An easy-to-use digest of all the leading academic and business insights into the complex issue of reputation.

1. The Economics
of Reputation
A practical toolkit for a complex subject

2. Contents
Introduction
1. What is reputation?
2. Why has reputation become a critical issue?
3. How is reputation created?
4. How does reputation bring value?
5. How is reputation measured?
Concluding thoughts
Further reading

3. Introduction

4. The Interest
Over the last twenty years, interest in the
subject of reputation has grown exponentially in
both the business and academic world.
• Today, few CEOs would argue that their corporate
reputation isn’t one of their company’s most valuable
assets.
• In the business press, several publications have put
forward reputation rankings which rate companies based
on their overall reputations.
• In academic spheres, scholars have created their own
tools for measuring reputation and delved into questions
of definition, creation and valuation.
“Your brand
reputation is
everything and
you’ve got to fight
to protect it.”
RICHARD BRANSON
Founder & Chairman
The Virgin Group

5. The Confusion
Yet, as the volume of literature has
grown, the task of developing a clear
understanding of reputation has
become ever-more problematic.
Different definitions exist, various
measurement tools have been proposed
and a range of opposing ideas put forward.
“In today’s world, where ideas are
increasingly displacing the physical
in the production of economic value,
competition for reputation becomes
a significant driving force, propelling
our economy forward.”
MILES D WHITE
CEO & Chairman
Abbott Laboratories

6. Aim
This toolkit provides a straightforward
way into the topic.
• We will focus on ‘5 fundamental questions’.
• We will give an overview of the relevant
literature produced by academic and business
sources.
• We will share the perspectives of leading
industry figures.
• We will consider where reputation research is
heading in the future.

7. Industry figures we spoke to...

8. The Five Fundamental
Questions…

9. ONE
What is reputation?

10. Different definitions of reputation exist in
business and academia; with this lack of clarity
there have been calls for scholars to unite around
a commonly agreed upon definition.

11. Salient Themes in Literature
In our review of the existing literature, definitions
appeared to cluster around three attributes…
REPUTATION AS
PERCEPTION
REPUTATION AS
JUDGEMENT
REPUTATION AS
AN ASSET

12. Perception
Several definitions stressed how reputation is about
stakeholders having a perception of a firm.
In these definitions, reputation was discussed
as a “net perception” or “representation” of
an organisation.
“Reputation is a
buyer’s perception of
how well-known,
good/bad, reliable,
trustworthy, a firm is”
(Levitt, 1965)
“Reputation is the
perceptual
representation of a
firm’s past actions”
(Fombrun, 1996)
“Reputation is the
perception of a
company developed
over time”
(Bennett & Kottasz,
2000)

13. Judgement
A further significant theme was the idea that
reputation involved observers making a
judgement of a firm.
Reputation was defined as an “assessment”,
“evaluation” or “gauge.”
“Reputation is an
overall evaluation of a
company over time”
(Gotsi and Wilson, 2001)
“Reputation is a
gauge of a firm’s
relative standing”
(Fombrun and
Rindova, 2001)
“Reputation is an
estimation of a person
or thing” (Mahon, 2002)

14. Asset
Other definitions stressed that reputation was
something of value or significance to a firm.
Reputation was described as a “resource” or
as an “intangible asset.”
“Reputation can be
defined as an
intangible asset”
(Drobis, 2000)
“Reputation is an
intangible resource”
(Goldberg et al., 2003)
“Reputation is a
valuable but fragile
intangible asset” (Miles
and Covin, 2002)

15. The Stakeholder
Perspective

16. Is reputation static or
ever-changing?
We think fluidity should be an important part of
any definition of reputation. Now more than ever
reputations are dynamic.

17. Firms once highly regarded may be viewed
unfavorably by contemporary standards
In 2008, Starbucks was accused of wasting more than
23 million litres of water each day when it was
revealed that its outlets deliberately left taps running
non-stop in order to achieve health and safety targets
around washing equipment. The so-called ‘Dipper Tap’
scandal seriously damaged their reputation. Starbucks
was demonised in the media and left facing customer
protests and boycotts.
Fifty years ago would this story have caused the same
level of damage to a company’s reputation?

18. TWO
Why has reputation
become a critical issue?

19. Today, due to a combination of factors,
reputation is seen as a critical concern for
consumers, businesses and academics alike.

