Evaluating the real cost of a brand crisis
Brand catastrophes—those memorable, monumental events that incur tens of millions to billions of dollars in combined costs and losses—have drawn most of the attention of risk and resiliency experts in the global business community. Until recently.
Now there’s a greater recognition that the real, ongoing danger to brands comes from the frequency of lower-profile brand crises that can erode business value in financial costs and brand reputation over time.
In the new Forrester Consulting Total Economic Impact™ study commissioned on behalf of Crisp, a brand crisis is defined as “an event marked by national or global public discourse and media coverage that damages the reputation, security, or operational continuity of a brand, its people, or its assets, incurring significant costs of remediation and potential losses.”
While there have been a number of recent reports on crisis management and resiliency from leading consulting firms, this Forrester study brings a new level of specificity and credibility to these assessments, with a rare look at the financial impact of brand crises.
These brand crises are happening with far greater frequency as a result of market conditions, which include consumer activism, political divisiveness, social justice action and protests, market disruption and volatility, environmental crises, and the fallout of the global pandemic. These challenges are outlined in our recent blog post, Your Brand is at Risk and Everyone is Watching.
For all the current focus on crisis management, understanding the true cost of a crisis is significant, and sometimes personal. According to a recent story in the Wall Street Journal, “CEOs ignore social issues at their own peril.” They can face compensation penalties or dismissal if they ignore complaints about issues such as diversity efforts, reducing their environmental footprint or speaking out about politics.
This blog post, the second in a series of three on the Forrester study, focuses on the difference between brand crises and catastrophes, the specific categories of costs, and the potential overall financial impact for companies. It also explores how brands can mitigate those costs with an actor-centric approach to risk intelligence.
What is the true cost of a brand crisis?
The precise cost of a brand crisis is critical information, not only for C-suite, risk management, and business continuity leaders, but for the brand communications professionals—chief communications officers, chief marketing officers, social media strategists—who have a role in identifying, preventing or reducing the severity of brand catastrophes.
Brand crises, often sparked by large volumes of digital chatter, require immediate attention from leaders including senior executives, regardless of the time of day or day of the week, and necessitate an active, coordinated response from key functions such as communications, marketing (including social media), security, HR, and legal.
According to the Forrester study, the true cost of a brand crisis can reach across multiple elements for a brand, including:
- Cost to recover. Significant action and expenditures are required to react to a brand crisis; recovery will directly impact a company’s balance sheet via operating expenses and labor costs.
- Excess operational costs and fees. Brand crises can lead to increased costs—from increased customer acquisition expenses, to staff overtime, to regulatory fines or refunds.
- Reputation and CX. Brand crises immediately damage brand reputation and, over time, multiple crises can chip away at brand value and perception.
- Lost revenue. Brand crises can lead to customer churn, boycotts, as well as lower customer acquisition, purchase frequency, and average order value.
- Lost market capitalization. Brand crises can lead to temporary or long-term reductions in share price, or underperformance of the potential share price.
- Security and threats. Brand crises can lead to lost revenue and excess operating budget from disrupted operations, along with additional costs of security, property damage, insurance, and liability.
- Risk of making wrong decisions. Brand crises can lead to major pressure to make business decisions or take positions that may or may not be in the company’s or customers’ long-term interests.
The bottom line, considering all of the above, is that even a relatively minor and short-lived brand crisis can quickly rack up anywhere from $100,000 to millions of dollars in labor, costs, and losses.
Brand recovery after crisis
Brand crisis recovery also requires support from internal and external resources in almost every area of a company:
Businesses that prioritize and invest in building a foundation of resilience to address a brand crisis will be better positioned to weather what comes next. There is some optimism on a broad front for a transformational moment, according to the USC Annenberg Center for Public Relations 2021 Global Communication Report.
Their survey of nearly 1,000 public relations professionals from around the world indicated a turning point is coming that will give brand communicators a unique opportunity to demonstrate their importance and purpose. “As we enter the next phase of precarious politics and approach the peak of polarization,” the report states, “communicators will be on the front lines defending truth and justice.”
However, those front lines will be fraught with increased demands from activists, consumers, employees and shareholders. In fact, the majority of respondents said they expect activist demands on businesses and consumer and employee expectations of businesses' role in society to rise this year. These groups and actors can often originate or amplify risks online.
An actor-centric approach to risk intelligence
In the face of continuing polarization among stakeholders and growing disinformation shared online, communications leaders are realizing they need to respond to potential brand crises by focusing on the actors in online communities who originate or amplify risks through digital chatter, not just their content.
For more than 15 years Crisp has identified actors and groups intent on using the digital world to propagate dangerous narratives and carry out their harmful agendas. Today Crisp is the most trusted provider of Actor Risk Intelligence for today’s leading brands, global enterprises and social media platforms.
This approach is backed up by real world results. The Forrester Consulting TEI study commissioned on behalf of Crisp found that our customers reduced the impact of a crisis by 40 percent, prevented one per year entirely, and delivered a 572% ROI.
Learn more by downloading the full study here.
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