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The effect of messages on reputation and investor behaviour. A reputation experiment focussing on the energy industry sector.
Every communications manager knows the dilemma: On the one hand, it is widely agreed that companies should communicate to the outside world in a consistent, uniform way. On the other hand, every stakeholder group has different expectations and thus reads messages differently. The challenge of ‘messaging’ – that is, systematically designing and positioning corporate messages – is therefore huge. Also, there has not yet been any relationship conclusively proven between corporate messages on the one hand and reputational perceptions or stakeholder behaviour on the other. To investigate precisely this relationship, a reputation experiment was conducted in 2008 by Professor Klewes at the Free University Berlin. It looked at the case of three leading energy providers, and asked the following:
a) Do particular messages measurably affect the perceived reputation of the three energy companies?
b) Do particular messages affect the preferences of private investors in choosing which of the three companies to invest in? (Stakeholder perspective: money market)
c) Do particular messages affect the preferences of customers in entering into a contractual relationship with one of the three companies investigated? (Stakeholder perspective: customer market).
The results largely confirmed the hypotheses formulated beforehand. As regards the assessment of reputation, a significant relationship was observed between negative reporting and reputation rating. By contrast, there was no such correlation with respect to positive reporting. An even clearer relationship was found to exist between corporate messages and the willingness to invest – in both the positive and negative direction. Messages considered positive from a money-market perspective led to a clearly stronger tendency to invest; negative messages in the experiment led to a ‘sell’. And on the last question, too, the experiment provided clear answers: neither the positive or the negative messages (i.e. from the money-market perspective!) boosted the readiness to change to another energy provider. However, the rather ‘innocent’ neutral messages did. Such messages obviously accentuate dimensions that from a customer stakeholder perspective might make changing providers attractive – for example, they lend a company a certain ‘familiarity’.
In sum, one can conclude from the experiment that only continuous messaging will positively impact on reputation. Individual messages might be able to generate positive short-term effects on the money market, but reputation is not influenced by these in the long term. Positive messages only have a long term effect when they are oriented towards the long term and are continuously updated.
Thus, the study provides further proof of the dynamic construction of reputation. Reputation emerges over time, when the expectations of stakeholders towards a reputation bearer (i.e. a company, an organisation, a person) are not disappointed. It is thus a cumulative effect, as it were, of individual experiences of confirmation. This experiential construct can be destroyed in short order if expectations are disappointed. Corporate reputation is an extremely fragile commodity, one that must be nurtured with the utmost care.
Note on method: A classical 2x2 experiment was used with 2x100 randomly selected participants in an incentivised online sample of Germans over 18 years of age with an interest in the stock market.