14th February has been a day of love, hope, disappointment and expenditure across the world for hundreds of years – and one of booming business. Back in medieval times lovers exchanged flowers and confectionery. Paper Valentine’s Day greetings cards, became popular in the early nineteenth century.
In the UK today, around half of the population spend money for Valentine’s Day – some £1.3 billion on cards, flowers, chocolates and other gifts, with an estimated 25 million cards being sent. In Japan, chocolate companies make half their annual sales from Valentine’s Day gifts or giri-choco.
Lloyd’s underwriter Tom Hoad’s wife Nicky runs a florist’s business, so he knows how valuable Valentine’s Day is to traders. “In the Valentine’s period her turnover is 10 times normal trading, ” he says. “And the same applies to many retailers whose turnover is boosted at a time when there’s relatively slow economic activity.”
As an enterprise risk specialist with Lloyd’s insurer Kiln, Mr Hoad also knows that if things go wrong on such a special day for consumers, a retailer’s reputation can be even more on the line than usual.
At a basic level, for example, there could be an unexpected disruption to the supply of imported roses or gift ideas, leaving stores (and more importantly suitors) empty handed. However, good risk management and conventional insurance can protect retailers against such problems.
A more worrying issue for retailers around Valentine’s Day is that something totally unexpected happens and the fall-out goes viral. The apparent importance of Valentine’s Day to consumers can only amplify the impact of a bad experience on a company’s reputation, Mr Hoad says.
“Consumer loyalty can be lost and the brand seriously impaired. Imagine if the roses sold by one of the big retailers were discovered to be tainted with something inconceivable. Or a romantic ready-meal special for two caused an e-coli infection.”
The recent controversy surrounding horsemeat in food demonstrates how social media and broadcast news outlets combine to create a maelstrom of negative media. Big fall-out can happen when only relatively few people are directly affected by an event. The problem may not even be to do with the product itself. It could be a celebrity endorsement around a Valentine’s Day promotion that backfires, for example, or an issue created by a disgruntled employee.
Yet surprisingly, reputational damage – the financial impact of negative publicity following a set of fortuitous events – can be insured at Lloyd’s.
Kiln’s Mr Hoad explains the key to designing a reputation product: “Electronic point of sale technology is universal in the retail environment, recording ‘basket spend’ or online sales and volume of customers. By mirroring the use of data to measure the increase in sales due to a marketing campaign, it’s possible to measure loss of sales income following sudden negative publicity, ” Mr Hoad says.
The business itself can usually identify the potential reasons for negative publicity that would damage its ability to generate expected sales volumes over a period. It could be the loss of customers’ personal data or product recall for example. Another potential risk is suppliers behaving outside their corporate responsibility guidelines, bringing the product into disrepute.
“We have capacity of $25 million for our insurance product and there is more capacity in the wider Lloyd’s market. Designing a coverage is not the problem. It is a question of the corporate risk manager being open and honest about where reputational problems could arise.”
(source: Lloyd’s of London)