Assessing the Risk of Reputational Damage

“It takes many good deeds to build a good reputation, and only one bad one to lose it.” – Benjamin Franklin

In 2023, your business’s reputation is one of its greatest assets. In a reputation study published by Deloitte, the majority of 300 executives and board directors surveyed considered brand reputation as the highest strategic risk area for a company, over other major factors such as competition, business model, and the impact of economic trends.

Yet, despite the importance of reputation and the impact it can have on the overall success of your business, many companies do not have a reputation management plan in place.

When a reputation crisis hits, your business must have a plan in place to respond. If you don’t, your business is at higher risk of experiencing reputational damage that can harm your business in the short- and long-term.

In this article, we will define reputation and reputational damage, discuss the true impact of reputational damage on your business, and provide steps for how to protect your business’s reputation.

What is reputation, and how does online reputation factor in?

Reputation is defined as the beliefs or opinions that are generally held about someone or something. The reputation of your business has a huge impact on customer loyalty and retention, relationship with investors and stakeholders, employee retention and hiring capabilities, sales and growth opportunities, and much more.

In 2022, how your business appears online has a significant impact on your overall reputation. 97% of people look online when they want to learn more about a business, and it’s important that they like what they see, since 95% of consumers report trusting a business with a positive online reputation. In fact, in a study conducted by TrustPilot, a positive online reputation was the #1 most important factor when consumers were considering whether or not to frequent a business, while having the best quality product or service offering was the fourth most important factor.

Unfortunately, the impact of a negative online reputation can be just as significant for your business, if not even more so, with the effect of negative news on reputation being up to three times larger than the effect of positive news. 90% of consumers report not frequenting a business with a bad reputation, and 87% of customers report that they will reverse a purchase decision after reading negative news or reviews about a brand, business, or product online.

What’s more, it doesn’t take a bad reputation for your business to experience reputational damage. Businesses with just one negative article online risk losing up to 22% of prospective customers, and this number increases quickly; businesses with four or more negative articles can experience a loss of up to 70% of prospective customers. With such high stakes, understanding the significance of reputational damage, as well as what can result in reputational damage for your business, is vital to maintain your reputation.

What is reputational damage?

Reputational damage is the loss of financial and/or social capital, as well as market share, resulting from damage to a company’s reputation. While your reputation is considered an intangible asset, the impact of reputational damage is not. Reputational damage is often measured in lost revenue, changes or increases in capital, operating, or regulatory costs, or significant decreases in shareholder value.

There are several hits to your business’s reputation that can lead to reputational damage, including ethical violations, safety issues or employee and/or customer injuries, lack of transparency or misleading customers, poor quality of products and services, criminal charges, data leaks, scathing customer reviews, etc. Really, anything that could present your business in a poor light can have a negative impact on your reputation and can result in reputational damage, whether your company is at fault or not. Even further, how your company responds to the negative news can directly influence how significant the damage your business faces is.

The impact of reputational damage on your business

While the impacts of reputational damage can be short-term, severe hits to your business’s reputation can result in:

  • loss of customers,
  • fall in sales,
  • decrease in employee retention,
  • difficulty hiring and increased hiring costs,
  • significant financial losses or bankruptcy,
  • and can increase liquidity risk, impacting stock price.

In 2022, there are more possibilities for your business to undergo scrutiny than ever before. For starters, more and more people are getting their news online, with 86% of Americans reporting that they get their news on their smartphone, tablet, or computer.

And negative news isn’t the only thing that can have an impact on your reputation. The nature of online communication has not only increased the accessibility of information, but has given users a voice in businesses’ reputations. Through social media channels, news about, experiences with, and opinions of a business can go viral fast, meaning a business must be ready to address a reputation hit or crisis at any moment. 87% of consumers report reading a business’s reviews when researching a business, and 79% report trusting online reviews as much as personal recommendations from friends or family, meaning a review from a dissatisfied customer or disgruntled employee can take on a life of its own online, defining your business and turning away customers.

Addressing Reputational Risks and Damage

While you can’t control what others say about you, or how your audience takes that information, there are proactive steps that you can take to protect your reputation, as well as steps to navigate an ongoing reputation crisis. How you respond to reputational damage can directly affect the impact of the damage on your business’s reputation – in fact,  if a business has a strong reputation, negative news can be less influential to those familiar with the company. With reputation management being vital to a business’s success in 2022, we’ve compiled seven steps you can take to lessen the impact of reputational damage on your business.

