Do your customers trust you?
According to Bob Grove, managing director for South-East Asia at PR giant Edelman, in an era of unprecedented public scepticism it’s a question businesses large and small need to be worried about. In the wake of the global financial crisis and a series of high profile corporate failings, the public has lost patience with business, he said.
Trust in traditional sources of information has plunged to all-time lows and with the growth of new technology, corporate behaviour is under unprecedented scrutiny.
Associate Professor Audrey Chia, Co-Director Asia Centre for Social Entrepreneurship and Philanthropy
Many businesses started with a social purpose. Unilever’s original product was a soap to meet social needs for hygiene. Safe mobility was the social purpose behind Japanese tyre-maker Bridgestone’s products – initially in making rubberised sandals before moving on to manufacturing tyres.
Hence Bob Grove’s call for purpose is a rediscovery of the origins of business rather than something entirely new. Thank goodness, because businesses don’t need another set of objectives.
The voice of purpose has been growing louder in the last decade. The emergence of “Fourth Sector” organisations such as social enterprises and social businesses has challenged assumptions that organisations can mainly serve only social purpose or profit, but not both.
Some businesses have thrived by incorporating social purpose into their business strategies. For example Indian pharma firm Dr Reddy’s focus on affordable medicines led it to develop the Red Heart pill which delivers four effective ingredients that halve the risk of heart attacks and stroke. Dr Reddy’s believes that the discipline of frugal innovation will give it an advantage in a growing but under-served market.
Recently, Singapore’s Code of Corporate Governance was revised to give boards the responsibility of understanding and meeting stakeholder needs, and integrating social and environmental factors into corporate strategy. This is a significant reminder for businesses to consider their social context and impact, and consider how they can create shared value.
It’s a concept that requires companies to work on the principle of shared value – by aligning their commercial and societal objectives, provide value outside of their traditional performance objectives, and ultimately profit from solving social problems.
Alongside price, product, promotion and place, “purpose”, Grove said, has taken its place as the fifth P of marketing and a key driver of consumer behaviour and preference.
Indeed, according to Edelman’s Good Purpose survey for 2012, at a global level, when quality and price are equal, purpose is the most important factor influencing brand choice – outpacing design, innovation and brand loyalty.
The message, Grove told NUS, is clear: in an engaged and interconnected consumer environment, success depends on corporations and brands taking a stand beyond profits.
Expectation of change
The flipside of the growing power of purpose is understanding the rapid and precipitous plunge of trust in traditional core institutions – government, business, the media etc – since the advent of the global financial crisis in 2007/08.
This collapse has been seen most acutely in the US, and perhaps most starkly epitomised by the Occupy Wall Street movement.
According to Edelman’s annual Trust Barometer survey, the US financial sector has seen trust levels plunge to 28 per cent from a high of 70 per cent in 2007 just before the crisis.
But, said Grove, it would be a mistake to see this as a purely Western phenomenon; the expectation of change is “absolutely everywhere”.
Grove said Edelman’s research across the Asia-Pacific region has shown a strong and growing expectation among regional consumers that brands and corporates behave differently.
In fact, he said, consumers in emerging markets – or what he terms Rapidly Growing Economies (RGEs) – many of them in Asia, have actually leapfrogged consumers in the West and with much higher expectations towards corporate behaviour.
According to Edelman’s research, millions of new consumers in these RGE economies – Brazil, China, India, Indonesia, Malaysia and the UAE – consistently put higher value on brands that are ethically and socially responsible or support a good cause than consumers in the US, Western Europe and Japan (see table below).
|Edelman research on consumer approaches to purpose:
Japan & US
|Trusting a brand that is ethically and socially responsible||83%||66%|
|Recommending a brand that supports a good cause||82%||64%|
|Switching brands to a different one supporting a good cause||80%||67%|
|* Brazil, China, India, Indonesia, Malaysia and the UAE|
Why so? Primarily, Edelman says, because these new consumers, newly empowered by technology, are more attuned to the social issues that affect the quality of their lives: issues such as education, healthcare, the environment and clean water.
Dispersion of authority
Powered by the growth of new technology – primarily the internet – Grove said traditional core institutions are seeing an unparalleled dispersion of authority as consumers increasingly take the lead.
