What is a potential consequence of reputational risk?

Reputational risk refers to the potential loss that a company may face as a result of negative public perception or unfavorable opinions about its brand, practices, or values. The correct answer highlights a significant consequence of this risk: loss of customer base and diminished market value.

When a company faces reputational issues, it can lead to a decline in consumer confidence and trust. Customers may choose to switch to competitors whom they perceive as more reliable, ethical, or aligned with their values. This loss of customers directly impacts sales and revenue, which ultimately contributes to a decrease in the company's market value. Additionally, as public perception worsens, investors may become wary, further driving down stock prices and overall market standing.

In contrast, the other options do not accurately reflect the repercussions of reputational risk. Increased consumer trust and loyalty, heightened brand recognition, and improved product offerings are positive outcomes that would typically arise from a strong and favorable reputation, rather than from a scenario where reputational risk is at play.

Hence, recognizing the impact of reputational risk is crucial for companies aiming to maintain their customer base and sustain their market value.