At a glance
- Effective brand risk management falls in to five key areas which, if ignored, can break a company
- Zurich’s brand and reputation management products can prevent massive reputational and financial fallout
- Zurich’s Risk Insight on Brand and Reputation details simple tips and advice on how to respond to a crisis
Unforeseen disasters can do untold damage to a company’s reputation. From product recall to supply issues, public perception can cause a company’s worth to drop dramatically. A good risk management strategy can identify and neutralise such risks before they occur.
In 2010, the BP Deepwater Horizon rig suffered a catastrophic failure, spilling more than 4.9 million barrels of oil into the Gulf of Mexico and causing the worst environmental disaster the United States had ever seen.
Five key brand and reputation factors customers need to address
- The cost of supplier delays
- Updating defunct equipment
- Ensuring that emergency supplier and company information is up-to-date
- A general plan is better than no plan at all
- That the cost and implications of doing nothing will be greater than doing something
BP was not the first, nor will it be the last company to face a brand reputation disaster. Two years ago, Toyota was forced to recall thousands of vehicles due to accelerator problems, while more recently the horsemeat scandal has rocked the food production industry.
It is essential that companies have a plan in place to mitigate such risks. However, a strategy for comprehensive, automated and exception-based risk management is generally not a priority for many companies, especially when they are at the top of their game.
Such hubris, as in BP’s case, can lead to a public relations and financial nightmare – especially if the problem was preventable. A detailed risk management strategy can identify key areas of weakness, allowing businesses to plug these gaps.
Identifying the risks
Risk specialists, such as Tim Minahan, Chief Marketing Officer for Ariba, who monitor supply chain logistics for companies, believe there are three main areas of risk that most companies fail to identify when planning their risk management.
- The unknown
All of these areas are crucial to any brand risk strategy. Supply chain risk management prevents breakdowns in product distribution, while having accurate information to hand can help a company respond more quickly and accurately to any crisis.
Of course, it is the one eventuality you never see coming that can upset business the most, but having a general strategy in place can help to mitigate the impact should something go wrong.
Speaking to Forbes, Minahan said: “To a certain degree, you have control around your brand management. But what happens when something outside of your organisation affects the price and availability of the things that go into your products? For many organisations, the price of core inputs is a key difference between profit and loss.”
The below five factors are risk areas that many companies fail to take into consideration when planning their brand and reputation risk strategy.
Suppliers or materials, even minor ones, can affect the price of customers’ products or services, impacting upon their bottom line. While most organisations pay substantial attention to their key suppliers, most do not have a proactive approach to managing their ‘second tier’ assets.
Learn from others’ mistakes
While the likes of Toyota are able to issue a recall, BP’s lack of an adequate response plan meant that it was unable to stop the leak for months. After every internal idea had failed, the company was forced to turn to outside aid, including actor Kevin Costner, who owns a firm that designs oil-separating technology. All of this only compounded the public perception of the firm’s failures.
An ounce of prevention will cost far less than a pound of cure
Discussing BP’s failures in the immediate aftermath of the spill, the Ivey Business Journal identified the fact that a public issue like the disaster was not static. Rather, this type of event evolves in stages. A failure to adapt the response to these stages and public expectations simply inflames the situation.
The cost to customers
While it may be hard to put a price on risk, the cost of doing nothing is often greater. In the case of BP, it was revealed that despite warnings to update their equipment, the company simply opted to pay the meagre $35,000 fine. Had they decided instead to put the money into new technology, the company could have saved itself $34 billion in fines and an immeasurable amount of bad publicity.
The cost of public perception
Reputation is how the public, not to mention stakeholders, perceive a company. It also demonstrates the company’s worth, and informs investors of potential risk.
For customers, there’s no telling what the final costs associated with a major supply risk event could be, but it is likely an ounce of prevention will cost far less than a pound of cure.
Helping customers to take action
The above factors are just a taste of what could potentially harm a business’s reputation within its individual market. While it is impossible to know what exact challenges organisations will face, it is possible to provide guidance on a first line of defence should the worst happen.
To aid you in this endeavour, Zurich has provided a Risk Insight on Brand and Reputation, which details simple tips and advice on how to respond in the event of a crisis.
To find out about Zurich’s range of brand and reputation management products, please call your usual Zurich contact.