Rep­u­ta­tion Man­age­ment Goes Dig­i­tal

To­day’s com­pa­nies need to take steps to proac­tively man­age their on­line rep­u­ta­tion. Here’s how to get started.

Rotman Management Magazine - - FROM THE EDITOR - by Anne Bow­ers and A. Re­becca Reu­ber

IN 2013, THE GEN­ERAL MAN­AGER OF L’HÔ­TEL QUÉBEC filed a law­suit against a guest who had posted a re­view on Tri­pad­vi­sor, stat­ing that he had en­coun­tered bed­bugs while stay­ing there. The ho­tel did not dis­pute that there were bed­bugs, but ar­gued that the in­ci­dent was a one-off and claimed $95,000 for rep­u­ta­tion dam­age and lost prof­its.

Con­cerned about the rep­u­ta­tional dam­age caused by neg­a­tive re­views, a group of hote­liers in the UK dis­cussed bring­ing le­gal ac­tion against Tri­pad­vi­sor for what they re­garded as un­fair and in­cor­rect re­views. Ser­vice providers of­ten sus­pect that such re­views have been writ­ten by ri­vals or dis­grun­tled ex-em­ploy­ees. In­deed, an ex­ec­u­tive with the France-based ho­tel chain Ac­cor ad­mit­ted to post­ing five-star re­views for Ac­cor prop­er­ties and neg­a­tive re­views about ri­val ho­tels.

The rep­u­ta­tional stakes are enor­mous — and not just for ho­tels. It has been said that ‘ev­ery­one’s a critic’, but this phrase has as­sumed height­ened mean­ing to­day as dig­i­tal tech­nolo­gies make it easy for peo­ple to pub­licly re­view ev­ery as­pect of a com­pany. From ‘best of ’ lists on mag­a­zine web­sites to em­ployer re­views on Glass­door, prod­uct re­views on Amazon, and ser­vice re­views on Yelp and Tri­pad­vi­sor, com­pa­nies are con­tin­u­ally be­ing judged, and those as­sess­ments are eas­ily ac­ces­si­ble to ev­ery­one, ev­ery­where.

In this ar­ti­cle, we will dis­cuss two types of on­line rep­u­ta­tional rat­ings — cu­rated and un­cu­rated — and de­scribe the im­pact they can have on or­ga­ni­za­tions. We will also pro­vide some guide­lines for how man­agers can be­gin to use these rat­ings to their ad­van­tage.

Cu­rated Rep­u­ta­tional Rat­ings

Cu­rated rat­ings are pro­duced by a third party (of­ten a me­dia out­let) that is con­sid­ered neu­tral be­cause it’s not in­volved in trans­ac­tions as ei­ther a buyer or a seller. Some are in­tended to rank en­tire or­ga­ni­za­tions against their peers. For­tune mag­a­zine, for ex­am­ple, pub­lishes an an­nual list of ‘The World’s Most Ad­mired Com­pa­nies’ and ‘The 100 Best Com­pa­nies to Work For’; Newsweek lists the ‘Top Green Com­pa­nies in the World’; and the Times pub­lishes an­nual ‘World Univer­sity Rank­ings’. Other cu­rated rat­ings are in­tended to pro­vide com­par­isons among prod­ucts or ser­vices. CNET, for ex­am­ple, pro­vides re­views of tech­nol­ogy prod­ucts; Wine Spec­ta­tor pub­lishes wine rat­ings; and Bloomberg Busi­ness­week ranks MBA pro­grams.

Cu­rated rat­ings are trans­par­ent in that they are based on

pre-de­ter­mined cri­te­ria: Com­pa­nies know ahead of time how they will be judged, and changes to the rat­ing al­go­rithm tend to in­volve con­sul­ta­tion and are widely cir­cu­lated in ad­vance. Data col­lec­tion is done uni­formly across com­pa­nies, with new rat­ings ap­pear­ing at set in­ter­vals, usu­ally an­nu­ally.

A high score on a cu­rated rat­ing is ben­e­fi­cial be­cause of the per­cep­tion that a neu­tral third party has at­tested to a com­pany’s wor­thi­ness, and it can po­si­tion a busi­ness pub­licly among the very best in its in­dus­try. This can lead to the com­pany be­com­ing more at­trac­tive to in­vestors, cus­tomers, sup­pli­ers and em­ploy­ees, re­sult­ing in price, cost and se­lec­tion ben­e­fits that per­sist over time. Such a cy­cle of cu­mu­lat­ing ben­e­fits can be de­scribed as one in which ‘the rich get richer’.

