Are you prepared for the conscious consumer?

August 2019 | SPOTLIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

August 2019 Issue

In an environment where conscious consumerism has gone mainstream and trust in business is paramount, managing this new breed of customer expectations and perceptions has become critical to building organisational resilience.

In the decade since the 2008 economic crisis, digital and social media platforms have evolved and grown, which has expanded the public’s access to information and allowed communications to flow faster and farther than ever before. As these platforms have grown, so have people’s voices and their opinions, which has impacted purchasing trends and a deeper, more powerful and conscious reality has emerged. Suddenly, the incidents that can damage reputation have become a lot more volatile, quicker acting and, in some cases, have developed into systemic risks to organisations.

With this greater knowledge and means of communicating, societal norms and public expectations of financial services entities have evolved too. More informed, conscious and conspicuous consumers have refocused the spotlight on corporate actions and are putting pressure on businesses within the sector to be more accountable and transparent.

While working on our SAI Global 2019 Reputation Trust Index, and conducting client-specific research, we have noticed that certain themes are becoming more prominent with these conscious consumers: corporate social responsibility (CSR), sustainability and ethical practices.

As we examined the survey data about this newly energised citizenry and the risks and challenges facing the industry, it became clear that consumers are demanding new rules when it comes to how financial services firms manage their brands and reputation. And with trust the lubricant of the financial system, this requires financial services firms to retool their thinking about consumer trust in business and the way in which they strategically link issues of equality, social responsibility, transparency and traceability throughout their operations.

Yet despite the fact that trust is now a competitive advantage in a world where bad experiences spread across social platforms like wildfire, there is still a gap between what consumers expect and what business leaders think is necessary. When consumers think about trust in business, they think more about values and how an organisation behaves. For example, when we asked members of the public why they do not trust some businesses, they cited issues such as corruption and fraud. Issues around fairness and equality were also important.

But when business leaders think of trust in business, research has found that they focus more on transactional factors, such as customer service and product development and delivery. While the public does care about transactional factors, an organisation’s product or service simply cannot stand alone. Respondents like services that add genuine value, not just in a user experience that reduces friction, or a digital brand that makes them feel modern, but a core proposition that matters to them. Consumers care about ‘what’ and ‘why’, as well as ‘how’. Therefore, if financial institutions want to build trust, they must not only recognise that values and behaviour play a critical role, but also that consumers are now holding them to higher standards.

Re-knitting the fraying societal fabric

These growing ranks of conscious consumers and the power of social media to fuel broad-based movements for change is putting pressure on unethical, inauthentic or irresponsible corporate behaviours. It is important for financial institutions to understand how to integrate CSR and sustainability initiatives into their business strategies in order to drive customer acquisition and retention. Equal pay, company culture, data privacy, money laundering, bribery, tax fraud, financing of terrorism and environmental practices, to name just a few, are issues at the forefront of consumers’ minds.

Financial services entities are now faced with having to embrace a new model of business that reflects a market comprised of consumers, regardless of their geographic location or nationality, who believe and trust in a brand, based on shared values and socially responsible behaviours.

In an age where accountability and business transparency have become the norm, those organisations that reflect these qualities and treat transparency as a business imperative will build invaluable trust with their customers and will find a greater level of loyalty. It is a differentiating factor and will motivate customers to remain with brands, even when it comes to a company crisis. Research has found that nearly nine in 10 consumers are more likely to stick by an organisation during a crisis if it has a history of being transparent.

While consumers are somewhat understanding when mistakes happen, more than half of those we surveyed agreed that taking responsibility for errors was an important CSR value. They were not interested in the run-of-the-mill apology that includes some kind of financial repercussion, either in the way of fines or discounts to customers. Instead, 60 percent of those surveyed wanted businesses to take public responsibility via a statement, compared to 26 percent citing a fine.

Notably, the type of crisis which consumers across the globe are most concerned about is a data breach in the financial service sector. Fear of hacking was by far the biggest drawback of future finance given by respondents to our survey, regardless of age. Sixty-five percent of those surveyed view data privacy as the most important attribute when considering a company’s trustworthiness.

This is not surprising, given the increasing frequency of data compromises. As data breaches continue to hit the headlines, financial institutions will need to focus not only on halting the flow of money laundering and corruption but be seen to be scrupulous custodians of their customers’ data and cash. This is because ethical questions around data privacy have come to the fore as global consumers continue to understand that the rights and mechanisms that regulations like the European Union’s (EU’s) General Data Protection Regulation (GDPR) have made it possible to strengthen their ability to manage and protect their data.

Purpose and profit

There is no doubt that the financial services industry is evolving. It always does. But when you think about recent shifts in technology, regulation and changing consumer behaviour, the changes can feel vertiginous. A lot of control is moving out of the business and is flowing into wider society. Although some leading financial institutions are already adapting to this new reality, most are only just assessing whether their risk management practices are keeping pace with the rapid transformation going on around them, a trend we expect will accelerate. Those that do not are unlikely to attract today’s ever-conscious consumers.

Earlier this year, a warning came from an unlikely source within the finance sector. In his annual letter to chief executives, Larry Fink, founder and CEO of BlackRock, said that society is “demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” He added: “Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose its licence to operate from key stakeholders.”

Whether you view Mr Fink’s words as empty virtue signalling or as a heavy-handed attack on traditional business practices, he has helped continue a conversation that is undoubtedly positive and in keeping with these socially active, environmentally engaged and purpose-driven consumers.

It is clear then that there is a burgeoning business case for transparency and sustainability throughout the industry. What financial institutions and their business leaders need now is to re-knit some of the fraying fabric that holds us all together; to conduct their businesses as though they, themselves, are on the other end of the pipe. Aligning commercial interests with social ones should not be such a hard place to start. Even though it will require enormous investment in change, rather than viewing transparency and sustainability as a challenge or burden, the industry can leverage the opportunity to identify potential operational improvements, promote good corporate citizenship, reinforce the strength of their brands and potentially minimise the impact of future reputational events.

Building a reputation safety net

Understanding and managing reputational risk is all part of societal change. Greater visibility on reputation risk and a robust mitigation strategy are the ticket to play in today’s and tomorrow’s economy. To establish a sustainable reputation, cultural alignment is as important as strategic alignment. Organisations need to look across their entire risk posture and consider their approach to ethics and culture and actively engage in order to protect their ethical core by moving beyond simply introducing a set of corporate values and putting in place the tools and solutions to manage the acceleration in ethical risk.

Without a supporting culture and controls imposed from the top, an organisation is susceptible to breakdowns and ethical failures, which could tarnish its reputation and diminish trust from both internal and external stakeholders. Therefore, the board and senior leadership must be fully engaged in an integrated reputation risk strategy that is aware of, and sensitive to, the needs and demands of a growing global community of stakeholders.

Fundamentally, brands that regularly practice transparency – both proactively and reactively – are building a safety net for their reputation, customer and employee retention and long-term loyalty. By integrating CSR into their overall identity, financial institutions can achieve better self-awareness, create greater brand value and work toward goals that have a positive impact on their business, their customers and society as a whole. A strong ethical core will also help to attract and retain individuals that positively impact company culture – an important factor for an industry which is constantly looking to recruit and retain top talent. That, again, translates into financial value and, in turn, brand value. It is a great example of a virtuous circle.

Paul Johns is chief marketing officer at SAI Global. He can be contacted on +1 (678) 992 0262 or by email: info.emea@saiglobal.com.

Paul Johns

SAI Global