Ipsos Corporate Reputation

How reputation and trust affect purchase decisions and marketing efficiency

HOW DOES REPUTATION INFLUENCE PURCHASE DECISIONS?

Reputation is a key consideration in purchase decisions.

The vast majority (87%) of consumers around the world say that they take the reputation of the company into account when purchasing a product or service.

There are regional differences in intensity. Consumers in Latin America and the Middle East/Africa are the most likely to say they are “very likely” to take reputation into account.

Consumers in Europe feel less strongly about taking reputation into account (just 24% “very likely”), but still a vast majority (79%) say they take reputation into account to some extent.

HOW REPUTATION AND TRUST AFFECT MARKETING EFFICIENCY

Building a good reputation generates greater marketing efficiency for companies. When you trust someone, you are more likely to believe what you hear and act on what you’re told. Companies that are trusted gain marketing efficiencies in two ways:

  • consumers are more likely to see and believe advertising from companies that they trust AND
  • consumers are more likely to act on this advertising by purchasing goods and services while being willing to spend a premium.

Around the world, trust has an enormous impact on advertising and product use. In advertising, ad believability is impacted much more than ad memorability – so even though people who distrust a company remember the ad, they are much less likely to believe it. The most significant impact on believability comes when people move into active distrust – only 39% believe advertising for companies that they “distrust a little”. This drops to just 18% for companies who are “distrusted a great deal.” People who are “neutral” toward a company on trust, are still likely to believe the ads they see (73%). 

Product/service use overall is less impacted by trust. In fact, people who are neutral are the least likely to have ever used a company’s products or services – reflecting the role that experience plays in driving corporate trust.

Two metrics that are dramatically impacted by trust are feeling good about using a product/service, and being willing to pay a premium for it. Feeling good about using a product/service has a linear relationship with trust – as trust increases, so does the percentage of buyers’ who report feeling good about it. Being willing to pay a premium, however, has the most impact on the most trusted side of the scale, and falls dramatically among those who have a “neutral” or lower trust rating.

Advertising believability suffers most from active distrust, while willingness to pay a premium benefits the most from active trust. People who are neutral toward a company are willing to believe the ads, but they are unwilling to pay a premium. This suggests that companies that avoid distrust will be able to maintain their marketing efficiency, while those that actively build trust are more likely to reap the profits of premium pricing.

The impact of trust on belief in advertising

The impact of trust on advertising believability spans all regions and industries

Across regions, the steepest decline in advertising believability occurs when people move from “neutral” to “distrust a little.” The decline is greatest in APAC and Europe, but exists in every region.

Among the industry averages, the same inflection point is apparent and holds across industries. Automotive, pharma, and technology advertising are a bit more resilient in the face of distrust.

Maintaining trust, and avoiding active distrust, is important across all companies, everywhere in the world.

Ad believability and trust at the company level

Companies need to understand trust at the individual level.

The impact of trust on advertising believability is not as apparent at the aggregate level as it is at the individual level.

Companies with low aggregate levels of trust still have relatively high advertising believability. However, the level of believability becomes much more variable as trust decreases - all of the companies with high net trust have very high advertising believability while those with lower net trust show much greater ranges of believability.

The fact that this effect is somewhat hidden at the aggregate level means that companies need to understand trust at the individual level and be able to target those who distrust the company.

Would you spend more for a product made by a company you trust?

There is a direct relationship between trust and willingness to pay a premium. Companies with high trust can generally command a premium whereas those with low trust need to offer a discount. The impact of trust on willingness to pay remains consistent across regions and industries.

Across industries and regions, the greatest decline in willingness to pay a premium happens between people who trust a company “a little” and those who are “neutral.” The ability to charge a premium depends on actively building trust, rather than just avoiding distrust.

The willingness to pay a premium is lowest in Europe, but we see the same impact of trust on willingness to pay a premium.

Trust explains 78% of the variance in willingness to pay a premium.

The impact of trust on willingness to pay a premium is more apparent at the aggregate level.

At the aggregate level, trust explains 78% of the variance in willingness to pay a premium. This effect will be magnified when examining individual country results (rather than the global average), and when analyzing at the individual company level.

Methodology: The latest wave of the Ipsos Global Reputation Monitor, conducted in September 2017, measured attitudes of more than 23,000 consumers from 31 countries toward 66 companies across nine industries.

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It’s the environment, stupid!

ENVIRONMENTAL CONCERNS ARE NO LONGER JUST PRESSING ETHICAL ISSUES, BUT QUESTIONS OF FINANCIAL PRUDENCE. OVER HALF OF BRITISH CONSUMERS FEEL WE ARE EXPERIENCING A CLIMATE CRISIS, AND OVER ONE THIRD SAY THEY WOULD SWITCH OR BOYCOTT A FINANCIAL ORGANISATION IF ITS INVESTMENTS HAVE A DETRIMENTAL ENVIRONMENTAL IMPACT. DESPITE BIG CONCERNS AROUND COVID-19, THE ENVIRONMENT REMAINS A PRIORITY FOR THE PUBLIC, AND BUSINESSES WILL BE EXPECTED TO CONTINUE THE TRANSITION TO A SUSTAINABLE ECONOMY IN THE POST-CRISIS PERIOD.

