Listening: A Strategy and Change Blog | Hosfeld & Associates

By Kathleen Hosfeld and John Forman

Trust in business is starting to make a comeback from historic lows during the Recession, according to the 2010 Edelman Trust Barometer research.  It’s a fragile trust, the report tells us. Those surveyed say that after the economic pressure is off, they expect business to go back to unbridled self-interest. In other words, they don’t really trust business – not for the long-haul. At a Young Presidents Organization event last week, members said that “trust” was their number one concern, regardless of the specific business they were in. The gap is enormous.

The Business Case

The business case for trust is well established. A lack of trust can create a number of problems for a company. It can impact reputations as conversation in the market place is fueled by assumptions of ill-will (like BP), gossip and innuendo, slower decision-making processes, as well as loss of sales. And the misbehavior of one Bernie Madoff can sour public perception for organizations that have never been connected to him.  On the other hand, a company that has the trust of its customers or other stakeholders can count on better collaboration and decision-making, resilience in the face of a crisis (like Toyota), more word of mouth advertising from advocates, and fewer legal or regulatory costs.

Trust matters to a lot more companies than a skeptical public might imagine. While there are egregiously self-interested firms that can be said to not care about trust, the larger part of the business world cares deeply. Yet, in the current  environment, positive intent may not be enough to reclaim trust.

The Trust Formula

One model of trust in relationships offers some lessons for senior executives and marketing specialists for how to reclaim trust with customers, partners and other stakeholders. The trust “formula” has four factors: Credibility, Reliability, Openness, and Self/Other Orientation. This model is adapted from David Maister’s “Trusted Advisor,” a classic in the field. All four elements in the model play an important part, but the fourth — Self/Other Orientation — can either undermine or enhance the other three factors.

Credibility – The credibility of a firm is built on the truthfulness of its communications, its reputation, its experience base and credentials. If there’s a gap between what a firm says and the customer or partner’s experience, trust can break down. If the firm’s reputation or verifiable credentials or experience don’t line up with its claims or communication, trust can be lost. Marketing initiatives to build credibility center on brand alignment, certifications, client/customer testimonials, promotion and sales processes.

Reliability – The reliability of a firm is demonstrated in its actions. Does the firm follow through and keep its commitments? Does it create predictable experiences, does it set expectations that it can keep? Uneven quality, inconsistent experiences, poor performance, lack of follow up or follow through, all contribute to a loss of trust. Marketing initiatives to build reliability include product management and sales and customer service.

Openness – In interpersonal relationships, openness is often confused with sharing intimate information. That does not foster trust. Openness that fosters trust involves the risks taken  in the relationship, and  the discretion and empathy with which one treats other people’s risks. In business life, this translates to transparency, and sharing information with stakeholders, sometimes hard-to-admit information like “we made a mistake.” Marketing initiatives that demonstrate openness include stakeholder engagement, supply chain transparency, sustainability reporting and open design standards.

Self/Other Orientation – In individual relationships, we most deeply trust those people who we feel have our best interests in mind. So too with companies. We trust companies that  care for our benefit as much they care about profit.  Marketing initiatives that foster trust also include integrating social good into all aspects of mission, marketing and communication. Demonstrating this commitment amplifies the benefit of a firm’s efforts in regards to Credibility, Reliability and Openness. Marketing initiatives that “go first” involve making a stand for social and environmental responsibility in the communities and the environment where they operate. But efforts at these forms of conscious capitalism must be genuine, and seen as genuine, efforts to make a positive difference.

How are We Doing?

Each of these qualities shows up in organizations in slightly different ways, but all lend themselves to meaningful measurements. As a result, organizations can benchmark perceptions and behaviors, and objectively assess progress towards trust goals.  Companies can be comprehensively assessed on these four qualities to determine the greatest opportunities for reclaiming or enhancing trust with customers and other stakeholders.

