After studying and reviewing hundreds of marketing-related risk events over the past few years, it is increasingly useful to classify “brand-centric risk” events into specific types. The benefits are fairly clear: by denoting risk events according to type, we’re better able to understand the nature and characteristics of this more specifically defined risk, compared to related – but different – brand risk events. We can open windows into better understanding the causes, corporate demography, and hopefully cures, of these risks through more precise descriptive definitions.
Importantly, by introducing a common taxonomy and classification approach, a more uniform understanding can be accessed across impacted industry, thereby laying the groundwork for more rigorous and solution-oriented management of overall marketing risk.
Through our study at MSA, we’ve identified five major types of brand-centric risks. Here’s a brief synopsis of each type of risk:
- Brand Safety Risk is one of the more visible risks within marketing communications. “Brand safety” is generally terminology co-opted by the media and advertising eco-system to describe ad placement issues. While concerns with brand safety go back decades, today this risk is largely one that occurs in digital and social channels and is often sourced to automated forms of ad placement. Safety risk can damage a brand by making it seem to support controversial platforms on which it has been placed or by placing a company in violation of certain regulatory guidelines. There have been dozens of high profile recent examples and one headline issue has been the on-going ad cancellations from YouTube.
- Key Personnel Risk is the harm a company or brand may suffer when one (or many) of its key, visible personnel is caught afoul of cultural norms, the law, or appearing as a bad actor versus accepted public views. Recent examples of headline personnel risk can be taken from the #me too movement—Harvey Weinstein and the bankruptcy of the Weinstein Company, Steve Wynn and the temporary $3 billion market drawdown at his eponymous firm, Wynn Resorts.
- Customer Engagement Risk emerges when a company’s interactions with consumers and the public goes wrong – and it’s often caused by enforcing company rules or policy for dealing with the public. In this era of heightened socio-economic activism, companies directly engaging the public need to proceed cautiously. Famously, a Starbucks Coffee store recently attempted to enforce restroom usage rules in the case of two African-American non-customers, who were improperly arrested during the incident. Subsequently, Starbucks closed 8000 North American store locations for sensitivity training and has also adjusted their restroom usage policy.
- ESG/Socio-Economic Risk is a direct result of the turbulent socio-economic environment we currently face. Over the past few years, companies have begun to wade into social issues, announcing policies with respect to their brands that are meant to place the brand in a favorable light. An example of this is Delta Airlines’ cancelling an NRA membership benefits program. In the past, most brands avoided wading into such issues. However, today such well-cautioned avoidance may not always be possible and may itself come across as an endorsement of an unfavorably-viewed status quo. Regardless, wading into socio-economic issues is fraught with risk for any brand as our current social environment is so contentious that it’s increasingly difficult for a brand not to sacrifice some portion of loyal consumers over these issues when speaking out.
- Brand Execution Risk occurs with fumbled, controversial or negative execution and delivery of marketing messaging. There are numerous reasons why these types of challenges arise. For example, the sheer quantity of individual ads has exploded with digital and social advertising and things can “slip through the cracks.” Also, and importantly, advertisers and marketers are experimenting with countless new types of marketing service providers, many of whom are inexpert at the curated process of communication crafting. A very high profile example: PepsiCo’s ad for flagship product Pepsi Cola which starred Kyle Jenner seemed to make light of the Black Lives Matter movement; the ad was cancelled immediately with PepsiCo issuing a public apology.
With a common taxonomy, we believe greater understanding and improved management of brand risk will be the beneficial outcome. More and more companies are encountering risk events which are new and focused on their customer and audience outreach efforts. Better approaches are needed – to both preserve brand value, and to maintain and enhance investor value, as well.
MSA co-authored this article with market researcher James Harn, PhD.