Friday, 16 September 2016

Why reputation matters

Just today we hear of Chrysler recalling 1.9m cars because of an airbag defect and Samsung withdrawing their exploding note7 phones.  As a result their share prices tumble and consumer confidence weakens impacting on future sales. IT software programs are released and then updates are a regular feature as glitches are revealed through customer use.  Car manufacturers apologise for 'fixing' emission readings.   Headlines hit the news media as problem after problem arises.

It seems as though there's more of these being reported than every before so is this just because it's flavour of the month for the media to find 'bad business' stories or is there a growing trend of decreasing reliability of design and performance?  Has the rush to market meant that products are being issued without proper testing?  And what does this do to business reputations?

You could argue that it doesn't do anything to reputation.  Coffee drinkers still go to Starbucks, books and DVDs are still purchased from Amazon despite the furore over taxes and proposed boycotts.   Sure their revenue dipped for a while but it soon rectified itself.  Volkswagen still sell cars.  As far as the consumer is concerned it's business as usual and it's the city boys that fret and wring their hands because there's a paper movement in share price. What difference does it make to the general consumer, apart from a little inconvenience because the car's in the garage for a half-day.

It matters because there's a psychological contract with your customer.  The customer puts a lot of time, energy and thought into their purchase. A strong, unassailable reputation makes that choice considerably easier and can often support a price point that's higher than the competition.  Have the tiniest of snags in that contract and it's like having a pin prick in a piece of cling film.  The security seal is damaged.  Not only that, have another piece of bad news and that tiny pin prick will soon develop into a hole and the hole into a tear.  Once the contract is torn you're swimming with the rest of the fish in a very deep ocean.

It's damage limitation for companies that have defects; damage limitation to reputation through apologies and mea-culpa and then the cost of rectifying the problem with the product and relaunch. Undertake a cost benefit analysis of that whole process and I wonder if by investing similar time and money into ensuring the product or service is right in the first place would cancel it all out.  Plus it would mean that the reputation that matters so much, remains unassailable.

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