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This chapter is from the book

The Reputation Quotient

Pick a well-known company—one you hold in high regard. Fix it in your mind. Now try to explain why you named that company. If you’re like most people we’ve asked this question of individually and in focus groups in 6 countries, your explanations will fall into one of the following six categories:

  • Emotional Appeal: You simply like, admire, or trust the company.

  • Products and Services: You think the company sells products or services that are high quality, innovative, reliable, or a good value for the money.

  • Financial Performance: You’ve been happy with the company’s profitability, believe it has strong future prospects, and isn’t too risky to invest in.

  • Vision and Leadership: You feel the company has a clear vision for the future and strong leadership.

  • Workplace Environment: You believe the company is well-managed, has topnotch employees, and would be great to work for.

  • Social Responsibility: You think the company is a good citizen—it supports good causes, doesn’t damage the environment, and does right by local communities.

Through our collaboration with Harris Interactive, we systematically tested these dimensions and attributes on thousands of people, online, by phone, and in personal interviews. Based on these tests, we created a standardized instrument from which we calculate an overall reputation score—the Reputation Quotient, or RQ.[5] Simply put, the RQ is the sum of the answers people give when they are asked to rate a company on 20 questions. Figure 3-4 diagrams the structure of the RQ. The questionnaire survey based on these items is designed to be filled out by all kinds of respondents, be they managers, investors, employees, or consumers—people who have a minimal level of familiarity with the companies they are asked to rate.

03fig04.gifFigure 3-4. The reputation quotient: Six dimensions and 20 attributes.

The Reputations of the Most Visible Companies in the U.S.

Knowing the companies that were most visible in each country, we set out to measure in detail the reputations of those companies. In 2001, over 20,000 American consumers were asked to answer the 20 standard RQ questions in order to obtain detailed ratings of the 60 most visible U.S. companies.

Figure 3-5 shows the 2001 results. As it had in each of two prior years’ ratings, Johnson & Johnson again topped the U.S. ratings of 2001. And Microsoft, Coca-Cola, Intel, 3M, and Sony were also among the public’s top 10 companies—they had the highest RQ scores among the most visible companies.

03fig05.gifFigure 3-5. Who’s tops in the United States (2001)?

The Reputations of the Most Visible Companies in Europe

In fall 2001, we also invited representative samples of consumers in the Netherlands, Italy, and Denmark to rate the reputations of the most visible companies in each country.

The Netherlands’s Top-Rated Companies

The 30 most visible companies in the Netherlands were rated by a representative sample of over 5,000 consumers. The giant food retailer Ahold topped the Dutch ratings, with Sony, Unilever, Heineken, and Microsoft running close behind. In consumer electronics, it came as something of a surprise that Sony outdid Philips in the Netherlands. It suggested the need for closer examination of the reputation strategy Sony has pursued in international markets, and possible areas of improvement for Philips in its own home market. Figure 3-6 summarizes the Dutch results.

03fig06.gifFigure 3-6. Who’s tops in the Netherlands (2001)?

Italy’s Top-Rated Companies

Around the same time, we asked close to 3,000 Italian consumers to rate the 20 most visible companies in Italy using the RQ. Figure 3-7 shows that Italy’s most visible companies are grouped in three tiers. The top tier is led by prestige car maker Ferrari, food producer Barilla, the chocolate confectioner Ferrero, and includes food giants Parmalat and Galbani, retailer Benetton, and tire-maker Pirelli. Clearly, Italian consumers applaud the flagship performance of Italy’s topbranded Ferrari cars, most visible for its successes in Formula One racing.

03fig07.gifFigure 3-7. Who’s tops in Italy (2001)?

The second tier is led by Coop Italia and includes the regulated telecommunications, media, and publishing groups, as well as Eni, the Italian utility company—the highest performing state-operated company. The third tier is anchored by Italy’s problem-ridden automaker Fiat and includes the state-owned and operated postal services and railways.

Denmark’s Top-Rated Companies

Some 2,700 Danish consumers were asked to rate the reputations of Denmark’s 15 most visible companies using the RQ. The results shown in Figure 3-8 indicate that in 2001 toy and entertainment provider Lego was the top-rated company in Denmark, followed by high-end consumer electronics developer Bang & Olufsen—world famous for its sleek designs of stereo and video equipment—and the transport-based conglomerate A. P. Moller, the parent company of the Maersk family of businesses involved in commercial shipping and air transport. The second tier was led by Microsoft and Novo Nordisk, the well-known maker of insulin products. The third tier consisted of a mix of consumer product companies, anchored at the low end by Cheminova, the chemical company involved in the production of insecticides and pesticides.

03fig08.gifFigure 3-8. Who’s tops in Denmark (2001)?