On the other hand, cu­rated rat­ings can be dam­ag­ing when a com­pany com­pares un­favourably to its peers or to its own past per­for­mance. Of course, to be com­pared, a com­pany must first make the list. The ‘World’s Best Banks’ list by Global Fi­nance in­cludes only the best bank from each coun­try. In other words, the very top is vis­i­ble, but all other banks are not, so this list pro­vides lit­tle rep­u­ta­tional threat. Thus, although it is ad­van­ta­geous to be listed, it’s not nec­es­sar­ily dam­ag­ing to be left off, be­cause so many banks in each coun­try aren’t in­cluded.

How­ever, if most of your peer or­ga­ni­za­tions are rated or ranked, there will be a rep­u­ta­tional loss if you are left out. Not sur­pris­ingly, rel­a­tive place­ment in the rat­ings also mat­ters. For ex­am­ple, the World Univer­sity Rank­ings by Times Higher Ed­u­ca­tion pro­vides a ranked list of 800 uni­ver­si­ties. Dif­fer­ences in scores are ob­vi­ous, and even more po­ten­tially dam­ag­ing, yearto-year de­creases are ev­i­dent. The end re­sult: Low or de­clin­ing scores can lead to the best stu­dents and pro­fes­sors choos­ing to go else­where. In this case, ‘the poor get poorer’.

Un­cu­rated Rep­u­ta­tion Rat­ings

Un­cu­rated rat­ings are posted by anony­mous mem­bers of the gen­eral pub­lic on dig­i­tal plat­forms such as Tri­pad­vi­sor, Yelp and Rate­mymd. The in­di­vid­u­als post­ing the rat­ings are peo­ple who use the plat­form to com­mu­ni­cate the qual­ity of their di­rect ex­pe­ri­ence with an or­ga­ni­za­tion, so prod­ucts and ser­vice en­coun­ters tend to be rated. An or­ga­ni­za­tion’s on­line rep­u­ta­tion as de­ter­mined by its un­cu­rated rat­ings is there­fore de­ter­mined by the feed­back of many peo­ple, rather than by a sin­gle cu­ra­tor.

Typ­i­cally, the con­tent of an un­cu­rated rep­u­ta­tion rat­ing is only partly struc­tured. The struc­tured por­tion tends to be nu­meric (for ex­am­ple, a scale of one to five stars), and these numbers are av­er­aged across raters to pro­vide an ag­gre­gate score. Be­cause the scores are con­tin­u­ally up­dated, this type of rep­u­ta­tion rat­ing is al­ways in flux. In the un­struc­tured por­tion, the raters write com­ments, which are rarely ag­gre­gated. Pre­vi­ous com­ments can get pushed to the bot­tom of the list and be­come less vis­i­ble as new com­ments are added, some­times leav­ing only the most re­cent com­ments to garner the bulk of at­ten­tion.

The cal­cu­la­tions behind un­cu­rated rat­ings tend not to be dis­closed, and changes are usu­ally made with­out con­sul­ta­tion or trans­parency. Yelp, for ex­am­ple, takes into ac­count the to­tal num­ber of re­views re­ceived by an es­tab­lish­ment, which re­viewer pro­vided a par­tic­u­lar sub­mis­sion, and whether that re­view has been voted as ‘help­ful,’ but the com­pany doesn’t re­veal ex­actly what for­mula it then uses. Given the dif­fer­ent al­go­rithms and the lack of trans­parency, the im­pact of a one-star re­view (or a five-star re­view) on an over­all restau­rant rat­ing is likely to be dif­fer­ent across dif­fer­ent plat­forms such as Yelp, Tri­pad­vi­sor and Opentable.

Pos­i­tive un­cu­rated rat­ings are ben­e­fi­cial be­cause peo­ple tend to be­lieve — and may be cor­rect in be­liev­ing — in the ‘wis­dom of crowds’. In other words, bet­ter judg­ments are gen­er­ally formed with more peo­ple par­tic­i­pat­ing, and dig­i­tal plat­forms make the on­line rat­ings of hun­dreds and thou­sands of peo­ple instantly avail­able on mo­bile phones, so what once might have been a dif­fi­cult de­ci­sion (for in­stance, choos­ing which new car to pur­chase) with lim­ited in­for­ma­tion and a long search time has now be­come a much quicker choice sup­ported by vo­lu­mi­nous data. This can, how­ever, re­sult in herd be­hav­iour, with peo­ple blindly fol­low­ing the de­ci­sions of ear­lier adopters. In­deed, ev­i­dence sug­gests that the num­ber of on­line rat­ings is as im­por­tant a rep­u­ta­tion sig­nal as their av­er­age score.

