Rumour has it..
Master Thesis by LISET OTTEN
First Supervisor – Dr. Killian McCarthy Second Supervisor – Dr. Thijs Broekhuizen University of Groningen
Faculty of Economics and Business MSc Strategy & Innovation Amsterdam, 21-12-2012 LISET OTTEN s 1611453 Ennemaborg 43 1082 SL, Amsterdam otten.liset@gmail.com 0031-(0)623587673
Assessing the impact of negative publicity in the media on the consumers’ corporate
image in combination with corporate reputation building activities of banks
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Abstract
In this study, the importance of developing and managing a successful corporate reputation are proposed. Previous studies have argued that variables as corporate image, trustfulness and psychological attribution facilitate successful corporate reputation strategies. The goal of this present study is to determine whether these findings also appear to have an impact on the Dutch banking industry. This paper has contributed both in theory and in practice due to the positioning of the external variable ‘media’ as a key factor towards the succesfulness of the bank’s corporate reputation.
From the 6 constructs that were analyzed in this study, 4 elements were valued as major critical determinants. These variables were corporate image, trustfulness, psychological attribution, and most importantly the media influence. Moreover, during crisis years the media was highly shaping the consumer’s perception towards the bank. The results of this research provide further evidence for the significance of both internal and external variables related to corporate reputation.
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Table of Content
1. INTRODUCTION ... 6
1.1. Reputation …... 6
1.2. Problem Definition & Research Question ………..…… 8
1.3. Relevance of the Research ... 9
1.4. Outline of the Paper ... 10
2. LITERATURE REVIEW ... 11
2.1. Corporate Reputation ... 11
2.1.1. Defining Corporate Reputation ………... 11
2.1.2. Relevance of Managing Corporate Reputation ...…... 12
2.1.3. Factors Influencing the Corporate Reputation... 12
2.2. Media Influence …………... 14
2.3. Crisis in Banking ... 16
2.4. Management Variables – External and Internal ... 16
2.4.1. Corporate Image – External Variable ... 17
2.4.2. Psychological Attribution – External Variable ... 19
2.4.3. Trustfulness – External Variable ... 21
2.4.4. Crisis Management – Internal Variable ... 22
2.4.5. Stakeholder Management - Internal Variable ……... 23
3. METHODOLOGY .... ... 25
3.1. Overview ……….. 25
3.2. Questionnaire Development ... 26
3.2.1. Questionnaire Part I ……….. ... 27
3.2.2. Questionnaire Part II ………….. ... 27
3.2.3. Description of the Sample … ... 28
3.3. Dependent Variable ………... 29 3.4. Independent Variables ... 30 3.4.1. Media Depiction ……… 30 3.4.1.1. Why NRC?... ……….... 31 3.4.2. External Variables ……… 31 3.4.3. Internal Variables ………. 31 3.4.4. Control Variables ………. 34
3.5. Procedure of Data Analysis ……….. 34
4. RESULTS ... 36 4.1. Descriptive Statistics ... 36 4.1.1. Media Depiction ..……… 37 4.2. Reliability Analysis ... 38 4.3. Correlation Analysis ... 39 4.3.1. Correlation Analysis II ... 40
4.3.2. Additional Correlation Analysis ... 42
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4.5. Linear Regression Analysis ... 44
5. DISCUSSION ... 47
5.1. Main Findings ... 47
5.2. Hypothesis Testing ... 49
5.3. Limitations and Recommendations for Further Research ... 51
5.4. Managerial Implications ... 50
6. CONCLUSION ... 52
REFERENCES ... 53
APPENDIX 1 QUESTIONNAIRE – Measuring Corporate Reputation APPENDIX 2 Descriptive Statistics
APPENDIX 3 Descriptive Statistics – Overview per Bank APPENDIX 4 Reliability Analysis .
APPENDIX 5 Correlations – General Part of the Questionnaire APPENDIX 6 Correlations per Bank
APPENDIX 7 One-Sample T-Test
APPENDIX 8 Correlations Media Sentiment (NRC) & Variables (Excel) APPENDIX 19 Regression Analysis
APPENDIX 10 NRC Analysis (Excel) APPENDIX 11 GDP – 2006-2012
Rumour
nounUK (US rumor)
Definition: an unofficial interesting story or piece of news that might be true or invented, which quickly spreads from person to person.
Rumour has it
People are saying
Information, often a mixture of truth and untruth, passed around verbally.
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1. Introduction
1.1. Reputation
A firm’s reputation can be described as the way the organizations manage their interactions with stakeholders (Frost & Cooke, 1999). Exxon, Shell, British Airways, BP, Coca-Cola, Mc Donald’s, Nike, Singapore Airlines – some of these companies are powerful symbols of globalization, others are (or were) powerful local or regional brands, some successfully reinvented themselves from nationalized backgrounds – most have spent fortunes developing or redesigning and promoting their corporate reputation or brand image. And yet all have failed at some point to acknowledge the commercial impact of unfavorable public perception on reputation in a risk-setting environment, with negative results.
Threats to reputation – whether real or perceived – can destroy, literally in hours or days, a brand developed and invested in over decades (Larkin, 2003). These threats to the corporate reputation need to be understood, anticipated and planned for. According to Asia’s Most Admired Companies survey, “in today’s turbulent economic times, a fine reputation is arguably more important than ever before. Building and maintaining a reputation … takes careful thought, meticulous planning and constant hard work over years. And it can be lost overnight.” (Asian Business Review, 2000). Reputation is built on trust and belief. Our own reputations matter to us a great deal. But in the commercial world reputation appears to become a Cinderella asset – easily overlooked but with great potential (Barwise, 2010). After all, it should be the biggest asset in most corporations and a high priority in the boardroom. Yet reputation is not properly valued, is rarely fully understood and is seldom managed in a cohesive way by the people at the top (Larkin, 2003). In other words, companies should thoroughly understand the consequences of their actions (Boyd, 2010).
The current economic instability have globally forced the corporate executives to devote more attention to a broader strategic management beyond the specific view of stockholders’ wealth maximization (Becchetti, Ciciretti, Hasan, 2007). To accomplish long-term sustainability in a constantly changing environment, the firm’s reputation becomes a crucial factor to both stockholders and shareholders and should therefore be considered carefully (Ardend, 2009).
