Can transparency build loyalty with customers?
Sophie Bakalar is a principal at the Collaborative Fund, a venture capital firm that invests in for-profit companies with a social mission.
Chipotle Mexican Grill customers fled in droves after an e-coli breakout in late 2015, devastating the company’s sales. On a conference call shortly after, Chipotle’s chief marketing officer was asked what he learned from the ordeal.
CMO Mark Crumpacker talked about the aggressive marketing campaigns the company had targeted around the restaurants that experienced outbreaks. The strategy wasn’t to make excuses. It was to fess up, apologize, fix the problem, and move on.
Chipotle’s food safety concerns only grew, but the targeted apologies around the affected stores seemed to work. Customer traffic in the affected stores bounced back after the restaurants reopened. “To the extent we learned anything from those, it is that being transparent and honest with our customers works,” Crumpacker said.
He may have been on to something.
Consumers are demanding more from brands than ever before. They want healthier ingredients. They want to research products and read online reviews before committing to a purchase. They want to buy local.
But there’s one thing they demand more than any other: Transparency. For decades, companies could control a brand’s narrative through marketing. Spin often took precedence over transparency, as customers’ access to information was limited. But as access to online information proliferates, customers are getting smarter. Today, honesty can be its own marketing strategy.
In fact, transparency can actually be a more effective marketing strategy than spin. According to a survey by Label Insight, nearly 40% of customers say they would switch from their current preferred brand to one that offers more transparency.
That’s because authentic transparency is a proxy for a company’s values, which modern consumers increasingly care about. According to Nielsen, nearly two-thirds of global consumers are willing to pay more for products from companies committed to positive social and environmental impact. And what’s the number one driver of purchasing decisions for sustainable products? Trust.
In other words, when a customer is choosing which iced tea to buy, she often values the brand’s integrity even more than the product’s sugar content, whether the ingredients are natural/organic, or if the packaging is recyclable.
More than just basic transparency
This new trend isn’t just great for consumers. Transparency can benefit companies as well. Big brands are among the least trusted institutions in America (by some measures, only Congress ranks lower), and in the absence of information consumers will typically assume the worst. So even a company’s flaws are generally better handled out in the open.
Unsurprisingly, brand loyalty is also on the decline. But transparency is a key tool that can combat this trend of mistrust and cynicism. Transparent companies garner more devotion from customers and can even turn them into advocates – which, in a social network-driven world, can lead to outsized growth.
In order to gain that loyalty, a brand’s transparency must be meaningful and holistic. Customers want to know exactly what they’re getting when they buy a product, even if the picture painted isn’t perfect.
Certifications like organic, fair trade, and local aren’t enough anymore. Customers are increasingly wary of their ambiguity. For instance, what does a “local” label signify? Fifty miles? 150 miles? One major grocery chain uses 500 miles as the cut-off. That means an apple you buy in New York City could have been grown in West Virginia and still qualify as “local”.
Pioneers in hyper-transparency
A few companies show what the new age of transparency looks like.
RXBAR, a Chicago-based company that makes whole-food protein bars, lists their ingredients in bold print right on the packaging. There are hundreds of snack bar products out there, each purporting to be healthier, tastier, and cheaper than the last. RXBAR doesn’t just stand out because of its simple ingredients, but because they’re right there in plain language to catch the customer’s eye.
Everlane, an online retailer with a focus on sustainable apparel, breaks down the pricing for each of their products from manufacturing costs to import duties. Most brands would hesitate to prominently advertise their 50-60% markup, but Everlane banked that customers would appreciate and understand those numbers (particularly when compared to the astronomical margins of their competitors). And that bet paid off to the tune of about $100 million in sales in 2016.
And Fishpeople, a company headquartered in Portland, Ore., puts a bar code on the front of their meal kits so customers can look up exactly where their fish was caught.
These are just a few examples of the many companies that have excelled by treating transparency not as a handicap, but as a competitive advantage. These companies are ahead of the curve. But this trend is just getting started.
What if food labels didn’t just display a list of ingredients, but where those ingredients came from, the date they were harvested, or even how much they cost?
What if you could look up the name of the farmer who grew the oats in your granola? What if your plastic shampoo bottle outlined its carbon footprint?
That’s the world we’re heading towards. Transparency is no longer optional. Modern consumers have extremely high expectations for how brands communicate with them. Startups need to meet and exceed these expectations or perish.