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  • Beyond Philosophy LLCMichael Lowenstein | @BeyondP


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    Corporate Trust and Reputation and Customer Advocacy Behavior: Is There Linkage (and, If So, How Much)?

    Michael Lowenstein, Thought Leadership Principal, Beyond Philosophy

    FEBRUARY 2016 | | Share this on

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    The purest treasure mortal times afford is spotless reputation

    RRRiiiccchhhaaarrrddd IIIIII, William Shakespeare

    Along with a proactive, customer-focused enterprise culture and strong brands, corporate trust, image and reputation are among any organizations most valuable stakeholder relationship assets. Trust and reputation go hand-in-hand, and must be protected. A superior reputation does not necessarily translate to stronger business results; however, a bad reputation can be detrimental to a companys future. Any public and negative impact on reputation results in a corresponding, or greater, decline in stakeholder trust; and any erosion of trust will surely impair business results.

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    A 2008 study by the CMO Council found that almost 100% of customers surveyed said they would either scale back or terminate relationships with companies that fail to build customer trust. Customers need to see that a business has proactively worked to build a solid foundation of trust. For many organizations, the first, and most essential, step in building trust is understanding why their business may not have as positive a reputation as it once had, or should have.

    In the Spring of 2010, the highly respected Reputation Institute, in collaboration with AAAmmmeeerrriiicccaaannn BBBaaannnkkkeeerrr, published the results of a study measuring the reputations of 30 large U.S. banks. This online research program among close to 7,800 consumers found that governance, or how a bank is perceived to behave in its level of transparency and business dealings, accounted for close to 16% of the overall reputation score. This was the single greatest contributor to reputation, higher even than the effect on reputation of bank productsand services.

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    For Reputation Institute, one of the key takeaways of the study was that, unlike other consumer products and services, banks were both challenged and struggling to recover from the negative sentiment caused by their role in the recession. Another was that banks needed a theme that not only resonates with the public interest but elevates the sense of esteem, trust, and admiration they engender.

    The reputation of banks and financial companies has dropped significantly since 2009. According to a new Edelman Trust Barometer survey (covering over 5,000 adults in 23 countries), less than one-third of Americans now trust banks to do what is right. Of close to 20 industries covered by the Edelman study, companies in the financial sector - banks, insurance companies, and financial services - are at the bottom three in terms of consumer trust and reputation. Edelman concluded that, because the perception of transparency and honest business practices is so important, companies in theseindustries havent recovered trust

    levels in U.S. since the financialcrisis.

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    Banks often pay lip service to reputation among its constitu-ents; however, reputation carries both opportunity and risk, notonly for banks but for every organization. Why is corporate reputation so important? Why is it critical for companies to do everything possible which will create, optimize, and protect perceived stakeholder reputation and sentiment?

    The Proven Linkage Between Perceived Reputation And Advocacy Behavior

    Utilizing a proprietary customer advocacy research framework, our studies have repeatedly identified direct, and significant, linkage between downstream advocacy behavior and customer experiences, service transactions, strategic relationships, brand positioning and messaging, and even loyalty programcomponents. There is also direct business outcome linkage, in the form of customer behavior, between advocacy leveland strategic corporate reputations and customer trust. Thatis the subject of this white paper.

    In sum, advocacy monetizes at a stronger, and more consistent, rate compared with other key customerresearch measures in active use.

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    A consistent theme of this research framework is thatcustomer behavior in the marketplace is a direct reflection of advocacy level. For example, Advocates have a strong willingness to explore new products from their primary bank - 50% will consider vs. 5% of Alienated customers who willconsider new products. Advocates are virtually certain to have a continued relationship with their primary bank compared to Alienated customers, who are virtually certain of not continuing. When Advocates add products and services, they will do so with their primary bank. When Alienated customers add products and services, they willdo that at competitive banks, not the primary bank.

    So, banks must pay close attention to whatever elements of communication, image and experience drive customer behavior. Trust and reputation are high on the list of these leveraging elements. In a major U.S. bank study, there was a significant degree of variation in levels of advocacy behavior created by the fifteen banks covered:

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    Beyond creating superior customer experiences, banks that earned high levels of advocacy did so in significantpart because of their solid reputations and the trust and confidence they have been able to engender among customers. One of the key confirming elements of MarketProbes customer advocacy research is the behavioralimpact, both positive and negative, of informal, brand-relatedcommunication sent and received

    by customers. The most recentEdelman Trust Barometer studyfindings identified the degree to which customer trust protects, or undermines, reputation.

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    When a company is distrusted, 57% of consumers willbelieve negative information after hearing it one or two times, compared to 15% who will believe positive informa-tion after hearing it one or two times. Conversely, when a company is trusted, 51% of consumers will believe positive information after hearing it one or two times, compared to 25% who will believe negative information after hearing itonce or twice. These are compelling findings indeed.

    Looking at overall bank advocacy study results, there was a significant difference, for example, in high trust-related and confidence-related attribute scores (top two box on a ten point scale) among bank customers whom our framework identified as Advocates vs. those who were Alienated. Of the attributes which addressed basic and extended elements of reputation and image, the only elements which would benefit from additional attention were those which represented customer pro-action and altruism:

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    When analyzed according to their potential leveraging impacton customer advocacy and alienation behavior, we offer two banking results as examples. In the multivariate analysis shown below for the first bank, there are some moderate image-related negative behavior drivers, i.e. creators of alienation, principally the image effect of a lack of consistency. On the positive side, this bank can build greater advocacybased on the leveraging impact of a reputation and image which comes from pro-action.

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