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The ROI of Transparency

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K2VITAL®
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During the past 10 years, organizational transparency has become an increasingly important idea for companies conducting business in the United States. In the world of dietary supplements, functional foods and beverages, promoting transparency is a critical component of any brand and also of ingredient suppliers. But what we have learned from our research and our work with supplement brands over the past 20 years is that brand transparency exists in a dynamic state, reflecting tension between opacity and pure translucence.

Most brands want the benefits that come with transparency (e.g., greater trust), but how much transparency is enough to gain the benefits? What drives this dynamism are two issues: wanting to do the right thing and the resultant cost. And then the question is whether the results are worth the effort.

In our recent report, The ROI (return of investment) of Transparency: A Consumer Market Research Study, we look at the sentiment and purchase behavior of more than 1,000 consumers regarding transparency and those practices that need to be most transparent. However, there are some important questions that need to be asked by supplement and functional foods brands—questions that will help them evaluate the success or failure of their transparency efforts.

• What is the purpose and vision behind transparency?

• What level of commitment are you prepared to make within the comfort level of your stakeholders?

• How much are you prepared to reveal, and how will that affect your organization?

• What do you need to withhold, and how can you be transparent about what is withheld?

With these questions in mind, let’s look at the data.

Purpose and Vision Behind Transparency

For a supplement brand, the purpose of transparency has to be to engender greater trust. Based on our research, consumers look to transparency as being tied to the concepts of honesty and trustworthiness, and they think that a transparent company is upfront, clear, and ethical. Brands that are not perceived as transparent are likely to be seen as secretive, dishonest, not trustworthy and even manipulative.

Gaining trust is an uphill battle for the vitamin and supplement industry. When asked in one study to rate industries as transparent compared to other industries, only 16 percent of consumers chose vitamin and supplement companies as the most transparent. Furthermore, there has been a rise in expectation for transparency: 69 percent of consumers expect more transparency from supplement companies than they did five years ago. The pressure is on for the vitamin and supplement industry to be more transparent.

The vision of a transparency program has to be tied to quality. Consumers are looking for high-quality supplement and functional food brands they can trust at prices they can afford. For seven out of 10 consumers who took our survey, there was a strong perceived relationship between supplement company transparency and quality. Signaling quality via transparency is highly likely to drive consumer shopping loyalty. Implicit in this is real quality, because you would not be making transparent a manufacturing process that is not of the highest quality.

What Level of Commitment Are You Prepared to Make Within the Comfort Level of Your Stakeholders?

A company’s comfort level about what and how much to reveal exists within the dynamic between what that level of transparency will cost and what it will bring back to the company.

Here are some facts that can help inform a profitable decision:

Nearly eight out of 10 consumers are likely to pay more for supplements from what they perceive to be a transparent company. That is good news for existing customers, but it does not tell the full story about whether this transparency will actually influence new consumers to switch brands.

We asked a hypothetical question in our survey. Imagine different vitamin or supplement companies—Company A and Company B. You currently buy Company A vitamins and supplements. You like them. Company B makes the same kinds of vitamins and supplements, but you have not yet bought from that company. At some point, it is made public that one of the ingredients both companies use in their products is legal but controversial.

Company A gives just enough information as required by the law. Company B tells people everything about this controversy, admits the pros and cons of using the ingredient, and tells consumers how it plans to deal with this ingredient in the future.

In other words, Company A is less transparent than Company B.

We then asked whether survey participants would continue buying from Company A or switch to Company B. Among supplement users, 60 percent said they would either definitely or probably try the product from the more transparent Company B. And what is even more impressive is that of those supplement consumers who value transparency the most, 43 percent would definitely switch.

How Much Are You Prepared to Reveal, and How Will That Affect Your Organization?

Practices or aspects of a company that a brand makes transparent may require investment or modifications to its supply chain. So, it is important to know which aspects are most sought after by supplement and functional food consumers.

For vitamin and supplement companies, consumers view the brands they like as being most transparent regarding product efficacy/quality (68 percent); sourcing and labeling of product materials (64 percent); and standards of product safety, toxicity, and testing (64 percent). With more than 60 percent of people who buy supplements rating their preferred brand as being transparent in these areas, it is clear that these qualities are the transparency cost of entry for vitamin and supplement companies.

The next tier of transparency (appreciated by between 40 percent and 55 percent of consumers) relates to where and how products are produced, third-party verification of products and standards, the company’s management and culture, corporate and social responsibility, and environmental impact. These are important aspects in which the individuality and personality of a supplement brand can emerge.

What Do You Need to Withhold, and How Can You Be Transparent About What Is Withheld?

What is important to understand is that achieving high transparency is not the same as trying to achieve perfection. Consumers are not naïve, and they do not expect a perfect company. What they want from a brand is honesty, and they are willing to accept small failures or compromises as long as there is a good explanation for them.

How do we know this? Fifty-nine percent of supplement consumers believe that most supplement brands lie at least some of the time. And 56 percent of supplement consumers believe that the brands they buy lie at least some of the time. What this says is that there is a healthy skepticism about the category and the brands people buy. Transparency is one way to build trust and differentiate a brand. And the best way to do that is to develop an honest dialogue between the brand and its consumers.

But what if the information a supplement brand reveals is not all good news?

We posed another hypothetical scenario. A supplement company discovers that one of its sources for ingredients is of inferior quality. If the company admits to this problem and makes a change in sourcing, how would you feel about that company?

For almost half of supplement users, there is no downside to admitting a mistake. In fact, a quarter of users would think more highly of the company for doing so. And a third of them would be understanding of this particular incident, but they would be watching the company to see whether further mistakes occur. Only 19 percent of supplement users felt that they would lose faith in the company and look elsewhere for their supplements.

What is at the core of transparency is having a dialogue that treats consumers as adults. People and companies make mistakes. Admitting to them is the opposite of lying, and our data conclusively show that for those supplement consumers who most value transparency, there is no gray area when it comes to lying.

In the end, all of our data point to a compelling conclusion: being perceived as not transparent risks negative consequences. If a brand attempts to control the messaging by releasing only what it wants, it will lose market share to the more transparent competition. This is no longer conjecture but is quantified through data—in not only the supplement space but also all industries, B2C as well as B2B. Transparency is the new normal, and those who are perceived as leaders in transparency will reap the rewards. NIE

Yadim Medore is the founder and CEO of Pure Branding, a strategic consulting, market research, and brand development agency for leading dietary supplement and functional food brands. He’s helped global clients build loyalty and grow market share through innovative research, actionable insights, and strategic guidance. Pure Branding has conducted market research and developed brand strategy for consumer, professional, and MLM brands, including Boiron, BioChem, Country Life, CV Sciences, Dr. Hauschka, Gaia Herbs, Herb Pharm, Iron-Tek, MediHerb, MegaFood, Nature’s Sunshine, NeoCell, Nordic Naturals, Nutiva, Organic India, Reserveage, Standard Process, and Traditional Medicinals. Pure Branding recently published The ROI of Transparency: A Consumer Market Research Study, which is designed to help guide brand transparency efforts with data-driven strategies and implementation methods. For more information, visit www.purebranding.com.

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