What Is Reputational Damage and What’s at Risk for Your Business?

In 2017, a United Airlines flight was overbooked, leading to a man being dragged out of the plane by security agents. Like all modern events, it was documented by a number of witnesses on their smartphones, and then distributed widely through social media and broadcast news programs. To say it was a fiasco would be an understatement.

Poorly managed statements from the United CEO that failed to resonate with customers led people across the internet to threaten a boycott of United. But despite a brief dip in the airline’s stock prices in the following days, United ultimately recovered from the incident, and finished the second quarter with profits far exceeding the same period in the previous year.

For small businesses like bars and restaurants, this kind of reputational damage could send them into a tailspin that takes a long time to recover from, if they’re able to recover at all. Bars and restaurants don’t benefit from the industry consolidation that airlines do; if customers have a negative view of your establishment, they can easily take their business elsewhere. 

Reputational damage is detrimental to businesses regardless of size, and can directly impact your livelihood. But what is reputational damage, and what can you do to protect your business from the things that damage customer trust?

Here we’ll answer that and more.

What Is Reputational Damage?

Reputational damage is exactly what it sounds like: when a business’ reputation is damaged, resulting in decreased sales or other key performance indicators. The incident(s) that spark the reputational damage can be almost anything; the spectacular, like United’s passenger removal problem, or even the simple, such as a series of negative reviews on a local business listing.

What Does Reputational Damage Look Like?

Reputational damage can take many forms, but its outcomes are generally the same: a negative impact on your business’ profitability. Here are some common ways reputational damage can surface:

  • Bad reviews on your public-facing business listings like Google Business Profile or Yelp
  • Poor health or sanitation ratings from local health departments
  • Injuries to employees or guests, such as slips, trips, and falls
  • Racism, sexism, and other forms of discrimination in the workplace or at the business
  • Negative coverage from local media outlets

With today’s constant communication and endless stream of sharing, there’s no single form of reputational damage. Fortunately, not every business will suffer from reputational damage.

How to Avoid Reputational Damage

The best way to deal with reputational damage is by avoiding it altogether. But how can your business do that? Take these steps to protect your business:

1. Assess The Risks Your Business Naturally Faces

Every business will face risks to their reputation. For bars and restaurants, things like food contamination, sanitation, and employee and customer safety are natural risks. Assessing these risks and taking the right precautions to minimize these risks can reduce your exposure.

2. Don’t Make Promises You Can’t Live Up To

If your business is focused on profit, that’s okay. However, putting on the facade of a mission-driven business, for instance, can come back to haunt you. When people eventually find out that your business isn’t doing the philanthropy you claim it does, it will damage trust and the relationships that you’ve worked so hard to establish.

3. Be Transparent

Being transparent can not only increase the trust that customers and employees put in your business, but it also sets the foundation if your reputation is damaged. Establishing transparent communication will make your recovery process that much easier. 

On the other hand, being deceptive might bring short-term profits, but it will only make recovery from reputational damage more difficult.

4. Take Stakeholder Needs To Heart

Your stakeholders are the core of your business. However, each type will have different needs. Successfully balancing those needs can be both good for business and for avoiding reputational damage.

Customers: If your customers aren’t getting what they want out of your business, not much else will matter. Focusing on providing the best experience possible will go a long way in mitigating the potential for damage to your reputation.

Employees: If your employees aren’t satisfied, it will manifest in other ways throughout your business. Whether this be through poor performance, decreased productivity, or being unable to deal with angry customers, it can lead to serious harm for your business.

5. Take Data Protection Seriously

While a bar or restaurant might not face the same cybersecurity risks that a hospital or multinational company does, a data breach that compromises customer payment information or other data can have serious impacts on the way people view your business. In fact, cybercriminals tend to target smaller businesses because they are less likely to implement cybersecurity measures.

Taking the appropriate steps to protect customers’ information is an easy win when it comes to preventing reputational damage. 

Can You Recover From Reputational Damage?

Reputational damage isn’t permanent – at least, it doesn’t have to be. You can mitigate its effects by taking some of these steps:

1. Communicate With Your Key Stakeholders

Communicating early and often is a great way to begin easing tensions, taking ownership of the narrative, and eventually regaining the trust of your customers. A key part of this is communicating with your customers using the right channels. If they’re talking about you on social media, you shouldn’t be issuing statements to the local print magazine.

Keep in mind that depending on the incident that damaged your reputation, there could be legal ramifications to the statements you make, so take the necessary precautions to avoid digging yourself a deeper hole.

2. Keep A Level Head At The Leadership Level

When your business is getting negative attention, keep in mind that a significant amount of that can be directed toward the leaders and owners. Take the United flight, for example. All eyes were on the CEO; his statements that misread the public reaction to the event only fanned the flames of public outrage.

If your business is recovering from damage, understand that your leaders and owners’ actions and words will be viewed as the actions and words of the business, and act accordingly.

3. Apologize When The Time Is Right (And Not A Second Later)

Taking responsibility for whatever incident has damaged your business’ reputation is essential, as is issuing an apology to anyone it hurt, offended or inconvenienced. However, understand that there’s a right and wrong way to apologize.

Apologizing too early could be seen as disingenuous, or as trying to simply smooth things over without properly addressing the issue. However, waiting too long could be seen as neglecting the issue altogether. That’s why it’s important to communicate and keep your customers informed as things develop.

As a bar or restaurant owner, the last thing you want is to deal with the fallout of reputational damage. However, as a business owner, it’s never bad to have a plan, or even better, take steps to prevent it from ever happening. To learn more about how Society Insurance can help your business, contact your local agent today.

Author

As a mutual insurance company, we operate and exist for the benefit of our policyholders. For more than 100 years, Society has been helping businesses overcome the unexpected with comprehensive coverage packages and outstanding claims handling, underwriting and risk management.

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