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Future Watch: Transparency - How the Social Media Age is Linking Consumers and Businesses

Nov 2012

Until the advent of the internet, companies had the right to tell consumers who they claimed they were – something called advertising. Nowadays, whatever firms have to say is irrelevant, for it can be contrasted with opinions and facts supplied by millions of web users worldwide. Research and communication with consumers via social media has made companies understand that it is no longer possible (and in fact, quite costly) to desire to control information. Looking to the future, while most brands are still struggling to be transparent, others are already thriving on transparency. After all, being transparent is the first step to gaining consumer loyalty.

Future directions

  • Zappos.com: when transparency becomes profitable;
  • The strong bond between loyalty and transparency;
  • Socially responsible.

New business openings

  • Transparent bonds are fruitful for brands; they allow more insight into consumer needs and aspirations;
  • Sending detailed advance information to customers prior to modifying critical areas such as privacy and security policies is mandatory. Facebook skipped this several times and was harshly criticised – even by its most eager fans;
  • Openness is a unique value for firms. According to Scott Monty, Global Digital & Multimedia Comms Manager from Ford, “People appreciate transparency and trust from brands more so than good products. Companies that bring social purpose are the ones that will succeed in the long term”;
  • If not consumers, the market itself will lead brands to transparency. Apple, for example, avoided informing the public about the manufacturing costs for its products in China until IHS iSuppli, a market research firm specialising in electronics, began dismantling iPhones and publishing the prices of each of their parts a few hours prior to their launch.

The new context

Until the internet and social media boom, brands and companies rarely admitted mistakes or explained their problems. They simply complied with legal regulations. In some cases, they also assumed additional commitments such as protecting the environment, but only as a marketing issue. Indeed, things like lying in an ad were not considered morally questionable – it was just part of the game.

In that game, in case sensitive information leaked out, the communication protocol for crises indicated a series of steps to follow: apologise, recognise mistakes, and inform actions taken to mitigate negative effects to prevent it from happening again in future. Being transparent was simply being on the defensive.

The advent of the internet and the possibility of storing and transmitting data that came with the digital revolution changed the way consumers and firms bonded forever. The 2.25 billion web users in 2011, according to statistics from Euromonitor International, became an army of watchdogs eager to find problems or negligence (and to go viral about it). Moreover, the direct link between brands and consumers through social networks humanised this bond, marketing experts agree. The answer to this wave of changes was transparency, a new value increasingly demanded by users and consumers, and one of the few attitudes that make them respect companies. In the words of José González, head of Spanish brand consultancy Think & Sell, “currently it is costlier and harder for companies to hide information from their clients”, that is why “earning their trust through transparent bonding” became a must.

Global Internet Users: 2003-2012
Internet Users in billions and as a % of the total world population
Source: Euromonitor from International Telecommunications Union, OECD, UN and national statisticsNote: Data for 2012 is forecast

Zappos.com: when transparency becomes profitable

A 2011 briefing published by consultancy PwC and entitled “Engage customers through social media” pioneered the debate on how “conversations based on authenticity, transparency and honesty” could transform and drive businesses and protect them from potential crises. Its authors mentioned the story of online footwear and clothing store Zappos.com (currently owned by Amazon.com), which managed to expand sales from US$1.6 million in 2000 to US$1.19 billion in 2009, in part due to its open, transparent corporate culture.

CEO of Zappos, CEO, Tony Hsieh, created ten principles, the sixth exhorting his staff to “build open and honest relationships with communication.” Hsieh, who has 2.6 million followers on Twitter, encourages his staff to use social networks “to put a human face on the company and engage with customers.” In particular, he asked them to use Twitter “for casual communication rather than promotions or marketing pitches, in an effort to humanise the company”, as reported by a May 2009 article from Inc. Magazine. Hsieh repeated the strategy in January 2012, publishing a message on his Twitter account that read “I sent the following security incident e-mail to Zappos employees today”, recognising a problem on the computer security sector that affected 24 million users. Transparency and trust saved his company, according to ensuing comments by specialist publications.