7 consumer perceptions overtime. In order to manage these external variables correctly and in an effective manner, firms probably need to keep internal variables, as stakeholder and crisis management, into consideration as well. Especially in the current economic downturns, it is plausibly of considerably relevance for bank to manage both the internal and external variables in the company’s environment more closely.
In the shadow of the financial crisis, scholars found that it is of great importance for banks to develop and maintain a credible reputation (Harris, 2002). In fact, this is not only significant on firm-specific level. Moreover, it is of significance for the entire financial industry (Hatch, 2003). For instance, if one player in the sector publicly fails to take care of their operations it can be of great influence on the public’s perception towards the entire industry. See, for example, the case of the (former) DSB Bank (Pruyt, Hamarat, 2010) as stated below.
The reach and scope of the media has broadened up more than ever before. The case of the concerted run on the Dutch DSB Bank is a perfect example of how a firm can quickly lose their reputation by not paying attention to their social environment. Furthermore, it decreases the way customers experience DSB as a corporation. The corporate image depends fully on the psychological aspect created within the minds of customers, consisting of all the information and expectations associated with a product, service or a company providing them.
The DSB Bank was founded and owned by Dirk Scheringa. Soon he became a popular figure and claimed that his bank was untouched by the financial crisis. However, his bank also became rather infamous due to several doubtful lending practices. In the months preceding the concerted bank run, angry debtors and organizations representing them were able to get media attention concerning their grievances, damaging the Bank’s reputation.
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1.2. Problem Definition & Research Question
The above outlined situation clearly illustrates that the consumer’s corporate image is feasibly an important determinant for the successfulness of the corporate reputation. In any case, corporate reputation is a key variable to the overall success of a firm (Fombrun and van Riel, 2004).
A number of recent studies demonstrate strong correlations between a positive corporate reputation and the dependence upon the development of brand management activities (Money, Rose, Hillenbrand, 2010). For instance, the development of the corporate identity mix combined with the overview of customer experiences of daily business operations.
Theorists such as Brown (2006) have indicated two levels that address this relationship at which corporate brand and corporate reputation are associated. First of all, there is the organizational level where the activities are shown what organizations do to improve their corporate brands (Aaker, 2004). Secondly, corporate reputation can also be measured at the individual level. For instance, what do individuals think and feel about companies (Walsh et al, 2009).
Within this present paper, the Dutch banking industry will form the relevant industry for a more in-depth investigation. Consequently, the research objective can be stated as follows:
Can banks, operating within the Dutch financial industry, manage their corporate reputation?
The willingness and the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities, and ultimately, its success in the long run (Cohen, 1990). To convert external information into useful information gives the company a competitive advantage and will positively affect its corporate reputation which is especially relevant for firms operating in the current unstable economic environment. For that reason, this paper is focusing on firms operating within the financial industry.
The aim of this study is to provide an answer to the following main research question:
How should banks manage negative publicity effectively to positively influence the corporate reputation in the long-term?
This in turn can be divided into three main assumptions which, in line with the research question, guides the entire research paper.
1) The media sentiment is an important determinant for the successfulness of the firm reputation.
9 3) Positive experiences of the external variables will contribute to positive perceptions of
the firm reputation.
In order to provide an answer to this research question and to acquire more knowledge about the sub divisions, a literature study was conducted first to determine what already has been written about this topic.
1.3. Relevance of the Research
Most organizations will receive unfavorable publicity at some point in time, and are therefore not likely to avoid corporate crises for long. So, it is important for organizations to treat these suddenly occurred problems effectively, while still protecting its reputation (Lyon & Cameron, 2004). Most scholars addressing the topic of managing corporate reputation within a crisis event are drawing statements about how to formulate the most effective response strategy (Fink, 1986) (Walsh, 2009). The various types of crisis communication have been constructively analyzed by multiple researchers. For instance, Bradford and Garrett (1995) state five different effective approaches in possible response options for firms when they are exposed to unexpected events, such as a corporate crisis. In his research ‘Accounts, Excuses, and Apologies’, Benoit (1995) has investigated several categories of communication strategies to effectively manage the corporate image.
The scientific research was somewhat limited at that time, therefore scholars started focusing on the relational approach. Reputation management, consumer expectations, crisis communication, and stakeholder management were combined by Coombs (2000) into a new theoretical framework.
In the light of current society, consumers’ brand trust is affected through direct experience once the (often negatively loaded) news is amplified through mass media (Yannopoulou, Koronis, Elliott, 2011). For that reason, within this paper, the media will be introduced as an extra variable which affects the trust connection between consumers and brands.
10 Finally, the relevance of this research arises from the fact that the combination of the above mentioned variables is currently lacking of grounded scientific literature as, in the case of this study, it sets its focus on firms operating within the Dutch financial services industry. In other words, this research will demonstrate the influence of these internal and external variables in the light of the Dutch banking industry.
1.4.
Outline of the Paper
This research paper is divided into five chapters. In chapter one, an introduction of the research is given. In chapter two, the theoretical background of the study will be discussed. This section will provide some key definitions of the concepts used, such as corporate reputation, corporate image, stakeholder management, crisis management, and media influence. Throughout the overview of variables, acquired from scientific literature, a conceptual model can be drawn which is shown in the beginning of chapter three called ‘Methodology’. Within this framework, the hypothesized relationships and the associated directions will be presented. Second, the methodology section will also comprise of the discussion of the research design. In here, the instruments and manner of data collection will be construed and, afterwards, the main procedures of (statistical) data analysis will be discussed. In order to gain a better overview a general description of the sample will be depicted. Finally, within this chapter a clarification will be given in the way the questionnaire has been drawn up.
Thereafter, chapter four focuses on the data analysis. Furthermore, in this section the main findings of both the statistical analyses and the analyses in excel will be described. Firstly, the descriptive statistics per variable will be presented. Secondly, the reliability analysis, correlation analysis, one-sample t-test and, finally, the linear regression analysis will be depicted.
