Reputation really is everything – now perhaps more than ever before. 

According to a Trustpilot survey, reputation was the number one factor for customers deciding whether or not to use a business. Positive conversations about your brand, on and offline, can do wonders for establishing your brand as the go-to trusted authority in your market. 

💡 Read Brand Reputation 101: Monitoring, Analysis, and Management Tools

Unfortunately, the inverse is also true. A negative reputation might even be more damaging than a positive reputation is uplifting. A reported 90% of customers have chosen not to purchase from a company due to a poor reputation. 

With the power of social media, any news about your company has the potential to go viral, reaching audiences of previously unheard of proportions. This is why it’s so important to track your mentions online and make sure that you don’t miss that all-important tweet that will derail your marketing campaigns. 

What is Reputational Damage

‘Reputational damage’ refers to the loss of financial and/or social capital and market share following a hit to a brand’s image. This can happen for a number of reasons, although often the culprit is a gap between what a company promises to deliver, and how they are perceived to have acted in reality. 

Three emoticons - happy, neutral, and sad. The box next to the sad, negative icon is ticked
Negative comments can influence a brand’s reputation

Common causes of reputational damage

Regulatory breaches or ethical violations 

During the pandemic, businesses came under scrutiny for their treatment of workers and adherence to public safety regulations. Appearing not to care about COVID-19 reflected badly on many brands. 

Employee indiscretion

Think how easily a video of an employee behaving badly can go viral. Naturally, this reflects very poorly on their workplace – especially if they do not face consequences for their actions. 

Read 7 Ways to Protect Your Online Reputation

CEO misbehavior

Equally, upper management and CEOs can be at fault for the blunder – as in the case of Geralt Ratner. CEO misbehavior could be anything from a one-off scandal, to an ongoing pattern of morally questionable behavior – as evidenced by the increasing calls to boycott Amazon. 

Cyber attacks or data leaks

The MyFitnessPal data breach comes to mind, as years later users still find themselves googling how to avoid spam emails, after usernames and passwords were leaked on a vast scale.

Lack of transparency, i.e. misleading customers

Obviously, faulty goods and services have a part to play in reputation. If you’re not delivering the quality customers are expecting, your brand will suffer in the court of public opinion. This goes from tech-related businesses like hosted PBX providers to ecommerce services like Amazon.

Negative customer reviews

The importance of reviews cannot be overstated. When was the last time you made an online purchase without reading at least one or two reviews to check the product was legit? 

Read How To Deal With Brand Damage And Rebuild Your Brand

1.5 star rating, negative review
Customer reviews are mainly taken into concern in online shopping

Social media outrage 

Conversations about your brand on social media can be just as impactful as the information you put out as a business. 

In short, reputational damage results from anything which reflects badly on your brand – whether it is directly your fault or not. 

If and when you do experience a crisis, having a strategy prepared is essential. How a company reacts to the damage is scrutinized as much as the original offense in many cases. By failing to react properly, you risk turning the short-term damage into longer lasting consequences, which may be harder to recover from. 

Read Online Reputation Management – Why Do You Need It

What Are the Effects of Reputational Damage

While ‘reputation’ itself is a slippery concept, hard to define, reputational damage will make itself abundantly clear in your bottom line. How? Well…

1. Loss of customers

As customers lose trust in your brand, be it from a cyberattack, negative reviews, or a social media outage, they will naturally turn away from your company. This will lead to a fall in sales, resulting in reduced revenue and profits. It will affect your customer retention as well as your ability to attract new leads.

2. Customers will default to a competitor

Customers who have been inconvenienced or feel misled by your brand will likely look elsewhere for products or services they need. This will drive them into the arms of your competitors. Not only are you losing their custom but your standing in the industry will be worsened. 

Read Measuring Brand Reputation: Top 5 Metrics to Look Out For

3. Higher employee turnover and hiring difficulties

In today’s digital world skilled employees have their pick of different companies. If your company doesn’t have the best reputation you might find it harder to attract workers. They won’t want to be associated with your brand and you’re hiring cost may go up. You could also see a decrease in employee retention as your existing employees move to companies with stronger reputations.

