Brands must face social media challenge proactively if they want to strengthen their reputation.
Millions of people have read the witty passenger complaint letter emailed to Virgin to complain about the food on the airline’s Indian routes. In a clever PR move Sir Richard Branson phoned the author of the letter and thanked him for his “constructive if tongue-in-cheek” email.
Branson had the last laugh when he recently posed an epic complaint letter directed at a Caribbean airline on his blog. The witty letter – which opted to praise rather than criticise the airline for the passenger’s tour of several Caribbean airports – quickly went viral. “It is important to take customer feedback on board in order to improve – and also to be able to laugh at yourself,” wrote Branson.
Social media channels such as Facebook, blogs, websites, YouTube, wikis and Twitter are increasingly becoming an avenue for unhappy customers and shareholders to get their message out.
“We’ve seen lots of these cases, where a customer service event happens, and someone with a huge following on Twitter can suddenly point this out to six million people in seconds,” says Dan Trueman, enterprise risk underwriter at ANV. “It’s the viral nature, the asymmetric nature of social media itself.”
Tweets, emails and blogs pose a growing risk for organisations, which needs to be handled correctly by risk managers and public relations experts to preserve brand and reputation. There is also a growing role for insurance.
“This is a key emerging risk where corporates are crying out for products that will help preserve cash flow, and this is the very essence of where the insurance industry adds value,” says Thomas Hoad, an underwriter within Kiln’s enterprise risk management division.
He gives the example of a protest song by Canadian musician Dave Carroll and his band, Sons of Maxwell, which chronicles the real-life experience of how his guitar was broken during a trip on United Airlines. It became a PR embarrassment for the airline.
“[Carroll] was so upset about this, because the airline didn’t handle it very well, so he made a video about it and put it on YouTube and it went viral – it received 13 million hits.”
Keeping risk managers awake
Risk managers are increasingly concerned about reputational risk. Damage to reputation/brand was ranked fourth in Aon’s Global Risk Management Survey this year, up four places from the previous year’s ranking.
While social media poses a risk, negative publicity can actually strengthen an organisation’s brand and reputation if responded to proactively. Virgin’s complaint letter response is a good example.
“Someone might say, ‘Look this is the way my luggage was treated by ‘x’ airline’,” says Trueman. “Then ‘x’ airline responds to that person in a way that says: ‘Actually hang on, we’re very sorry about this, we offer you this compensation’. That person then thinks this company has gone above and beyond the call of duty. So social media is not a blunt tool.”
How an organisation reacts to difficult situations and the strength of its brand can make a big difference. This is the concept of the “Well of Goodwill”.
“When a company meets, even exceeds, stakeholders’ expectations, it builds up a store of reputational capital,” explains Seamus Gillen, managing director of the Reputation Institute. “When a negative event impacts stakeholders’ perception of that company the opposite happens and it destroys reputational equity. When a company fails to deliver against the expectations it has set, the outcome can be anything from irritating to catastrophic.”
“Until the damage to the company’s reputation is repaired, the company will never return to full health,” he adds. “For this reason, global legislators and regulators are increasingly making reputation protection a requirement. It is also why the insurance sector is realising the opportunity in developing products focused on the challenges posed by reputational risk.”
The insurance challenge
Insurance products that cater for aspects of reputational risk include product recall, product contamination and supply chain insurance. Structured in a similar way to conventional business interruption insurance these covers are triggered by agreed “perils”.
“Recall, contamination, cyber, supply chain failure, political perils… they’re all part of the same fundamental scenario, and that’s the interesting thing about reputational risk – most of this is classed as non-physical damage,” says Trueman. “It isn’t within the realm of normal insurance products. We’re looking at things that affect the revenue stream, that aren’t necessarily in the direct control of the insured, or where they are in the direct control of the insured they are non-physical damage issues.”
“Business interruption is a concept the market has known for a long time,” he adds. “We’re not reinventing the indemnification process; all we’re doing is adding some perils to it.”