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2. Literature Review
This section of the research will contain a literature study to provide an overview of the scientific papers that have already been written by scholars about the subject of this paper, namely corporate reputation. First, a more extensive elaboration on corporate reputation will be illustrated. Secondly, an introduction will be given of the media sentiment and the extent of influence on the financial industry. Thereafter, more insight will be provided in the public attitudes towards the industry of interest. Subsequently, the variables used within this study will be outlined and the relevant definitions will be depicted in order to better interpret the context of the research paper. Ultimately, the key factors will be hypothesized in order to construct a conceptual model which will be presented in the methodology section.
2.1.
Corporate Reputation
2.1.1. Defining Corporate Reputation
One of the most cited definitions of corporate reputation was provided by Fombrun (1996), he defines corporate reputation as follows: ‘A corporate reputation is a perceptual representation of a company’s past actions and future prospects that describes the firm’s overall appeal to all its key constituents when compared with other leading rivals’. Nevertheless, counterparts mention the absence of cognitive components, while Fombrun only highlights affective factors.
According to Gray and Ballmer (1998), ‘corporate reputation can be seen as a valuation of a firm’s attributes, performed by the stakeholders’. In this statement they emphasize the affective aspects of corporate reputation. In his strategic analysis of intangible resources, Richard Hall (1992) pointed out both the cognitive as the affective aspects by stating that ‘a firm’s reputation consists of the knowledge and the emotions held by consumers’.
Within this study, the definition of Hall will be followed because of the combination of both cognitive and affective aspects which form the basis for further analysis. Thus, an organization’s reputation on the one hand reflects its past behaviour while on the other hand it signals its prospects (Basdeo, Smith, Grimm, et al, 2006).
12 image can be seen as an inside-out approach which is all about how the organization wants to be known. The company is able to monitor and adapt this image at any time. Unlike corporate image, reputation is fully possessed by the public.
In his study ‘comparing corporate reputations’, Bromley (2002) argues the following: ‘major companies have as many reputations as there are distinct social groups (collectives) that take an interest in them’. For that reason, subjective, emotional, and cognitive aspects will be combined in this particular research in order to determine the individual’s perception towards a company.
2.1.2. Relevance of Managing Corporate Reputation
Increasing competitive advantage in a globalized and constantly changing economy promotes the development of sustainable competitive advantages. A wide variety of scientific literature states that constructs like corporate reputation may cause sustainable profits (Schwaiger, 2004). In addition, firms with better managed reputations outperform their rivals. Surveys conducted by a considerable amount of scholars consider the idea that a good reputation can become a firm’s strategic asset and is, for that reason, difficult to imitate (Brady, 2005).
13 reputation as a key intangible resource. Corporate reputation is fully dependent on people and is therefore judged externally and viewed differently by multiple stakeholder groups (Hall, 1993). In their research about ‘Corporate reputation and sustained superior financial performance’, Roberts and Downling (2002) suggest that consumers are willing to purchase products or services for premium prices at reputable organizations. Besides, when the quality of these products or services cannot be easily observed by the consumer, the reputation of the firm will form a key role in the decision-making process (Wernerfelt, 1988). In particular for knowledge-based organizations who offer mainly intangible services, reputation will form a major part in the buying process.
2.1.3. Factors Influencing the Corporate Reputation
Advances in technology and (mass) communication have rendered corporate reputation into a more vulnerable position than ever before. In particular, criticism and attacks from pressure groups currently have the capacity to easily reach a global audience (Tucker and Melwar, 2005).
Another major factor of influence towards the corporate reputation is the headline-hungry media that can unpretentiously be used as a stage where criticism can be easily revealed. Especially for those who may otherwise have gone unheard by firms. The sensationalism among people in combination with the highly accessible and widespread tabloids will ultimately have its effects towards the customer’s perception of a firm.
Furthermore, in today’s world social media is taking over control (Daley, 2010). Social media is the social and technological phenomenon which promotes the online presence and participation. Since the introduction of social media the world becomes more connected than ever before. Jones (2009) describes social media as follows: ‘social media essentially is a category of online media where people are talking, participating, sharing, networking, and bookmarking online. Most social media services encourage discussion, feedback, voting, comments, and sharing of information from all interested parties’. Moreover, different forms of social media can be defined like forums, podcasts, social networks, blogs, wikis, and content communities.
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2.2.
Media Influence
The purpose of this paper is to establish the antecedents of changes in the consumers’ perception towards brands during a brand crisis. An important social influence, not only on the behavior of customers but on that of managers as well, can be externally experienced influences which will possibly provide more negative effects on corporate trust. At this stage, the power of the media settles his way into the relationship between the corporate reputation and its consumers.
According to Doms and Morin (2004) the news media is affecting the perception of the consumers using three channels. First of all, the viewpoint of experts is broadcasted through the news media. Consequently, consumers perceive these multiple viewpoints and start to form their own standpoint. Secondly, the volume of media attention to, for instance, the economy can be seen as a major determinant of the consumers’ perceptions of the economy. Within this stage the tone of the media is highly decisive in the process of perceiving the news. Finally, the consumer will start updating its expectations about the economy whether the extent of media attention is increasing.
Results from multiple scholars (Souleles, 2004, Carroll, 1994) have confirmed the fact that these three channels are shaping the media sentiment.
Figure 1: Information flows to consumers (Doms and Morin, 2004)
15 As mentioned before, the headline hungry media can be denoted as highly influential when it comes to consumers’ perceptions towards the topic of interest, i.e. the Dutch banking industry. In his study ‘implications of rational inattention, Sims (2003) established that, for instance, an headline as ‘Recession Possible, will likely conceive more negatively loaded responses of consumers. Besides, headlines comprising negative loaded information will more likely attract the readers’ attention and, moreover, will last longer in the consumers’ mind. Since the media is not known for its neutrality, the consumers’ perception is subject to bias.
In order to analyze the media sentiment and, subsequently, see the interrelationship towards corporate reputation, this present study will follow the approach of Starr (2004), Doms&Morin (2004), and McCarthy & Dolfsma (2009), to build a database of articles published in a widely spread paper. This research paper sets its focus exclusively on headlines published in the daily spread newspaper ‘NRC’ throughout the past 7 years (a more in-depth explanation about the newspaper of choice will be shown in the methodology section). The headlines will be gathered into a database and be divided into different subsections. For example, ‘economic and business related terms’, ‘emotional terms’ and ‘constant’ will be selected and distinguished per headline. Next these terms will be valued as ‘positively loaded’ or ‘negatively loaded’ on the exception of ‘constants’ which will be defined as general economic and business terms such as ‘market’ and ‘value’ and are expected to stay stable over time.
