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What is Reputation Capital?
Updated on November 3, 2020 by Brianne Schaer
Reputation capital is the value of the intangible assets of a business. Anything from reviews to brand identity can build reputation capital, and it all boils down to one word: trust. How much do people trust your business? The more trust there is in your business, the greater its reputation capital.
- A positive reputation enables you to better control your prices, and achieve industry recognition and thought leadership.
- Businesses with a strong reputation capital can overcome a crisis easier and faster than those with negative reputations.
- Reputation capital is both one of the most important aspects of any business and the most difficult to quantify.
Your reputation allows you to gain the trust of your peers. For a business, a good reputation can bring more customers and more visibility. But how is reputation measured? It’s difficult to assign a number or a net worth to a reputation; however, a company’s reputation capital is just as important as its financial capital. Possibly even more so.
This blog post will answer some of the most common questions regarding reputation capital, including how to build and retain your company's most valuable asset.
- What is reputation capital?
- Building and maintaining trust in the 21st century
- 5 ways to build and retain reputation capital
- Types of reputation capital
Definition of reputation capital
Reputation capital is the value of the intangible assets of a business such as reviews, word of mouth, brand identity, and stakeholder trust. Reputation capital can increase the perceived value of products and services, stock price, and company valuation.
Now, if there's one thing we know about reputation, it's that it's subjective and hard to measure. We also know that your reputation can make or break your business. If it's good, you'll have more sales, more loyal customers, and improved marketing.
Reputation is so important, but it's often overlooked by businesses as something that is out of their control or impossible to measure. But if you think of your reputation in terms of capital it can be easier to quantify.
Reputation capital is not a physical asset, but it is comprised of many different components that can be measured. We'll dive into the components of reputation capital later, but here is a quick summary:
- Ratings and reviews assess a brand's reputation capital by rating the business (think number of stars on Yelp)
- The strength of your brand image allows your company to differentiate itself from others, attracting both customers and better employees
- Customers place perceived value on your products based on the emotion, connection, or feelings they have towards your brand
- Consumer trust leads to overall business success
Building and maintaining trust in the 21st century
Reputation is fragile, and it can change in the blink of an eye. Today’s consumers have access to a near endless supply of information on the brands and companies they do business with – or choose not to. Social media and peer-review sites like Yelp have made it simple and quick to research how a company treats its customers. Reviews are so important that half of consumers won’t use a business with less than a four-star rating.
Corporations need to do more to gain people’s trust. It’s not enough to simply put out a product or service and invest in traditional marketing and advertising. A company needs to convey that they care about their clientele, exercise good ethical and transparent principles, and can convey their personal story in a way that is memorable and relatable. These factors contribute to building reputation capital in today’s fast-paced world.
Let’s take a look at a company that has steadily improved its reputation over the past few years to overcome crises and compete at the top of its industry.
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Example: The Reputation of Samsung
Samsung took a hit to its reputation back in 2016 when its popular Note 7 smartphones were notoriously catching fire and even exploding. The incidents began within weeks of the phone’s launch, and caused Samsung to quit producing the phone and subsequently lost the company $26 billion in value in the stock market.
The issue was caused by faulty batteries and resulted in Samsung recalling 2.5 million phones, including 1 million in the U.S. – the largest smartphone recall in history. Some may say that a crisis of this level would wreak irreparable havoc on Samsung’s reputation. Although it’s been a long road, Samsung’s crisis response shows that, if handled correctly, it is possible to move past a reputational crisis.
So, what did Samsung do to enable the company to rebuild its reputation capital and rebound its sales? The team communicated with customers and maintained a high degree of transparency throughout the ordeal. It successfully recalled the phones off the market and replaced them.
How to build and retain reputation capital
Reputation capital is something that can be built over time. The best time to improve your reputation capital is now! While there are many components of your reputation that are in constant flux, it's better to start working on it now than to wait until you find yourself in a crisis situation.
