What is Brand Risk?

As brand marketing professionals, we delve into the structural issues of developing a brand, and often invest heavily on the “brand building” process but do not take into account the associated risks or undertake a “Brand Risk Analysis” on those risks (at times).

With the growing importance of brand, the risks too, have proportionately grown. Given the rising growth of social media usage, the global financial collapse triggering major socio- economic changes and issues of transparency and trust, all have been catalysts in moving brand risk to centre stage and in the limelight.

Brand risk management can (and should) be identified, measured and managed within the enterprise risk management framework of an organisation. Given that brand risk is multifaceted—strategic, operational, financial, regulatory—and that, currently, these risks are often, managed by organisations in individual silos (departmental planning based), being able to get a true picture of the potential brand risk is poor.

Brand risk evaluation and planning doesn’t deserve such silo based approach but a much more strategic and integrated approach.

But let’s start with “What is brand risk?”

Under traditional risk management (originally the domain of finance), brand risk has no definition. It comes across as an output from other identified risk areas such as lawsuits or adverse regulatory decisions or supply chain issues.

In layman terms we can define brand risk as threats to the brand equity or threats to the brand differentiators that make consumers choose one product or service over the other. Thus brand risk can be defined as anything that threatens:
1. The sustainability of current and future demand for a company’s product or service
2. The company’s commercial freedom

The key, internal areas, where brand risk is (usually) generated are:
1. Poor manufacturing quality
2. Poor customer service (brought about by dissatisfied or not-in-sync with the brand philosophy employees)

Externally areas are:

  1. Behaviour by consumers—boycotting the products or services of the company due to change in perception brought about either by a change in the brand differentiator communication or experience OR due to changing social values
  2. Retail space capturing, buying out of stocks, removing stocks on display etc tactics by competition
  3. Political or community opposition to the brand to do business within a geographical region which limits its ability to develop.

The value of approaching brand risk in a comprehensive manner, utilising the parameter of looking at the brand all round from the point of view of answering the question— “what can affect the sustainability of the brand?”– provides a useful framework for risk analysis.

Such an analysis can aid in corporate planning for business growth as well as in being a measurement for brand equity as a value.

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