Table 1 will provide a summarized overview of the selected terms, gathered from the NRC headlines, used for further analysis (see Appendix 11 for the complete overview of terms depicted in graphs).
Key Words
N(Econ) P(Econ) N(Emo) P(Emo) Constants
Downturn Improvement Pessimism Optimism Turnover
Recession Recovery Distrust Trust Market
Credit Growth Fear Enthusiasm Value
Table 1. Overview of analyzed terms in the headlines
16 P(Emo) = Positive emotional terms
Constants = General economic and business terms. In order to show if this analysis is credible. These words should be relatively stable over time.
Finally, these distinguished terms will be counted, analyzed, and plotted in multiple graphs to see whether or not striking events occur throughout the years. Afterwards, this database is combined with the data acquired from the questionnaire. The above mentioned terms will function as control variables to check whether there can be major determinants found of the dependent variable corporate reputation.
As a result of the findings in scientific research, it can be confirmed that media sentiment is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
H1: The media sentiment is an important determinant for the successfulness of the firm reputation.
2.3.
Crisis in Banking
In the late fall of 2008, the crisis settled his way into the global financial industry. The breakthrough of the crisis was also well noticeable in the Netherlands. Due to the substantial amount of negative publicity the consequences are still well perceptible in the entire financial industry. Within this period, the public discourse around the banking industry has shifted dramatically. Public discourse can be described as a particular way of talking about and understand the world (or an aspect of the world) (Jorgenssen, Philips, 2002). The public discussion concerning the financial crisis raised attention and citizens became more critical towards and afraid of the industry. Furthermore, they felt more dependent on their bank when it comes to the risk of managing their savings well.
17 The financial crisis constitutes the context of this research. The outbreak of the financial crisis has led to a significant amount of negative publicity for banks. In addition, the public started losing their trust in the banks. Moreover, consumers were getting more critical to these financial institutions and felt more frightened.
2.4.
Management Variables – External and Internal
This section of the study will outline the key variables used for this study. The relevant variables will be defined in order to better understand the context of their connection with the dependent variable, namely corporate reputation. Ultimately, the key factors will by hypothesized to be able to construct a conceptual model which will be presented in the subsequent chapter. Before constructing this model, a division has been made between the variables by labelling them as an external or internal variable. In this particular paper external variables can be characterized as variables that are affecting the firm from the outside environment. In other words, these variables will be shaped by the public’s perception of the firm. The corporation will not be able to fully manage these external variables itself. On the other hand, internal variables are managed from the internal organization and will be carried out in the external environment from the organization.
2.4.1. Corporate Image – External Variable
In highly competitive industries, like the banking sector, corporate image represents an asset which enables organizations to differentiate themselves and to increase their performance ratio. However, in today’s world, financial service organizations often display a weak brand with little knowledge among customers (Harris, 2002). In general, firms still seem to prioritize strictly financial results instead of outcomes based on brand and image perceived by the consumer (de Chernatony and Cottam, 2006).
18 into account (Souiden, 2006).
In their study concerning brand dynamics in financial services, Bravo, Montaner, and Pina (2009) confirm that differences are noticeable between regular brands and financial brands. In fact, the weakness of financial brands mainly stems from the high intangibility of the services they provide. Nevertheless, regular goods are purchased for their added services and intangible advantages they acquire (Lovelock and Gummesson, 2004). Ultimately, the relevance of branding will gain importance due to the degree of intangibility (Brady et al, 2005). In the field of the financial industry, major successes can be achieved by paying more attention to the managerial attitude. In other words, the firm’s brand image is a difficult asset to value and the impact on the public’s attitude is often unknown. Besides, the firm’s brand image is the result of a communication process. In this process, the organization creates and reenacts an identity that possesses standards and values of the brand (Leuthesser, Kohli, 1997).
The firm’s stakeholder’s perceptions form the building blocks for the corporate image. They can be divided in various groups such as employees, consumers and shareholders. Corporate associations encompass the entire set of perceptions an individual has about a firm (Keller, 1993) and serve as strategic points of differentiation (Madrigal, 2000). Though, discrepancies among these stakeholder groups exist and, therefore, each of these groups will feel related to different aspects to the firm. In other words, these groups will start developing its own corporate image that will affect their way of decision-making and, finally, their consumer behavior.
The present perception of a firm’s corporate image, in this case the corporate image of the banking industry, is subject to change. In today’s society, corporate social responsibility is gaining ground. Besides, for organizations operating in the financial services industry it is a must to conduct research on how to obtain their corporate image to remain a successful player in the financial market.
As a result of the findings in scientific research, it can be confirmed that corporate image is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
19 2.4.2. Psychological Attribution – External Variable
Over the past several years, there has been an increasing interest in the way the public understands economic matters, with the realization that that perception is itself a significant economic factor (Leiser, Bourgeois-Gironde, Benita, 2010). Differences have been observed between the public’s opinion and the perception of professional economists (Carroll, 2003). A study of Blendon et al (1997) suggests that the public has a bleaker apperception of what has happened economically compared to the average household. Moreover, the public is more pessimistic than the professional economists when it comes to the future of the economy in general. Several reasons have been given to point out why the economy is not doing better in the near future according to the public.
Further studies have reported this difference in the way of perceiving the economy between these groups as well (Bastounis, Leiser, Roland-Levy, 2004). According to several researchers, discrepancies between psychological, social and economic factors such as education, income or job security are affecting their perspective (Allen et al, 2005).
On the other hand, Leiser and Aroch (2009) affirm that the human mind is not specifically prepared to think about economics. The human mind is influenced by social representations and is affecting the way the public is discovering relations between concepts. Social representations can be described as a combination of three things (Moscovici, 1966). First, there is the primacy of representation or beliefs. Next, there is the social origin of perception and beliefs. Subsequently, there is the causal and possibly constraining role of these representations and beliefs (Flick, 1998). In other words, social representations are socially shared ideas, viewpoints, attitudes, and theories. It is understood as a collective development of a social object by the community for the goal of behaving and communicating (Moscovici, 1963).
