Reputation and Performance

Corporate Reputation and Competitiveness

Lecture 8

Lecture Objectives

• To explore the links between reputation and Financial performance

High Reputation Ranking

Positive Financial Performance

CRISIS

Negative Effecton Sales

DecliningFinancial Performance

FallingReputation Ranking

?

The Existing Paradigm

The Corporate Reputation Chain

Customer

View

Employee

View

Satisfaction

Loyalty

Revenue

Satisfaction

Retention

ImageIdentity

Reputation

Other External Stakeholders: Suppliers,

InvestorsRecruitment

Correlation with Satisfaction (all data)

All Employees Customers

Agreeableness 0.611 0.665 0.572

Competence 0.613 0.659 0.543

Enterprise 0.432 0.510 0.338

Machismo 0.342 0.376 0.290

Chic 0.323 0.316 0.340

Informality 0.032 0.062 0.051

Ruthlessness -0.180 -0.243 -0.194

Agreeableness and Conscientiousness

Facet Employees Customers

Warmth 0.571 0.488

Empathy 0.598 0.494

Integrity 0.604 0.474

Conscientiousness 0.621 0.481

Drive 0.547 0.454

Technocracy 0.516 0.400

Strong Brands

• Brands that have a differentiated image

• Brands that have a better image for those aspects valued by customers

• Which would you expect to be the strongest brands here?

Differentiation and Brand Strength

Fashion Store Images Compared

2

2.5

3

3.5

4Agreeableness

Enterprise

Ruthlessness

ChicCompetence

Informality

Machismo

Department Store Ladies fashion chain

Chain store Department Store

Strong Reputations

• Added to the idea of a strong brand is the idea of a strong reputation, that is having a good image for those dimensions of personality valued by stakeholders.

• In the following example the first three are fashion retailers the last a food retailer who also sell some fashion.

Different Drivers of Satisfaction

Retailer1 (219)

Retailer 2 (431)

Retailer 3 (232)

Retailer 4 (385)

Agreeableness 0.425 0.423 0.196 0.602

Competence 0.508 0.420 0.330 0.440

Enterprise 0.397 0.418 0.401 0.463

Machismo 0.307 0.310 0.158 0.171

Chic 0.439 0.476 0.467 0.347

Informality 0.000 0.108 0.103 0.185

Ruthlessness -0.068 -0.132 -0.036 -0.156

Beware Mathematical Correlations

• Correlation does not prove causality (although a lack of it can imply that there is no causality)

• A correlation is evidence of causality but some reason to explain the mathematical relationship is essential.

Case 1 Fashion Retailer

• Targeted at the young with limited disposable income

• Price led

• Small shops with loud music

• Fashion follower rather than a leader

Agreeableness and Sales per Employee

R2 = 0.2265

50

70

90

110

130

150

170

190

3.6 3.65 3.7 3.75 3.8 3.85 3.9 3.95

Agreeableness

Sa

les

pe

r E

mp

loye

e

Agreeableness

• Agreeableness evokes trust and in fashion retailing to be told that you ‘Look wonderful in that’ is a sure sign that you don’t, unless you can trust the employee. Branches where Agreeableness was high had a much higher sales per employee figure.

Competence & Satisfaction

R2 = 0.7036

3.55

3.6

3.65

3.7

3.75

3.8

3.85

3.9

3.5 3.6 3.7 3.8 3.9 4

Competence

Sa

tisf

act

ion

Informality & Sales

R2 = 0.8196

-5

0

5

10

15

20

3.7 3.75 3.8 3.85 3.9 3.95 4

Informality

Sa

les

Tre

nd

%Y

ea

r o

n

Ye

ar

Competence and Informality

• Customers were more satisfied in branches where they rated them higher for Competence and Informality.

• A picture emerges of a retailer where the customer likes an informal atmosphere but at the same time wants to be dealt with competently and given an honest opinion.

Case 2 Fashion Retailer

• Targeted at those on a budget and tending to attract an older, more conservative customer.

• Large stores lacking a bit in character.

