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Trust and Reputation. Are they the same?

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This piece explores the connection between the two and their impact on profits. Using studies from around the world it outlines the importance of consumer trust and it impact on the bottom line.

Trust and Reputation. Are they the same?

In the boardroom, the marketing director or CMO is usually tasked with building customer trust. But in the hierarchy of clout with the CEO, these executives often sit at the bottom of the list. It becomes a dichotomy of business, fed by business cultures that favour short-term profit over long-term principles. However, there are signs that this is changing. In various media and executive interviews, the recurring theme over the past two years is trust. And customer trust, specifically, is the key principle here.

Corporate scandals

Starting with the Enron-related accounting scandals, flowing into the backdating of stock options for executives, the HP pretexting scandal, and finally, the spate of publicized breaches of information security, C-level leaders know they're now facing a crisis of trust. Their publics have less and less confidence in them. Their customers trust them less, and even line employees often don't trust the companies they work for. According to Stephen Covey's book, The SPEED of Trust: The One Thing that Changes Everything, just 49 percent of line employees have "trust and confidence" in their company's senior management, and fully 76 percent of employees say that during a recent one-year period they have observed illegal or unethical behaviours at their companies.

Trust – moving forward

It’s clear that issue of trust is very likely to be the next big thing in business. There are a number of levels at which "trust" operates, ranging from basic familiarity all the way up through complete confidence. At the highest level, however, trust implies a willingness to expose one's vulnerability to another in the confidence that it will not be exploited or abused, and that one's own interests will be respected. Customers will only remain loyal to companies they trust. And because their own reputation is on the line, customers can only be expected to recommend companies to their friends or colleagues if they trust them themselves.  Experience also has an important role is this aspect. 

If you think about it, there are two components required of a company before a customer or stakeholder is likely to trust them -- competence and intent. You have to

be comfortable that a company's intent is to act in your interest, and you have to have confidence that they are competent and capable of doing so. It does no good for an incompetent company to have good intentions -- you're still not going to trust them farther than you can watch them yourself. Similarly, you'll only trust a highly competent company when you believe its intent is good, meaning that it will respect your interests and not take advantage of your vulnerability just because it can.

The subject of trust is being explored by a number of business researchers and writers, and all of them have a similar take on the issue. Trust must involve a combination of competence and intent.

Trust and Reputation
In his book Covey lays out a multicomponent framework for earning personal and organizational trust. In his section on stakeholder trust, for example, he proposes that companies need to create "alignment" trust with their employees, "reputational"

trust with the market, and "contribution" trust with society.

Reputation - New Sensation

Reputation impacts performance. Reputation has always been one of the "soft" benefits of customer strategy. In the past if a company did right by its customers a positive reputation would follow. Now things aren't so simple. A hyperactive media, obsession with customer satisfaction scores, and a new emphasis on socio-environmental responsibility have made corporate reputation more important and tougher to predict. Many companies are developing metrics and new technologies to connect corporate reputation to performance.

Facts and Figures

A clear financial link to reputation can be tough to draw. Public relations firm Hill & Knowlton is trying. It released it "Return on Reputation" report that shows reputation is now perceived as having a direct correlation with financial performance. How do consumers measure reputation? According to the 282 global companies surveyed for the report, brand and marketing message (76 percent), corporate culture and working environment (51 percent), employee compensation and career opportunities (49 percent), and social responsibility and community investment (22 percent) all play an active role in reputation assessment. Nearly half of all the Wall Street analysts surveyed by Hill & Knowlton separately primarily take employee issues into account when evaluating reputation; poor management of employee opportunity has led nearly one in five analysts to make a negative recommendation about the company they're evaluating to stockholders.

Starting with the blogosphere.

It can build or wreck a corporate reputation at warp speed. Factiva, the media measurement arm of Dow Jones, released a report recently showing that customers may not be the builders or detractors of corporate reputation. The real soldiers are journalists and corporate knowledge managers. Factiva says 40 percent of total respondents, in the US, said they use blogs as a source of business news and information. Most telling, 48 percent of respondents rated blogs as highly reliable. In fact, 91 percent of information professionals and knowledge managers who read blogs said that they were somewhat reliable or highly reliable. The survey also shows that information professionals and knowledge managers find blogs to be a valuable source for making business decisions, with 84 percent finding blogs either somewhat or extremely valuable. More than half (51 percent) of the respondents who use blogs said that blogs contain information that they cannot find elsewhere and 76 percent said that blogs keep them more up to date with professional developments.

