Retailers and manufacturers can rebuild reputation through ethical supply chain management, argues Anna McAvoy, director at Millward Brown Corporate Practice, a specialist in business, stakeholder management and reputation research
The repercussions of the clothing factory collapse in Bangladesh and Europe’s ‘horsemeat scandal’ affected more than the sales and share prices of the brands involved – they were felt across an entire industry. Justin King, the chief executive of Sainsbury’s, observed that, while his company was not involved in the horsemeat scandal, it “fundamentally challenged customers’ trust in the supply chains on which we, and they, depend”.
Ethically managing supply chains and building and sustaining consumer trust are urgent issues for all retailers and manufacturers. According to research by Millward Brown, when it comes to advocacy it’s more important to stakeholders that a company deals fairly with its supply chain (a driver for 65%) than provides high quality products and services (a driver for 52%).
Brands including Primark and Matalan took swift, remedial steps to restore reputation, including providing financial support to the families of the Bangladesh victims. Birds Eye, meanwhile, committed to source beef only from farms in the UK and Ireland, and Tesco promised to improve traceability for its products using a new DNA testing system.
But these actions may not be enough to turn around the opinions of consumers, shareholders and influencers in the longer term.
Can you restore trust?
Research by Millward Brown among influential UK opinion formers from the media, academia and not-for-profit sector shows that support for corporations strengthens if they clearly show an ethical and fair approach to supply chain management that is part of a broader, genuine commitment to sustainable business behaviour. This includes making themselves accountable by setting targets and timetables, and being more transparent about what they’re doing.
This does not produce instant results: it’s a long-term investment, with businesses needing to commit to change over many years. They must focus on issues that are central to public concerns, addressing wide-ranging responsibilities such as fair wages, environmental good practice, and even consumer health. And this effort has to extend along the whole length of the supply chain, from the markets where materials are sourced to end consumers.
The signal to change also has to come from the boardroom: reputation is built from the top downwards, permeating the culture of the organisation so it becomes a natural part of everyday business.
The supply chain challenge
Multi-national retailers and manufacturers have long and often highly complex supply chains – but opinion influencers and consumers believe this is no excuse when something goes wrong. Undoubtedly the biggest challenge is ensuring all parts of a supply chain are subject to the same standards, wherever in the world the sourcing, manufacturing or selling takes place.
The other hurdle in today’s ‘reputation economy’ is that any consumer, anywhere in the world, has the potential to positively or negatively shape the reputation of a brand in seconds using online and mobile technology. While a company can harvest a store of good will from social media, it also has to stay alert and respond within minutes when issues arise. The accelerated speed and global reach of communication is raising public expectations of brands, especially in terms of its social and environmental commitments. In some cases these expectations have not been met, and this has cultivated a growing sense of anger and disillusion.
The Futures Company refers to this as ‘consumer rage’ arising from the perception that big businesses maximise profit at the expense of consumers, suppliers and the communities in which they operate. According to its 2012 research, 71% of consumers felt that ‘most businesses will take advantage of the public’ if they thought they could escape notice, and 86% believe that ‘big business maximises profit at the expense of community and consumers’.
This lack of trust in big brands is having a knock-on effect on sales. Among the ‘globally enraged’, 47% buy locally made products as often as possible, and 36% avoid buying from companies without high ethical standards.
Transparency and the bottom line
Committing to a more sustainable, ethical approach to supply chain management does not come without risks.
To regain trust, companies are increasingly called onto ‘open up’ about their practices and become more transparent. Consumers have increasingly sophisticated expectations of corporate behaviour: like opinion influencers, they seek assurance that the brands they buy reflect their values. Companies that make public their goals and provide regular updates on progress win praise. However, it is possible that the pressure for transparency makes executives more cautious in their decision making because they know they are under greater scrutiny, which is not good for growth.
There are issues that need to be balanced against each other – for instance, when the push for more sustainable practices has a counteractive impact on the ethical treatment of supply chains. As top line growth has slowed, the simplest way to protect profit margins is by leaning on supply chains to reduce costs, but this practice is at odds with stakeholders’ desire for a fair approach. So who really bears the price of ensuring a sustainable supply chain? Many consumers are unwilling or unable to afford the premium cost of a sustainable product, meaning that the price of compliance gets pushed on to the supply chain.
To overcome this disconnect, retailers and manufacturers need to collaborate and share responsibility for investing in sustainable supply chains and managing consumer expectations around price.
Live the message
Millward Brown’s stakeholder research shows that Unilever leads its category in terms of being trusted by opinion influencers. Stakeholders are five times more likely to cite Unilever than its peers as the brand in which they have most confidence to resolve industry issues. They respect it for its public commitment to transforming its supply chain, its Sustainable Living Plan – which chimes with stakeholder expectations of sustainable corporate behaviour, and its transparent communication. Unilever chooses to share not only its targets and its successes, but also acknowledges that more needs to be done to meet its aims.
According to our research, the companies that engender most trust are those that:
- Develop strong sustainability practices aligned to brand values
- Make this central to corporate strategy, not a side issue
- Provide tangible examples of sustainable supply chain management
- Ensure all boardroom members support and promote sustainable supply chains
- Distil this culture through the organisation, encouraging employees to act as ambassadors
- Provide ways for shareholders, consumers, and opinion formers to support and engage in debate around shared values and related issues
- Measure the impact of social and environmental initiatives to prove progress
- Communicate consistently, openly and honestly to highlight the brand’s commitment to sustainability, providing details about achievements and explaining impediments to progress
There are of course associated risks. Brands may lose credibility with consumers and stakeholders if they over-promise and under-deliver. The financial community could turn its back on a brand that damages its bottom line through a commitment to sustainability. Transparency could expose issues that otherwise may never have seen the light of day.
However, by following these guidelines brands are more likely to avoid falling foul of an adverse situation. They also place themselves in a far stronger position to manage the narrative and speak from a position of knowledge and authority when a crisis affecting their sector occurs.
The Millward Brown Corporate Practice specialises in business, stakeholder management and reputation research.
(A Retail Times’ sponsored article)