Your reputation goes up and down during the course of the game. At the end, it gets turned into victory points, but it also has an effect during the game. Adventurers prefer to buy potions from reputable alchemists.
Green Zone: 14 To 17 Points
If your reputation marker is in the green zone, you get 1 extra smiley face added to your bid. For example, if you offer a discount of 0, you will have 2 smiley faces instead of 1.
But you also have more to risk. Whenever you lose reputation, you lose 1 point more.
For example, if you sell a potion that doesn't have the correct sign, you lose 2 points instead of 1. If you lose 2 points of reputation at a conference, you lose one more, for a total of -3.
This penalty applies even if the normal loss of reputation takes you out of the green zone. For example, if you have 14 points and sell a neutral potion, you end up with 12 points.
When you're this good, everyone expects more from you.
Blue Zone: 18 Or More Points
If your reputation is in the blue zone, the stakes are even higher. You get 1 extra smiley face and you charge 1 extra gold piece for any guarantee you offer. So you could, for example, offer the -3 discount and then offer the 3-gold-piece guarantee. The resulting price would be 1.
Whenever you lose reputation, you lose 2 points more. Again, the penalty applies when you start in the blue zone. For example, if you have 18 points and you lose 5 at once, you will end up with 11 points. (This can actually happen. But it's much more amusing when it happens to someone else).
The higher you climb, the farther you can fall.
Red Zone: 6 Points Or Less
When your reputation is this bad, you must charge 1 less gold piece for any guarantee you offer. This is not a discount. It is a penalty applied after selling order has been determined. For example, if you offered the -2 discount, you would have to offer the exact match guarantee. (It's normally 4 gold pieces, but you must charge 3 for it. After the discount, its price is 1). You can't offer the -3 discount anymore.
The upside is that when you lose reputation, you lose 1 point less. For example, selling a potion of the opposite sign has no effect on your reputation now. If a conference makes you lose 2, you lose only 1. Your reputation can never go below 1. Any loss that would take it below 1 still leaves you with 1 point of reputation.
When everyone believes you to be a terrible alchemist, it is difficult to lower their opinion of you.