The Economics of Reputation

by Christopher Zahn

We live in an age where news and information permeates every aspect of our personal media and for better or for worse, one could reasonably argue that this is inescapable. The technical revolution has ensured that news media is omni-present, all inclusive and enduring. For the public relations industry, the constant barrage of news comes as both a blessing and a curse. On the one hand, information is readily available and easily accessible, providing us with the opportunity to monitor and react to current events in real-time. But should an organisation slip up, there’s a risk that wrong-doings will be broadcast in technicolour for the whole world to see. 

Reputation is one of the founding cornerstones of the public relations industry. Companies that work alongside public relations firms rely on them to craft and broadcast their message to the media in a way that is unique to them. A study undertaken by the PRCA found that over 76 percent of communication professionals agree that the link between an organisations reputation and the bottom line is directly and undeniably correlated. This is reassuring news for the public relations industry, with over 87 percent of CEOs actively supporting the role that public relations play in their communications campaigns. Although not a material construct, reputation is believed by those at the top to have a clear impact on the market performance of their organisations.

This, however, poses two fundamental questions: what exactly is reputation and how does it impact financial performance? Such a question might be posed by a diligent yet concerned CFO who wants to bridge the gap between the profitability of their company and the impact reputation has on this.

Being an inherently immaterial construct, corporate reputation cannot be objectively defined. However, reputation can generally be accepted as being the fundamental judgements, beliefs and perceptions held by the majority of stakeholders. Consequently, this begs the question, how do firms use this advantageously?

Unsurprisingly, the key to successful reputation management lies in the external communication strategy that a PR firm can craft. Understanding the target audience and shaping the key messages to that market can improve the positive perceptions of that organisation in a way it wouldn’t otherwise have had.   

The next stage of the process truly lies in the magic of PR – the outreach. Any good PR agency should have a symbiotic relationship with the media. It’s this relationship which enables an organisation to capture the power of the media and gain maximum exposure, promoting a positive message into the wider community. 

The modern consumer has become increasingly more discerning in which firms they choose to patronise, being more socially and environmentally conscious than previous generations of consumers. If an organisation is perceived to be more socially conscious, behaviour trends indicate that modern consumers are far more likely to put their money where their mouth is, ultimately leading to increased sales and greater profits.

Ultimately, the link between corporate reputation and financial performance may be aerial but far from tenuous. The requirement is clear: reputation is important enough to put in the hands of experts.