Your word is your brand. Or rather, if the words aren’t right and your consumers depend on them for vital information, your brand will quickly find itself in the crosshairs of regulators, activist groups and annoyed consumers. The recent case concerning the contents of herbal supplements is more than an argument over percentages; at its core lies a simple question that underpins consumer trust.
Does it do/have what it says on the box?
You can see this as a labelling issue – particularly where food is concerned. Even that soon evolves into an argument about detail, consumer knowledge and mandatory disclosure. It doesn’t change the fact though that consumers expect to get what they pay for and there are brands that continue, wittingly or unwittingly, to short-change them. The halo effect of these actions carries through to everyone else in the sector.
When trust fails …
As Walker Smith observed last year in this piece, “Trust is a third rail for every kind of business or brand. It is an intangible requisite for staying in business of which companies dare not speak. As soon as you ask for it, you lose it. If trust cannot be taken for granted in the everyday course of business, if trust is not beyond question, then customers immediately jump to the conclusion that something is out of sorts.”
I suspect that, for some, the reason “something is out of sorts” is because two very simple words are being confused: earn; and earnings. In the bid to tell the market what they are making revenue-wise, brands sometimes overlook what they should be building reputation-wise. To earn takes time, effort, integrity and the willingness to forge. Earnings are now, today, what it says on the press release. Central to this is the ongoing tension, identified by Steve Denning in this article, between the “real market” (the world of real transactions) and the expectations market (the world in which investors form and articulate expectations of how companies should perform).
Which leads to a dilemma that to my mind remains unresolved. Whose trust should brands value most – the trust of the consumer; or the trust of the market?
That tension almost invites bad behaviour. It incentivises some to take shortcuts, overlook requirements, dilute formulations … to deliver the efficiencies required to make their numbers whilst calmly reassuring consumers that everything is as it should be. As Steve Denning observes, “The proponents of shareholder value maximization and stock-based executive compensation hoped that their theories would focus executives on improving the real performance of their companies and thus increasing shareholder value over time. Yet, precisely the opposite occurred. In the period of shareholder capitalism since 1976, executive compensation has exploded while corporate performance has declined.”
The irony here is that brands flourish on margin but wilt on greed. Once a brand reaches that critical point where its profitability has hit its ethical maximum (it is still behaving in ways that it can be proud of whilst gaining the highest level of return it can in that environment), any point beyond that is one of rising reputational risk. And as the bad behaviours mount, so does the potential fallout in terms of impacts on brand trust once those behaviours are uncovered.
I don’t know why the makers of the various supplements chose to make the decisions they did, but the companies involved are now going to have to work very hard indeed to rebuild consumer confidence. Did they think they could just get away with it? Did they squeeze their supply chains too hard? Did they really not know? Is this an isolated incident or symptomatic of something wider? Perhaps we’ll find out in the fullness of time.
Markets hate limits. Brands require them
There seems to be increasing awareness that the interests of investors have been allowed to overly influence the pressures on companies and senior decision makers. But if managements are going to responsibly manage their assets (including their brands), at some stage, they will need to frame what they do in terms that markets hate: limits. And by that, I mean agreed boundaries that govern what will be built and what will be earned. And – not or.
That’s not about market restrictions. It’s about overall prudence and balanced gains: brands behaving well; consumers getting what they expect; investors receiving the dividends they expected from guidance.