Although most un­cu­rated rat­ings are ac­tu­ally quite pos­i­tive, they can be threat­en­ing to an or­ga­ni­za­tion when neg­a­tive rat­ings and re­views are vis­i­ble. In par­tic­u­lar, fraud­u­lent re­views, per­haps sub­mit­ted by com­peti­tors, can be es­pe­cially dam­ag­ing be­cause there might not be any ba­sis in re­al­ity to re­spond. Be­cause un­cu­rated rat­ings are con­tin­u­ally up­dated, an iso­lated bad re­view will not be as per­sis­tently no­tice­able as it might be in a cu­rated plat­form, which gen­er­ally changes only at pre-set in­ter­vals. Over time (per­haps within days or even hours), iso­lated

On­line rat­ings can pro­vide de­tailed in­for­ma­tion about your ri­vals’ strate­gies.

neg­a­tive feed­back will be eclipsed by more re­cent re­views, and a high vol­ume of rat­ings is likely to smooth out ex­treme vari­a­tions that are not re­flec­tive of most peo­ple’s ex­pe­ri­ence with a given prod­uct or ser­vice.

Three Facts About Rep­u­ta­tion Rat­ings

Pos­i­tive rat­ings — both cu­rated and un­cu­rated — can help com­pa­nies gain and re­tain cus­tomers, part­ners, em­ploy­ees and sup­pli­ers. In con­trast, neg­a­tive rat­ings can ren­der de­vel­op­ing and main­tain­ing such re­la­tion­ships more dif­fi­cult or costly, with se­ri­ous per­for­mance con­se­quences. That said, although the link be­tween rat­ing out­comes and ben­e­fits might seem di­rect and ob­vi­ous, there are a few nu­ances.

WHEN EV­ERY­THING IS POS­I­TIVE, THE SEARCH SHIFTS TO DIS­TIN­GUISH­ING

In or­der to dis­tin­guish among many fiveAMONG THOSE RAT­INGS. star re­views, con­sumers ac­tu­ally have to read the re­views. Imag­ine a restau­rant re­ceives a neg­a­tive re­view. If it has many pos­i­tive rat­ings, one neg­a­tive re­view will not af­fect its over­all level of stars, but if peo­ple read the re­views to fig­ure out the dif­fer­ences among five-star rat­ings, they might see that neg­a­tive feed­back. In fact, a neg­a­tive re­view might be the first re­view they see.

Re­search on or­der­ing ef­fects sug­gests that the most vis­i­ble, first-read re­view has an in­or­di­nately large im­pact on in­di­vid­ual choice, par­tic­u­larly when the prod­uct be­ing searched for is rel­a­tively in­ex­pen­sive — like a meal or a movie. For more costly prod­ucts, such a re­view may be only one of many that peo­ple will read. Thus, it is not sim­ply the rat­ing it­self, but also the or­der of re­viewer com­ments and the type of prod­uct or ser­vice that mat­ters.

When a comONCE THEY REACH THE TOP, RAT­INGS TEND TO DE­CLINE. pany achieves a five-star rat­ing, it starts to at­tract a wide va­ri­ety of cus­tomers who fol­low five-star rat­ings — re­gard­less of what is be­ing rated. The prob­lem is, these cus­tomers may not be a good fit for the firm, and may be more likely to have un­re­al­is­tic ex­pec­ta­tions, which can trans­late into neg­a­tive ex­pe­ri­ences and, thus, neg­a­tive re­views.

A re­cent study showed that award-win­ning au­thors saw their rat­ings go down af­ter win­ning im­por­tant prizes, not be­cause the qual­ity of the book had changed, but be­cause win­ning the prize brought in new read­ers who oth­er­wise wouldn’t have read the book. Those read­ers then rated it poorly be­cause they were ‘bad fits’ — not be­cause of any­thing to do with the book’s qual­ity.

