The What, Why and How of Brand Risk
The second week of August 2021 saw a particularly strange news story make the rounds. In the midst of numerous reports showing the extent people were trying to escape from Afghanistan and the natural disasters in Haiti, Turkey, Greece and Algeria, news outlets carried a story about OnlyFans. For the uninitiated, OnlyFans is a website that allows content creators to post pictures, videos, articles etc behind a paywall. The site has since become the go-to place for content creators to sell monthly subscriptions to their adult content. The pandemic and lockdown measures saw the site’s popularity surge as both content consumers and creators found themselves stuck at home with excess money or time. The news that broke last week was that OnlyFans had decided to cease allowing content creators to post adult-themed content. As these things do, the news became viral and dominated social media for 2 days straight. Once the fervour died down, people started asking a very pertinent question - why was this happening? The answer, as cliche as it sounds, was money.
Payment processors and gateways etc classify merchants in various tiers. A restaurant will be a green tier - very low risk. A construction company will be a yellow tier - posing a medium risk. A company selling tickets to concerts will be a red tier - a high risk to the processor. Finally, a company selling gold, or weapons or adult content will be placed in the black tier - banned. This tiering system takes various points of concern under consideration when classifying a merchant’s risk level. For example, one risk factor is the chargeback risk. This is calculated by taking the number of chargebacks received for a particular industry and expressing that as a percentage of the completed transactions for that particular industry. The higher the percentage, the higher the risk classification of that industry. Other factors include fulfilment and return timelines as well as non-quantifiable risks such as card association rules and brand risk concerns.
It is in this last point that OnlyFans comes into question. Brand Risk takes into account items or events that could affect how the public views your organization. Just like how Colin Kaepernick was quickly dropped by his NFL team after kneeling during the national anthem, companies can distance themselves from people or items that they do not want to be associated with their brand. This is also the reason why gun retailers are not serviced by credit card companies. Card companies want to avoid being associated with an unlawful shooting that ended the life of an innocent person. This might have a spillover effect of other people not wanting to use credit cards anymore. This practice permeates the business world. From Brooklyn 99 having to cancel 4 episodes due to racial tensions in the USA to Tony Fernandes having to publicly apologize for a Barisan Nasional themed flight back in 2018, brand risk concerns are increasingly prevalent in how a company interacts with its customers.
To further exacerbate this, recent years have seen investors follow the brand risk narrative meaning when a company gets negative press coverage, the desire to buy shares in that company tends to dip. This causes the companies’ share price to fall and as such, means they cannot rely on issuing additional shares to raise cash if needed. This could impact a company’s ability to stay liquid during times of crisis like a global pandemic.
This system that has been put in place can thus be seen in a positive light: we the people have the ability to force corporations to act responsibly and with a conscience like in the case of Brooklyn 99. It can also be seen in a negative light: the morality of a vocal minority could affect the decisions a company can make which could have repercussions on individuals like in the case of OnlyFans.
There are some that argue that Brand Risk management can be seen as the polar opposite of Corporate Social Responsibility, a practice where companies strive to have a positive impact on the world at large. These practices make the company that adopts them seem more ethical and therefore, drives people to want to do business with them. For example, on the 23rd of August, AirBnB announced that they would be providing free accommodation for 20,000 Afghan refugees. Immediately, its stock price jumped by $11 or 8%. This move bought the company goodwill from the public and as such, the company created value for its shareholders. Brand Risk Management, as the polar opposite, serves to ensure that the company does not lose goodwill.
On the other hand, it can be argued that the practice of Brand Risk Management forces companies to bow down to public pressure. As a result of this, companies must surrender some autonomy to ensure survival. For example, in 2017, the CEO of Uber, Travis Kalanick stepped down from Uber after a series of sexual harassment claims surfaced. Whilst Travis Kalanick was not named as the offender, and 20 employees who were directly involved in the harassment claims were fired, the Uber board of directors felt that they had to show that they took the complaint seriously and thus, fired the company’s CEO and co-founder. This step was taken to ensure Uber did not lose its market share.
The reality is that the culture that has enabled Brand Risk to play such a pivotal role in how a business operates is propagated by social justice warriors, industry watchdogs and social media. An example of how powerful these groups can be was on display in March of 2021 when online share traders caused the price of Gamestock shares to surge after news that a hedge fund, Melvin Capital was betting that Gamestock shares were going to plummet. Whilst it started as a few loyal customers of Gamestop purchased shares, they took to Reddit where consumer backlash intensified and people purchased shares in Gamestop just to hurt Melvin Capital. The cause for all this? Melvin Capital not only bet the Gamestop was going to tank but they “borrowed” shares in anticipation of the price tanking. This display of greed was what caused Melvin Capital to be targeted by online traders.
Yet, companies like Goya Beans, Chic-A-Fil and Nike have proven that it is possible to be a target of these groups and not change trajectory. Each one of them has made decisions that have divided the public and caused outrage amongst half the population and come out stronger. Either because they just did not care what the public felt or because they knew that they could outlast any public outrage.
However, for companies on the rise or in extremely competitive marketplaces, the truth is simple - companies cannot afford to ignore Brand Risk Management. But the good news is that you and your company can avoid these pitfalls and stay ahead of the curve when it comes to Brand Risk Management by contacting us for a free, no-obligation, consultation.