What Price Reputation?

In the second half of the 20th century, chief executives of consumer products companies were on top of the world. Masters of their corporate universe, they ruled far-flung organizational structures with command and control lines of communication, armed with powerful brands that deployed products and services to mass consumer audiences on timetables largely of their choosing. It was good to be king...while it lasted.

 

Fast forward to the present. Executives are pressured for more transparency -- stakeholders want to know more about everything you do. There is less benefit of the doubt than ever before: If a stakeholder doesn't know what you're doing, then you must not be doing it, and retribution is swift in the Web 2.0 world. Organic growth is now elusive in most home markets, but when multinationals turn to new markets in search of profits, there is little benefit to your global heritage and branding because local players have built up tremendous equity and understand sophisticated emerging market needs better than ever.

 

Welcome to the reputation economy, where people increasingly choose among competing products and services based on their impressions of how the companies behind them behave. Fortunately, consumer products companies have managed to transfer some of their tremendous brand equity into reputational capital, as this is one industry that has weathered the storm of the global financial crisis better than any other with the U.S. general public.

 

Each January since 2006, Reputation Institute (RI) conducts a syndicated quantitative research study across 34 countries, asking the general public to rate hundreds of companies on the amount of trust, admiration, good feeling and esteem they have for the largest companies headquartered in each market. This "Reputation Pulse" score between 0 - 100 is both a perception and an emotional response to a company's ability to deliver on seven rational dimensions of reputation: Products & Services, Innovation, Workplace, Governance, Leadership, Citizenship and Financial Performance.

 

This article analyzes 40 of the largest players in the CPG world (defined here as consumer product, electrical/electronic and food manufacturing companies) and how they have been able to build up enough reputation capital to become the world's most reputable industry in 2010. In fact, only Altria at 57.41 scored below a 70 (the cutoff for a strong/robust reputation) among the 40 companies included in this special report for Consumer Goods Technology (see Figure 1). Nine companies earned excellent/top-tier reputation scores above 80 (in order): Johnson & Johnson, Kraft Foods, Kellogg, The Walt Disney Company, Campbell Soup, Hershey Foods Company, PepsiCo, SC Johnson & Son and Sara Lee.

While the global industry mean for Reputation Pulse was 64.20, the consumer products companies that were measured in the 2010 study came in at 75.47 -- the highest of all 25 industries studied.

 

If consumers around the world find most consumer products companies to have strong to excellent reputations, which reputation dimensions are most important to them? From a company perspective, knowing which dimensions matter more can give an indication of which areas of improvement would move the needle the most to improve their overall reputation.

 

The top three global reputation drivers for the consumer product industry are Products and Services, Innovation and Governance, comprising 50 percent of a company's reputation (see Figure 2). What's not surprising is that a CPG company's No. 1 reputation driver is Products & Services; rather, it is that 79 percent of its corporate reputation comes from the other six drivers -- in other words, the company behind the brand.

 

It is important to note that each dimension alone accounts for over 12 percent of reputation, and the difference between the leading driver (Products & Services at 20.4 percent) and the lowest rated one (Leadership at 12.1 percent) in 2010 is just over eight percentage points.

 

Compare today's picture to the consumer products industry reputation dimension weights back in 2007, where M&A and spinoffs found new owners for Kraft, Gerber, Playtex Products, Burt's Bees and Molson Coors while trends like RFID made headlines amid record consumer spending. Back then, Products & Services (21.5 percent), Citizenship (20.4 percent) and Innovation (14.3 percent) were the top three drivers, followed by Workplace, Governance, Leadership and Financial Performance, and there was a 14 point difference between the most important and least important reputation dimension.

 

Corporate reputations are formed when stakeholders experience the company through three possible influence channels:

-- Direct experience: products, investments, employment, customer service

-- What the company says/does: branding, marketing, public relations, social responsibility

-- What others say: media (traditional/social), topic experts, leaders, friends and family

 

It is here at the level when corporate reputations are enhanced (or weakened) by one or more of the three influence channels that a stakeholder takes action and changes his/her level of supportive behavior towards the company. RI measures three components of supportive behavior: willingness to Recommend the company, willingness to Say Something Positive about the company and willingness to give the company the Benefit of the Doubt during a crisis.

 

Several of the CPG companies included in the study enjoy strong returns on their solid reputations. Cushioning against product recalls, a majority of consumers are willing to give the benefit of the doubt to top companies including Johnson & Johnson, Kraft and Kellogg. Paralleling its four point gain in reputation compared to 2009, Kraft has seen a nine point jump in benefit of the doubt to lead the industry. The industry also sees the highest rates of recommendation in the US, with more than 70 percent of Americans willing to recommend Johnson & Johnson, Kraft, Kellogg and Clorox.

 

Overall, Nike made the most of its four point reputation improvement over 2009 and climbed the charts the most in supportive behavior from 2009 (7.46 points in Recommend, 8.98 in Say Something Positive, and 8.12 in Benefit of the Doubt). On the flip side, Whirlpool's three point reputation slip (-3.05 points) led to one of the steepest falls from grace across the three categories (-4.59, -6.89 and -6.90 respectively.)

 

At the individual reputation dimension level, the following companies were the top ranked with U.S. consumers:

-- Products & Services: J&J, Kraft Foods and Sara Lee

-- Innovation: J&J, Kraft Foods and SC Johnson

-- Workplace: J&J, Kraft Foods and Hershey

-- Governance: J&J, Kraft Foods and Kellogg

-- Citizenship: J&J, Kraft Foods and SC Johnson

-- Leadership: J&J, Kraft Foods and SC Johnson

-- Financial Performance: J&J, Kraft Foods and Hershey

Since the global financial crisis began nearly two years ago, consumers have started to reevaluate their priorities in what they expect from companies and brands. The companies who have weathered the storm and suffered the smallest trust deficit with the U.S. general public have built strong reputation platforms and a systematic approach to dealing with multiple stakeholders. This is easier said than done in the CPG world, especially when "keeping up with the Joneses" means dealing with competitors who have built up similar stores of reputation capital and are ready to pounce on even the smallest misstep in the marketplace.

 

Former Procter & Gamble CEO A.G. Lafley pointed to innovation as the key to a consumer product company's ultimate success when he said:

 

However, new product resurgence and an innovation culture are not enough on their own to build a strong reputation -- consumers expect those from leading CPG companies as table stakes (and together, they only comprise 35 percent of a CPG company's reputation anyway!) Face it, the general public is more discerning than ever, and the vox populi are armed with Web 2.0 technology and expectations that make them willing to investigate who the employer of choice is in your competitive set, differentiate between authentic corporate citizenship and so-called "greenwashing," and support purpose-driven leadership rather than celebrity CEOs.

 

There is both an art and a science to reputation management that companies still need to embrace if they want the general public to recommend, say something positive or give them the benefit of the doubt in a crisis. RI research shows that for every five points a company's reputation improves, supportive behavior increases by 6.5 percent. If every company in North America set this as a Key Performance Indicator (KPI) for 2011 and employed a more systematic, integrated approach to dealing with multiple stakeholders to get there than today's siloed, functional model, the resulting bottom line and top line performance improvements would drive the business case and prove authoritatively that reputation strategy is a sound business strategy.

 
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