Putting a price on reputation

Consumers are willing to pay more for products that not only have the features they want but also are delivered by businesses with a good reputation, new research has found.

The study, by researchers at the University of Technology Sydney (UTS), puts a price on reputation and explores the trade-off between a good reputation and extra product features.

It reveals that a company evaluated by consumers as better than its competitors in terms of corporate reputation commands around a 9% premium for its products, and an even higher premium when there are desirable extra features.

“The impact of corporate reputation on consumer choices is substantial compared to the competitive advantage offered by varying product features,” says study co-author, Associate Professor of Marketing 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,” he says.

The research, with co-authors Professor Grahame Dowling and Dr Edward Wei, published in the Journal of Marketing Management, focused on consumers in the market for televisions. The televisions were made by Sony, Panasonic or Toshiba.

Corporate reputation encompasses a range of dimensions including how people feel about the company, the quality and innovativeness of its products, its workplace environment and workforce, its vision and leadership, financial performance and social and environmental responsibility.

Conversely, brand damage occurs when companies become embroiled in scandals and crises such as financial corruption, leadership failure or environmental destruction.

In the study, participants were first asked to give an evaluation of the corporate reputation of each of the TV makers.

Separately, the were asked to choose between televisions based on fairly standard features such as warranty, price or size, and in addition by novel features such as backlight control or dynamic range control.

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.

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.

“Corporate reputation is not something that can be readily controlled by marketing managers, but it is definitely something that should command their attention,” says Associate Professor Burke.

“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,” he says.

Research Paper link: https://www.tandfonline.com/doi/full/10.1080/0267257X.2018.1546765