1. Accept that hits to your reputation will happen

The first step in addressing reputational risk and damage is to accept that any business can experience a hit to its reputation. Whether it’s a negative review, critical conversations on social media, or a full-on reputation crisis, your business is likely to receive some kind of less-than-ideal responses.

If you don’t consider the possibility of negative reactions showing up for your business, you won’t be able to create an effective response plan. How a business responds to negative feedback is a critical factor in determining the overall impact of reputational damage, and a business that responds incorrectly (or not at all) risks a much greater hit than companies with a plan in place.

Bonus Tip

Perfect isn’t the goal. Companies with “perfect” reputations run the risk of being seen as inauthentic by consumers, thus losing out on potential customers. In a study conducted by the Spiegel Research Center, purchasing likelihood increase for companies with ratings of 4.0 to 4.7 stars, and actually decreased for companies that approached a perfect 5-star rating.

2. Build your brand and online presence

Establishing a strong foundation to present your business to your audience – customers, employees, and investors – is an invaluable tool for proactive and reactive reputation management, and building your brand and online presence can be the best line of defense against reputational damage.

For proactive reputation management, having a strong online presence and cohesive brand can  increase customer loyalty and retention, as well as increase your business’s visibility in search results. Additionally, it can provide a foundation for your business to work off of in the face of a PR crisis.

When your business is experiencing reputational damage, your brand and online presence can help you present your business to your audience on your terms. Without an established online presence, any conversations about your brand online will continue without you, and your reputation will be entirely dictated by other sources.

Bonus Tip

Part of establishing your business well online involves a strong SEO strategy. No matter how appealing your company may be to your target audience, if you don’t show up well in search results, or if your website is slow to load or difficult to navigate, your online presence won’t do much to help you.

To learn more about establishing your business online, read our guide here.

3. Determine and maintain your company mission and values

As we stated earlier, the quality of a company’s product and services offerings is fourth most important to consumers, behind a good reputation, positive customer reviews, and responsive customer service.

Another key factor in customer acquisition, retention, and satisfaction is aligning with your customers’ values. Nearly 90% of shoppers report that they stay loyal to brands that share their values, so establishing a clear mission, values, and philanthropic involvement for your company can have a significant impact not only on your customers, employees, and investors, but on your community and the world.

When it comes to your business’s mission, always carry out the values that you’ve defined as core to your business. Be open to feedback, and listen to your customers to see how you can improve. Find causes related to your industry, products or services, and community and get involved.

Bonus Tip

Authenticity is key when it comes to building a strong reputation. Businesses that claim to support certain causes or initiatives can receive significant pushback and reputational damage if it turns out to be untrue or misleading. Represent your brand honestly, and take steps to be more involved in your community or more sustainable rather than misrepresenting your business as better than it is in these areas.

4. Have a response plan in place

Whether it’s a response to a negative review or a viral negative news cycle, knowing how to respond can help you keep a situation from going from bad to worse. As we said earlier, businesses that respond incorrectly to feedback, or refuse to respond at all, run the risk of a greater negative impact to their overall reputation.

When responding to criticisms of your business, consider:

  • Who is this criticism coming from? A negative review about your business requires a different approach than a scathing news story. Determining where the reputational damage is coming from can help you develop your response strategy, and different sources of reputational damage can help guide your plan.
  • Who do you need to respond to? Criticisms from a disgruntled employee on Glassdoor or a dissatisfied customer on Google reviews require different responses than frustrated stakeholders or a large group of customers put off by a negative news story. Sometimes, a business needs to address the person who published the negative feedback, and other times a business needs to respond to those affected by the feedback.
  • How legitimate is the criticism? Unsubstantiated or inaccurate claims about your business require a completely different response than truthful claims. Although defensiveness isn’t a good look regardless of your culpability, determining the legitimacy of the negative news can help you determine the best course of action.
  • Can the criticism be addressed? Acknowledgement is a vital part of responding to legitimate claims about your business, and the next step is following up. If there is a way the criticism can be addressed, either by refunding a customer or changing how you run certain aspects of your business, be sure to take those steps and make it known that you are. Taking responsibility for mistakes and making a change can actually positively impact your reputation, and can shift the conversation around your business.