New cus­tomers RAT­INGS MAT­TER MUCH LESS TO RE­PEAT CUS­TOMERS. may be apt to choose a par­tic­u­lar firm based on its rat­ing, but will re­peat cus­tomers con­tin­u­ally check to see if that busi­ness re­tains its five stars? Once cus­tomers gain ex­pe­ri­ences with a com­pany, those ex­pe­ri­ences are more likely to have a greater in­flu­ence on loy­alty than are the rat­ings or re­views of strangers. An im­por­tant caveat, how­ever, is that re­peat cus­tomers do care about on­go­ing rat­ings for sta­tus goods or ser­vices, such as lux­ury de­signer brands or col­lege de­grees from elite uni­ver­si­ties.

Us­ing Rat­ings as a Learn­ing Tool

In ad­di­tion to the above stake­holder ef­fects, com­pa­nies should con­sider the fol­low­ing broader im­pacts of on­line rep­u­ta­tion rat­ings.

1. RAT­INGS PRO­VIDE VALU­ABLE IN­FOR­MA­TION ABOUT COM­PETI­TORS Most com­pa­nies col­lect in­tel­li­gence about their com­peti­tors, but on­line rep­u­ta­tion rat­ings can pro­vide much more de­tailed in­for­ma­tion about a larger set of ri­vals. Cu­rated rat­ings are of­ten cal­cu­lated on the ba­sis of in­for­ma­tion sup­plied by each firm, which might oth­er­wise not be dis­closed, es­pe­cially for pri­vately held busi­nesses. Be­cause cu­rated rat­ings stack com­pa­nies up against one another based on pre­de­ter­mined cri­te­ria, it’s ob­vi­ous which firms score bet­ter or worse than a par­tic­u­lar com­pany on, for ex­am­ple, cus­tomer-sat­is­fac­tion in­di­ca­tors or in­vest­ment in fa­cil­i­ties. Although these gen­er­ally are broad in­di­ca­tors with­out any nu­ances, the numbers can nev­er­the­less pro­vide use­ful data for an on­go­ing com­pet­i­tive anal­y­sis.

Un­cu­rated rat­ings and re­views can also be use­ful. Cus­tomer feed­back could, for ex­am­ple, re­veal new in­for­ma­tion about a ri­val’s strengths and weak­nesses. Or a com­pany could dis­cover that the main threat to its busi­ness is com­ing not from its di­rect com­peti­tors but from firms of­fer­ing sub­sti­tute prod­ucts whose ex­is­tence is dis­closed in on­line re­views.

2. RAT­INGS PRO­VIDE VALU­ABLE IN­FOR­MA­TION ABOUT CUS­TOMERS Although many con­sumers rely on rat­ings for mak­ing de­ci­sions, the anec­do­tal ex­pe­ri­ences of friends and fam­ily are equally pow­er­ful (if not more so). One study sug­gests that 83 per cent of moth­ers and 74 per cent of fa­thers get in­for­ma­tion about

prod­ucts and ser­vices from so­cial me­dia sites such as Face­book or Pin­ter­est. The shar­ing peo­ple do over these net­works — in­clud­ing ideas, use­ful prod­ucts and pho­tos of prod­uct ‘fails’ — in­flu­ences how oth­ers feel about any par­tic­u­lar busi­ness. Of course, a com­pany can never col­lect and an­a­lyze all of that in­for­ma­tion, but even if only a small frac­tion of these in­di­vid­u­als is us­ing un­cu­rated rat­ings to con­vey their be­liefs, a firm can at least ob­tain a sense of the over­all word of mouth. This is true for many cu­rated rat­ings, as well. In fact, many cu­rated raters (such as Con­sumer Re­ports and Gart­ner) try to mimic the ex­pe­ri­ence of users when test­ing prod­ucts, and some forms of cu­rated rat­ings (ed­u­ca­tional rank­ings, for in­stance) ac­tu­ally do sur­vey cus­tomers.

Un­cu­rated re­views can pro­vide im­por­tant in­for­ma­tion that is of­ten not re­vealed in other ways, and in a time­frame that en­ables a fast re­sponse. When Adobe re­leased a com­pre­hen­sive up­date to its Light­room prod­uct, for ex­am­ple, the soft­ware had changed how users im­port pic­tures into the pro­gram. The goal was to make the process more stream­lined, but in an on­slaught of neg­a­tive re­views, many peo­ple howled about the loss of par­tic­u­lar fea­tures. As a re­sult, Adobe re­verted to the orig­i­nal process in its next up­date and was able to pro­vide cur­rent users with a work­around. If the com­pany had not seen the re­views, it might have con­tin­ued evolv­ing Light­room in a way that risked alien­at­ing cus­tomers.

