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Managing Reputational Risk in Retail

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June 22, 2021

It’s become increasingly important that retailers have the right tools available to monitor and manage their reputation, mitigate risks and repair any damage.

When it comes to reputation, perception matters

How you’re viewed determines whether customers buy from you, whether people want to work for you, and how other businesses engage with you.

It matters how transparent you’re perceived to be, and how you’re seen to handle crises – an area that’s been put to the test during the pandemic.

Findings from our Global Reputational Risk Management Survey Report, commissioned at the end of last year, almost 80% of the risk managers and executives we spoke to felt the focus on reputational risk in their business would only increase in the coming five years

With this in mind, it’s essential you have the right tools available to monitor and manage your reputation, mitigate risks and repair any damage.

Selling faulty or harmful products

A fundamental reputational risk to any retailer is where products are deemed faulty or dangerous.

An example is a high end mobile phone that was recalled after many were found to be overheating and catching fire.

Appropriate procedural planning is essential in minimising the magnitude of any subsequent reputational damage.”

Tom King
Global Markets P&C Hub
Willis Towers Watson

A product with such a major fault is troubling enough to change public opinion on the retail brand’s desirability, in addition to the potential claims for property damage and personal injury.

The way retailers handle a product safety event – be that through recall, public relations strategy or direct fixes – can influence public perception as much as the fault itself.

Appropriate procedural planning is essential in minimising the magnitude of any subsequent reputational damage.

Navigating social media

From disgruntled employees, dissatisfied customers or celebrity criticism, to sharing naive or misjudged content, you need to respond appropriately to what’s said about your brand online.

Responding to every negative post can fan the flames and leave you worse off than letting a situation pass, but not addressing a situation can open you up to criticism.

To navigate the online world effectively, retailers need to be able to react to incidents as they happen.

Real-time monitoring and well-prepared crisis communications procedures will leave you better equipped to take the correct action.

Real-time monitoring and well-prepared crisis communications procedures will leave you better equipped to take the correct action.”

Tom Rowley | Global Markets P&C Hub Willis Towers Watson

By taking control of messaging in an informed way, you’ll be in the best position to mitigate any damage to your reputation.

In 2020, the reputation of an online-only fast fashion brand appeared to take a hit when the poor working conditions of its UK garment workers surfaced.

Interestingly, despite the potential reputational damage, the company’s profits rose dramatically.

This apparent contradiction may be linked to the way customers viewed the brand before the news about working conditions broke.

Fast fashion consumers may not have particularly high expectations of corporate governance, so the gap between perception and reality was narrow.

Social media messaging around corrective action – commissioning investigations with new auditors and investing in a new factory – was accompanied by heavy discounting and increased marketing output in order to move the agenda back to shifting cheap clothing, allowing the company to regain control.

Knowing your supply chain

Transparency across your supply chain will help ensure the people involved in manufacturing and delivering your products are protected, but retailers must also be sure of the materials used in their products so that customers can have confidence in what they’re buying.

Controversy arose recently after products sold in the EU were found to contain cat fur, despite it being banned.

The products were either mislabelled or unlabelled and consumers assumed the fur to be fake due to the low cost of the product.

Reputations were damaged not just from the act of selling products containing the fur, but from customers realising that brands may not always manage their supply chains with the care and integrity they claim to.

Organisations that actively seek out and address issues around modern slavery, poor working conditions or animal abuses will typically be less prone to negative brand sentiment. Where unforeseen issues do come to light, effective crisis planning should be in place to negotiate the way forward.

Handling the pandemic

During the various restrictions imposed by the pandemic, retailers needed to strike a tricky reputational balance between keeping customers and employees safe and happy, and ‘doing the right thing’ within their communities.

Consumer research group, Which? used customer feedback to rank supermarkets by their COVID-19 safety measures. This demonstrated how the provisions retailers have in place are impacting where customers prefer to shop.1

Accusations of unsafe workplaces can severely impact your reputation and impact your ability to trade.”

Tom Rowley
Global Markets P&C Hub
Willis Towers Watson

Retail businesses need to balance consumer expectations with staff wellbeing, whether by providing a COVID-secure workplace or by offering financial or other support while they’re closed.

Accusations of unsafe workplaces can severely impact your reputation and impact your ability to trade. In the US, for example, employees at a leading grocer walked out over a lack of paid sick leave and insufficient hazard pay.

Proactive management and swift action to redress any issues can mitigate the damage you might otherwise face.

