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What is reputational risk?

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What is reputational risk?

Your brand will have a reputation, no matter the size.

It may be shared with a small group of people, but anyone aware of you will think of you either positively or negatively.

Your reputation will sway clients and prospects when it comes to decisions, and whether they want to buy from you.

Reputational risk is any risk that may negatively impact their perception of you.

Not just does it affect reputation, but it can make or break your entire business.

These risks often show up unexpectedly, which is why it’s so important to understand them and know how to deal with them.

The importance

All reputational risk will make your clients lose trust in you.

It can impact:

  • Trust in employees
  • Trust in your brand
  • Customer satisfaction
  • Customer retention
  • Revenue generation
  • Investor perception

And more.

Social media has also increased reputational risk, as the internet gives everyone access to a bucketload of information.

It can be a bad review, employees posting inappropriate things, or news sources picking up on issues, there are so many ways for reputational risks to spread quickly, making a bigger impact.

The types of reputational risk

Company actions

These kinds of reputational risks are caused by your company as a whole, it can be company actions or practices.

It doesn’t matter whether the actions are intentional or not, it will still have the same effect on how the public perceives you.

Examples of this can include:

  • Now complying with laws or regulations
  • Consistently providing poor-quality products/services
  • Consistent poor customer service
  • Legal issues that become public knowledge
  • Internal scandals
  • Poor working conditions
  • Data breaches/ cyber security issues

Any of these things can bring attention to your business, for the wrong reasons.

The press and social media are unforgiving.

Company representative’s actions

This is when people directly tied to your business behave in ways that reflect negatively on your business.

If a representative’s actions and immoral, unethical, or just deemed unacceptable by most people, it hurts your brand.

Examples of this can include:

  • Individual employees poorly representing your business online
  • Individual employees providing negative customer service
  • Business leaders with negative reputations
  • Employees involved in misconduct that becomes public knowledge

Even if it is individual employee actions, not the entire business, the public won’t see it like that.

Those who work for you are part of you, and will always reflect your company’s morals.

This is a reputational risk that can sometimes be out of your business’s control, yet still just as difficult to deal with.

Partner actions

Your business will have partners and suppliers, they are often essential to your success.

It can bring a lot of essential support, but it also comes with risk, as any of their actions will reflect on you.

If a business partner does something that makes them look bad, it may make you look bad due to your association.

Examples of this can include:

  • Partners business struggling, meaning they can’t provide essential resources/support to you
  • Partners involved in misconduct or legal issues
  • Partners speaking negatively about your business
  • Any internal scandals in a partner or supplier business

The risk will vary depending on how close you are with these other businesses or suppliers, as well as how public this relationship is.

A recent example of this is the number of brands that stopped collaborating and working with the musician, Kanye West.

Brands like Nike and even his record label had to distance themselves from him, as he would bring down their reputations if they continued working together.

External actions

Customers and past employees can have a huge impact on your reputation, and their actions can influence your business if they had a bad experience with you.

People will put their trust in other people, over you, as other people won’t have money driving their words.

Examples of this can include:

  • Negative reviews from customers
  • Negative employee reviews or information being spread
  • Attacks on your business (data breaches, etc.)
  • Negative social media content being made about your business

This risk is one of the most impactful kinds, as it spreads quickly and is all word of mouth.

Word of mouth is one of the most important marketing tools, but it can also destroy a business if it is negative.

How to alleviate reputational risk

Risks are never going to be 100% unavoidable, but the likelihood and impact can be lessened.

The best method is to acknowledge the problem, ignoring it won’t make it disappear and all you can do is take it head on.

Transparency with your customers will help them regain any lost trust in you, even though honesty is scary as you may fear that it will make things worse.

Explain what you are going to do to resolve the issue and keep customers and partners in the loop.

To try and prevent these risks, here are some rules to stick to:

  • Honour your businesses core values
  • Use social listening tools
  • Ensure your staff fully understands your core values
  • Implement internal compliance training
  • Stay up to date with current affairs
  • Really listen to customer feedback
  • Maintain a safe environment for employees and customers

There are many more factors to consider, but maybe those few can help you develop your own plan.

Reputational risks are often unavoidable but dealing with them efficiently is all you can do.

If you need more advice on dealing with your brand reputation, our marketing team can help.

Contact us for a chat.

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