Reputational Risk: Slow to build, quick to lose

Reputational Risk: Slow to build, quick to lose

How to protect your reputation and respond to crisis


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.
In many industries, your 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 byone bad review.
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’schili 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 24x7 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 – Poppa Johns founder John Schnatters headline-grabbing comments about NFLplayer 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.

Consumer behavior is such that decisions are made on the smallest investment in time possible. Most consumers will google a company and look up their reviews from others via Google My Business, Yelp, and the Better business bureau. From there, the factors that lead to a decision vary. Is someone likely to choose a business with a 5-star perfect rating but only from 2 customers, or NEAR perfect rating of 4.8 across 200 ratings?

Look at consumer behavior on Amazon. Among Amazon sellers, it is pretty much considered a failure if you have any lower than a 4.7 stars out of 5 on your product. The 5-star product will win out nearly every time. That said, consumers are starting to become savvy about the cheating and “rating stuffing” that runs rampant in eCommerce. Rating Stuffing is where companies will pay for positive ratings or exchange ratings with other users in order to artificially inflate their ratings. Therefore, even online ratings are starting to become suspect. But real success and failure stories tend to have a bigger impact than a numerical rating. Consumers want to know why the company got a good or bad rating and need to be convinced.

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.

Managing 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 they do deserve to be heard and treated with respec

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’tmeet 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.

3.      Don’t do anything stupid

4.      Keep emotion out of it…it’s business

5.      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.

Another way to approach this is to provide a time frame to complete the project that would be outside of their requirements or, if you have the ability, price your project outside of their affordability.


I had a client in early 2022 who I had a bad feeling about from the beginning. They were negotiating my rates, providing very little information and unclear requirements on their project. Even though I knew better, it was a slow week so I decided to take on this small project which should only take an hour to complete. I should have listened to my gut because this client had multiple revisions, kept adding to the requirements, and insisted that the new requirements were covered by the original agreement. What was supposed to be a 1-hour job, wound up costing 6 hours, lost goodwill with that customer, and, at the end of the day, having to resolve a dispute with the freelance provider. I got paid for some of my time but it was not even close to being worth it. I lost money and time on that deal. Thank goodness they didn’t leave a rating or it would have been a blemish on an otherwise perfect rating score.

6.      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 hada 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 Ihave 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 error, they won’t forgive being lied to or not told about it.

4.      Communicate, Communicate, Communicate

a.      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.

b.      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.

c.      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. If the issue can be contained in internal and customer communications, 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. 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. But the worst thing you can do is ignore it and hope it goes away. “No comment” has killed many businesses, don’t let yours be next.

Related Posts