20. Salient Themes in Literature
We found that the reasons given by scholars to explain the
explosion of interest in corporate reputation could be broadly
grouped into two categories…
CONSUMER
WORLD
BUSINESS
WORLD

21. The Consumer World
Several academics have highlighted how one-off
events and wider societal trends have driven
interest in reputation. The rise of digital and high-
profile reputation scandals were widely cited.
“Heavy press coverage
of corruption and
misconduct at previously
‘trusted’ institutions has
caused public outcry…”
“Today consumers have a
voice. Social networks have
empowered them …”
“A huge shift has
occurred in the last 20
years – digital has
grown to become a
central part of our
everyday lives...”
Source: Hunter et al., 2010 & Fan et al., 2013

22. The Business World
Others have attributed the growth
in concern for reputation to
changes that have occurred in the
economy and the ways in which
businesses operate.
“The pressure is on
for organisations
to be more transparent…”
(see Carroll, 2009)
“…consumers are challenging firms
to share information such as profits,
production techniques and
environmental credentials. There is
no longer anywhere to hide”
(see Carroll, 2009)
…a firm cannot afford to
be let down by a
reputational crisis”
(see Schnietz, 2009)

23. The Stakeholder
Perspective

24. Has the rise of digital
lessened the importance
of corporate reputation?
Many argue the rise of digital has forced
organisations to pay greater attention to
reputation, yet we believe the reverse is true.

25. “The pressure is on
for organisations
to be more transparent…”
(see Carroll, 2009)
Bad sentiment around a brand is quickly forgotten
in today’s digital world
On the one hand, digital has forced
organisations to pay more attention to their
reputation as it has meant the spread of
negative stories is quicker and more far-
reaching than ever. However, we believe the
ubiquitous nature of the digital in our lives
today means that bad sentiment around an
organisation is quickly ‘forgotten’ by consumers
as it is replaced by the next wave of headline,
tweets and Facebook posts.
Consider how supermarkets have recovered
after the ‘horsemeat scandal’, or how Cadbury
is still the one of the nation’s most loved brands
despite a Salmonella scare in 2006.

26. THREE
How is reputation
created?

27. Once a firm understands this, they can take steps
to actively build and manage their reputation, as
well as repair it when it is damaged.

28. Salient Themes in Literature
From our review of the existing research, three distinct
mechanisms for developing reputation were visible…
PARTNERSHIPS INITIATIVES ASSOCIATIONS

29. Partnerships
A number of studies explored how young firms
without a reputation of their own can ‘borrow’ the
reputation of prestigious third parties by
partnering with them.
“Young firms can benefit from the
prestigious reputations held by
investment banks that serve as
underwriters during initial
public offering stage”
(Gulati & Higgins, 2003)
“”The benefits of associations with
prestigious affiliations include
higher survival chances, ability to
attract future strategic alliance
partners, improved innovation,
growth and financial performance”
(Pollock & Gulati, 2007)
“Firms can borrow the
reputations, preferably
prestigious, of actors with
whom they affiliate”
(Stuart, Hoang & Hybels, 1999)

30. Initiatives
A further cluster of studies focused on how firms
can create a reputation through implementing
reputation-building initiatives.
“Companies can build
reputation by winning product
awards and competitions”
(Reuber & Fischer, 2005)
“Companies can build reputation
through symbolic actions and
communications”
(Rinadova, Petkova & Kotha, 2007)
“Companies can build
a reputation through
innovation and new
product introduction”
(Reuber & Fischer, 2005)

31. Associations
A final cluster of research highlighted how
firms can build reputation by accumulating the
personal reputations of the founders of the
company.
“The breadth and experience of
founders can improve a young
firm’s reputation and access to
venture capital”
(Beckham & Burton, 2008)
“Experienced founders transfer to their new
firms some of their personal reputations
because their experience reduces
stakeholder perceptions of uncertainty with
regard to the new firm by ensuring that it
possesses the necessary organisational
and technical expertise”
(Pollock, Fund & Baker, 2009)
“Venture capital investors
perceive less uncertainty about
firms founded by experienced
entrepreneurs”
(Sapiens & Gupta, 1994)

32. The Stakeholder
Perspective

33. How can consumers play a
role in the creation of
reputation?
The existing literature mostly sees reputation as
something created by organisations themselves,
but we think consumers play a role too.

34. Consumers can play an active role in shaping
reputation via social media
We spoke to David Levin, who is behind
the Twitter accounts of the X Factor and
BBC shows including Doctor Who and The
Voice. He described how consumers have
been empowered by social media:
“Each day, brands are actively discussed
just about everywhere online by
consumers, which can bring both great
benefits but also negative consequences.
Positive stories and product reviews can
help to attract new customers, however,
negative discussions of the brand can
seriously harm perceptions of the
company.”