Those who were once the classical top of the pyramid – the financial analysts, government officials and CEOs – are less trusted.
“The long standing pyramid of authority is being up-ended,” Grove said. “The bottom of the pyramid is now on top.”
This rise of the Facebook generation is a widely acknowledged phenomenon, but many businesses have yet to implement a strategy to effectively meet it.
“With the amplification of information available at our fingertips today, there’s a much less forgiving or perhaps just more informed consumer mind-set and I think business has not yet caught up with that mind-set,” Grove said.
Brands, he said, are engaging with social media, but many are doing it in the wrong way.
Consumers are looking to business leaders to genuinely embed purpose in their everyday operations
Edelman, MD Southeast Asia
“They’re not necessarily using social media as a great way of listening to their consumers and finding out what they want, which would be common sense. They’re using social media to do what they’ve done always which is talking to the consumers about their product messages and their brand messages.”
Quoting a much-discussed 2011 article by Professor Michael Porter in Harvard Business Review, Grove said that while there have been several high profile exceptions, in general companies remain in trapped in “an outdated approach to value creation”.
In the article Porter says that that by taking a narrow view of value creation – optimising short term financial performance in a bubble – companies are missing the most important customer needs and “ignoring the broader influences that determine their longer term success”.
The article argues that a system that undervalues the natural and human resources from which it derives profit is inherently self-defeating and ultimately unsustainable.
In a rapidly changing environment, Grove said, business needs to move beyond the standard licence to operate, with its freedom to pursue the goals of innovation, marketing products and pursuing profit.
Licence to operate worked well for many decades, he said, but since the failure of business to self-govern became starkly apparent in 2008 it is no longer enough.
Instead businesses and brands must commit themselves fully to a broader social purpose, “providing value beyond traditional performance objectives and held accountable through a new level of transparency”.
|Bob gove was speaking at an event marking the first anniversary of the Asia Centre for Social Entrepreneurship and Philanthropy at NUS Business School|
Business must recognise it is no longer a shareholder only world, but a stakeholder world where consumers are now setting the agenda.
To succeed in this new world, Grove said, corporate leaders must demonstrate an institutional will to commit to purpose from the very top of the organisation, driving the mission and willing to engage in open and transparent discussion about it.
“Consumers are looking to business leaders to genuinely embed purpose in their everyday operations,” he said.
In addition, purpose must be at the heart of a brand’s strategy, not isolated as a separate initiative, or bolted on as a token feel-good gesture to existing campaigns.
According to Edelman’s research, purpose-driven brands have engagement power that has reengineered methods of brand marketing and connecting with consumers, with data clearly showing that consumers respond to efforts and commitment that are authentic.
In essence it’s far more than simply a question of whether brands and companies engage with purpose – fundamentally it’s about how they go about it.
“Businesses need to listen to their consumers and find out what areas are of interest to them,” said Grove.
Outside the box
“They need to think beyond their own businesses and supply chains to how they can actually be adding value or creating some form of shared value, rather thinking just can I reduce the cardboard packaging which is very logical.”
Another factor is that consumers are far more sophisticated and savvy than many businesses give them credit for.
Consumer attitudes have changed dramatically Grove said, and perceptions that profit and purpose are incompatible are no longer relevant.
Indeed according to Edelman’s Good Purpose survey, 76 per cent of consumers believe it is acceptable for brands to back good causes while making money at the same time; a rise of 33 per cent from 2008 in those who believe that “doing well while doing good” is acceptable business practice.
The key, said Grove, is for businesses to embrace transparency – a much misunderstood concept in the business world, particularly in the Asia-Pacific region.
It’s a challenge for companies that are often used to playing their cards close to their chest. But in today’s socially engaged world, transparency offers many potential dividends.
“When you say transparency many people interpret it as just disclose all the bad things I’m doing,” Grove said.
“But if companies are talking about things they’re doing well and they’re talking about things they need to improve on – and they’re going to improve a couple of them and they commit to that and report back on what they did – I think people will feel ‘ah, I trust this company, because they’re telling me everything’.
“But if you only ever tell one side of the story you’re never going to be trusted.”