Tackling the last mile

As life increasingly moved online in 2020, many companies adapted or improved their online offering. A huge challenge for bricks and mortar retailers has been adapting the last mile to increase home delivery options while reducing social contact.

Taking steps to reassure customers and adapt to their changing needs will reflect well on your reputation, but there are risks if the solutions are rushed, leading to issues such as damaged goods or mixed-up orders.

In over 100 cities around the world, Starship Technologies’ automated delivery service has been using robots to close the last mile by bringing groceries direct to customers.

During the pandemic, such partnerships demonstrated how brands invested in technology to improve their service and protect their customers; steps that will reflect well on their reputation.

Understanding your communities

When customers feel their morals and beliefs are reflected in an organisation, they’re more likely to engage with them, and they now have access to a wealth of information to inform their buying habits.

This is bringing Environmental, Social and Governance (ESG) concerns to the fore meaning that managing these risks is increasingly important for retailers.

Environmental

The EU is aiming to ban single-use plastic products from July 2021 where sustainable alternatives are easily available and affordable.2 The goal is to reduce reliance on single-use plastic on a scale that would have been unlikely to occur from simply asking customers to use alternatives.

Retailers that fail to enable customers to reduce their reliance on single-use plastics will likely be called out by a public that’s sensitive to unnecessary waste.

Whether it’s offering full supply chain transparency, the ‘right to repair’ products, or taking steps to reduce carbon footprints, consumers notice who is taking meaningful action on the climate crisis and may show preference to those who demonstrate leadership in this area.

Social

A 2018 Gallup study found that more black Americans reported unfair treatment while shopping (29%) than in any other circumstance in the last 30 days – a higher figure than recorded for police interactions (21%).3

With racial inequality and discrimination being one of the most pressing issues facing society, enacting meaningful change must be a priority for businesses who want to demonstrate that their values align with those of their customers.

This comes with a risk of being seen to be ‘woke-washing.’ That is, saying the right things but with no intention or action. In 2017, a leading soft drinks company withdrew and apologised for an advert that played on themes of protest and social justice. The advert was perceived as insensitive and trivialising social issues and the brand’s reputation suffered as a result.

Given the gravity of social factors, a genuine, proactive response is required to ensure perception matches your true values. Many retailers are taking this approach seriously, focusing on engagement with the communities they serve and building deeper understanding of the challenges those communities face.

Governance

It’s crucial that organisations stay up to date with changing regulations. The consequences and publicity of non-compliance, especially if customers feel misled or manipulated, can be more wide-reaching than simply the cost of any fines.

Organisations must also hold their top-level executives to account. Controversial or misjudged comments can impact your business at least as much as those of the individuals themselves.

Your senior team represents your organisation 24/7 and their professional history, as well as wider conduct, will be taken into account by stakeholders.

Protecting your reputation

Managing your reputation involves having your finger on the pulse at all times – not just when a crisis occurs. That means knowing what’s being said about your organisation in the press, on social media and by other organisations you’re associated with.

When news and opinions travels fast, it is critical to be able to harness public perception around your business and make sure you’re reflected in the best light.

At Willis Towers Watson, we have a new a reputational crisis insurance and risk management solution that means you can discover, mitigate, control and repair reputational damage as it happens.

At Willis Towers Watson, we have a new a reputational crisis insurance and risk management solution that means you can discover, mitigate, control and repair reputational damage as it happens.”

Tom King | Global Markets P&C Hub Willis Towers Watson

Powered by Polecat, live sentiment and impact analysis provides situational awareness that enables you to react to an event in real time. A panel of leading crisis consultants (paid for by insurers) advise you on how best to regain control of public perception.

The insurance element of the product is triggered by the occurrence of a reputational crisis event. It provides indemnity for loss of profit and the costs of brand rehabilitation, designed to help you recover financially from a crisis.

Our solution equips you with the tools to stem the tide on reputational damage before an event escalates and gives you the confidence of cover for any resulting fall in profit.

Sources

1 https://www.which.co.uk/reviews/supermarkets/article/best-and-worst-supermarkets/supermarkets-compared-aOJjN2J0A10N#which-supermarket-offers-the-best-coronavirus-safety-measures

2 https://ec.europa.eu/environment/topics/plastics/single-use-plastics_en

3 https://www.theguardian.com/commentisfree/2019/jun/24/shopping-while-black-yes-bias-against-black-customers-is-real

Contacts

Tom King
Global Markets P&C Hub
Willis Towers Watson

Tom Rowley
Global Markets P&C Hub
Willis Towers Watson

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