One of the most important assets a company has is its reputation. A firm with an above average reputation can achieve and sustain an above average return on assets…
A good reputation pays off in a number of ways. It can:
Add to the psychological value of products and services in terms of customer trust – when it is difficult to quantify the quality of a service, consumers rate the company with a good reputation higher than those with a poor reputation.
Increase employee job satisfaction – good company reputations have the knock-on effect of increasing the degree of employee job satisfaction.
Provide access to better quality employees when recruiting – after all, most people would rather work for a respected company than one with a shoddy reputation.
Support new product introductions by reducing the risk perceived in the eyes of customers.
Act as a powerful signal to your competitors. For example, companies gain a reputation by how they react to the actions of competitors.
Provide access to the best professional service providers – to boost their own reputations, the best retailers seek to stock the products of the best manufacturers.
Allow a second chance following a crisis. For example, thanks to its reputation, the market share of Arnott’s Biscuits bounced back despite the product tampering crisis earlier this year.
Poor reputations on the other hand can be dangerous to business health:
Many bosses claim that bank managers don’t like their company and overestimate its commercial risk. A lackluster reputation is often the cause.
Journalists tend to scrutinize companies with a poor reputation and remind readers of a history the company may prefer was forgotten even when a story is upbeat.
Customers are more anxious and price sensitive about products and services from less well-respected companies; poor (external) reputations tend to breed poor employee morale and so lead to the possibility of industrial dispute.
So there are good reasons, both operational and financial, for managers to enhance the reputations people hold of their companies.
Building blocks of image
What do we want to stand for? The answer to this question lies in three issues. The first involves analyzing what the product offers to customers and then communicating why it is unique and what it can deliver.
For example, the Swatch watch company hangs its image on providing “fashion that ticks”, the Department Education is in the business of providing “education for life” (life skills and skills for the rest of your life) and computer giant Apple focuses on making personal computers which allow people to enhance their skills, captured in the famous slogan “the power to be your best”.
Being able to clearly and succinctly distill the essence of your offer to customers is important. However, it is equally important to state exactly what it is you offer to employees – the second issue. Employees, like customers, listen to WII-FM radio – “what’s in it for me?”. Your organization’s formal policies (performance appraisal scheme, pay levels, work practices), organizational culture (informal practices, fun and work rituals) and expectations (rewards for past behavior, vision statement) combine to form the package you offer to employees.
The third part of the question of company image involves ethical contribution. US editor Daniel Gross believes “the ethical heart of business is service to others”. A good example of this is US-based chain Wal-Mart discount department stores. Wal-Mart founder Sam Walton offers low paid rural Americans more choice and quality for less cost than ever before. Do customers want this? Yes. Are employees proud to provide this service? Yes. Does the community value it? Yes. Can competitors easily match it? No.
Generally, the companies with the best reputations offer the best value (benefits minus the cost) to their internal and external stakeholders – it’s that simple.
What drives corporate reputation?
There are two sets of factors which combine to create the reputation an organizations projects. But only one set is under the direct control of managers and can be considered as levers to engineer change. The other acts either as a constraint on or opportunity for achievement. The controllable factors are: vision; organizational culture; strategy; formal policies; products and services; employees; and advertising and promotion.
The uncontrollable factors are: competitors’ actions and reputations; country and industry images; and media attitudes towards your industry and organization.
Many companies have a weak foundation from which to build a good corporate reputation because there is a poor match between their vision, strategy, organizational culture and formal policies. Human resource people sum up this problem in the saying “people do what is inspected, in preference to what is expected”. For example, if your appraisal scheme for employee performance rewards cost-cutting and your vision statement applauds customer service, employees will always give cost-cutting preference, regardless of how important customer service is to a good image. And in such cases a policy rethink is inevitable.
A company’s product and its promotion are also key drivers of corporate reputation. Both customers and employees are equally interested in the value of what is offered. This is especially true for advertising, where employees are increasingly being labeled as advertising’s “second audience”.
If we focus on customers, then at least four factors drive the perception of a company’s reputation: the perceived value of the offering; customer perceptions of employees (for example, are they customer focused); what other people and the media say about the company; and whether the company is part of a respected industry, a factor which includes the reputations of its competitors. Research suggests the most important of these factors is the perceived value of your products and services.
Stamp out stupid practices
Nearly every company has some practices which needlessly upset customers and employees. Some classics include: using lawyers to talk to valued customers. For example, the application forms for both Qantas and Ansett’s frequent-flyer schemes contain some heavy-handed terms and conditions. These leave the impression that the airlines don’t trust their most valuable customers;
for the last few holiday periods, petrol companies have raised the price of a liter of petrol by up to five cents. And during any week the pump price may vary by over five cents per liter. This doesn’t instill customer confidence in the petrol companies’ pricing policies.
In the scramble to attract customers and employees, some companies offer newcomers a better deal than that received by existing, loyal employees and customers, with the obvious effect on morale. The point is that stakeholders quickly loose confidence in a company they think is either wasteful, greedy or stupid, or which they think discriminates among similar types of people, has power over them or simply doesn’t trust them. The only way to identify these detrimental practices is to periodically sound the opinion of each group of important stakeholders.
Communicating stance with internal and external stakeholders
A critical element of a corporate reputation is positioning the company to stand for something important, deliverable and unique. Most companies fail the unique part. When this happens, both customers and employees tend to focus on price. If a company’s offer is not significantly different from others, then why shouldn’t customers buy the cheapest and employees be more concerned about wages?
The advertising slogans companies use and sometimes their name are often used to communicate their positioning:
3M – “innovation”
Ford – “a better idea”
Sharp – “sharp minds, sharp products”
Charmin – “squeezably soft”
And some slogans work as well with employees as customers. For example, while Nike’s “just do it” campaign urges customers to buy the product and not be a couch potato, it promotes employees to be proactive.