Once you’ve asked yourself these questions, you will be able to determine the best way to respond to negative news, reviews, and online conversations. When responding, be sure to:

  • Get ahead of the problem. Once you are aware of a negative result online, develop a plan of action. Negative news often gains traction over time, so taking steps to handle and address the problem early on can help limit the impact on your reputation.  
  • Take responsibility. When necessary, take responsibility for the problem. Whether it’s a claim in an article or a negative review, ignoring or refuting claims that end up being true can add fuel to the fire when it comes to a reputation hit. While admitting fault can be difficult and feel risky, it is often not only the right thing to do, but the best thing you can do for your reputation.
  • Propose a solution. If it is within your power, suggest how you will solve the problem. Indicating that you have acknowledged the issue and plan to address it with a specific plan will increase your trustworthiness and will give you a direction to go in to move on from the negative result.
  • Follow through. False promises can hurt your business’s credibility and reputation almost as much as negative news and reviews. But the opposite is true as well – if your business follows through, it can help improve your credibility and rebuild your reputation.

Additionally, as important as it is to respond to negative feedback about your business, not all feedback warrants a response. In some cases, responding can make things worse, so consider how you think the conversation will play out and if it is in your company’s best interest to address the criticisms head-on.

Bonus Tip

You need to be timely in your responses. Failure to react quickly to situations and issue an effective response can increase the impact of negative news on your reputation. 80% of consumers cite recency as an important feature of reviews, and responding quickly can also help to keep bad news from growing. To ensure your business is able to respond quickly and effectively, establish a plan to respond to different kinds of negative feedback and news to make sure you can mobilize quickly when facing reputational damage.

5. Monitor your reputation

As we’ve said throughout this article, your reputation is made up of what’s out there about your business and how people respond to it. Understanding what is being said about your business is a vital step in developing your online reputation management strategy, and can help you get ahead of negative news before it becomes a reputation crisis.

First things first: Google yourself! Searching for your business will give you first-hand insight into what prospective customers, employees, and investors see when they search for your business. Take note of what you see. Are the results owned properties (such as your website, social media, etc.)? Are they neutral, positive, negative, or a combination? To get the most accurate results, search for your business in an incognito browser with a cleared cache.

Bonus Tip

If you search for your business online and your website doesn’t show up in branded search results, you need to check if your website is indexed in search. To check this, search “site:[your site]” in Google. If your site is indexed, but isn’t showing up in branded search results, or your other owned assets aren’t appearing, that’s where you’ll need to start.

Though important, your Google search results are not the only thing to monitor. Social media, news coverage, reviews, and customer and employee feedback can all help you check in with how people are responding to their business, and what you may need to change, improve, or address.

6. Be consistent with your online presence

An effective reputation management strategy is consistent, iterative, and ongoing. Though creating a foundation online is a vital step in protecting your business from reputational damage, you will always need to stay up-to-date on conversations and responses to your company. Search results change (sometimes multiple times in one day), and your company will grow and change, too. Make sure that your online presence is representative of the most current version of your brand, and always be aware of the conversation around your business so you can respond accordingly.

Consistency when it comes to online reputation management means being consistent in your voice, consistent in your posts across social media platforms, and consistent in your responses to your customers, stakeholders, and employees. Consistency in how you present and communicate about your business can build trust and make people feel confident that they know what your business is about and what to expect from your business.

What’s more, your reputation is a constantly changing and evolving thing, and requires maintenance. Websites that show inaccurate information, load slowly, or otherwise appear to be outdated can deter users, which can affect both the acquisition of new customers and the retention of current customers. Similarly, social media profiles that have outdated information or do not appear active can work against you, also deterring users.

7. Know when to ask for help

When it comes to reputational damage, some situations are harder to come back from than others. In more severe cases, reputation repair and management is better left to the professionals. A reputation management firm like Status Labs can help you assess and address how you appear online and develop a strategy to improve your business’s reputation.

When considering if a reputation management firm is the right fit for you, consider:

  • Has my business experienced reputational damage?
  • How severe is the impact of negative news or reviews on my business?
  • Does my business have the capacity, ability, and expertise to develop and execute a reputation management strategy?

If carrying out an online reputation management strategy doesn’t feel possible, or if your business is facing a reputation crisis, an ORM firm could be the right choice for your business. Status Labs can help your business identify the current state of your online reputation, areas where your online presence could be improved, and develop and execute an effective online reputation management strategy on a timeline that will ensure your results are maintained.

If you’re interested in hiring an online reputation management firm, schedule a free consultation with Status Labs to determine what course of action is right for you.

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