A bad company reputation can lead to negative reviews and bad press, which can adversely affect your business’s bottom line. Here's why.
How does reputation affect a business?
It can take companies years to build a positive reputation, but it only takes an instant to create a bad one that gives your organization a black eye.
In an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.
To lead a successful business, executives must understand the importance of engaging employees, deepening customer relationships, and attracting investors, but it is the savviest executives that also know that what these stakeholders say about their company is equally as important to their bottom line. That’s where your company’s reputation comes into play.
A good reputation can be a strong foundation for your company, while a bad company reputation can negatively affect your company in countless ways.
A company’s reputation is the summation of its past behavior and the trust stakeholders (i.e. consumers, employees, and investors) have for its products and services. Reputation has proven to directly impact a company’s success and growth. A company with a better reputation attracts better people — not only customers and clients, but also employees and business partners.
Companies with a strong reputation are perceived as providing more value to consumers who in return are more loyal. This separates companies from their competitors and allows them to charge a premium for products and services.
But it’s the companies with bad reputations that most commonly feel the ramifications of stakeholder dissatisfaction and public sentiment of distrust. The effects of a bad company reputation are something all executives should be aware of. Let’s take a look at how poor reputations have adversely affected companies in the past.
Companies Hurt by a Bad Reputation
A poll conducted by 24/7 Wall St. in 2018 collected data on American companies with the worst reputations. Here are some examples of notable companies that the poll showed could use some online reputation repair and how a bad reputation affected them.
- Fox Entertainment Group: In 2017, a year after Fox News CEO Roger Ailes resigned amid allegations of sexual misconduct, Fox Entertainment Group, the parent company of Fox News Channel, found itself in the middle of a scandal revolving around revelations that Bill O’Reilly — host of one of the network’s most popular shows — had spent up to $13 million settling multiple sexual harassment allegations. This bad press led to O’Reilly’s ouster and the show’s cancellation.
- National Football League: Between 2016 and 2017, America’s most popular sport took a hit in ratings as a result of a bad reputation stemming from multiple controversies colliding at the same time. The NFL found itself answering questions about why it took more than 20 years to acknowledge the long-term effects of head injuries, while simultaneously experiencing a growing politicization around the sport that led to protests during pre-game national anthems. As a result, the NFL saw its viewership for nationally televised games dip from more than 18 million viewers in 2015 to 16.5 million in 2016 and 15 million in 2017.
- University of Phoenix: Once one of the most well-known for-profit colleges, the University of Phoenix saw its enrollment decline by 70% between 2010 and 2017. A big contributing factor in the school’s fall from grace was the bad reputation it garnered from allegations that the institution preyed upon veterans that they knew had a slim chance of graduating to receive aid from the federal government.
- Wells Fargo: Wells Fargo ranks as the worst American bank with a rating of 74 out of 100 on the American Customer Satisfaction Index (ACSI). The industry average is 81. Much of that has to do with Wells Fargo’s disastrous 2016 and 2017, during which the bank’s CEO John Stumpf stepped down after a scandal where bank employees created millions of fake accounts without customers’ knowledge to meet corporate quotas. It was also found that the bank charged more than half a million customers for car insurance they didn’t ask for and over 100,000 customers were charged late fees for mortgage payments that were delayed because of the bank’s mishandling.
- Sears Holdings: Poor reputation led to Sears’ sales numbers falling for years and the company narrowly avoided bankruptcy in 2019. Consumers gave Sears a rating of just 77 out of 100 on the ACSI, which is one of the lowest customer satisfaction scores of any department store in the U.S. The company’s sales plummeted by more than half from $53 billion in revenue to $22.1 billion in revenue from 2007 to 2017. The company also closed more than 2,000 stores nationwide over that time.
- United Airlines: When a video of a passenger being forcibly removed from his seat on a United Airlines plane went viral in 2017, there was outrage across the country. United Airlines CEO Oscar Munoz did not handle the matter well and, as a result, United saw its stock drop 4% in the days following the incident. That equates to as much as $1 billion of the company’s market value lost.