35. FOUR
How does reputation
create value?

36. There is almost unanimous agreement that
reputation creates value, however, in terms of
identifying just how reputation creates this economic
value there is much less of a consensus.

37. Salient Themes in Literature
In our broad overview of the existing literature that relates to
how reputation creates value, two themes were visible…
CREATING VALUE
EXTERNALLY
CREATING VALUE
INTERNALLY

38. Creating Value Externally
Many authors highlighted how reputation can bring
financial benefits by influencing processes and
relationships that are external to an organisation such as
improving supplier relationships and driving customer
demand.
“In terms of investors,
a good reputation can
lower the cost of
capital” (Cao et al.,
2010)
“Good reputations
breed loyalty among customers”
(Bontis et al., 2007)
“Customers are willing
to pay a premium for
the offerings of high-
reputation firms”
(Shapiro, 1983)

39. Creating Value Internally
Others focused on how reputation has a value as it
impacts positively upon processes that are internal to
a company such as motivating staff and improving
employee retention.
“Working at an highly-
reputable organisation is
motivating and can
therefore result in a more
productive workforce.”
(Ritter, 1984)
“A firm with a good
reputation will possess a cost
advantage because, ceteris
paribus, employees prefer to work
for high-reputation firms, and should
therefore work harder, or for
lower remuneration”
(Roberts and Dowling, 2002)
“There is a direct
correlation between
employee retention and
reputation – staff want to
stay at companies that are
well-known and admired”
(Stigler, 1962)

40. The Stakeholder
Perspective

41. Can a good reputation ever
have a negative impact on a
company?
Whether through attracting customers and
investors, or though lowering the costs of
production, the work we reviewed was united by
an agreement that a good reputation is a positive
thing that can create value.

42. The Innovation Cycle
At stage 1 of cycle the
firm is performing well
and in turn building a
strong reputation for
itself
By stage 2, the firm is
falling into the ‘status
quo’ trap: appearing
to have a formula for
success sorted, the firm
continues to operate
in the same ways
By stage 3, this lack
of innovation is
resulting in the firm
being left behind by
competitors
By stage 4, the firm has
lost its reputation as
market leader
By stage 5, the firm has
been forced to innovate
and improve its offering
in order to rebuild its
reputation and thus the
cycle begins again
This model illustrates how we
believe a good reputation can
sometimes hinder a company’s
ability to innovate, and thus its
potential for future growth.

43. FIVE
How can reputation be
measured?

44. Although, reputation has long been recognised
as a valuable asset, it is only recently that tools
have been developed to measure it

45. Salient Themes in Literature
In our review of the various measurement tools that have
been applied, we identified three broad categories…
RANKING RATING MULTIPLE
STAKEHOLDER

46. Ranking Measures
A number of the measures which have been proposed by
business media rank organisations based on their
reputations in comparison to one another.
e.g. Fortune’s ‘World’s Most Admired Companies’,
surveys approximately 15,000 senior executives,
outside directors, and industry figures and asks them
to rate a shortlist of companies based on nine
attributes. These scores are then aggregated and a
ranking produced.

47. Rating Measures
Others have used rating-based measures, which are
compiled through asking stakeholders to rate the
reputation of the company in question.
e.g. Helm’s (2005) Rating based model
measures the reputation of firms using
open-ended interviews with customers,
employees and shareholders.

48. Multiple Stakeholder Measures
Multiple stakeholder measures recognise how reputation is
a collective construct and bring together the different
perceptions of a company different stakeholders have.
e.g. ‘The Reputation Quotient Model’ developed
by the Reputation Institute and market research
firm Harris Interactive, sees a diverse group of
respondents, from different national and demographic
backgrounds, asked to rate companies based on a
standardised 20 attribute scale.

49. The Stakeholder
Perspective

50. Are the consumer and
business reputations of
organisations colliding?
We believe that no longer are different
stakeholders solely focused on specific aspects of
a company’s reputation.

51. The consumer and business reputations of a
organisation are colliding
Increasingly the consumer is interested in the
financial and business life of organisation
behind ‘the brand’, and likewise investors and
those in business are increasingly concerned
with the how consumers perceive ‘the brand’.
This means that multiple stakeholder
measures for reputation may be redundant as
all stakeholders will have the same concerns.
This collision of worlds is likely to make the
study of reputation, and the value it adds,
more complex and fascinating in the future.