Recently, the theory of social representations has sets focus on phenomena that become more important for the current society. For instance, the links between the society and the individual, media and public are getting stronger than ever before. Currently, the media naturalizes social thinking and generates collective cognition what immediately influences the way of communication reports Hoijer (2011) in her investigation about social representations, a new theory for media research.
20 Amplification of Risk Framework (Kasperson, Pidgeon, Slovic, 2003). This model not only envisions the complexity of risk perception, moreover, it sheds light on the communication process within a holistic model.
The framework analyses the direct experience of risk in combination with the indirect or secondary experience of risk. The former aspect encompasses the reception and analysis of information. The interaction between risk events and social processes supports the conclusion that risk has meaning only to the extent that it affects how people think about the world and its relationships. In addition, the information system itself and the way the public reacts are essential aspects in determining the nature and magnitude of risk.
In his paper about the social amplification of risk, Kasperson (1988) shows that the information systems will broadcast risky events whereby the power will gradually intensify. The information system is in control of the flow of signals. Besides, the system will apply filtering what will have its impact on the power of the information flow.
After the reception of these signals the social processing as well as the individual processing will begin. Several influentials can be distinguished that will differently absorb the received information. For instance, discrepancies will exist between the perceptions of the news media towards the risky event. Moreover, opinion leaders within social groups, public agencies, personal networks, scientists, or the risk-management institution will all form their own viewpoint towards the occurrence. Through these various point of views, the amplification of the event has started to acquire its leverage on the corporation. Once the spread of impact has increased, it will find its way towards the company level. Because of the attachment of social values to the secured data the implications for management and policy practices of the company can be devastating. Plus campaigns can be coordinated to take action against the risky event or even more crucial, towards the entire company. These groups engaging activities will consequently have a major impact on the behavioral intents of the entire community (MacMillan, Money, Downing, 2005).
As a result of the findings in scientific research, it can be confirmed that psychological attribution is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
21 2.4.3. Trustfulness – External Variable
It has been proven that the better the global reputation of a firm, the more favorable it is among (potential) consumers (Souiden, 2006). Feelings as trust and affirmation are crucial to gain positive associations towards financial services.
The way the public perceives the financial industry is highly decisive when it comes to customer loyalty towards a brand or in this case a bank. Research has found that several characteristics can be indicated that affect the favorability of an individual’s attitudes toward the banking industry. Furthermore, research has pointed out the antecedents of changes in public attitudes towards the banking industry following the global financial crisis. The main result of these studies manifests a substantial deterioration in the degree of favorability of public attitudes towards this specific industry.
Public attitudes, or consumer behavior, examine the personal circumstances and characteristics reasonably influencing the favorability of a consumer towards the banking industry. According to Bennet and Kottasz (2011) these attitudes have changed substantially due to the financial crisis that began in 2007/2008. They also acknowledge that the media possesses a high share in the way the behavior of the consumer has been shaped overtime. The media, by their large reach, placed the blame for the crisis largely on the US and the West European Banks. In addition, they have been accusing them of having capitalized on loopholes in regulatory systems to engage in exorbitantly risky activities (Taylor, 2009). Furthermore, they have been found guilty of irresponsible financial management and the accumulation of non-durable levels of debt.
For several reasons it can be useful to investigate the way the public attitude has been shaped and of what variables it is consisting. For instance, research has found that behavior can affect the consumer’s decision-making process, can influence savings levels (Cox, 2007), decisions concerning buying financial products, the long-term relationship and customer’s loyalty with financial services organizations (Leiser et al, 2010), public word of mouth, and shareholders’ willingness to purchase equity in the financial industry.
22 traits and how they influence attitudes. In the end, these attitudes are of great importance in the light of the performance criteria. Moreover, it can attribute the public’s evaluation and loyalty overtime. As a result, more insight is obtained and should enable managers to communicate and interact more effectively with shareholders (Bravo et al, 2009).
According to Hiscock (2001), the ultimate goal of marketing can be described as the way to generate an intense bond between the consumer and the brand, besides the main ingredient of this bond is trust’. Not only can trust be seen as one of the most important building blocks of a relationship, furthermore, it is the most important asset a brand can possess.
Recent developments in the literature support the fact that understanding a consumer-brand relationship also requires an analysis of the consumer’s trust in the brand (Delgado-Ballester et al., 2003). This amount of trust has also implications on today’s current brand management practices. Besides, areas such as brand loyalty and brand equity have been subject to change as well.
As a result of the findings in scientific research, it can be confirmed that trustfulness is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
H4: Positive experiences of the trustfulness towards the firm will contribute to positive perceptions of the firm reputation.
2.4.4. Crisis Management – Internal Variable
As Rebecca Madeira, former vice president of public affairs at Pepsi highlights, ‘your reputation can be your biggest asset or your biggest liability’ (Morley, 1998). In other words, a poorly managed reputation can lead to a corporate crisis.
23 In times of crisis, a corporation must often take steps to please multiple audiences. For example, local citizens, stockholders, shareholders, governmental regulators, employees, action groups, and politicians (Lyon, Cameron, 2004).
In his study about consumer reaction to negative publicity, Dean (2004) was questioning the effects of corporate reputation, response and responsibility for a crisis event. First of all, crisis can occur in several ways. Seeger, Sellnow and Ulmer (1998) have provided the following definition: a corporate crisis can be seen as an unexpected, non-routine event that creates uncertainty and threatens an organization’s priority goals. Therefore, it is important to examine the effect of the company’s response options. Moreover, possibly even more important, how will the factor of blame for the unexpected event be valued by its customers in terms of corporate reputation and response options to the crisis event? Many scholars have been examining these effects and have applied several methods to see whether or not crisis and the organizations’ behavior influence the corporate reputation. Following the research of Bradford and Garrett (1995), five response options to crisis events were reviewed, namely 1) no response, 2) denial, 3) offer an excuse, 4) admit that the organization caused the event but argue that the severity of the event is less than published, and finally 5) admit that the crisis event is tough and accept the accountability for the event. Consequently, research has shown that response strategies towards crisis events act as important protectors for the corporate reputation after a crisis (Coombs, Holladay, 1996).
As a result of the findings in scientific research, it can be confirmed that crisis management is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
H5: During financial crisis, a better regime for crisis management will lead to positive perceptions of the corporate reputation.
