news reports are filled with stories of product recalls that damage a company’s reputation and can significantly harm the company’s future sales. furthermore, consumers have harnessed the power of social media and online rating sites to "spread the word" to millions of potential customers about any unsatisfying experiences they have had with products or services. as a result, a company’s reputation for either good or poor quality can increase at an exponential rate. to capture the extent of a reputation for poor quality, external failure costs should include an estimate of how much profit the company is losing due to having a reputation for poor quality.