How important is reputation to a company

The question of how important a company's reputation is to the company depends on how customers choose their products. Reputation could be differentiated into two categories: one is quality reputation, the other is moral reputation. In many cases, customers see quality reputation more than moral reputation; while brands have similar quality reputation, customers will then consider about these bands' moral reputations.

However, any type of reputation needs its company to spend its money on building the reputation; therefore, the cost of building reputations is usually included in the company's cost of production. Companies always include their costs of production in their products' prices. Although prices are determined by the market force, only when the prices are not lower than the costs of production, the companies will be willing to produce the products. Therefore, the companies which build their reputations are those which can supply products at prices which are higher than their ordinary costs of productions. Based on the economic concept, it means these companies usually have some form of market power, and they are not in a perfectly competitive market.

However, building reputation can be companies' tools to differentiate their products from their competitors. Moreover, companies can build different reputations to differentiate their customers and markets so they can split their market into several smaller parts, and each of them can form market power and stop other companies from entering the market. I think the Swiss watch industry is a classical example of building different reputations to differentiate their customers. Swatch is a brand that targets the younger customers, Rolex builds its reputation of marking its customers as the social elite group, Patek Phillips builds its reputation of building its products for collectors. So their customers are more loyal to their brands, a Swatch buyer is unlikely to switch to buying a Patek Phillips watch.

Therefore, reputation is not something companies build for being moral, it is built based on profit purposes and to differentiate companies from their competitors.