Riku Ruokolahti: When reputation and brand fought, made up, and hugged
“Without a reputation, a brand is nothing but empty promises.”
Leading academics, consultants, and business executives in the field were invited to the roundtable discussions at the reputation and branding seminar. The same topic was debated on the main stage, in small groups, and even over cocktails in the evenings. One thing became clear: there is no consensus on the roles of reputation and brand.
It’s been nearly ten years since that clash in Milan, but all too often I still find myself in the same situation. People have a hard time distinguishing between different concepts, and sometimes I notice that reputation and brand are competing within organizations. I argue that this is not actually the case; rather, the conflict exists solely in people’s minds. The motivation for competition between these concepts may involve an organizational policy dimension. The issue could, for example, be the balance of power between marketing and communications within the company.
Reputation and brand are difficult topics of debate because many people consider themselves experts on the subject, yet often lack quantifiable or well-reasoned arguments. As a result, the weight of the arguments depends on the speaker’s credibility. When there are no shared data points, it’s easy to get lost in the woods. Whoever argues with the greatest authority or the most persistence, or wins others over to their side, has the upper hand.
In this chapter, I present a simplified bird’s-eye view according to which both concepts play a central and distinct role in creating value for companies. I also explain why one is meaningless without the other. To me, pitting reputation against brand is pure nonsense.
In the previous chapters, we examined the role of reputation in a company’s value creation in considerable detail. How, then, does a brand differ from this previously presented line of thinking? What is the role of a brand in a company’s value creation? The easiest way to proceed is to begin by presenting a simplified outline of the topic and build on that foundation.
The Reijon Reinot Case
Let’s say I invest in a factory that makes slippers. Completely decent and comfortable slippers. I’m doing well because the world needs slippers and I do my job properly. After a while, you realize there’s room in the slipper market, so you invest in a similar factory. Now we have competition. As a result, my margins take a bit of a hit and my profitability declines. Despite the increased competition, both factories are churning out a decent return on invested capital. You were right. There was room in the market for your factory. As a result of the increased supply, consumers get their shoes for a bit less. Life goes on peacefully, but not for long.
A mutual acquaintance of ours gets it into his head that we could certainly produce even more of those slippers, and he slams a third factory down right next to ours. Now things are getting tough. There’s an oversupply of decent slippers. A fierce price war breaks out. The one of us who does best will lose the least money. We can’t stop making slippers because we’ve all invested so much money in the factory. Whoever quits will lose all the money they’ve invested. It’s a pretty grim situation.
So something has to be done. We can’t keep bleeding money forever. Sometimes necessity is the greatest innovator. You come up with a solution to the situation. You start producing super-cute, pastel-colored, pom-pom-topped slippers—the loveliest of the lovely—to brighten up people’s dreary mornings. You’ll transform your entire identity to support the world you’ve chosen. Your slippers will find new customers, and you’ll do better than the rest of us.
Inspired by your success, I’ve sort of copied your concept, but my slippers are rough and wild: studs, leather, and monster heads. My slippers give their wearers a sense of power! I’m transforming my entire identity to support the world I’ve chosen. I’m finding new customers, and things are going well for me again. Our mutual acquaintance continues to make sensible slippers in the same old style.
As it turns out, things are going well for all of us. The people who buy your slippers definitely don’t want mine, nor do they really want the ones our mutual friend makes. My customers, on the other hand, can’t stand your wimpy slippers, and they’re not excited about our mutual friend’s either. Our mutual acquaintance’s slippers will go to the people who originally bought my slippers. Now we’re no longer competing on price at all, and besides, the overall market is much bigger.
You can't choose the components of your reputation, but you can choose your brand
Our simplified story illustrates how a brand generates economic value. A brand is, at its core, a concept rooted in a customer-centric world, whereas reputation encompasses the entire business environment.
Reputation centers on the company itself, not the product or the market. Consequently, the components of reputation are universal factors that apply to absolutely everyone. These components influence your business, whether you like it or not, regardless of your role. Reputation affects every player in the Reijo Reinot story, regardless of the brand. Even if the company were to produce “Wild Reijos,” it would still have to operate correctly and responsibly!
A good reputation boosts demand, while a poor reputation dampens it. What would happen to your shopping habits if a childhood friend who works at Raju Reino told you that the place treats its employees unfairly? The power that the Raju Reino brand promises for everyday life would vanish on the spot—even if the slippers still kept your toes warm.
You can’t choose the components of reputation, but you can choose your brand. Both are strategic concepts and generate economic value, but in very different ways. Reputation gives a company the license to operate and the support of stakeholders for its activities. A brand, on the other hand, ensures differentiation and market-driven relevance. Without reputation, a brand is just empty promises. Without a brand, reputation is like a guest ticket to tonight’s game, but the ticket doesn’t say which game it’s for or who’s playing.
If you accept the roles outlined in this line of reasoning, I believe the debate over reputation and brand will start to feel rather stale to you as well, and the arguments will seem odd. Now I hope we can move beyond this squabble and consider what we should think about the issue as a whole. I’ll throw three big words out there: legitimacy, relevance, and differentiation. I’d argue that these words hold the keys to successful business and that overlooking them is a one-way ticket to the graveyard of former successful businesses.
Legitimacy is permission to act. It can be a concrete authorization from authorities or an unwritten line drawn by people’s morals and ethics. A company’s reputation creates legitimacy—that is, permission to operate—and that permission can be technical or moral in nature. To exist, a company needs permission to operate in the societies where it intends to conduct business. Strategic brand thinking doesn’t help one bit here.
A company or its products must be meaningful to its customers, whether in spirit or in practice. Morning slippers are meaningful in a practical sense if your toes are cold, and in a spiritual sense if you want to reinforce your identity with the right pair of slippers. For many people, it is meaningful to buy products or services from a company that does its job exceptionally well.
We have observed that a company’s ethos, on average, has a stronger influence on people’s willingness to buy than the actual products or services themselves. I would summarize this as follows: the relevance of a company’s products and services to its customers stems from both the brand and the company’s reputation. However, these two have very different ways of creating that sense of significance. One concept focuses on the customer’s world, and the other on the company itself.
As the example of the morning slippers shows, differentiation is a brand’s fundamental task. If differentiation fails, there is a risk of ending up selling the same slippers as others and being exposed to price competition that is detrimental to profitability. On the other hand, through ingenious differentiation, a company can carve out a niche for itself where there is little or no competition.
There are people for whom, even after this line of reasoning, reputation is still just part of the brand. I genuinely believe that the terms we use are purely a matter of semantics. You simply can’t escape these concepts of value creation, whether you’re talking about reputation, brand, or reputation and brand. Since there are many different ways to create value in this game, it makes the most sense to discuss reputation and brand separately. If the same words mean different things to different people, there are bound to be management challenges ahead.
Riku Ruokolahti has written a handbook on corporate reputation and reputation management. The excerpt published here, “When Reputation and Brand Fought, Made Up, and Hugged,” is taken from the first section of the handbook: “The Holy Trinity of Reputation, Business, and Management.”
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