The Reputations of the Most Visible Companies in Australia

Finally, in fall 2001, our colleagues at AMR Interactive invited over 4,000 consumers to rate the 20 most visible companies in Australia. In contrast to Europe, where national companies earn the top ratings, Figure 3-9 shows strong mindshare by American companies: Microsoft topped the rankings, along with three other U.S.-based multinationals: McDonald’s, Coca-Cola, and IBM. The only Australian companies that were rated in the top tier were retailers Dick Smith Foods, Holden, Woolworth, and Cole-Myers. In contrast, Australia’s three major banks fared relatively poorly (NAB, CBA, and Westpac), performing less well than BHP, Australia’s major mining company. The only standout among banks was tiny Bendigo Bank, notable for its widely-publicized community-based banking strategy. Disappointing results were also obtained by Australia’s telecom operators Optus and Telstra.

03fig09.gifFigure 3-9. Who’s tops in Australia (2001)?

Learning from the World’s Top-Rated Companies

Rankings are always titillating, creating as they do an Oscar-like atmosphere of red-carpet winners and side-show losers. The research question that inspired us to launch the RQ project, however, is not who wins and loses—but why. What drives reputation among the world’s top-rated companies? From our observations, it’s probably safe to say that they do things differently. But what?

The RQ project demonstrates that consumers are quite good at sensing what companies are up to. In both the United States and Australia, Microsoft earned praise from consumers for carrying out a smooth leadership transition from Gates to Balmer and for emerging relatively unscathed from the government’s antitrust efforts. Similarly, in all countries Coca-Cola was given credit for conveying invigorated leadership under CEO Douglas Daft and for unveiling an effective global advertising campaign. On the other hand, the public was not fooled by either DaimlerChrysler’s rocky intercontinental marriage or by Lucent’s flawed business model. Nor did American consumers fail to blame both Ford and Bridgestone/Firestone for the tire debacle that led to the loss of so many human lives.

To examine the underlying drivers of reputation, we conducted detailed statistical analysis of the RQ measures taken in 2001. In cross-national comparisons, very comparable results were actually obtained. Figure 3-10 summarizes the statistical pattern that was uncovered from analysis of the U.S. data.

03fig10.gifFigure 3-10. What drives corporate reputation?

The model in Figure 3-10 can be read to say that:

  • Most consumers ascribe high reputations to companies they like, trust, and admire—the components of a company’s ’emotional appeal’.

  • Perceptions of a company’s products and services are the key factor driving emotional appeal and hence overall reputation. The communications initiatives of companies seeking to improve their reputations should therefore heavily emphasize product quality, innovation, and value.

  • Perceptions of a company’s workplace environment and social responsibility are significant predictors of how well consumers rate a company. Knowingly or not, consumers psychologically support companies that they perceive as behaving fairly and responsibly towards employees and communities.

  • Interestingly, differences in perceived financial performance and leadership had little effect on consumer ratings of corporate reputation. In forming impressions of companies, these core business factors are clearly discounted by the public.

At the risk of over-quantification, the model also suggests that to increase its reputation by 5 percent, a company would have to improve its emotional appeal to consumers by 7 percent, which in turn would require improved perceptions either of the company’s products and services by 10 percent, workplace environment by 24 percent, or social responsibility by 26 percent. Favorable perceptions of the company’s financial performance would have to be improved by 55 percent to generate a comparable change in reputation. Take General Electric, with an RQ of 78 in 2001. To improve its RQ by 5% or 3.9 would catapult General Electric to the highest tier of U.S. companies at 81.0 (close to Johnson & Johnson and Microsoft). Such a change would require significant improvement in how consumers rate the company’s emotional appeal. To get consumers to improve their ratings, GE would have to invest in costly initiatives, and would get the highest leverage from generating improved perceptions of its products and services. However, that may also be the most difficult set of attributes to change—most people already have high opinions of the value they get from buying GE products. In contrast, the results suggest that it’s possible the company could get the greatest return from investments that position GE as a more socially-responsible company—something consumers don’t yet associate with the company, and that therefore present a greater opportunity for improvement.

You’ll recall that at the end of Chapter 2 we concluded from various studies that a 10 percent change in reputation was worth at least a 1 percent change in market value. Given GE’s $300 billion market capitalization, the 5% improvement needed to carry GE to the top of the consumer ratings would be worth approximately $500 million in value creation. In a real sense —the number represents the maximum budget a company like GE should be willing to allocate specifically to improve consumer perceptions of the company by 5 percent, whether through advertising, public relations, or philanthropic initiatives.

Conclusion

Overall, we’ve shown that consumers are as sophisticated as investors, but interpret the corporate world in terms of multiple signals that companies broadcast about their non-financial initiatives. Reputation-building with consumers is therefore about making sure a company communicates clearly, not just about its quarterly financial results—the purview of analysts and investors—but about how it treats its employees and about how it contributes to society. It signals that reputations act as mirrors to the public about a company’s managerial excellence.

In the next chapter, we examine the relative contribution that corporate reputation has made to the financial performance of the most visible companies. To explore excellence more deeply and provide reputational benchmarks to others, the rest of the book then focuses on the top-rated companies. In successive chapters, we show that top companies actually manage their reputations systematically by building strong reputation platforms—a strategic positioning they achieve in the marketplace through a combination of sustained leadership, internal and external communication, citizenship, and workplace initiatives—the drivers of the RQ.

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