Foundations of Corporate Success: How Business Strategies Add Value

By John A. Kay | Go to book overview

CHAPTER
6

Reputation

The second primary distinctive capability is reputation. Reputation is the most important commercial mechanism for conveying information to consumers. But reputation is not equally important in all markets. Customers find out about product characteristics and product quality in many ways. Sometimes they learn from search. Other attributes become apparent immediately a product is used. The importance of reputation can be seen in markets--from car hire to "accountancy--where product quality is important but ran only be identified through long-term experience. In these markets, reputations are difficult and costly to create but once established can yield substantial added value.

Most of the chapter is concerned with how reputations are built, maintained--and lost. The process of building up a reputation can be accelerated by staking a reputation which has been established in a related market, or by making a clear public demonstration of commitment to a market. But it does not always pay to maintain a reputation. The best strategy may be to milk it. In some markets this is so often true that few worthwhile reputations survive.

Reputation has been important to successful traders since pre-industrial society. Merchants were concerned to demonstrate the purity of their assays or the fullness of their measure. Craftsmen stressed the quality of their workmanship. But how were their ignorant customers to assess purity, fullness, or quality?

Sometimes they looked to the state to regulate the market for them. In other cases, traders banded together in guilds to monitor each other's work and established an honest reputation for the whole group. Some craftsmen relied on their own name, or that of their family. All these mechanisms are still important today.

Reputation is the market's method of dealing with attributes of product quality which customers cannot easily monitor for themselves. The

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