How elastic is your brand’s reputation? Find out with this metric.

In my last blog post I looked at the recent Instagram Terms of Service debacle as a case study of how getting the balance wrong between satisfying your shareholders versus your other key stakeholders can lead to major reputational damage and, ultimately, lost shareholder value.
At the end I introduced the term Reputational Elasticity of Demand (RED). Anyone who’s studied economics will be familiar with the concept of price elasticity of demand — the idea that demand for some products decreases as their price rises (referred to as being elastic, with a price elasticity of demand score above 1), while for others demand is less affected, if at all (referred to as being inelastic, with a price elasticity of demand below 1).
It’s easily seen that usually non-essential goods (like expensive cameras or world cruises) have a higher elasticity than basic needs, such as food. Although I would add the caveat that elite luxury goods appear to be fairly inelastic as the kind of people who buy Bentleys and Impressionist paintings are less bothered by price increases than most buyers as their wealth stays constant enough to allow more consistent consumption of such things.
Applying this notion of demand being influenced by a factor, it’s also easily seen that a company’s reputation can have an influence on its sales. You only have to look at past examples of major PR failures to see how a reputational hit can influence revenue, profitability and sometimes the whole existence of the company. Think Ratners, Arthur Andersen and The News of the World.
More recently, we’ve seen Starbucks change its UK Corporation Tax policy after an outcry over its perfectly legal but unpopular use of international transfer charges to minimize its UK tax bill and comedian Jimmy Carr pulling out of a controversial tax avoidance scheme, again because of the public reaction when his involvement was revealed.
They clearly feel their services are reputationally elastic (Starbucks may have seen its sales fall), but other companies clearly think theirs are reputationally inelastic. Amazon and Google were also named as UK tax dodgers by the same parliamentary committee that named and shamed Starbucks, but they didn’t respond in the same way. In fact, the reaction of Google chairman Eric Schmidt was to say he was “very proud” of their tax avoidance scheme — “It’s called capitalism.” He’s clearly been taking PR lessons from Michael O’Leary of Ryanair!
So why can one company’s demand be more resilient to dents in its reputation than those of another? The simple answer is each will have their own Reputational Elasticity of Demand (RED).
So how do you measure yours and allow it to inform your future decision-making?
First you have to understand the factors which influence how elastic your RED is and how they can be measured.
I would suggest the following factors and metrics can be used in calculating your brand’s RED:

• Market share — the higher yours is, the more inelastic it’s likely to be if the barriers to switching are also high and/or your industry has low competitiveness e.g. Google in search.
• Competitiveness of your market — measured by its concentration ratio and/or Porter’s Five Forces.
• The importance of reputation in your industry — high in art auctions, universities and used car sales, lower in petrol or gas sales where the product is closer to being an identical commodity. Measured by quantitative market research.
• The importance of ethical behaviour to your key customers (an idealism score) — measured by qualitative market research.
•  Likelihood of your key customers to act on core ethical values — measured by qualitative market research.
•  Your brand’s rhetoric on the importance of ethics to your company — everyone hates a hypocrite more than an honest stonewall capitalist e.g. Starbucks and Apple versus Ryanair, banks, oil firms, arms companies. Measured by an ethical rhetoric score.
• The expectation of ethical behaviour in your industry — more so in charities, but less so in the arms industry. Measured by quantitative market research.
• Barriers to switching from your brand to a rival, including transaction costs (hassle) to do so — i.e. coffee lovers in cities can easily use another outlet, but someone in a village with only one bank will find it harder to switch. Similarly, Facebook enjoys a high barrier in terms of the time and effort it would take a user to move all their friends and content to another social network.

Depending on your industry, there may be more, but this is a basic list to start with.
So once you have your RED figure, is it elastic or inelastic? That can be worked out by measuring the RED of a number of companies like Starbucks and Google which clearly enjoy elastic or inelastic RED figures and finding which you are closest to. With enough comparisons you should be able to find the figure which represents the point of transition from reputational elasticity to inelasticity.
Once done, you would need to monitor your RED score regularly as the factors which make it up will vary over time.
So how can you use it to inform your management decision-making?
You could use an equation to do scenario analysis to weigh up the effect of the future options being considered on sales, but to do so would be make the same fundamental reputational error that Ford in America made in the 1970s with the Pinto — where management calculated the cost-benefit of recalling and fixing the fault on the car which caused fires in accidents over versus the cost of potential lawsuits. It would be a PR own goal if found out, more likely in the increasingly transparent online and socially networked world we live in.
Whatever you do, you need to take into account two factors:

• How personal the proposed unpopular conduct is to customers — e.g. Instagram seemed to be threatening to sell users own pictures, while Starbucks was not paying the Government, not us directly, and Apple’s use of Chinese workers with comparatively bad pay & work conditions to make its products seems more distant.
• How unpopular the proposed conduct is with your customers — measured by qualitative market research.