Microsoft #1

The best corporate reputation belongs to Microsoft, according to one of the oldest and most respected indexes from Delahaye. Its top spot is cemented by its well-publicized philanthropy. It’s consistent ranking as a Top 10 Global Brand in The BusinessWeek/Interbrand annual Global Brands ranking supports this accolade. The most surprising and dramatic jump on the 2007 Delahaye Index comes from Merck. Two years after stumbling into a bad reputation via its Vioxx recall, it moved ahead 89 places in a year to tenth place. The move was driven by coverage of new drugs and vaccines such as Gardasil, a cervical cancer vaccine, and Januvia, a diabetes drug recently approved by the FDA, and a highly publicized pharmaceutical assistance program for the needy.

Where Has All the Trust Gone?

It is one thing to say trust is important to customer relationships; it's another to have the numbers to back it up. A new report from Datamonitor pinpoints where companies have lost ground, and offers suggestions on how to win trust back.

According to the report, "Building and Profiting from Consumer Trust," 86 percent of the 3,200 U.S. and European consumers surveyed said that they have become more distrustful of corporations within the past five years. The report also shows that

companies are aware of this drop, with 64 percent of industry leaders agreeing that consumer trust in brands has decreased in the past two years.

Why is the customer relationship breaking down? Datamonitor's Daniel Bone, consumer analyst and author of the report, points to three main reasons. First, companies aren't as transparent to consumers as they should be, and consumers are taking notice. "Consumers are seeking information like never before and it's only now that manufacturers are beginning to wake up to it," he says.

Second, firms are complacent when they should be proactive about winning customer trust and loyalty. "Many companies assume that consumers will be loyal to their brand over the long term," he says.

Third, it all ties back to the customer experience. "The more positive experiences a consumer has with the brand, the more trustworthy he or she is likely to become," he says. When consumers see efficiency gains or other corporate moves that may jeopardize the value of the customer experience, the trust factor is affected.

Word of Mouth and Trust
The numbers show that companies in general aren't very concerned about building long-term, trust-based customer relationships. However, some companies are thinking strategically about trust, and it's proving to be a competitive advantage, Bone says. In the survey, 85 percent of respondents said that "word of mouth recommendations from friends, family, or colleagues are typically more trustworthy than any corporate generated content." As a result, more marketers are adding word-of-mouth initiatives to their marketing budgets every quarter.

Also, socially responsible companies are considered more trustworthy, the report finds. "Aligning with a cause is a significant strategy for companies to attract consumers and gain a long-term, sustainable competitive advantage based on heightened trust," the report states.

Long-term benefits
The warm fuzzy feeling you can give customers is nice, but there are more tangible benefits to consumer trust, Bone says. Trust can be tracked to financial impact, much in the way good brand-building can. "Brands are rooted in the trust that consumers place in them," he says. "After all, the ultimate goal of marketing is to generate an intense bond between the consumer and the brand, with trust being a fundamental factor in achieving this."

Also, trusting consumers are willing to forgive mistakes, Bone adds. "Accrued trust allows consumers to develop personal brand relationships, making them more forgiving to a brand's shortcomings." In the U.K. there was outrage in 2004 when consumers found out that Coca-Cola's Dasani bottled water was essentially tap water. However, there has been minimal damage to Coke's brand equity because it has a long-term, trustworthy heritage, Bone says.

Companies with a heritage have an advantage over newer firms, Bone admits, but any firm that takes steps to build trust with consumers has the potential to make a long-term impact. It's a strategy worth paying attention to.

Andrew Clare is Managing Partner of reLiance a business to business relationship marketing practice. We focus on improving client profitability through developing, implementing and measuring sustainable, collaborative business to business relationships.  This e-mail address is being protected from spambots. You need JavaScript enabled to view it , www.rassa.co.za

 

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