What happens when you have a bad reputation?
Trust is the cornerstone of a company’s reputation. When that trust is broken between a company and its stakeholders, the result can lead to the development of a bad reputation. Two main things every company wants to avoid are bad press and negative reviews.
Negative Online Reviews
Contributions to online review sites have been on the upswing for years.
Courtesy of Harvard Business School
Courtesy of Harvard Business School
Courtesy of Harvard Business School
A study by the Harvard Business School suggests that there is an 18% difference in revenue between a 3-star and 5-star rating on online review sites. If you translate that into dollars, a company with $1 million in revenue could be losing as much as $180,000 each year due to a negative reputation.
I know what you’re thinking. Do that many people read and value online reviews? Absolutely. According to the BrightLocal Local Consumer Review Survey, 86% of people read online reviews before engaging in business and 91% said positive reviews make them more likely to use a business, while 82% said negative reviews make them less likely to use a business.
Bad press can come from poor customer service, an employee mishap, or a company scandal. But even if it’s “Fake News,” the public perception of bad press can make life very difficult for a company.
A recent CareerBuilder survey showed that 71% of U.S. workers would not apply to a company that was experiencing negative publicity. This means a bad reputation can impact hiring costs and success and cause employee retention issues. This can create a circular problem where disgruntled employees tarnish your reputation while your bad reputation prevents you from hiring better employees.
How do you fix a bad business reputation?
Executives that spend most of their energy handling reputation threats that have already surfaced are partaking in crisis management, not reputation management. The latter requires being proactive in building a reputation as well as assessing existing and potential threats to the company’s reputation.
So what can you do to be more proactive about protecting your company’s reputation?
- Prevent negative reviews and improve review ratings — Oftentimes, customers will write negative online reviews as a last resort after they’ve exhausted other avenues of venting their grievances. By giving them easy ways to voice their opinion before they take to an online review site, you can drastically cut down on negative reviews. Conversely, ask happy customers to review your company and make it easy for them to do so with strategic marketing and followup.
- Submit press releases about positive company news — If no one else is writing positive content about your company, why not do it yourself? Even topics such as charitable donations or company events can be used as positive press that gets picked up by local media. Keeping your Wikipedia page positive and up-to-date is also a key element to maintaining a strong reputation online.
- Improve SEO to help positive content rank higher — When people search for your company, you want the most positive news and information to be at the forefront of their results. There are tactics and best practices that can help positive content outrank the negative when it comes to search results. There is also the option of attempting to have certain Google results removed (or de-indexed) from the search engine completely.
Sometimes stakeholders need many reasons to invest in your company or buy your products and services, but often they only need one good reason not to engage with your business. Don’t let a bad reputation be the reason your business doesn’t succeed. Even after mistakes are made, online reputation management services can help your brand build a better reputation.
By proactively working on your online reputation, you can control the narrative of your company’s vision, culture, and direction while avoiding the pitfalls of a bad company reputation.
Q: How does reputation affect a business?
A: A company’s reputation is the summation of its past behavior and the trust stakeholders (i.e. consumers, employees, and investors) have for its products and services. Reputation has proven to directly impact a company’s success and growth. A company with a better reputation attracts better people — not only customers and clients, but also employees and business partners.
Q: What happens when you have a bad reputation?
A: Trust is the cornerstone of a company’s reputation. But when that trust is broken between a company and its stakeholders, actions occur that lead to the development of a bad reputation. The two main things every company wants to avoid are bad press and negative reviews.
Q: How do you fix a bad business reputation?
A: Fixing a bad business reputation requires proactive reputation management. Some of the ways to be more proactive about protecting your company’s reputation include: Improving online reviews, creating positive content such as press releases, and improving SEO to get your positive content ranking higher in search results.