3. RAT­INGS CAN PRO­VIDE CON­SUMER-TAR­GET­ING IN­SIGHTS

On­line rat­ings and re­views can sup­ple­ment in­ter­nal data about cus­tomers to aid in seg­men­ta­tion and tar­get­ing de­ci­sions. Are the cus­tomers who are sup­ply­ing re­views rep­re­sen­ta­tive of a com­pany’s cus­tomer base? Are the cus­tomers who love a prod­uct sim­i­lar to those who hate it? Are the best re­views from cus­tomers of a core ser­vice or from those us­ing a new ser­vice-line ex­ten­sion? An­swers to such ques­tions can pro­vide im­por­tant strate­gic in­sights. One Toronto-based paint­ing com­pany no­ticed that it was re­ceiv­ing a sig­nif­i­cant num­ber of es­ti­mate in­quiries from peo­ple who had read its re­views on a lo­cal rat­ing site but that it sel­dom landed any of those in­di­vid­u­als as clients. The rea­son? Those po­ten­tial cus­tomers tended to be ex­tremely price-con­scious, and the com­pany pro­vided high-end, large-scale ser­vices. Armed with this knowl­edge, the firm changed its vet­ting process

Many con­sumers rely on dig­i­tal rat­ings for mak­ing de­ci­sions, but the anec­do­tal ex­pe­ri­ences of friends and fam­ily are equally pow­er­ful.

to avoid pro­vid­ing in-per­son es­ti­mates to those who were not the proper fit.

4. NEG­A­TIVE RAT­INGS CAN IN­CREASE TRUST AND AWARE­NESS Gen­er­ally speak­ing, hav­ing both pos­i­tive and neg­a­tive re­views in­creases trust, be­cause con­sumers feel that they are get­ting a more ac­cu­rate set of in­for­ma­tion. Thus, a firm that strives to main­tain a per­fect five-star rat­ing may in fact be un­der­min­ing it­self. In ad­di­tion, neg­a­tive feed­back can be valu­able, be­cause know­ing what doesn’t work can be just as help­ful as know­ing what does, and re­search sug­gests that cus­tomer sat­is­fac­tion in­creases when qual­ity ex­ceeds ex­pec­ta­tions, no mat­ter what level of qual­ity was ex­pected. In other words, a mix of neg­a­tive and pos­i­tive re­views helps to set ap­pro­pri­ate ex­pec­ta­tions.

5. RAT­INGS CAN BE IN­DUS­TRY GAME CHANG­ERS

Re­search on both cu­rated and un­cu­rated rat­ings shows that both can change the rules for suc­cess in an in­dus­try. This oc­curs when the rat­ings be­come im­por­tant to buy­ers and when or­ga­ni­za­tions re­spond by chang­ing their be­hav­iour to im­prove their rat­ings.

One im­por­tant shift oc­curs when cus­tomers start mak­ing de­ci­sions based on rep­u­ta­tion rat­ings rather than on un­mea­sured cri­te­ria. For ex­am­ple, if in­sti­tu­tional in­vestors de­cide to choose only those firms with five-star cor­po­rate gov­er­nance rat­ings, pub­licly-traded firms will have to con­sider this new di­men­sion of com­pe­ti­tion. And when cus­tomers shift to­ward fo­cus­ing on a rat­ing out­come (for ex­am­ple, a Miche­lin three-star restau­rant) rather than on other qual­i­ties (the pres­ence of a renowned chef ), the rat­ing or­ga­ni­za­tion be­comes an im­por­tant third party in de­ter­min­ing win­ners and losers within that in­dus­try.

Even­tu­ally, or­ga­ni­za­tions may start to make in­ter­nal de­ci­sions based on the ex­pected im­pacts of those de­ci­sions on the rat­ings. Re­search on the cu­rated rep­u­ta­tion rank­ings of law schools, for ex­am­ple, shows that over time, they af­fect in­ter­nal job de­scrip­tions, ad­mis­sions cri­te­ria, re­source al­lo­ca­tion, and com­mu­ni­ca­tions strat­egy. This is a fun­da­men­tal shift from how or­ga­ni­za­tions made strate­gic de­ci­sions in the past, and over time, the rat­ings cri­te­ria may be­come the most im­por­tant fac­tors for com­pe­ti­tion in a mar­ket, re­gard­less of whether in­dus­try par­tic­i­pants be­lieve them to be so.

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