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How much is your corporate reputation worth?
Updated on February 19, 2021 by Reputation X
Measuring the impact your corporate reputation has on your business
- Measuring the value of corporate reputation is important yet challenging.
- Corporate reputation is only becoming more valuable to companies.
- Measurement is difficult because corporate reputation is an intangible asset. It is difficult to quantify how people think and feel about your brand.
- One approach to measuring corporate reputation is analyzing a company’s stock prices, financial statements, and brand loyalty.
- Companies can measure customer loyalty by looking at their net promoter score, customer loyalty index, customer lifetime value, and/or repeat purchase rate.
- At the core of the challenge of measuring the value of corporate reputation is accurately combining the impacts of quantitative vs. qualitative factors.
There is no perfect formula for measuring the value of corporate reputation. While many researchers have presented theories, a brand’s reputation is still an intangible asset. We know it is important, yet it’s challenging to quantify because it focuses on how people think and feel about your brand.
- Measuring the value of corporate reputation
- Qualitative vs. quantitative corporate reputation measurement
- Measuring corporate reputation FAQs
Measuring the value of corporate reputation
You can execute annual brand surveys, measure the sentiment of what your customers are saying about you online, and review company stock prices. But for many brands, these are just starting points for understanding their value in the marketplace.
There is no one metric to use for measuring your corporate reputation. Instead, you'll need to track several benchmarks concerning your corporate sentiment.
- Stock prices
- Company financial statements
- Brand loyalty/repeat customers
Reputation damage can erode customer and investor trust and confidence in your business. When your reputation suffers a serious blow, you’ll likely see it in your stock prices.
Several recent case studies prove this theory. For example, in 2018, Facebook faced a serious scandal and went on trial for its data privacy and protection policies. In the Cambridge Analytica scandal, Facebook failed to protect the data and privacy of 87 million users. The incident launched a massive investigation.
While Facebook’s integrity was called into question, investors quickly sold off their stocks. The result was a $120 billion drop off in the company’s stock price.
To see a correlation between reputation and stock prices, you need to constantly be monitoring both and tracking the analytics. This is why you need a corporate reputation strategy that enables you to monitor these metrics and respond accordingly when negative news or information comes out.
Company financial statements
$1 in every $5 of market capitalization is now accounted for by the confidence underpinned by company reputations
- according to the U.S. Reputation Dividend Report
When your reputation is good, you'll likely see it in your financial statements. Naturally, if your reputation is poor, you’ll see it there too. Deriving a valuation of your corporate reputation means tracking it with your income statements.
There is no question your reputation and public sentiment impacts your company’s finances.
While 87 percent of consumers read online reviews for businesses, a staggering 92 percent of them are less likely to patronize businesses that have negative reviews.
A bad company reputation can harm a company quickly. In 2013, the documentary Blackfish exposed the distressing conditions under which SeaWorld’s famous orcas lived. The documentary had an immediate and significant impact on SeaWorld that harmed the business immensely.
Blackfish took a tremendous negative toll on SeaWorld’s finances. Stock prices dropped, as did attendance at SeaWorld’s theme parks. Simply put, the documentary was like the ultimate negative review, so people stopped buying. Revenue fell drastically, and the company lost corporate partnerships that helped bolster its financial statements.
Consumers and activist groups called for the release of all orca whales. But instead, SeaWorld said it would double the size of their tanks and provide exercise equipment for the animals. The theme parks are still recovering from the 2013 documentary and ensuing backlash.
Brand loyalty and repeat customers
Brand loyalty insights can provide details about the value of your reputation. Your faithful returning customers are some of the most valuable customers you have, regardless of how much money they spend with your organization.
Having repeat customers tells you that you’re doing something right. When consumers are loyal to a brand, it signifies a quality experience and quality products. And the happier they are with what you offer, the more likely they’ll be to tell others about you.
Measuring customer loyalty takes many steps though.
- Net promoter score (NPS): An annual NPS survey will tell you how likely customers are to recommend your company to others. Companies that have low NPS scores will likely see few repeat customers and experience negative impacts on their stock prices and financial statements.
- Customer loyalty index (CLI): Much like the NPS, a customer loyalty index (CLI) tells you the likelihood that someone will buy from you in the future, try your products or services, or recommend you to others. Insights from CLI surveys can guide you in adjusting your strategy to better meet the needs of your customers.
- Customer lifetime value (CLV): You can judge the loyalty of your customers without surveys or outside insights by basing it on their customer lifetime value. This is a simple calculation of your annual per customer revenue, times the number of years they have been a customer, minus your original customer acquisition costs. Losing long-term customers or those with a high customer lifetime value can tell you that something isn’t quite right with your business.
- Repeat purchase rate: This is another metric that requires no outside surveys or information. You calculate your repeat purchase rate by dividing the number of repeat customers in a given one-year period by the total unique customers in that same annual period. If year over year you’re seeing a decrease in your repeat purchase rate, you likely have a degrading corporate reputation.
Qualitative vs. quantitative corporate reputation measurement
Over the years, many researchers have worked to create a formula for measuring corporation reputation value. One of the challenges is that any true measurement of the value of corporate reputation would have to include both quantitative factors (things you can count) and qualitative factors (people’s feelings and perceptions about their experiences with your company, products, and services). The industry has yet to universally accept any single measurement tactic because no matter how you approach calculating the value of something intangible like reputation, it requires some quantitative measurement.
Here's a look at some of the studies and measurement models researchers have created.
- Brand Equity Ten: David Aaker posited that there are 10 brand attributes companies can use to analyze the strength of their company. His study cannot place a precise number on these different attributes, though, as they are qualitative measures, such as perceived value, brand awareness, brand personality, etc.
- Brand Equity Index: Bill Moran created the brand equity index using market share, relative price ratio, and durability of a brand. While the index is more quantitative, the measures are not always found to truly measure a brand’s value.
- BrandAsset Valuation: This index takes into account four areas of a brand to measure its value. Those areas include differentiation, relevance, esteem, and knowledge. Though very valuable, the measurement tactic is extremely qualitative.
Cautionary tales and financial reports from PR nightmares tell us that reputation matters immensely to a company’s success. Failing to monitor and measure your corporate reputation can lead to decreases in income and degrading brand equity.
Measuring corporate reputation FAQs
What is corporate reputation?
Corporate reputation is how your customers, investors, and stakeholders view you in the marketplace. Stakeholders can include your employees, prospects, influencers, shareholders, and even competitors. Corporate reputation impacts your market value and long-term success. Minor changes in how your stakeholders view you will have a lasting impact on your success.
How do you evaluate your reputation?
Evaluating your reputation is a complicated calculation. It takes both online monitoring and having valuable conversations with key stakeholders. Part of evaluating your reputation includes reviewing how you compare to your competitors.
How do you manage your company reputation?
Managing company reputation means building a strategy for managing messaging about your business, monitoring third-party mentions, and responding to others when they talk about you. Managing your company’s reputation is a never-ending job, as you must continue to cultivate it even when you know your image is strong and sentiments are positive.