What is Reputational Elasticity?
Papa Johns, FOX News, Roseanne Barr, the Donald, Starbucks – all embroiled for different reasons. While Starbucks has had its challenges, with its most volatile crisis sparking in Philly just this past year, let’s go back a few years during a time that Starbucks had to make another withdraw from its reputational piggy bank. In 2012, Starbucks found itself taking a major PR hit in the United Kingdom. The gourmet coffee shop chain faced a huge public outcry, including a well-orchestrated boycott for not paying enough taxes despite making enormous profits. According to media reports, using a clever—and perfectly legal—dodge, Starbucks had paid only £8.6 million in taxes since opening its first store in the UK 14 years earlier. The figure seemed ridiculously low, especially when it was revealed the chain had amassed £3 billion in sales over that time. Boycotts and protests took place at over 40 locations. The chain was hammered unmercifully on social media. Facing a fierce level of competition in the industry, Starbucks saw its sales drop. Soon enough, it offered to pay even more in taxes than required. And as the months went by, it desperately spent inordinate amounts of time and money repairing its sullied reputation. The lesson in all this? Reputation matters. It’s estimated that over 60 percent of market value is based on reputation alone (Weber Shandwick). Reputation is one of the most important, yet often underestimated, aspects of doing business today. When a crisis occurs, time and money are spent very quickly, not only dealing with the situation at hand, but defending and then repairing the reputation as well. The fact is, consumers have access to more information about the products they buy and the companies they support than ever before. A simple product search reveals much more than company-controlled data on a website, and certainly more than the information provided on product packaging. Recent reviews, newspaper articles and historical information about the product on the Internet all influence the reputation of its company. Which brings us to the term “reputational elasticity.” Elasticity of Demand is an elementary economic concept that describes a consumer’s willingness to buy a good or service when the price of the good or service increases. Reputational elasticity is a product of demand, and it is in direct proportion to how many choices an organization’s stakeholders (consumers) have. In the coming weeks, we’ll take a closer look at reputational elasticity, what it means and how it impacts the marketplace.
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