52. Concluding
Thoughts

53. An entry point
We hope this toolkit has provided an entry point into thinking
around the topic of the Economics of Reputation.
Instead of providing stock answers to standard questions,
the idea has been to stimulate thinking and provide a set of
reference frames and language tools, that each user can
apply to their own examples, in order to create answers to a
potentially demanding matter.

54. Further Reading
• Barnett M. L., Jermier J. M., Lafferty B. A (2006) Corporate Reputation: The Definitional Landscape, Corporate Reputation Review, 9, 26-38.
• Beckman, Christine M., and M. Diane Burton. (2008). “Founding the future: Path dependence in the evolution of top management teams from founding to IPO.” Organization Science 19: 3-24.
• Bennett , R . and Kottasz , R . (2000) ‘Practitioner perceptions of corporate reputation: An empirical investigation’, Corporate Communications: An International Journal , 5 (4) , 224 – 234 .
• Bontis, N. and Booker. L, D., (2007) The mediating effect of organizational reputation on customer loyalty and service recommendation in the banking industry, Management Decision, 45, 1426-1445.
• Burke, C., Obermiller, C., Talbott, E and Green, G. (2009)Taste Great or More Fulfilling: The Effect of Brand Reputation on Consumer Social Responsibility Advertising for Fair Trade Coffee. Corporate Reputation Review, 12, 2, 159-176.
• Cao Y., Myers J., Myers L., Omer T. (2010) Firm Reputation and the Cost of Capital.
• Dowling & Gardberg (2012) Keeping Score: The challenges of measuring corporate reputation, In. Barnett M. L and Pollock T., (2012) The Oxford Handbook of Corporate Reputations, 34 - 69, Oxford University Press: Oxford.
• Carauana A., (1997) Corporate reputation: Concept and measurement. The Journal of Product and Brand Management, 6 (2), 109-118.
• Carroll, C. (2009) Defying a Reputational Crisis – Cadbury ’ s Salmonella Scare: Why are Customers Willing to Forgive and Forget? Corporate Reputation Review, 12, 1, 64–89.
• Chun R. (2005) Corporate reputation: Meaning and measurement. International Journal of Management Reviews, 7 (2) 91-109.
• Davies, G., Chun, R. and da Silva, R. V. (2001) The personification metaphor as a measurement approach for corporate reputation, Corporate Reputation Review, 4 (2), 113 – 127.
• Davies, G. Chun, R., da Silva V., Roper, S. (2004) A Corporate Character Scale to Assess Employee and Customer Views of Organisation Reputation, Corporate Reputation Review , 7, 125-146.
• Dowling & Gardberg (2012) Keeping Score: The challenges of measuring corporate reputation, In. Barnett M. L and Pollock T., (2012) The Oxford Handbook of Corporate Reputations, 34 - 69, Oxford University Press: Oxford.
• Drobis, D. (2000) Public relations: Priorities in the real economy, Vital Speeches of the Day, 67 (1), 15 – 19.
• Fan, D., Flory, F. and Geddes, D. (2013) The Toyota Recall Crisis: Media Impact on Toyota's Corporate Brand Reputation. Corporate Reputation Review, 16, 2, 99 – 117
• Fombrun, C . J . (1996) Reputation: Realizing Value from the Corporate Image , Harvard Business School Press: Boston.
• Fombrun, C . J . and Rindova ,V . P. (2001) Fanning the flame: Corporate reputations as social constructions of performance’ , in J. Porac and M. Ventresca (eds.), Constructing Markets and Industries, Oxford University Press: New York.
• Fombrun, C . J . and van Riel , C . B . M . (1997) The reputational landscape, Corporate Reputation Review , 1 (1/2) , 5 – 13.
• Fombrun C. J. (2012) The Building Blocks of Corporate Reputation: Definitions, Antecedents, Consequences, In. Barnett M. L and Pollock T., (2012) The Oxford Handbook of Corporate Reputations, 94 – 114, Oxford University Press:
Oxford.
• Goldberg, A.I Cohen, G. and Fiegenbaum, A. (2003) Reputation building: Small business strategies for successful venture development, Journal of Small Business Management, 41 (2), 168 – 187.
• Gorry, A and Westbrook, R. (2009) Winning the Internet Confidence Game, Corporate Reputation Review, 12, 195 – 203.
• Gotsi, M . and Wilson, A . M. (2001) Corporate reputation: Seeking a definition, Corporate Communications: An International Journal, 6 (1) , 24 – 30.
• Harvey, W. S (2011) How do University of Oxford Students form reputations of companies?, Regional Insights,12-13.
• Helm, S. (2005) Designing a formative measure for corporate reputation. Corporate Reputation Review, 8 (2), 95-109.