2.4.5. Stakeholder Management – Internal Variable
These ‘collectives’ can be seen as relatively homogeneous groups of people who share a common interest in a reputational entity such as a firm. In other words, these ‘collectives’ are originally groups of stakeholders. So reputation can differ per stakeholder group. Ultimately, the valuation of corporate reputation depends on the group of stakeholders it is perceived by.
24 perceptions, which an organization should take into account (Davies et al, 2003).
Besides, organizations should consider the purpose of their reputation. Some researchers assert that a good reputation for instance requests premium pricing, attracts better employees, or may involve better endorsements. Davies et al (2003) suggests that beneficial reputational outcomes consist of customer loyalty and employee retention. Gaines-Ross (1998) confirms these benefits in his study. The underlying assumption is that these factors result in long-term financial benefits as in a better financial performance and shareholder value.
These perceptions mentioned above are of great influence on the attitudes of stakeholders towards the company. In general, stakeholders do not bind themselves easily to a firm. Trustworthiness and credibility are key determinants to stakeholders towards a positive perception of the corporate reputation. Organizations are not in the possession of these factors that stakeholders hold to them, but they are in a position to engage in activities that will enhance their corporate reputation
As a result of the findings in scientific research, it can be confirmed that stakeholder management is an important determinant to facilitate a successful corporate reputation strategy. Therefore, for this study it is hypothesized that:
25
3.
Methodology
The research methodology comprises of five sections. First, there will be the presentation of the conceptual model. Second, the development of the questionnaire will be described. The two parts will be outlined. Thereafter, a discussion of the main descriptive statistics will follow. Within this section a general description of the sample will be presented. Thirdly, the dependent variable, as stated in the literature framework, will be construed in order to clarify the way of analyzing this key variable. Thereafter, the internal, external and control variables are outlined, as they can be seen as the most important variables for this research. Furthermore, it will discuss the instruments and data collection. These variables are required to ultimately investigate the hypotheses. Finally, the procedures of data analysis will be discussed. This is needful to indicate what kind of statistical tests have been conducted for this study.
3.1.
Overview
Figure 2 shows the research model which clarifies the links that have been made in the literature framework and culminated in this particular study. These linkages have been identified by editing hypotheses. In this particular study, corporate reputation will be measured using a questionnaire. Three main topics have been found in the scientific literature as being associated with the dependent variable corporate reputation. These are (1) media depiction, which will be evaluated using a database of NRC headlines, (2) internal variables, such as ownership structures, stakeholder management, international focus, and crisis management, which we collect from the literature review and analyse them as control variables. The final independent variables are the (3) external variables such as psychological attribution, trustfulness, and corporate image, which will be acquired from the questionnaire.
26 Figure 2: Conceptual Model
3.2.
Questionnaire Development
The majority of sources used for this study will constitute of quantitative data, which originate from the distribution of a questionnaire. The data was gathered among random customers with different socio-economic backgrounds. The questionnaire was about consumers’ perception towards the banking industry and consisted of 37 questions. It took around 15 minutes to complete the survey. Moreover, two different versions of the questionnaire were developed. The language of the first version was English and the second version was distributed in Dutch. The main goal of these varying questionnaires was to reach as much respondents as possible. Besides, the effect of distributing the Dutch questionnaire was that the diffusion around respondents differs greatly. The differences between, for example, socio-economic status and age were of relevance for this study. The questionnaire was distributed online via social media. Within two weeks already 182 respondents had filled out the questionnaire.
27 A series of item scales were used in the construction of the research instrument. These multi-items scales follow the guidelines drawn up by Churchill (1997) and Rossiter (2007) in their research for developing better measures of marketing constructs. The questionnaire is broadly structured into five components. This study suggested these factors as potential influences on customers’ perceptions towards the banking industry.
For this present research paper, the questionnaire was split up into two parts. In order to provide a general and a more detailed presentation of the sample the questionnaire consisted of two parts. The first part can be noted as the more general part. The second part will provide more in-depth knowledge about the respondent’s perception towards the multiple banks. The sections below will present the main differences between both parts.
3.2.1. Questionnaire Part I
The final questionnaire began with items concerning age, gender, status and income of the respondent. Therefore, more information has been generated about the socio-economic status of the sample group.
The following section represented the respondent’s attribution of blame for the crisis. This was measured on a five point scale (strongly disagree/agree). Besides, some items in this section were reverse-scored. In other words, this section offered an overall measure of the degree to which deficiencies within and misbehaviour by the banking industry were blamed for the crisis.
3.2.2. Questionnaire Part II
The questionnaire was split up after this question: ‘To what extent are you familiar with the following bank’. When the respondent filled out that they were moderately, very or extremely familiar with the bank, the sections about corporate brand beliefs, corporate reputation and the consequences of corporate reputation is demonstrated. On the other hand, if the respondents filled out that they were not at all or slightly familiar with the corresponding bank, the following questions were skipped and the respondents were redirected to the same question about the second relevant bank.
The third component of the questionnaire, as stated above, is focusing on the operational measures of the construct of Corporate Brand Beliefs. Items as the degree of friendliness, warmness and conscientiousness of the particular bank are part of this construct.
28 construct. The main items tested are ‘trust’ and ‘positive emotions’ towards the different banks. The fifth and final component of the questionnaire consists of the operational measures of the construct for the Consequences of Corporate Reputation. To measure the consequences items as loyalty, retention, investment of time, advocacy and support has to be taken into account.
Ultimately, one had to take into account as well that some questions and statements about the relevant banks in the questionnaire had to be stated in a negative form. Otherwise, respondents could have filled in the questionnaire in a certain direction and it could therefore become biased. In order to acquire an objective overview, respondents were forced to think first about the several statements before answering them. Consequently, this will put the negative statements more into perspective.
3.2.3. Description of the Sample
From the sample of 182 respondents, 148 filled out the first and more general part (Part I) of the questionnaire completely. 120 out of 182 respondents filled out the entire questionnaire (Part I & Part II) including the questions about the degree of familiarity with seven banks. This yields a final response rate of 65,9%. The average age of these 182 respondents was 31 (SD = 13,92).
Figure 3: Age distribution out of 182 respondents
29 average, the majority of the sample group estimates their income level as average (93 respondents, 50,5%), and the last group values their income as below average (68 respondents, 37%).