In order to better understand how to build and retain reputation capital, let’s dive into its components.
One star can increase revenues 9%
The first aspect that comes to mind when trying to determine a business’s reputation capital is its online ratings and reviews. Since reputation capital is difficult to quantify, it’s nice that at least one aspect of the term is easily measured. Ratings are a powerful and commonplace tool used to determine a company’s reputation capital.
It’s second nature now to check reviews before doing business. We review everything – from your last Uber ride to the chic new coffee shop that just opened down the street. And these reviews are trusted more now than ever before.
Here are a few stats to demonstrate:
- If a restaurant boosts its Yelp score by just one full star, it can expect to increase revenue by 5-9 percent.
- 97% of consumers read online reviews to find a local business
- 74% of consumers have greater trust in a company if they read positive reviews.
These are only a few statistics that display the importance of reviews. (We wrote an entire blog full of eye-opening reputation statistics here).
Grow your tribe with a better brand image
Building a positive image is key to building reputation capital. Your personality and ability to resonate with people work together to build a healthy and relatable brand.
Build credibility and a positive brand image by engaging in concepts like:
- Corporate responsibility
- Ethical leadership
Maintaining a positive brand image can reap many benefits that can allow a company to increase prices, dissociate from certain other brands, or capitalize on a certain market.
Appeal to emotions with perceived value
When a customer is shopping for an item, they place their own perceived value on it. This has less to do with the actual manufacturing costs of the product than with the emotional appeal of the product.
- Will it meet their expectations?
- Will it make them feel a certain way while using it?
- Do they have an emotional connection to the product?
These questions all play into the perceived value of a product and help explain why some luxury brands are able to charge such a high markup for certain items.
Trust your customers and your customers will trust you
Earlier in this post we stated that trust is a core component of reputation capital. Without trust, it’s impossible to build a good reputation. But how can a company earn the trust of its consumers, or just of the public? Company’s need to be more human. By providing a more human layer to your business, you can show that you care about the same causes as your customers, and give them something to relate to when they are choosing between your product and that of your competitors.
Establish yourself as an expert through thought leadership
One way to help your business stand out from the crowd is to secure its reputation as a thought leader. This doesn’t mean to simply post a few blog articles and call it a day. In order to be seen as a leader in your field you must dedicate time and resources to build a library of information that offers valuable information. Content marketing is one way to assert thought leadership. Engaging market influencers is another. Both work together to gain the trust of your customers and build reputation capital.
Types of reputation capital
Now that we have discussed what reputation capital is and how to build and maintain it in today’s environment, let’s take a look at some of the other types of capital that can affect your reputation.
Social capital is the collective value of one’s social groups and how those networks affect an individual’s identity, understanding, and trust. The term has gained popularity in recent decades as it became associated with group performance, managerial performance, and strategic alliances.
Although social capital is another intangible form of capital, its effects can be quite the opposite. Since social groups hold the power to affect how people perceive others, there is a lot of influence over where individuals place their trust. This is even further intensified on social networking sites, where individuals belong to virtual networks of people with similar interests and backgrounds. Once a company starts to lose the trust of an individual, that individual has the power to change the minds of large groups of people. This can cause companies to take serious hits to their reputation based on the experiences of a handful of individuals.
Relational capital is the value of a company’s relationships with its customers, vendors, and other stakeholders. These relationships establish a sense of belonging between people and can influence the reputation capital of a business.
Reputation capital is a major asset to any business. A business’s reputation carries value that extends beyond day to day operations to impact the company’s bottom line. Reputation capital drives the financial goals of a company. It can make or break a business.
Although it is intangible in nature, reputation capital holds the key to thriving in the more measurable aspects of doing business. A positive reputation can yield higher profit margins, improved marketing, and increased customer acquisition and customer retention. A business that is trusted has a higher chance of beating out its competition - and that’s the purpose of online reputation management.