How Can Data Breaches Affect Brand and Reputation


While one cannot ensure 100 per cent protection against data breaches, building the right frameworks and a conducive culture goes a long way in minimising risks.

According to a report, 46 per cent of organisations have suffered reputational damage due to a data breach, and 19 per cent of organisations have suffered reputation and brand damage due to a third-party security breach.

There are huge chances almost everyone who has an email address or using social media or shopping via eCommerce sites has been a victim of a data breach some way or the other — from a social media hack to enormous bank account losses. If this happens to an individual, it must be happening with the big brands on a higher level. And it’s true that big brands have witnessed such massive breaches and paid staggering amounts to receive from such incidents.

According to IBM’s Cost of a Data Breach Report, the average cost of a data breach worldwide in 2020 was $3.86 million, while in the US, it was $8.64 million. Furthermore, the current pandemic, and more specifically remote work, could cause breaches to cost an additional $137,000.

But big data breaches don’t only cause financial losses. They can also tarnish your reputation.

According to PwC, 69 per cent of consumers believe that the organisations they use are vulnerable to being hacked and targeted by cybercriminals. According to the same survey, 87 per cent of consumers are willing to walk away and do business with a competitor if or when a data breach occurs. These figures show that consumers are not just wary about firms that handle their most valuable assets, but they are also likely to abandon a company that suffers a data breach. Organisations must adopt rules to safeguard their network from malicious actors while maintaining customer relationships, as consumers are aware of both.

An Interactions Marketing survey found that 85 per cent of shoppers who had personal information stolen due to a security breach tell others about their experience. In comparison, 34 per cent complain about their experience on social media and 20 per cent comment directly on the retailer’s website.

In the last decade, we have witnessed many high profile breaches that gained a lot of attention from the public.

In October 2016, Uber suffered a data breach. Instead of disclosing the details of their incident, they paid hackers to delete the data and remain silent. However, the breach was revealed a year later, resulting in financial penalties and broken customer trust, mainly because they failed to follow the rules regarding data breach notification. The damage dropped their customer perception by 141 per cent that year.

It takes a long time to bounce back from the damage and repair the breach caused to brand reputation. However, it can be done if you have a quick and effective response after it happens.

Target also suffered a data breach but could bounce back thanks to its transparent approach and quick implementation of improvements. Prominent companies like Target usually have an easier time recovering from a breach. SMEs often lack the resources to survive, and their customer base is not strong enough to tolerate such a blow to their reputation.

How data breach damages consumer trust?

No doubt that customer data protection has become more critical than ever. Emails and customer databases can contain sensitive information, including contact and payment information. Nowadays, companies abide by strict email compliance regulations to protect customer data, avoid legal issues, and prevent reputation damage.

If their private data gets leaked, it is natural to expect customers to lose trust in your business. The Ponemon Institute Data Breach Impact study found that 65 per cent of data breach victims lost trust in an organisation due to the breach.

Recent critical infrastructure breaches have also demonstrated how the consequences extend far beyond a company’s digital boundaries. Healthcare hacks have caused chaos in hospitals, developing into patients’ life or death situations. The Colonial Pipeline hack resulted in gas shortages across the Southeast.

Data breach = Financial losses?

Once the brand reputation gets damaged by a data breach, it will also take customer retention down. If they lose faith in your business and start wondering if their data gets exposed – even your loyal customers will have second thoughts.

Additionally, the churn rate (or client turnover) will increase. Customer turnover is one of the most crucial indicators of your company’s health. Your customer base will be unstable if you have a high turnover rate, making it impossible to have a firm plan for future growth if your reputation is already tarnished.

Companies with a reliable customer base need to spend more time and resources attracting new customers to compensate for their lost ones. The bad press and broken trust due to a data breach can be even more challenging.

With high customer turnover rates also comes the decrease in total revenue.

According to the Ponemon Institute, businesses that lost less than 2 per cent of their customers lost $2.67 million in sales. In comparison, companies that lost more than 5 per cent of their customers lost an average of $3.94 million in revenue. Furthermore, stock values drop by an average of 5 per cent once a data breach is revealed.

When you include in the expense of controlling a data breach, you could be looking at financial damages you won’t be able to recover.

What to do

Protect your organisation before a breach even becomes a possibility with critical access management or the management of all necessary, sensitive access points and assets within your organisation.

Purchase secure access control and monitoring software: Access management software can eliminate the need to sift through and undertake a deep dive into large employee and service accounts when anything goes wrong. Robust software can assist an organisation in implementing role-based access control and auditing who accessed what and when regularly.

Implement zero-trust network architecture: Network architecture based on zero trust is precisely what it sounds like. It means that no one in your organisation can be trusted, and no one can join your network without your permission. Furthermore, that person has access to only what they require at any given time.

Invest in third-party cybersecurity: Norsk Hydro, a supply chain and infrastructure company, has massive networks and collaborates with many third parties. They aren’t the only ones, though. If a company collaborates with others, it must safeguard itself and itself. If one of those third parties becomes affected, the infection could spread to their customers’ networks.

The risk of a data breach rises as firms collect more and more data. In a data breach, businesses should have a plan in place to respond promptly and minimise the damage. After a data breach, communication is crucial to preserving a company’s reputation. Be the first to notify your customers if their personal information has been compromised. Be open, compassionate, and show that you’re doing everything you can to prevent future data breaches.

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