How to deepen customer loyalty: Be transparent
FORTUNE — “How’s business tonight?” we asked. The UberX driver shrugged, “Better now the holidays are over.” For the rest of the ride, we went back and forth on what Uber was doing with pricing and why and for how long, and how peak pricing had played out over New Year’s Eve. The driver shared his strategy for waiting near a particular neighborhood intersection rather than circling. “If I am the closest car, it assigns to me. If I don’t respond quickly, it assigns to the next car.”
It was notable how much the driver, an independent entity, knew about Uber’s strategy, pricing, and the way the ride assignment system worked. He changed his decisions and behavior to benefit from that information by choosing when and where it was worthwhile for him to work. By making all of this clear to drivers, Uber has attracted a large base of drivers, including from the ranks of cabbies and other professionals.
Transparency — making the practices, policies, algorithms, and even code, operating data, and future plans available to customers, employees, or business partners — runs counter to traditional business practices. It also has the potential to raise the tide for companies and their business partners. How? Loosening tight control and exposing vulnerabilities can increase loyalty and deepen relationships, reveal problems companies aren’t yet aware of, spur innovation, increase the value of a core product or service, and enable participants to take independent actions that serve a common goal.
In 2008, Domino’s Pizza (DPZ) took to the Internet to survey its customers. The customers made their feelings clear: They didn’t love the crust, the sauce, or the cheese. Perhaps nothing new in a customer survey, but then Domino’s took the unusual step of opening up further — actually sharing the survey results publicly and asking customers to help fix the problems. In 18 months, the company received thousands of messages through social media; it invited regular customers to try its pizzas and made changes along the way, even while it lost some customers.
When the company relaunched its product at the end of 2009 with a series of commercials featuring its troubles and solutions, customer response was largely positive. And rather than a one-time experiment, Domino’s continued the relationship and now has more than 9 million fans on Facebook (FB) and 483 thousand followers on Twitter (TWTR). The company’s stock has risen to $72.18 in February 2014 from $7.73 in 2009.
Surveys aren’t new. But technology makes it easier to involve more participants and to turn surveys into conversations that continue over time. Domino’s discovered that the types of customers, employees, and store-owners who get involved are those who are intrigued by the challenge of solving problems. Technology makes it easier for companies to extend openness to suppliers, vendors, and other partners who provide complementary products and services.
Now, technology allows companies to scale both the depth and breadth of visibility to their data and issues and also scale the level of participation from others.
By becoming vulnerable, opening up what companies traditionally hide from customers, partners and investors, and talking about the issues they have struggled with and haven’t been able to solve, companies can develop deeper relationships with those often kept at arm’s length, even other groups within the same company. Through this exposure, the company can learn about problems they don’t know they have and get help solving those issues.
That’s the premise behind the Zero Day Initiative (ZDI), a program run by Hewlett-Packard (HPQ) and launched in 2005 that rewards security researchers from around the globe for identifying and responsibly disclosing enterprise software vulnerabilities. Rather than hide vulnerabilities and clamp down on independent hackers, all the major software vendors benefit from exposing their products to the deep community of white hat hackers and security specialists that participate in the program.
To understand the value of transparency, companies have to ask the question: What was someone able to do as a result of knowing my plans and accessing my data that they couldn’t have done otherwise? What benefit or value did I get as a result of exposing my data that I wouldn’t have been able to get otherwise?
Transparency allows for innovation — consider the recently announced release of DARPA source code. In a public statement, DARPA program manager Chris White explained that opening up access to the source code and data from DARPA-funded projects would “increase the number of experts who can help quickly develop relevant software for the government.” While it is too early to know what the results will be, the Internet was buzzing over the potential commercial applications to be built on this “treasure trove” of data, in theory a case of transparency benefitting all parties.
And returning to our Uber example, it isn’t just knowing the rules of the game. Transparency matters when a participant is able to act, to the benefit of themselves and others in the ecosystem, as a result of knowing the bigger picture.
John Hagel III, director in Deloitte Consulting LLP, is the co-chairman of the Deloitte Center for the Edge based in Silicon Valley. John Seely Brown is the independent co-chairman of the Deloitte Center for the Edge.