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Consumers Will Pay More Based on Corporate Reputation, Study Finds

08 January
by Josh Hrala
3 minute read

We all know that having a great corporate reputation can go along way. It makes total sense that consumers - and future talent, for that matter - are more willing to work with organizations that are viewed in a positive light over others with less desirable reputations.

But how much more?

According to researchers from the University of Technology Sydney (UTS), companies with great reputations command a 9 percent premium for their products and can charge even more when extra features are thrown in the mix.

This means that, for really the first time, researchers have been able to put a legitimate price on reputation, and - at nearly 10 percent - it's a huge price at that.

But what do they mean when they say 'corporate reputation?'

What Is Corporate Reputation?

In short, a corporate reputation is how people feel about a given company. It encompasses a wide range of things, such as how innovative the company is, how well-crafted their products are, how their workplace operates, how their finances are handled, and what the company's overall vision is.

This all comes together to paint a picture of the organization, a picture that consumers use to choose which companies to buy from and future new-hires use to pick which organizations they may want to work for.

businessman hand draws gear to success concept

Poor management, offboarding practices, and workplace culture can decrease corporate reputations. The same can be said for scandals and bigger issues. If not protected at every level, corporate reputations can erode, causing bottom lines to suffer and talent pools to stagnate.

"The impact of corporate reputation on consumer choices is substantial compared to the competitive advantage offered by varying product features," said the new study's co-author, Paul Burke, from UTS Business School.

"Marketing managers need to be concerned about corporate reputation not only because it builds loyalty and trust but also because product features appear more valuable, so consumers are willing to pay more."

Putting a Price on Reputation

To come to their conclusion, the UTS team had consumers choose between different TV makers - Sony, Panasonic, and Toshiba.

First, they had the participants rate the manufactures based on their perceived reputation. Then, they were asked to choose based on features, such as warranty, price, size, and other rather typical differentiators.

"The research showed consumers were willing to pay extra for a product with important features and a good brand reputation, but less willing to pay a premium for products with novel features regardless of reputation," the university reports.

Businessman in blue suit working with digital vurtual screen

"For example, in the case of screen size, consumers were willing to pay $121 more for a television that was 55" over one that was 50". This amount increased by a further 22% to $147 for a company that was one standard deviation higher on the corporate reputation measure."

This boils down to two key takeaways: reputation increases the amount of money a consumer is willing to spend on a brand and, in order to get that higher percentage, company's also need to offer novel features.

So, if you have a company that is great at product development, you can have a serious boost - of about 9 percent - if your corporate brand is also great.

Building That Great Reputation

How are you supposed to create a great brand and reputation, though? Are there specific steps you can take to do so?

Reputation comes down to a series of choices that organizations make. How a company is perceived isn't something controlled merely by marketing or other departments. It's a totality of all choices from how a workplace operates internally to how well the business handles social issues.

The public will take all of these choices and make their own opinions.

"Corporate reputation is not something that can be readily controlled by marketing managers, but it is definitely something that should command their attention," Burke said.

"Companies need to work hard to communicate that they are environmentally and socially responsible, support good causes, have a positive work environment, and excellent leadership and financial performance, and do their best to mitigate brand damage."

The study shows that building, maintaining, and protecting a corporate brand should be top-of-mind for businesses everywhere, especially those that are already great at building products with novel features.

And while that is generally common knowledge, we are just starting to understand the full impact a reputation can have in terms of profit.

The team's study was published in the Journal of Marketing Management. Read the full article here.

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