Whilst it doesn’t roll off the tongue with as much zest, James Carville’s ‘the economy, stupid’ slogan is aptly modified for Larry Fink’s announcement earlier this year that BlackRock would base future investments with environmental sustainability as a central goal… ‘It’s the environment, stupid!’. If anyone could ‘wake up’ the market to the tipping point which has now been reached around the environment, it is the Chief Executive of the world’s largest asset management firm. “Awareness is rapidly changing” wrote Mr Fink in the company’s annual letter, “and I believe we are on the edge of a fundamental reshaping of finance”. This has been compounded more recently, with the announcement that the UK’s biggest pension fund, the government-backed National Employment Savings Trust (Nest), will begin divesting from fossil fuels, and BlackRock “launching a selection of ESG multi-asset ETFs, to provide investors with a cost-efficient, transparent and sustainable way to invest”.

Data from Ipsos’s 2020 Sustainable Business Monitor survey amongst the British public echoes these sentiments. With a majority of the public now feeling we are dealing with a climate crisis, it appears that cash may no longer be king in investments. Only 21% now claim to care more about financial returns on investments than on whether the financial provider is ethical in how it invests money. This is compared to 28% of the public who prioritise ethics over financial returns and 26% who feel they should be given equal footing. Even allowing for the possibility that consumers may not be quite so ethical when faced with this trade-off in reality, it is clear that there has been a change in the drivers of investment decision making.

Returns on investment or ethical considerations?
Views on Climate Change

The growing imperative for investors to prioritise companies with a good sustainability track record is brought into sharper focus when looking more closely at the attitudes of millennials. Findings from the Ipsos Sustainable Business Monitor show that 54% of 18-34 year olds would be concerned about investments in Oil and Gas, compared to 47% for the UK public overall. This isn’t limited to the UK either; sustainable investing interest among US millennial investors jumped from 84% in 2015 to 95% in 2019, according to Morgan Stanley’s Institute for Sustainable Investing.

Which sectors concern the public regarding investments?

So, what does this all mean? Unsurprisingly, that Fink is right.

Over one third of those asked said that investment in projects or companies that have a detrimental environmental impact would lead them to ‘switch from’, ‘stop using’, or ‘boycott’ a financial organisation. Indeed, sustainable investing is ranked alongside executive remuneration – an issue that has a long track record of being a strong driver of negative opinion for the finance sector.

Switching / Boycotting financial organisations

This sentiment is further reflected at a global level when looking at Ipsos data from the recent Earth Day 2020 report, highlighting that even when set against the crisis situation that COVID-19 has presented, concerns around the environment remain steadfast. Over 7 in 10 people around the world agree that climate change is as serious as the pandemic, whilst 65% agree that in the economic recovery from COVID-19, it’s important that government actions prioritise climate change.

Seriousness of climate change in comparison to COVID-19
Support for a 'green' economic recorvery from COVID-19

Recognising the growing commercial opportunity facing the sector, and the long-term risk of investing in environmentally unfriendly industries, Fink notes that “as a fiduciary, our responsibility is to help clients navigate this transition [the reallocation of capital]. Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors”.

But where does this leave industries which have been traditionally harmful to the environment, such as the oil and gas industry, for a long time the bedrock of investment portfolios and still an essential service despite growing environmental concern?

In light of BlackRock’s position, The Economist wrote: “[t]o cynics, all the climate-friendly noises amount to little in practice, since few people are ready to make carbon-cutting sacrifices that would force oil firms’ hands. But noises are sometimes followed by action. Should they be this time, the 2020s may be do-or-die for the oil industry”.

It isn’t a case of ‘adapt tomorrow or die’ for fossil fuel companies however, and Fink makes this clear, forecasting “the energy transition will still take decades”. Citing fairness and justice, “we cannot leave behind parts of society, or entire countries in developing markets, as we pursue the path to a low-carbon world”. The demand for energy will continue whilst technology works to bring cost-effective replacements to conventional fuel sources, but it is incumbent on the sector to aggressively pursue cleaner energy; not only from an ethical perspective, but also in order to remain an attractive investment. The same is also true for a number of other sectors which have for a long time been harmful to the environment, and must adapt with the new way of sustainable investing.

Companies from within the fossil fuel and investment sectors which are leading the transition to a more sustainable future are on the right path, reinforced by public support. This should not be derailed. Communicators in these sectors therefore have the opportunity to maintain messaging around this transition, but with fairness in mind, should also remain sensitive to the societies whose energy programs are not as developed as some of the leading world economies. The transition to sustainable investing will need a collective effort – innovation from industry, reallocation of risk, government support and sustained societal scrutiny, but in adopting Fink’s position, it should be worthwhile effort for investors, producers, and consumers, from both an environmental and a financial perspective.

Contact: Alex Russell - Email | LinkedIn

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