The strong bond between loyalty and transparency

For ten years, Larry Hochman held many senior positions at British Airways and the firm's loyalty management company AirMiles. Now a lecturer and the author of books like “The Relationship Revolution”, he considers that loyalty is still important for brands but that it can no longer be earned through programmes such as Air Miles but via the unique value of bonding. Hochman explains that transparency is essential in creating a relationship based on trust. “Transparency is a new and necessary way to collaborating with your customers”, he said in an interview with Euromonitor International, adding that “it is a tipping point, and if businesses do not understand what it is going on with this, they will fail. It is that essential, because when you talk about brand value today in the social world, the words that matter the most are 'open', 'honest' and 'transparent.' There is nothing hidden here, no surprises. This is what matters to people now, and not understanding this is the best way to run a business that will fail”.

Hochman explains that companies must be close to their clients because we are living in a different world, where information and choices give consumers power and control. For him, the most important case illustrating the importance of being transparent is TripAdvisor. “It became the latest preference for the travelling sector, more than British Airways or any other company, since the collective intelligence of all anonymous poll respondents turns the offering of hotels and destinations into something more transparent.” According to company data from the first half of 2012, TripAdvisor received 75 million comments and opinions written by 32 million registered users. In other words, this is what Google called the “Zero Moment of Truth” (ZMOT), referring to the consumer trend of fully researching everything about a product or service before purchasing it.

Socially responsible

Transparency is also increasingly linked to corporate social responsibility, with companies trying to protect the environment they work in and to increase their sustainability. It does not end there – firms must also respond scientifically for their actions. That is why an increasing number of them are doing so in compliance with the regulations of the Global Reporting Initiative (GRI), a global standard on how to report to consumers and other shareholders on the impact of their actions in a transparent way. In September 2012, 10,143 reports from more than 4,000 companies were generated using it. The GRI estimates that number will double by 2015.

The reason for the success of such initiatives is that consumers expect more transparency in relation to all brand production processes. The Biodiversity Barometer, a report from the Union for Ethical BioTrade (UEBT) published in April 2012 – and carried out in the first quarter - with 8,000 consumers from eight countries, showed a deep awareness of transparency in brand sourcing practices. 76% of respondents from around the globe were aware of sustainable development and 64% of biodiversity issues. Awareness rates are particularly high in countries like Brazil (97%), France (96%), Switzerland (83%) and South Korea (73%). “Emerging economies are not only the markets of the future, they are also increasingly influencing the sustainability agenda” said Rik Kutsch Lojenga, UEBT's Executive Director. “Many consumers in emerging economies are interested in environmental and social issues. When asked about their purchasing behaviour, 41% of consumers in Brazil, India and Peru indicated they pay attention to a brand's social and environmental values. These levels are higher than those in Western markets.” According to the Barometer, 74% pay “close attention” to environmental and ethical labels when buying food and cosmetic products, and “78% have more faith in a company whose commitment to ethical biodiversity sourcing is verified by an independent organisation.”

Future scenarios

In the minds of consumers, transparency is a value. As Larry Hochman puts it, it is a key variable to generating the “unique value” for companies in the future – strong bonds that (unlike prices, products and technologies) cannot just be duplicated elsewhere. The value generated by honesty and total openness will be so important in the future that several companies have begun turning transparency into their core business or their unique selling point in recent months. An example of this trend is “Honest by”, a fashion brand that sells its product range promising complete transparency about its supply chain, products and pricing and displays profit margins online.

Three principles are enough for most companies: “show your vulnerability”, “be honest” and “use verifiable facts.” Firms such as McDonald's follow this model. In September 2012 they began publishing caloric information on their restaurant menus in the United States and they reinforced promotion of their “Favourites Under 400 Calories.” For Paul Bailey, a branding expert and Director at 1977 Design, there are two key types of transparency, literal and abstract, “the former being more analytical, data-driven and mechanical and the latter being more representative, relational and simulative.” There are also two reasons for change: the consumer need for a truer relationship and the emergence of a more responsible consumer type. Both are two sides of the same coin.

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