Reputational Risk: Slow to Build, Quick to Lose

By |2022-07-06T09:59:38+00:00July 6th, 2022|0 Comments

Follow simple steps to protect your company’s reputation in the midst of crisis. 

In many industries, reputation and “goodwill” represents the majority of value in the business itself. For many executives and business owners, this represents the greatest risk that can come at any time. Restaurants, service companies, and small businesses across the world can be destroyed by one bad review.

What is reputational risk? According to Wikipedia, reputational risk is the damage that can occur to a business when it fails to meet the expectations of its stakeholders and is thus negatively perceived. It can affect any business, regardless of size or industry.

Client leads are mainly based on reputation. Would you refer a new business partner or friend to a company that you heard bad things about? People are more likely to take a chance on something that they know nothing about than something that they know very little about, but that very little is largely negative.

Types of Reputational Risk

Product quality – Subway is a perfect example of product quality questions with recent lawsuits over the true length of its “foot long” sandwiches and whether their tuna was, in fact, tuna fish. When your customer market starts to suspect or believe that you have poor quality, you can guarantee that sales will suffer. Another good example, remember the mouse head in Wendy’s chili in 1995? It turns out it was all a scam for her to try and get money but the damage was done.

Service quality – Cable companies such as Comcast are rife with complaints about poor customer service. But on the flip side, Amazons generous return policy and Chewy’s 24×7 immediate phone support likely DRIVE sales amid their positive reputation.

Workplace reputation risk – if your company is known as a terrible place to work for employees, this will damage your overall reputation and will almost certainly impact customer service s well as sales.

Safety and digital security risk – Target sales dropped by10% the month following a massive data breach. Trust is a huge factor when it comes to reputation. Customers trust companies to protect their private information. If a company violates that trust, it is very difficult to get that back and can take years and cost millions of dollars in damage control and marketing campaigns to rebuild that trust.

Leadership quality – Papa John’s founder John Schnatter’s headline-grabbing comments about NFL player protests and use of racial slurs were largely to blame for weakening store sales in 2018. Of all reputation problems, this is the easiest one to address, simply fire the leader. But that can be complicated if the leader in question is also the owner of the company.

Bottom line, there are many sources that consumers will look to when making a purchasing decision, and most of those are based on the reputation of the provider.

Simply put, you want to develop a positive reputation and make that reputation is known. How is this done? First and foremost through great customer service!

Manage Your Reputation

  1. Greet clients and customers in a friendly and, if the industry depends on it, professional manner.
  2. The customer is not always right, but the customer deserves to be heard and treated with respect.

We had a client in 2021 who was just not happy with the documents that we produced for them. They did not like the format used and had different expectations. We tried to make it right, and asked for feedback and recommendations but at the end of the day, they just didn’t want to take it any further.

We offered a full refund and apologized that we couldn’t meet their needs. The client responded by accepting our apology, insisting on paying for our time, (albeit at a lower rate than originally agreed) and we left on friendly terms. In fact, the very next week, that client contacted us to help them with a task that they felt our skills would be better suited for. We have had the pleasure of working with this client on several occasions AND preserved our reputation.

  1. Don’t do anything stupid.
  2. Keep emotions out of it…it’s business.
  3. Listen to your gut and don’t be afraid to say no. A common mistake made by new entrepreneurs is to take any work that comes your way, even someone that comes off as a demanding jerk from the get-go. Over time, we learn to say “no” to a bad customer and to do it in a way that protects your reputation. For example:
    • Instead of saying:I don’t want to take on this job.
    • Say: Now that I understand your needs better, I want to recommend contacting (insert competitor here) as I think they will be able to best meet your needs.
  1. Target your rating requests. I see some companies have an automated “rate your satisfaction” email following each transaction. If this rating is privately held in the company’s system, fine, no one will know and you can use that information internally to make improvements. But it is very risky to send EVERY customer to a public rating forum such as Yelp or Google My Business. I target only those clients with whom I feel I had a positive experience to rate their experience on our Google My Business page. I cannot stop anyone from rating me but my approach is one of the reasons why I have a perfect 5 star rating on our Google My Business page.

4 Steps to Take When You Have a Reputation Crisis

  1. Monitor your reputation sources for trends – understand where your customers are talking about you and monitor those sources for trends and changes.
  2. Manage your reputational risk – when you see issues or potential problems where customers are talking about you, work swiftly to address them before they become major issues. If you have a major issue such as a security breach or a product recall, start acknowledging it quickly and publicly.
  3. Get ahead of a known issue – If you know about an issue internal to the company, react swiftly to repair it and get ahead of it with your PR team or an outside PR firm to conduct damage control. And then talk about it, even if it’s just a quick note to your customer. Don’t sit on it. Customers will forgive a mistake or an error, they won’t forgive being lied to.
  4. Communicate, Communicate, Communicate
    • Communicate to your employees. Let them know what happened and what you are doing about it. Don’t wait until you have all of the answers. If customers may be calling or asking about the issue, provide speaking points to employees and options for remediation.
    • Communicate to your customers. This needs to happen shortly after you communicate to employees. Email your customers, post signs in the office, if you have a Saas application or app, post a message there. Tell them what happened, what impact there is to them, if any, what you are doing about it, and who they can contact for more information. Respond to yelp, google, better business bureau, and any other complaints about your business. Let them know that you are listening.
    • Lastly, communicate to the public. While you don’t need to rent billboards airing your dirty laundry, don’t hesitate to respond appropriately to the amount of attention you are getting. Can the issue be contained in internal and customer communications? If yes, great. But if the media comes sniffing or a post is starting to go viral, get ahead of it. Start with the easiest thing by just posting a message on social media. Consider a message on your website. In extreme cases, you may need to issue a press release, offer a Q&A meeting or virtual meeting to your customers, and always be honest and open as you can.

Reputational risks are unavoidable. Reputational damage is avoidable. And when issues happen despite all of your best efforts to run the perfect business, you have many options available to reduce the damage done.

The worst thing you can do is ignore the crisis and hope it goes away. “No comment” has killed many businesses.  Don’t let yours be next. 

Republished with permission from Tempest Risk Management. 

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About the Author:

Andy is the president of Tempest Risk Management.  He has worked for large corporations specializing in risk management, business continuity and technology controls for 25 years and helped navigate his employers through major disasters such as 9/11, Hurricanes Sandy and Katrina and many others. He is a 16 year first responder with Talleyville Fire Company and currently serves on the Board of Directors.   Andy has a number of FEMA and DHS certifications focused on preparedness and emergency management.  He can be reached via email at [email protected]

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