How quality can make or break an organization's reputation



The Sanno Institute of Management-Tokyo, Japan


Back in 1991, Gerald Ratner joked that his high street jewellery chain "sold a pair of errings for under a pound, which is cheaper than  a prawn sandwich from Marks & Spencer, but they probably won't last as long". His speech was instantly splashed across the media and wiped an estimated $500m from the value of the company. He followed up by   describing a sherry decanter as cheap because it was "total crap".

Member of the public did not take kindly to being taken for fools and in uproar that ensued they stopped shopping at Ratner's stores. Mr. Ratner left the company and the group, which included H Samuel and Ernest Jones, was eventually rebranded as Signet to further remove the associations of the Ratner's brand. With just a few words, Gerald   Ratner had damaged the reputation of a billion-pound company.

This is an infamous example of the relationship between reputation and quality. An organization's reputation can be both its best friend and its worst enemy. A good reputation can ensure greater customer loyalty , employee engagement and a larger market share, but it can never be taken for granted. In the words of Benjamin Franklin:" It takes many good deeds to build a good reputation , and only one bad one to lose it." Similarly, a reputation for poor quality goods and services can linger for years or even decades , despite an organizaion overcoming its initial flaws.

And it is not simply big brands that need to consider their reputation. Organizations of every size and sector can enjoy the benefits of having good reputation, but will soon feel the effects of any damage sustained, especially in the modern era of social media and user- generated content on the internet. Small businesses, charities and public service providers must all consider how they are being thought of by their stakeholders and, more importantly, can learn a lot about how well they are perceived to be performing.

Quality first
The concept of brand reputation originated in the 14th century, when King Edward 1 ordered the first asay marks to be put on gold bars and silver bars to prove they were of correct purity. David Thorpe, head of Chartered Institute of Marketing's research and information division, explains: "The rudimentary brands were a mark of quality, enabling gold producers to distinguish their product. From then onwards branding has been synonymous with quality; you cannot have a brand unless you have a perception of quality in the public mind."

It is, of course, perception that really lies at the heart of reputation and branding, which is what makes it difficult to quantify and measure. A reputation is built up over time and encompasses perceptions from customer's experiences when interacting with the organization and its suppliers, advertising, press coverage and in more recent years, online commentary.

A brand builds on a company's reputation and is most often described as an individual's gut feeling about a product, which is in turn bound up with cultural influences and personal belief systems. A brand  however, is different from a reputation in that it can be used by organization.  " A brand has three functions: to help customers differentiate betwen similar products or services, to reassure customers of the quality of goods and to engage the customer in the product itself, getting them to want to be associated with it by buying it."

Designer fashion brands are possibly the most prolific, examples of branding, in that their success is entirely tied to an individual's desire to own clothing associated with one particular label over another. However, brands from all other sectors work with the same principles.

"A brand enables your product to stand out from the competition and it communicates the intrinsic quality of your goods and services.". It creates an association between your product and quality. Quality reputation and brand are all entertwined. You cannot attempt to build a brand without having the underlying quality."

Gary Bembridge, Johnson  and Johnson's global vice-president of beauty care marketing and strategy agrees: " Creating a brand is largely down to inspiring trust. Johnson and Johnson became the leading brnad of baby toiletries because people knew the company had very high quality standards and they trusted it. That elevated the brand."

This element of trust is perhaps why organizations' reputation suffer dramatically when a quality failure is reported. In the last 12 months, two cases in particular have caught the public attention-the recall of millions of Toyota cars due to faulty acceleration pedals and the Deepwater Horizon explosion and subsequent oils spill.

In both cases the high profile quality failures received sustained madia coverage , which resulted in substantial damage to the value of both businesses. Toyota lost more than $13bn from  its market value in just one week in 2010 and, after failing to cap the leaking oil well in the Gulf of Mexico, BPs share price dropped by 14% in one day -its biggest fall for 18 years.

But such cases are not new, in 1990 when it was discovered that bottles of Perrier had been contaminated by trace amount of carcinogen, its share price dropped by more than 16% in five days. Less dramatic but equally relevant are the fading popularity brands such as Woolworths and Borders which, ultimately saw both companies fail.

