What is transparency in business?
Transparency is defined as "a “lack of hidden agendas or conditions, accompanied by the availability of full information required of collaboration, cooperation and collective decision-making." Companies that embrace transparency as a core business value find that this practice leads to trust, which leads to customer loyalty, which leads to business success.
Businesses that are transparent are able to build a strong foundation of customer trust and loyalty, which in turn can help drive sales. Analyst firm Forrester's research revealed that people tend to assess a company's trustworthiness on the basis of three things: integrity, competence and transparency. With all of this in mind, businesses can build transparency by:
Being transparent in your pricing
Being honest and transparent about pricing and products is foundational to business transparency. Pricing is one area where consumers of all types expect complete transparency. Companies that don't provide accurate and complete pricing information foster mistrust and lose an opportunity to build customer loyalty. Customers appreciate businesses that are forthright about services provided, fees and contract terms. Pricing consultant firm Pricing Solutions notes that pricing transparency emphasizes value, not prices.
This can be a simple practice for someone like a restaurant owner, where pricing is easily outlined on a menu and customers know exactly what to expect. However, it can become difficult for trade-based professions like plumbers, electricians and similar tradespeople, who provide services that fluctuate in cost.
In these situations, I recommend sharing the average price range your core services tend to cost, and regularly assess what you're charging as compared to industry standards and update accordingly. Additionally, be sure to call out that customers will need an estimation to understand the actual cost and that this information is clearly listed on the website, not in fine print or hidden. This way, customers have an idea of what the average spend is, but they understand that their unique situation will affect the price of the associated service(s). When you do provide this quote, because you've provided an average, they are less likely to be disappointed in your pricing.
Being transparent in your communications
This entails updating your websites and social media platforms with the most current and accurate information about things like product availability and inventory and company pricing and processes. While a small business owner is wearing many hats, updating these channels regularly can fall to the wayside. With this in mind, owners should designate someone to maintain the social channels and website to ensure these updates are made. If resources don't allow for this, setting monthly reminders to update these channels yourself would be beneficial to start folding this into ongoing business practices. Companies can use social platforms to boost their transparency through direct communication with customers and stakeholders.
According to Sprout Social, brands that prioritize transparency in their social approach realize gains in consumer trust, increased sales and a bolstered brand reputation. Social media platforms play a key role in successful brand-consumer relationships, and social media ranks high among the channels, where people want businesses to be more transparent. Sprout Social research found that 81% of consumers believe that social media has increased accountability among businesses and noted that the "always-on" nature of social "puts pressure on businesses to commit to transparency in advance, in multiple formats and in real time."
Being transparent by admitting to mistakes
In a digital world where consumers have easy access to company information and reviews, customers expect and demand transparency from businesses. A 2016 transparency study by Label Insight revealed that 94% of consumers would be loyal to a brand that offers complete transparency, and nearly three-quarters of respondents said they would be happy to pay more for a product that was completely transparent in all aspects. The study also found that 39% of customers would switch from their preferred brand to another that offers more transparency toward consumers.
As today's digital world puts businesses under a microscope, acknowledging mistakes when they happen and being open about how the company is handling them is vital. This includes addressing negative reviews of the company's products or services, using this as an opportunity to be transparent about issues and how they're being resolved.
A study from Bright Local shared that 76% of people trust online reviews as much as recommendations from family and friends, making it imperative to address negative reviews in a respectful and transparent manner. Furthermore, a survey by Sprout Social found that 85% of people say a business's history of being transparent makes them more likely to give it a second chance after a bad experience, and 85% of people are more likely to stick by a business during a brand crisis if it has a history of being transparent.
Being transparent by sharing your company's ongoing efforts
Treating transparency as a core company value that guides all aspects of a company's operations is key to long-term success. Transparency is not a one and done initiative. Businesses should put transparency into practice on a continuous basis to build and maintain trust with customers. This can include regular updates to the website with pricing or product information, business practices and more. It can even be as simple as sharing what vendors your business chooses to work with, which can demonstrate a commitment to other core values like sustainability or equality. If this is done early and often, being transparent will be second nature and a pervasive value throughout your organization, rather than an afterthought.
Furthermore, businesses should regularly benchmark whether they are delivering on their core values, and if not, determine the best course of action and be open to customers about what they're doing to remedy the situation.
A lack of transparency, which significantly contributes to loss of customer trust and loyalty, leads to the loss of long-term customers and a missed opportunity to reap the bottom-line impact of customer loyalty.
Studies have documented that customer loyalty can pay huge dividends. One of these dividends is that companies spend fewer resources in keeping loyal customers. Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.
Profits are another area bolstered by customer loyalty. Bain and Company, working with Earl Sasser of Harvard Business School, found that increasing customer retention rates by 5% increases profits by 25% to 95%. The study also noted that loyal customers tend to purchase more and also frequently refer new customers to a supplier, "providing another rich source of profits."
Further, Brand Keys found that there are three concrete fiscal realities of loyalty and engagement:
- It costs nine to 11 times more to recruit a new customer than to keep an existing one.
- An increase in loyalty of only 7% can lift lifetime profits per customer by as much as 85%.
- Depending upon the sector, an increase in loyalty of just 3% is equivalent to a 10% across-the-board cost reduction program.
Business transparency is a game-changer that can lead to business success. Companies that practice transparency build strong, positive relationships that increase long-term customer loyalty. Additionally, businesses that strive to be open and honest with customers set themselves apart and generate ROI in the form of profits and long-term sustainability. KPMG called customer loyalty "the gift that keeps on giving." Companies that consistently practice transparency enjoy the benefits of this gift year after year.