The emerging challenges for managing brand risk

Last year was a watershed year for business and our society, where rising populism, Trump’s polarizing accusations, and various socio-economic trends have made the topic of “brand risk” a top priority concern for every marketer. Traditionally politics has always been avoided by business leaders as it could lead to unpredictable problems, with no assured benefit for their brands or corporate reputation.

Today it is almost impossible to avoid taking a position on many political and socio-economic issues, especially with social media ready to spread news (and sometimes distort content) overnight. The business, political, and social landscape has dramatically changed. How did this all happen? And what is the impact?

The overall fragmentation of our society has many complex sources — a combination of socio-economic, political, and emotional forces behind this huge transformation:

• Despite robust economic growth, income inequality continues to increase; and in particular, millennials feel they have been left out.
• Emotionally, the trust level for the establishment, especially big business and government, has never been lower, fueling the rise of partisanship.
• Trump tweets his brash opinions to more than 30 million followers almost daily which has politicized many issues and often disparages business leaders and brands. This exacerbates extreme positions.
• Social media provides an easy platform for anyone to immediately react to these extreme positions, resulting in a reinforcement of people’s perspectives on politics and brands.
• Our news media contributes to these disparate views. “Breaking news” and other information delivery platforms are increasingly politicized, sharpening the polarization along “red and blue” divides.
• Many brands have decided to take a stand on some of these controversial issues, and while this may strengthen its bond with some customer segments, the advertising messages and social outreach have disenfranchised other customers.

All these forces have led to a more passionate political and ideological realignment of views that have spilled over to business, with a heightened risk for brands and corporate reputations. Consumers today are demanding to know more about a brand’s position on many of these socio-economic and political issues which the media have highlighted to the public.

There are many dimensions of this emerging “brand risk” phenomenon. The reality today is that brands have little control over where or how their message is discussed on social media. A recent survey of 300 brand executives by the research consulting firm, GumGum, revealed that 75% of these marketers said their brands had been exposed to high-risk situations in 2017, mainly advertising placed alongside objectionable content. For example 39% of their brand’s ads were viewed next to fake news and/or divisive political content last year. The content most worrisome for such associations was hate speech. This study also found that LinkedIn was the safest ad platform for ads, while Twitter and Facebook were seen as the riskiest.

Another common type of brand risk comes from advertising content that alienates a customer faction; they usually interpret it with their personal bias and react strongly against the brand message. Their backlash usually focuses on “controversial” issues such as immigration, racial or gender preferential treatment, economic inequality, and sexual harassment.

This risk can manifest itself beyond any kind of superficial public relations dimension. Boycotts of brands that have taken a position perceived as partisan have become common. The repercussion of such adverse reactions to the brand integrity is not only an undermining of customer loyalty, but also its financial performance. IPSOS, a major research firm, studied 28 brands that were either attacked by Trump or have voiced a contentious view on some of these socio-economic issues. They all caused intense partisan reactions. This study found that the stock prices for most declined, some by as much as 40%, and as many as 20% of customers stopped buying their products.

How can companies prevent or at least minimize the risks to brands and reputations? Four basic steps would help immensely:

1. Measure (ideally independently) the current vulnerability of the company, brand, or any organization, assessing their policies and practices on relevant socio-economic issues, comparing performance against peers, and using a “scorecard” to identify risks and even proactively improve their brand image for targeted customers.
2. Better due diligence, even create a new initiative to analyze and monitor external trends (especially online), articles, and other influential news items that cover populist preferences on issues that might pose a threat to the company or brand, as an “early warning” sign for managing all content communications.
3. Develop contingency plans for all foreseeable reactions, even with scenario training on “what if” situations for select brand marketers.
4. Ensure that all content developed by outside agencies is carefully reviewed by more senior, experienced managers, even getting feedback from representative factions of the target audience (e.g. females, ethnic minorities, religious groups, etc.)

The landscape for marketing has indeed changed enormously in the past year, and all business stakeholders (including legal, investors, insurance, PR, ad agencies, etc.) should be more acutely aware of these brand risks and be more diligent for preventing such crises.