So what’s the solution? I’d say that you need to set out your ethical stall in line with your RED, communicate it clearly via your marketing communications to manage the expectations of your current and future customers and then act accordingly.
If you’re going to be a hard-nosed capitalist, say so. For example, no-one any longer acts surprised when Ryanair takes a tough legal-contractual line over an unpopular policy because they have a long and well-publicised history of being that way. So, for various reasons including the price sensitivity of their customers, their RED is clearly inelastic.
Conversely, don’t project ethical whitewash and then act otherwise, especially if your RED is highly elastic. Brands like Apple and Co-operative Bank have seen the reputational damage of failing to live up to their ethical rhetoric.
Ultimately, using your RED to influence your brand management is about using your judgement, informed by the knowledge of your brand’s RED elasticity, to make the business decisions which will help maintain a high reputation and in the medium and long-term maximise the returns and value to your shareholders.

Here’s why you need to think before you tweet & retweet

This morning’s news that actor and comedian Alan Davies is among 10,000 Twitter users facing legal action over the false Lord McAlpine allegations is the latest, but biggest, example of why you have to think before you tweet…and retweet.
One of the problems of Twitter is that users very quickly forget that they’re not only sharing their comments, and, crucially, those of anyone they retweet, with their pals but also everyone else on Twitter. So you’re pretty much publishing it to millions of people. Just like the conventional mainstream media.
The difference is they have long understood the consequences of getting their facts wrong. Apart from specialist lawyers, no-one knows the laws of libel better than journalists. It’s a key part of their training because the power to publish to millions (or even just thousands) of readers is something that has to be treated carefully.
So they understand that saying you simply repeated something someone else said isn’t a defence in law — you’re responsible for publishing it again. Aside from the Reynolds defence, you have to be able to prove anything you publish, or face the consequences.
So the old advice that you shouldn’t tweet anything that you wouldn’t say to the person’s face is reinforced by this latest example of what happens if it turns out to be untrue.
Think not naming the person will protect you? Not so. Look at Newsnight. They didn’t name Lord McAlpine, but they said enough for him to be identified by enough people for his name to start circulating.
Again, the concept of what’s known as ‘jigsaw identification’ is already well-understood by the conventional media. They already have to watch for it with cases with child victims or accused under 18 as well as rape victims — ensuring that individually and collectively they don’t give out enough details for the person to be identified by someone who might know them.
Similarly, if you keep it too obscure you could be sued by several people who could argue people might mistakenly think it was them — 10 policemen successfully sued a paper in England because it ran a story about ‘a policeman’ from a particular station.
Once upon a time to be a publisher you needed a printing press and all sorts of other expensive gubbins and so realised that you had a lot on the line if you got your facts wrong in print.
Twitter may be free and easy, but the consequences of saying or repeating something you personally have no proof for are just the same. So think before you tweet or retweet.

Fake fans and likes are no fake risk to Facebook's reputation

The BBC’s expose that up to 6% (that’s 54 million) Facebook profiles may be fakes created by fraudsters using software to generate fake likes for ads and brand pages could represent a significant risk both to Facebook and its customers — advertisers, marketers and PR firms —.if both it and them don’t take appropriate action.
Facebook’s reaction seems, a little complacent, although their point about building in proper targetting is well made.

The question for marketers and PRs is how to play this with clients. If you play it down as a small proportion of users outweighed by a vast majority of genuine fans and likes, what do you say if the problem grows, as spam has done – to represent more significant numbers and in the geographic areas and demographic groups you’re targetting?

How can you recommend a Facebook campaign if the credibility of it as a channel through which to interact with target customers is under question? Would they be happy that up to 6% of their money spent on Facebook would be wasted on fake fans and likes? Those with a glass-half-full mindset may be happy to carry on given that, as per Lord Lever’s adage, you rarely know which bit of your marketing spend is wasted and which working (although these days monitoring as a lot better than it was then, if you can pay for the right tools). But what about the others who aren’t happy that some of their budget will be wasted on fake likes?