Figure 4: Income distribution among the respondents
Finally, table 2 shows the distribution of bank accounts among the respondents. In other words, 111 out of 182 respondents were, for example, customer of the RABOBANK. The majority of respondents is an active member at the RABOBANK. The second and third largest accounts are respectively ABN AMRO and ING. The banks included within this study have been selected based on their differences in terms of size, strategy, and target population.
Bank Account Yes No
ABN AMRO 43 respondents = 23,4 % 139 respondents = 75,5%
RABOBANK 111 respondents = 60,3% 71 respondents = 38,6%
SNS BANK 13 respondents = 7,1 % 169 respondents = 91,8%
ING 46 respondents = 25% 136 respondents = 73,9%
TRIODOS 3 respondents = 1,6% 179 respondents = 97,3%
ASN BANK 7 respondents = 3,8% 175 respondents = 95,1%
FRIESLAND BANK 5 respondents = 2,7% 177 respondents = 96,2%
Table 2: Distribution of memberships among respondents per bank
3.3.
Dependent Variable – Corporate Reputation
30 (Money, Rose, Hillenbrand, 2010) was partially used. However, within this study media depiction forms a key factor in defining the value of the corporate reputation. Therefore, two datasets will be used. The first dataset arises from the questionnaire. The second dataset was gathered by scanning NRC headlines throughout the past 7 years.
3.4.
Independent Variables
To be able to test the hypotheses stated in the literature framework, several important variables need to be analysed in order to draw conclusions. These variables are also known as the independent factors in this inquiry. In other words, these variables can be of influence on a successful reputation of a firm.
Therefore, the following independent variables were included in the questionnaire: 1) Media Depiction
2) External Variables 3) Internal Variables
3.4.1. Media Depiction
The type and tone in the media can be one of the determinants for a customer that defines their perception of a brand and subsequently the reputation. In order to conduct this analysis, the newspaper ‘NRC Handelsblad’ has been chosen to estimate the media sentiment over the last 7 years (2006-2012). Besides, GDP numbers have been looked up to consider if there can be similarities found in the representation of the media.
Recent literature has indicated that negative publicity attracts the readers’ attention. Moreover, news with a negative loading will last longer in the customer’s mind. Hence, the type and tone in the news will be measured by scanning the daily headlines in the NRC newspaper for the last 7 years (2006-nov 2012). This timeframe has been selected because of the certain amount of time prior to the financial crisis. Because of the broad timeframe, the ability to compare different moments in time (prior to the crisis, crisis years, and the aftermath of the crisis) becomes more visible. In other words, 2006 until midway 2007 can be seen as the years prior to the crisis. From 2008 until 2012 can be denoted as the crisis years.
31 collected into quarters and depicted in tables using Excel. Thereafter, multiple graphs were plotted to present the media sentiment throughout the past 7 years. Finally, the headlines that were gathered arise from the following sections within the newspaper: front-page, domestic news, foreign news, economic news, media, other news, and the final page.
Ultimately, the outcomes of this analysis will be combined with the outcomes of the SPSS dataset to shed light on the way a customer perceives the reputation of the financial industry.
3.4.1.1. Why NRC?
‘NRC Handelsblad’ is a daily spread news journal. The NRC is an appropriate newspaper for this particular analysis because more than 60% of their readers is higher educated. In addition, the readers possess jobs mainly in the following sectors: consultancy, business services, and the national government. The circulation of the newspaper is 496.000.
3.4.2. External Variables
As a result of the findings in scientific research, it can be confirmed that the below stated external variables can be seen as important determinants to facilitate a successful corporate reputation strategy:
- Corporate Image
- Psychological Attribution - Trustfulness
The external variables will be evaluated using a questionnaire.
3.4.3. Internal Variables
Table 3, illustrated below shows an overview of the banks included in this particular study. The chosen banks differ in strategy and future perspectives. Besides, they manage the selected internal factors, selected for this research, in a different way. This overview should enable one to see similarities and differences between the banks. Besides, this section will emphasize more background information per independent variable for each bank. The information depicted in the table has been fully established from published annual reports for each of the 7 banks.
32 depicted in the table were used for further analysis in SPSS to measure whether or not they influence the dependent variable corporate reputation.
Table 3. Overview of Internal Variables
Strategy
Strategy can be defined as a long-term approach, based on a shared vision, to achieve defined outcomes (Wilson, Smith, Dunn, 2007). This framework will provide guidance and sets principles that will form major determinants for future decision-making and actions. In order to demonstrate the impact of the independent variable ‘strategy’ towards the dependent factor ‘corporate reputation’ this factor was administered as a control variable.
1 = Growth Strategy
This strategy can be defined as one that is based on investing in companies and sectors which are growing faster than their peers. In addition, growth strategies may follow different courses, i.e.
33 market penetration, market development, product development, and diversification. All of them entail the ultimate goal of expanding the consumer market for company’s services.
2 = Control Strategy
This strategy can be declared as a process of monitoring and improving the organization’s internal environment fit with the external environment. Ultimately, the organization is aiming to maximize its strengths and market opportunities (Source: Annual Report 2011 – ABN AMRO, SNS BANK, FRIESLAND BANK).
3 = Sustainable Strategy
Within business operations, sustainability is closely linked to corporate social responsibility. It can be seen as a business strategy that is aiming for long-term corporate growth and profitability by implementing the environmental and social issues into their business model (Source: Annual Report 2011 – RABOBANK, ING, TRIODOS, ASN BANK).
Ownership structures
Different ownership structures can be indicated when comparing the 7 banks. The list shown below will outline the 5 different ownership structures which were indicated as being relevant for this study based on the banks’ annual reports in 2011. In order to demonstrate the impact of the independent variable ‘ownership structures’ on the dependent variable ‘corporate reputation’ was evaluated as a control variable.
1 = Cooperative Structure
2 = Stockholder Structure (listed – AEX) 3 = State Owned
4 = Holding
5 = (Controlled) Stockholder Structure (not listed on the AEX) Stakeholder Management
34 International Focus
Another internal variable was selected in order to compare the different banks within this present research is ‘international focus’. In other words, is the bank operating on a national or international scale. The outcomes arise from the annual year reports over 2011. In order to demonstrate the impact of the independent variable ‘international focus on the dependent factor ‘corporate reputation’ this factor was analyzed as a control variable.