The impact of negative reputation does not only affect big brands delivering products to consumers. Manufacturers, suppliers and subcontractors may not have contacts with the ultimate consumers, but they most certainly have a reputation with their client base. Similarly, for charitable organizations bidding to deliver public services, a positive or negative reputation with the public can impact on whether or not their contact is renewed. Small and medium sized businesses also have to be careful of their reputation, as often the majority of their business comes by word of mouth;one dissatisfied customers have a disproportionately negative impact on their reputation.

Ensuring reputation
For all organizations, at the heart of ensuring their reputation is the concept of quality, as defined by their customers. A research study conducted by TARP in 1999 discovered that on average an unhappy customer will tell 10 people about their experience and then these 10 people will tell further five people. More than a decade on , with the advent of facebook, twitter and blogs, customer can voice their dissatisfaction to hundreds if not thousands of people.

Shaun Sayers, director of Capable People ,thinks that companies are becoming more aware of social media. He says: "Social media has given the customer a louder voice.Three times in the last 12 months I've had a stonewall response overturned after I've posted about my experiences on Twitter. Often someone has come back to me within 30  minutes."

Bearing in mind, the role of the quality professional in the first instance is in ensuring the lowest possible risk of process failures within their organization. This, of course , will mean different things for different companies and may not always be reflected in everyone's perceptions. David Thorpe explains:" Quality is not uniform. You have to look at the context in which the brand exists and at quality in terms of the product's market segment. People like to talk about Ryanair as an example of a business model without quality , but actually it offers a high quality airline product.

" The company guarantees to get travellers from A to B at the lowest possible price. They do it on  modern aircraft with efficient staff , good pilots and have an excellent air safety record. Granted, they could work on customer service , but their fundamental product is spot on."

Whatever an organization's definition of quality, if a failure should occur and a recall is needed or a negative story arises in the press, it is often how a company reacts that has a long term impact on its brand and reputation. Gary explains: " Customer's perception of a business that has made a mistake are dependent on three things: how the company worked in the past, how it handles the mistake and how it moves forward."

" If  organization has a reputation for a quality most people are generally more understanding of a failure. People understand that things can go wrong and what they appreciate in that situation is honesty. If you then deal with a situation quickly and show how you've changes so it won't happen again, then the impact will be short term."

In such situations, it should be the responsibility of the quality function to get to the heart of the problem and rectify it as quickly as possible. Business continuity and product recall plans shuould be in place, ready to be rolled out as soon as a problem is identified. Root cause analysis and investigations need to be carried out as a top priority and the quality department should also work with the organization's communications team to make sure that customer are being kept informed, while taking care to remain as dispassionate as possible.

David says that this is where Toyota's handling of their crisis has triumphed over BPs attempts. He says:"Toyota's didn't try to hide problem. They went public as quickly as they possibly could and they dealt with controlled recall. It was a masterclass in how to deal with a crisis. In comparison BPs handling of Deepwater Horizon was a disaster. Tony Hayward insensitivity moaning that he wanted his life back, forgeting that 11 people had died, is the sort of thing that has a significant impact on public opinion."

Alongside being open with the public, Toyota also responded to its quality crisis by inviting in four independent quality experts to assess the company and advise it on how best to move on from its recall problem. The panel, which included Dr. Noriako Kano, honorary professor at Tokyo University of Science, and Yoshiko Miura, general manager at the Japan Consumers Association, recommended a list of measures which Toyota then published online. Approaching independent experts was agood way of getting another perspective on the company's problems and was a further step in providing to Toyota's customers that the company was serious about tackling its quality problems.

All in all most experts believe that while the recalls have been damaging in the short term, Toyota reputation will recover. Toyota's reputation for quality has been built up over 60 years and while it may have taken a knock, for every customer that was affected by a recall, there are probably a thousand customers who have been perfectly satisfied.

No individual or organization is perfect, mistakes and quality failures are, to a certain extent inevitable. However, the way in which a company's reputation will be affected by such a failure is greatly reliant on the role of quality in the organization's past, present and future. People's relationships with brands are caught up with how they feel about them and a company's emphasis on quality helps to ensure a sense of trust in dealing with a problem. Brands that have come back from a well-publicised issue and taken back their market share, have done so because they've tackled the problem quickly, openly and demonstrated their commitment to quality.

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