Perhaps, at least for now, the line with clients will just to be accentuate the positive — concentrate on the 94% of fans who will be real and to whom your carefully-wrought messages will reach and hopefully have the desired effect.

But for that line, and your advice, to continue to have any credibility, Facebook has to be seen to tackling this problem seriously and soon. If it doesn’t, it won’t just be its reputation which takes a hit — it’ll also be those of marketers and PRs recommending it unreservedly for marketing to undifferentiated groups to their clients.

Some clients might see such recommendations as evidence of you being just another firm recommending expensive campaigns which benefit you financially regardless of how effective they may actually be for them. And that would only lead to more client churn, less stability in revenues and profits and more time acquiring new clients rather than organic growth by building long-term relationships (and hopefully campaign spend) with those who can totally trust your recommendations.

The question for you, then, is are you doing transactional or relationship marketing? The answer will partly depend on how much you see client churn as inevitable, not matter what you do. Sure, some clients will never be happy and will always go off in search of their perfect agency which they’ll never find. But for the rest, surely retaining as many as you can, particularly in these tough times, makes sense. Ok, some may not be that profitable now, but once a recovery comes, as it surely must, that situation should change as marketing budgets increase. And that’s when your reputation as a source of trusted advice will help you compete against your many rivals and maximize your revenues and profits.

As ever, your reputation will be a key source of competitive advantage if you look after it properly. So absolute transparency with clients over what Facebook can and can’t do for them and what it takes to use it effectively will be essential, for both them and you.

It may prove to be a coincidence that the story surfaced on Friday the 13^th, but for Facebook that may prove to be an unhappy omen unless they can take sufficient action soon to shore up their service’s credibility with the marketing, PR and advertising communities and stop the damage extending to those who recommend using it.

How best to respond to serious allegations?

http://www.guardian.co.uk/media/2011/jul/26/daily-mirror-publisher-to-review-editorial-controls
It’s a real test of your judgement if you’re faced with very serious allegations of illegal conduct by your organization, even if they only relate to the past. Particularly so when you’ve seen what’s happened to a competitor found guilty (at least in one case and allegedly more) of the same thing.
So how do you respond?
Obviously, first you have a serious conversation with the CEO and the other relevant executives to find what, if anything, they know and ask them to have conversations further down the organization on the basis that it’s most important that you know the facts regardless of blame.
If there is any basis to the allegation, you look into how you’re going to manage the situation.
If there isn’t, you need to put out a robust statement promptly saying that after looking into it thoroughly you can find no facts which back up the allegation.
I found TM’s disappointing because:

• It doesn’t mention any internal investigation into the past, now or previously. That’s the elephant in the room and they’ve clearly ignored it in this statement. But the question won’t go away. NI hoped it would, but it won’t until you deal with it properly and, most importantly, are seen to do so. There’s a real opportunity for papers to win trust, and maybe new readers and advertisers, by being seen to make sure they have clean hands over this.
  My fear is their action here is driven by a fear that there are secrets to be dug up and that, rather than getting them out now and heading on the road to recovery as soon as possible, they’re taking the short-term view of doing the minimum and hoping everyone will forget about this. But this topic won’t go away any time soon, especially with the forthcoming inquiry into journalism on the horizon.
• It doesn’t include any clear denial of the allegations.
• It sounds bureaucratic. A review of “editorial controls and procedures” doesn’t sound very reassuring — a key element of crisis management.
• It’s easily accused of being a case of closing gate after the horse has, potentially, bolted.
• It can easily be read to be a defensive legalistic wording which may reassure the financial stakeholders that there’ll be no new problems in the future which could affect the share price and ability to service TM’s massive debt. But as far as reputation management with wider stakeholder groups, such as readers and advertisers — whose trust is vital for future revenues and profits — it could be seen as too limited.

Balanced against all that you have to look at the cost to the organization of holding an investigation when you have no clear evidence of wrongdoing. Is it worth the cost for the sake of PR? It depends how much you rely on your reputation to compete in your market. DMGT’s response is, arguably, worse. Simply asking staff “Have we done anything wrong in the past?” clearly isn’t enough. Does anyone think they’d come forward and volunteer that? Ok, so far there are no allegations that DMGT titles have been involved in any of the “dark arts”, but if it turns out they have, this will be seen to be insufficient and more than a little complacent, if not incompetent.
In both cases, only time will tell.