• 100% own brand

Enterprise with Sales

R2 = 0.3192

-15

-10

-5

0

5

10

15

20

2.5 2.55 2.6 2.65 2.7 2.75 2.8 2.85

Enterprise

Ye

ar

on

Ye

ar

Sa

les

Enterprise

• Enterprise correlating negatively with sales growth means that customers preferred stores that did not appear to be so enterprising (modernity, adventure, boldness). They didn’t want to see too much at the leading edge of fashion.

Enterprise & Sales

R2 = 0.6344

-15

-10

-5

0

5

10

2.45 2.5 2.55 2.6 2.65 2.7 2.75

Enterprise

Sa

les

Case 3 Fashion Retailer and Enterprise (Again)

• This time Enterprise correlated positively with sales growth. Branches that appeared more enterprising were doing better.

• The retailer had once been a fashion leader and had fallen behind

• Modernity (one of the facets of Enterprise) correlated strongly with the age of employees.

Modernity and Staff Age

R2 = 0.8167

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.4 3.6 3.8 4 4.2

Staff Age

Cu

sto

me

r M

od

ern

ity

Sco

re

Dominance and Sales Growth

R2 = 0.3001

-20

0

20

40

60

2.6 2.7 2.8 2.9 3 3.1

Sales growth

Do

min

an

ce

Case 4 Is Ruthlessness Always Negative?

• This company is in the construction industry. Business is won against tender. Profitability is won by being tough with the customer and employees to ensure the job is finished under budget and that the customer pays well for any additional work

• Dominance (inward looking, authoritarian and controlling) correlates with sales growth

Case 5 Does Image always correlate with performance?

• Answer no. In this example of a large food retailer, Chic and Agreeableness correlate with satisfaction and satisfaction with financial performance but neither image factor correlates directly with sales growth.

• The links may at times be more indirect still, such as via loyalty

Customer Chic & Satisfaction

R2 = 0.6498

2.6

2.65

2.7

2.75

2.8

2.85

2.9

2.95

3

3.05

3.1

3.4 3.5 3.6 3.7 3.8 3.9 4

Satisfaction

Ch

ic

Customer Satisfaction & Agreeableness

R2 = 0.6574

3.5

3.55

3.6

3.653.7

3.75

3.8

3.85

3.4 3.5 3.6 3.7 3.8 3.9 4

Satisfaction

Ag

reea

ble

nes

s

Customer Satisfaction and Sales Growth

R2 = 0.4507

-10-8-6-4-20246

3.4 3.6 3.8 4

Customer Satisfaction

Sa

les

Gro

wth

Customer Agreeableness & Sales

R2 = 0.263

-10

-8

-6

-4

-2

0

2

4

6

3.5 3.55 3.6 3.65 3.7 3.75 3.8 3.85

Agreeableness

Sal

es

gro

wth

Does Satisfaction Always Drive Sales Growth?

• Again no. In this example a financial services retailer had lower sales growth in branches where customer satisfaction was higher

• The explanation is that as the branches got busier customer service and satisfaction declined as management were reluctant to put on more staff, because the business as a whole was suffering

Satisfaction

R2 = 0.3346

-1

-0.5

0

0.5

1

3.4 3.5 3.6 3.7 3.8

Customer Satisfaction

Sa

les

Tre

nd

What’s Reputation Worth?

• Differences within the same organisation of between 12 and 20 % of sales growth

• Dimensions of personality and/or satisfaction explain about 50% or more

• ‘Tidying up’ Reputation appears to be worth 3-7 % sales growth, i.e. merely learning from within

• Exxon Valdiz cost Exxon about 5% sales loss

What’s Reputation Worth?

• The capital value of reputation is about 50% of annual sales

• Improving reputation is worth 5% per annum sales growth, say 1% on profit

• Assuming a 20% ROCE then the maximum investment in Reputation should be 5% of sales, about the same as the advertising budget for a consumer product

Summary

• Reputation is worth about half a years’ turnover and about 4-5 % sales growth

• Different aspects of corporate personality will rive commercial performance fro even similar companies