0 = No 1 = Yes
Crisis Management
Crisis management is the process by which an organization deals with an unexpected event that may threaten or even harm the corporation. Within this present study, crisis management has been included as an independent variable to determine whether or not it is affecting the dependent variable ‘corporate reputation’. Again, the information is based on the bank’s annual year report over 2011. Crisis management will be collected from the questionnaire. The below depicted list shows an overview of the varying crisis approaches applied by the banks.
1 = No
2 = Audit, Compliance, and Risk Committee (ACRC) 3 = (Sustainability) Risk Management Committee 4 = Compliance Risk Management Officers
3.4.4. Control Variables
In this study, a number of control variables were selected to measure whether or not they were of relevance towards the dependent variable corporate reputation. As a control variable for the independent variable ‘media depiction’ the quarterly overview of the GDP throughout the past 7 years was used. To be able to plot similarities between the presentation of the media sentiment and the GDP over the years the multiple graphs will be compared. Hence, the economic and business terms and the positive and negative emotional terms that were analyzed using the NRC database will function as control variables in SPSS to check for effects on the dependent variable corporate reputation.
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3.5.
Procedure of Data Analysis
The quantitative data obtained from the questionnaire have been analysed using the statistics program called SPSS. The goal of these analyses is to provide an answer to the research question. The procedure of data analysis is designed as follows:
Descriptive statistics
Descriptive statistics aim to summarize the sample by analyzing factors as the mean, standard deviation, and mode. By using these quantitative measurements a distribution will be presented of the valuation of the statements captured in the questionnaire, filled out by the respondents.
Reliability analysis
Secondly, the reliability analysis was performed to check whether the outcomes of the Cronbach’s alpha were sufficient for further research. Cronbach’s alpha is a coefficient of internal consistency and was used to estimate the reliability within the variables used in this research.
Correlation Analysis
Several correlation analyses were executed to determine the linear relationships between the dependent and the independent variables in this study. In addition, the strength or weakness of the specific relations will be shown after running the analysis. Ultimately, the direction of the relations will be presented.
One Sample T-Test
In order to test the hypothesis, a t-test was applied to see whether the null hypothesis was supported. Significant differences between the sample mean will be highlighted through the use of this test.
Simple Regression Analysis
36
4. Results
The fourth chapter of this study will elaborate the main outcomes that can be drawn from the data gathered by the questionnaire. Furthermore, this chapter presents the results of the analyses that were performed on the dataset of headlines acquired by the NRC throughout the past seven years. The following subsections will present overviews of the results per variable, including the SPSS-output of the descriptive statistics, reliability analysis, multiple correlation analyses, one-sample T-test, and finally the simple regression analysis.
4.1.
Descriptive Statistics
The tables presented in Appendix 2, 3, and 4 shows an overview of the descriptive statistics of the dependent variable and multiple independent variables tested in this study. For instance, Appendix 2 provides more insight in the more general part of the questionnaire. These first and more general questions were included to introduce the respondents to the topic of this research. Furthermore, this part intended to test the change in perception before and after the crisis. For that reason, the respondent had to agree/disagree on several statements. A value of 0 means ‘disagree’ and a value of 1 means ‘agree’. In addition, a 5-point Likert-scale was implemented, with a value of 1 meaning ‘strongly disagree’, 2 means ‘disagree’, 3 ‘neither agree nor disagree’, 4 means ‘agree’, and 5 means ‘strongly agree’.
To be able to provide an overview of the results, the mean, standard deviation and the mode were analyzed. Moreover, looking at Appendix 2, it is interesting to note that the majority of respondents’ prior perceptions of the banking industry tended towards a competent and more trustworthy image. When the crisis had settled in, their perceptions have been changed tremendously. For instance, when it comes to analyzing the statements about ‘trustfulness’, the attitudes of the respondents towards the banking industry were showing a more distrustful perception. They no longer perceive the banking industry as competent or trustful; however, they believe it is driven by greed. Besides, feelings of anger have become part of the respondents feeling towards the banking industry. Finally, the majority of respondents agree that the media often have contributed to the crisis and, more importantly, is responsible for the crisis.
37 advance, table 4 is providing an overview of the extent of familiarity per bank with the number of respondents taken into account. A value of 1 means ‘not at all familiar’, 2 means ‘slightly familiar’, 3 ‘moderately familiar’, 4 means ‘very familiar’, and 5 ‘extremely familiar’.
Extent of familiarity per Bank M(SD) Mode
ABN AMRO (n = 148) 2.39 (1.067) 2 ING (n = 127) 2.39 (1.127) 2 Rabobank (n = 120) 3.33 (1.191) 4 SNS (n = 106) 1.56 (.840) 1 Triodos (n = 105) 1.24 (.528) 1 ASN (n = 110) 1.41 (.758) 1 Friesland Bank (n = 113) 1.32 (.795) 1
Table 4. Extent of Familiarity per Bank
In addition, respondents who appeared to be ‘not at all familiar’ or ‘slightly familiar’ were directed to the exact same question for the next bank. In other words, the values 3, 4, and 5, means that the respondent had answered all the questions for the relevant bank.
4.1.1. Media Depiction – NRC Headlines
Nowadays, the sentiment in the media can play a key role in the way a customer perceives the reputation of a firm. In this particular research, the influence of the media on the reputation of a firm has been measured in two ways. Initially, through the use of the questionnaire, more in-depth information has been acquired regarding the gathering of knowledge about the crisis. Appendix 2 points out that the majority of respondents have obtained their knowledge from reports on TV, articles in the daily press/magazines, and from online sources. Contiguously, the analysis of the extent of media contribution to the crisis shows an interesting deviation, namely respondents believe that the media have often contributed to the crisis. In addition, respondents also discern the media for a great part responsible in the way they have reported the situation.
Besides analyzing the questionnaire, more in-depth knowledge about the influence of the media has been secured by building a new database. This database consisted of all headlines, published in the daily spread newspaper NRC, throughout the last 7 years (January 2006 – November 2012). As mentioned in the literature framework, by scanning certain pre-selected words, patterns will become visible.
