VALUE OF A REPUTATION

by Deb Weidenhamer

One of the business trends of recent years is the growth of reputation management. Twenty years ago companies realized the need to actively manage quality. In the same way today, companies are realizing that their reputations must be similarly managed. This is because corporate reputations have come to be viewed as a valuable resource. A lot of research has recently been conducted regarding how to improve a company's reputation and what the reputation of a business is actually worth.

Research shows that reputations rise or fall on the combined impact of thousands of corporate actions both large and small. These acts shape individual’s perception of your company. These individual perceptions are shared with others and by word of mouth your reputation is constructed. What has changed in recent years is how rapidly a reputation is created or damaged. The Internet has increased the speed with which information about a company spreads. Look at how important feedback has become to the process of conducting auction business on E-Bay. People will refer others to their E-Bay feedback, even if their business transaction has nothing to do with Ebay. Negative feedback on the Internet also occurs at lightning speed. Disgruntled customers have even gone so far as to create websites dedicated to negatively impacting a company's reputation.

Reputation research has also verified what your parents told you about reputation, reputations are hard to earn and easy to damage. The reason for this is something researchers call a "Reputation Spiral". Customers filter the behavior of a company through the lens of its reputation. Behavior consistent with the reputation is accepted at face value while events inconsistent with the reputation are discounted. An on-time delivery from a company with a bad on-time reputation is viewed skeptically ("Their regular employees must be on strike"). However, a late delivery from a company with a good on-time reputation is shrugged off as a fluke ("The shipper must have mad a mistake"). Once a reputation begins to move in a positive or negative direction, its momentum is extremely difficult to reverse.

Studies show that even a small positive increase in a company's reputation results in a significant increase in business value, while a negative drop in reputation results in a decrease in business value. For example, a +1% improvement in the reputation of a company is accompanied by significant increases in that company’s value. Unanticipated, however were the strength of the impacts of negative changes in company reputation. A minor decrease in reputation (-1%) has 34 times the impact than an equally minor increase in reputation (+1%).

A strong positive business reputation attracts customers, investors and employees. This has great benefits for a company because it will book more business, have an easier time raising money and recruiting employees. One of the great gains of a positive reputation is the loyalty it generates in customers and employees. Loyalty will cause customers and employees to stick with a company through tough times. A good reputation also makes a customer more likely to give a company the "benefit of the doubt". This will make a customer more likely to tolerate a huge mistake and to not resort to the courts to settle a dispute.

The Reputation Institute, an academic organization that conducts business reputation research, has identified five key principle elements of a business reputation; distinctiveness, focus, consistency, identity, and transparency.

Distinctiveness - Does your company stand out from your competitors? When people think of your company, do they have a clear image of your company or do they get you confused with other companies in your industry?

Focus - Is it clear to your customers what your company's goals and strengths are? Strong reputations are built when your company focuses its efforts around a central theme that it shares with its customers.

Consistency - Is your company consistent in its actions and communications? Does your company send mixed messages or have occasions where words do not match deeds? Reputation applies to every part of your company and therefore, everybody in your company has to assist in building that reputation. All employees need to understand the company's values and live them. It is not enough to teach individual behaviors but also teach the underlying values.

Identity - What is your company's emotional appeal to its customers? Identity is the positive or negative emotional appeal that your company has for its customers. It is the sum of their emotional experiences with your company. Do they have good memories, bad memories, or indifferent memories of your company. Do they remember your employees as helpful and friendly or cold and aloof? Do they trust your clerks and cashiers or do they double-check every lot and carefully count all change?

Transparency - Do your customers believe that, when it comes to your company, what they see is what they get? Or does your company openly share information and engage in dialogue with customers? Do customer take your company’s actions at face value or are they always looking for ulterior motives? Does every customer experience the same company or does your company show a different face for each customer?

Not only is reputation of an individual auction businesses critical but also the reputation of the auction industry as a whole. Most auctioneers are very concerned with their business reputations because the auctioneer's name or their family's name is highly associated with their auction businesses. But the cumulative reputation of all auction companies is what creates the reputation of our industry. And in the same way that an individual company's reputation is hard to earn and easy to lose, so to is the auction industry’s reputation hard to earn and easy to lose.

Why is the reputation of the auction industry as a whole so critical to the success of our industry? Unlike most industries, there are many alternatives to the services provided by auctioneers. There are many different ways to sell or purchase merchandise that don’t involve hiring an auctioneer. You can hold a yard sale, consign it, open a retail storefront, have a going out of business sale, sell it outright or donate it to charity. If people are hesitant to use auctioneers or, worse, do not trust them, they will take their business elsewhere.

I think the reasons why the auction industry and auctioneers should be highly concerned with their reputations were well summed up by Alan Greenspan during a commencement speech at Harvard University in June, 2000. "In today’s world, where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force….manufactured goods often can be evaluated before the completion of a transaction. Service providers, on the other hand can only offer their reputations."