it affects the entire company. High-level executives who misbehave, endanger their organization’s reputation. In today’s world, misconduct is detected quickly and news about it spreads like wildfire across the internet.
Reputation is built on trust and when trust is broken, loyalty is broken too, with customers and clients fleeing in droves. Boards are taking notice of the resulting reputational damage. Misbehavior, rather than poor financial results, has become the top reason why company leaders at the world’s 2,500 largest public companies lose their jobs.
Boards don’t want to risk the reputation of enterprises, showing zero tolerance for questionable behavior. For instance, allegations of sexual misconduct led to the dismissal of the CEO of Barnes & Noble in 2018. In the same year, the chairman and the CEO of CBS resigned due to accusations of sexual misconduct.
Tips for building a positive reputation
1. Show integrity
Always deliver on your promise. Whatever your business does, do it to the best of your ability without fail – no compromise on top-quality products and services. If something does go wrong, admit responsibility and fix the issue without delay. These values must be communicated throughout the company and be the top key performance indicator for all employees. When recruiting new employees, only hire people who agree to adhere to these principles. Uncompromising quality in products and services is the basic building block of good organizational reputation.
2. Ensure stellar customer service
Excellent customer service earns the organization loyal customers and builds its reputation. Most consumers consider customer service when they decide to do business with a company, and there is nothing like poor customer service to sink a company’s reputation. Many consumers will abandon a brand when they experience bad customer service, and the damage to a company’s reputation continues when these customers vent their frustration online. Of course, the opposite is also true: excellent customer service leads to positive reviews online, which enhances company reputation.
3. Leverage social proof on social media
Most people need social proof before they make a buying decision. For social proof, consumers today consult social proof elements like testimonials and reviews. According to social proof statistics, 89% of people say online testimonials and reviews influence their purchasing decisions.
Social proof tactics that help build a brand’s reputation include testimonials, positive social media reviews, number of followers on social media, number of social media shares, and user-generated content. All these numbers can be embedded on the company website. A rolling announcement of ongoing sales can also be part of this tactic.
Many organizations decide to enter into working relationships with reputation management companies to monitor and curate their online reputation. Reputation management is the process of monitoring and shaping the public’s and stakeholders’ perception of an organization and its offerings.
Some companies do their own reputation management or use reputation management software. Others do nothing and hope for the best, which is not recommended.
Reputation management is about building and monitoring brand image, but also includes:
- Maintaining an existing excellent reputation
- Avoiding the fallout from misleading information, malicious allegations, and negative reviews
- Recovering effectively from negative press resulting from a compromising incident
The benefits of reputation management for businesses
1. Helps build and maintain a professional image
Reputation management services guide small companies and startups toward building a good reputation, while helping established businesses maintain their existing reputation. Hiring a reputation management firm establishes a good basis for a reputation that will have a positive impact on the image of a new or small business.
2. Allays malicious rumors and false information
The internet is awash with false rumors and misinformation. Some dissatisfied customers go very far to express their frustration and do their best to ruin a company’s reputation. It is extremely difficult to handle the fallout from these malicious actions, but if it’s not resolved immediately, the damage to a company’s reputation can be devastating. Reputation management companies employ professionals who are equipped to handle these situations expertly.
3. Handles the fallout from an unfortunate incident
A single bad experience can explode into Tweets, Instagram images, TikTok videos, and Facebook posts. This is another situation that would benefit from the services of a professional reputation management company.
Remember when a passenger was forcibly removed from United Airlines flight 3411 from Chicago to Louisville in the fall of 2017? That company is still recovering from the massive negative reaction, losing close to a billion dollars in market cap value.
4. Ensures optimal ranking on search engines
Companies that have a lot at stake can benefit from the expertise of reputation management companies. These companies have expert-level knowledge about search engine ranking, which significantly impacts a company’s online presence. These experts can help companies rank high on search engines, ensuring that existing and potential customers find them. They can also curate a company’s online image.
5. Boosts profitability
Reputation management analytics can derive valuable business insights from online discussions about a company’s products and services, extracting the necessary improvements that could boost sales. A company that can adapt its offerings can benefit immensely from this kind of information.
6. Manages customer reviews
These firms can help enterprises stay on top of customer reviews, which can constantly pop up on different platforms. It’s a time-consuming task that should not be neglected.
It takes years to build a reputation and it’s a valuable and vulnerable asset. In today’s digital world, a company’s reputation lives online as much as it exists in the real world. In addition to its website, a company’s reputation lives online on Wikipedia, Google search, social media platforms, online forums, review sites, news sites, and blogs. Companies have to manage their reputation on all these platforms. Small to medium-sized companies may be able to manage that, but large corporations and certain influential individuals won’t survive without the services of a reputation management company.