How important is the reputation of a business?

  • How important is the reputation of a business?
  • How important is CEO’s reputation to the reputation of the business itself?
  • Is it better to have the reputation of being powerful or of being fair?  For example, do you want to be insured by a company that always wins, or by an insurance company that is willing to allow the benefit of any doubt?
  • Goodwill is the technical word for the asset of a company being worth more than the sum of its parts.  How would you measure the Goodwill of a company in dollar figures?
  • How important is the reputation of a business?

Any business builds reputation over time because of its service or product quality. Although reputation is intangible but it can very well act as moat or advantage for the business. Businesses earn reputation with ethics, service, how they treat their employees and customers, quality control etc. Essentially, when any business has competition, its reputation gives it an advantage over competition. And reputation is directly related with sales and profit of the business. In today’s world, one tweet or Facebook post by an employee or customer can damage reputation. And ass customers we often check Yelp or other reviews on Google before we decide whether or not we want to buy service / product from any particular business. So, a positive reputation helps the business gain more customers and the opposite is also true. According to Harris Poll’s Reputation Quotient – Amazon and Wegmans Food Market are most reputable companies in the USA and Goldman Sachs and AIG have worst reputation, mostly because of the 2008 financial crisis and the public bail out money they got (Sauter and Frohlich , 2015).

Amazon and Wegmans enjoy best reputation because of the service and products they provide to their customers. Amazons increasing popularity is evident with its growing sales and profit number.

  • How important is CEO’s reputation to the reputation of the business itself?

I believe the original founder and CEO of company has much more effect on a business brand than an already establish brand like GE or Fiat. While Steve Jobs and Elon Musk directly impact their business reputation with their own reputation. One reason is these found CEOs are so visible to us all the time on media and everywhere, that they have a fan following. For example, Jeff Bezos, Elon Musk are always on news. So, when they say something or do something that people like or do not like, people react, and the business gets impacted.

Recently in Tesla investors call, Elon Musk called analyst’s question dry and stupid and the Tesla stock price fell 6% (Cox, 2018). We can see how closely tied up these businesses are with the CEOs. There is another CEO, late Sergio Marchionne, he led the turnaround of Fiat Chrysler he recently passed away that caused more than 10% slum in Fiat stock price (Reid, 2018). Although, stock price might not show reputation loss, but it shows investor confidence loss. But, my point here is, how CEO becomes face of a business and how they move confidence of investors and customers. And we read this week, how Uber’s former CEO caused an customer outrage and finally Travis Kalanick was replaced by Dara Khosrowshahi.

  • Is it better to have the reputation of being powerful or of being fair?  For example, do you want to be insured by a company that always wins, or by an insurance company that is willing to allow the benefit of any doubt?

An insurance company that is powerful, became powerful within regulations and government defined laws. But an insurance company that is willing to give benefit of doubt sounds to be better but one might argue, that in long run it’s financials might suffer. While the insurance company that always wins, might maintain a strong balance sheet.

 But on another hand, the fair insurance company will gain a better reputation for being customer friendly and most probably will gain more and more customers. I am making an assumption here, you pay same premium and get same coverages and the customer service is same. We know insurance is a business of risk sharing, and bigger the customer base is better for everyone. So, I will be glad to be a customer of the fair company. Moreover, if the fair company treats its employees well, in long run the business will attract the best resources too, and may be customers will get good service from them.

  • Goodwill is the technical word for the asset of a company being worth more than the sum of its parts.  How would you measure the Goodwill of a company in dollar figures?

Goodwill is an intangible asset for any brand or business. Goodwill is accrued over the years for staying the course and delivering consistent quality and value. To measure a company’s goodwill in dollar figure is not easy and always not possible. For example, Toyota or Honda can charge a premium for their reputation over Kia’s cars. So in that you can put a dollar figure for the goodwill. But then another example is NASA send astronauts to space. But tomorrow if just any company wants to send astronauts in space, people will have their doubts. But I do not know how to put a dollar figure for the goodwill NASA has.

References –

Sauter M and Frohlich T (May,2015). Companies with the Best (and Worst) Reputations. Retrieved from https://finance.yahoo.com/news/companies-best-worst-reputations-184332462.html

Cox, J(May,2018). Musk’s bizarre earnings call was ‘the most unusual’ in this Morgan Stanley analyst’s 20-year career. Retrieved from https://www.cnbc.com/2018/05/03/musk-earnings-call-most-unusual-in-morgan-stanley-analysts-career.html

Reid, D and Clinchm M(July,2018). Auto industry legend CEO Sergio Marchionne dies at age 66. Retrieved from https://www.cnbc.com/2018/07/25/fiat-chrysler-sergio-marchionne-dies.html

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