4. You may be at higher liquidation risk

A fall in customer numbers and sales will likely be accompanied by a fall in shareholder value. This will also lead to decreased trust from investors. Such a weakened financial situation could lead to considerable losses and place you at risk of closure.

5. Controversies render you vulnerable to lawsuits

You could end up facing legal action from customers if, for example, their data has been stolen. Not only will this lead to further reputation damage if but it could end up being incredibly costly. You will have to cover legal fees and you may end up paying compensation to those affected by your mistakes.

The above can result in significant financial losses or, in extreme cases, bankruptcy. 

PR Crisis Management Ebook

Who Can Be Affected? 

Reputational risk does not discriminate: it can affect any business, large or small. No one is exempt from marketing mistakes.You should be investing time and resources into monitoring your reputation, ahead of disaster. 

Pepsi: A Case Study in Reputational Damage

It is one thing to know about reputation in an abstract way, but it comes to life when we look at specific examples. You can read more about crisis communication examples here, but for now we’ll be focusing on the now infamous collaboration between Pepsi and Kendall Jenner. 

pepsi commercial with kendall jenner
Pepsi commercial with Kendall Jenner

PepsiCo launched their “Live for Now – Moments” campaign in 2017. In the advert, supermodel Kendall Jenner appears to dissolve conflict at a protest by offering a police officer a can of Pepsi. Supposedly, this gesture symbolized unity, peace, and finding common ground. 

The campaign was read as disingenuous and tonedeaf. PepsiCo was quickly flooded with criticism. They were faced with accusations of misrepresenting the Black Lives Matter movement, trivializing police brutality, and using real-world issues to sell products.

This situation could have been avoided with a more thorough vetting process prior to the campaign’s release. Prevention is always preferable to damage control. With better social listening and reputational management in place, Pepsi may have realized that their audience would not react well to this vague foray into political activism. 

Instead, the brand had to respond quickly. A statement was released taking accountability and promising action. The advertisement was taken down in less than 24 hours – effectively minimizing the chance of lasting backlash against everyone involved. 

Read 5 Crisis Communication Examples to Learn From

Brand Values

The Pepsi example demonstrates that the cost of reputational damage is not only about economics – morality and politics are at play here too. If you really care about your brand’s reputation, you need to be clear about your core values and mission. While customers are more likely to show loyalty toward companies which appear to share their beliefs and values, this can’t be faked. If you do involve yourself in philanthropic endeavors, you need to make sure this aligns with who you are and what you do. 

Mitigating Reputational Damage 

A controversy or blip in reputation doesn’t have to be a death sentence for your organization.  Ideally you would prevent the situation altogether with a comprehensive reputation management strategy. However, it is still possible to mitigate the damage after the fact. 

In Pepsi’s case, they managed to recover from their unsuccessful campaign, returning to safer ground with an advertisement riffing on the phrase ‘is Pepsi okay?’

Using Determ to check your brand reputation

Chances are, your business will at some point receive criticism. Before you dive in to address it through your virtual phone systems for small businesses, ask yourself: who is this criticism coming from? How legitimate is the complaint? Can the situation be addressed?

If the answers are ‘YES’ then it’s time to think about structuring a response. 

Apologizing: Dos and Don’ts 

dos and donts of managing brand reputation

The Takeaway 

The point is, reputational damage is unpredictable, but you can’t afford to let it devastate your brand. Crises can be successfully averted or dealt with, either by implementing reputational management strategies beforehand, or by responding swiftly. You will never regret having a plan in place for the worst case scenario. 

John Allen is a driven marketing professional with over 14 years of experience, an extensive background in building and optimizing digital marketing programs across SEM, SEO, paid media, mobile, social, and email, with an eye to new customer acquisition and increasing revenue.