55. Further Reading
• Helm, S. (2005) Designing a formative measure for corporate reputation. Corporate Reputation Review, 8 (2), 95-109.
• Higgins, M. & Gulati, R. (2003) Getting off to a good start: The effects of upper echelon affiliations on underwriter prestige. Organisational Science, 14, 244-263.
• Hunter, M. and Soberman, D. (2010) The Equalizer: Measuring and Explaining the Impact of Online Communities on Consumer Markets. Corporate Reputation Review, 13, 4, 225-247.
• Levitt, T . (1965) Industrial Purchasing Behaviour: A Study of Communications Effects, Harvard Business School: Cambridge.
• Lewellyn, P. G. (2002) Corporate reputation: Focusing the zeitgeist, Business & Society, 41 (4), 446 – 456.
• Mahon, J. F. (2002) ‘Corporate reputation: A research agenda using strategy and stakeholder literature’ , Business & Society , 41 (4) , 415 – 446 .
• Miles, M. P . and Covin, J. G. (2002) Exploring the practice of corporate venturing: Some common forms and their organizational implications, Entrepreneurship: Theory and Practice, 26 (13), 12 - 41.
• Petkova, A. (2012) From the ground up: Building young firms’ reputations, In. Barnett M. L and Pollock T., (2012) The Oxford Handbook of Corporate Reputations, 383 - 401, Oxford University Press: Oxford.
• Petkova, A. Rindova, V. Gupta, A. (2008) How can New Ventures Build Reputation? An Exploratory Study, Corporate Reputation Review, 11, 320-334
• Pollock, T.G. & Gulati, R. (2007) Standing out from the crowd: The visibility enhancing effects of IPO-related signals on alliance formations by entrepreneurial firms. Strategic Organization, 5(4): 339-372.
• Pollock, T.G., Fund, B.R. & Baker, T. (2009) Dance with the one that brought you? Venture capital firms and the retention of founder-CEOs. Strategic Entrepreneurship Journal, 3, 199-217.
• The Reputation Dividend (2014) The 2013 – 2014 UK Reputation Dividend Study, available at:http://www.reputationdividend.com/files/2413/9029/4988/201314_UK_Reputation_Dividend_Report.pdf, accessed on: 02/05/2014.
• Reuber R. and Fischer, E. (2005) The Company You Keep: How Young Firms in Different Competitive Contexts Signal Reputation through Their Customers, Entrepreneurship Theory and Practice, 29 (1), 57–78.
• Rindova, V. P., Williamson, I. O., Petkova, A. P., and Sever, J. M (2005) Being good or being know: an empirical examination of the dimensions, antecedents and consequences of organisational reputation. Academy of Management
Journal, 48, 1033-1049.
• Ritter, J.R. (1984) The ‘hot issue’ market of 1980, Journal of Business, 57, 215-240
• Roberts P. W. And Dowling G., R. (2002) Corporate reputation and sustained superior financial performance, Strategic Management Journal, 23: 1077–1093.
• Sapienza, H. J. & Gupta, A. K. (1994) Impact of agency risks and task uncertainty on venture capitalist- CEO interaction. Academy of Management Journal, 37, 1618-1632.
• Schnietz, K. and Epstein, M. (2005) Exploring the Financial Value of a Reputation for Corporate Social Responsibility During a Crisis. Corporate Reputation Review, 7, 4, 327-345.
• Shapiro C (1983) Premiums for high quality products as returns to reputations. Quarterly Journal of Economics, 98, 659–679.
• Stigler, G.J. (1962) Information in the labor market, Journal of Political Economy, 70: 49-73.
• Stuart, T. E., Hoang, H., and Hybels, R. C. (1999) Interorganisational endorsements and the performance of entrepreneurial ventures.
• Walker, K. (2010) A systematic review of the corporate reputation literature: Definition, measurement and theory. Corporate Reputation Review, 12 (4), 357 – 387.
• Whittington, R. and Yakis-Douglas, B. (2012) Strategic disclosure: Strategy as a form of reputation management in Barnett, M.L. and Pollock, T.G. eds. The Oxford Handbook of Corporate Reputation. Oxford University Press: Oxford.

56. Thank you