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Kathleen Hosfeld is the principal of Hosfeld & Associates, a strategy and marketing firm.  John Forman is the principal of Integral Development, a teaching and consulting firm focused on leadership, performance, strategy and decision-making.

By Kathleen Hosfeld

Few companies argue that fostering trust with customers and other stakeholders is an important business task. Where there’s disagreement, however, is what specifically fosters trust, and the degree to which trust between customers and companies – particularly as it relates to green or sustainability claims – is suffering.

Our academic partner, Jenny Mish, PhD., assistant professor of marketing at Notre Dame, explored this and other questions in her doctoral research. Her study, which explored food standards and sustainability, resulted in insights about marketing behaviors that foster trust.

Mish interviewed a wide variety of individuals representing institutions engaged in developing or promoting the use of market-based product standards, such as Fair Trade or organic, that specify reductions in negative environmental or social impacts.  She spoke with people in large corporations like McDonald’s, in government such as the United States Department of Agriculture, and  smaller, grassroots organizations such as the Portland, OR-based Food Alliance.

The spectrum of types of trust she found span from the very impersonal and institutional, to the highly personal, local and dare we say “intimate.”  Large corporations tend to look primarily at repeat purchase behavior to evaluate the degree of trust they’ve engendered with customers. Some companies evaluate trust on the basis of their ability to fulfill key expectations of sustainability performance. Still others evaluate trust on the basis of direct, personal interactions with customers, and the degree to which they had actual contact with customers and other stakeholders.

Her findings suggest that marketers may be able to foster trust three different ways:

Preserving the Integrity of the Brand: The least personal form of trust is embodied in the brand attributes that create a predictable customer experience. This is true even when the context is not sustainability or green attributes.  This calls for organizational and channel alignment to fulfill brand promises consistently, which means full commitment to green or sustainability standards…not merely claims that show up in features and benefits.

Compliance with a Market-Based Standard: A company’s ability to merit certification such as the USDA’s organic standard or Fair Trade, creates a type of performance contract with customers that fosters trust. Marketers may encourage their organizations to qualify for certification, but ultimately this will require cross-functional collaboration to bring operations into compliance. Standards that inspire trust are those that are either objectively evaluated (by government or third-party) or that are developed and supported by a wide coalition of contributors/stakeholders.

Designing Highly Personal Forms of Contact with Customers: A company’s ability to deal directly and personally with its customers, such as “meet the farmer” programs, can foster the most personal type of trust.  These programs are common in “local” exchange relationships, such as those formed at farmer’s markets.

One implication of the study, as I see it, is that human interactions (personal) are where trust can be lost altogether, or maintained in either an impersonal or highly personal and reciprocal manner. Mish’s study was not designed to explore trust as engendered by the sales process, but we know from other experience that the quality of those interactions also impact on consumer perceptions. While they make good marketing sense, authentic interpersonal relationships are usually not driven by marketing goals. They usually reflect a sense of “this is the right thing to do regardless” in the company culture, as is the case with local relationships described above.  They manifest from the shared values of everyone in the company.

Ultimately fostering trust is not a matter of choosing between these forms. It’s bringing all types of trust-fostering practices to the marketing agenda. The assumption is that if the organization is large, then personal interaction is not possible.  If we believe, however, that it’s the right thing to do, then it becomes an opportunity for innovation. There’s the marketing challenge — creating trust-engendering relationships between human beings on both sides of the exchange process, regardless of company size.

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Jenny Mish’s dissertation is “Centralizing and Decentralizing Forces in the Development of Sustainable Markets: A study of Food Product Standards.” It was published in 2009, by the University of Utah.

Terrific blog post at Harvard Business Review  by Umair Haque who is Director of the Havas Media Lab  saying the proof of the benefit of responsible business is in. Wait too much longer for more proof and the responsible businesses will have eaten your lunch. Statistics he cites are:

• Ethisphere Institute: In 2008, ethical leaders outperformed the growth of the S&P 500 by 40%. In 2009, again. In 2010, by 35%.
• CSR Magazine found a shareholder value performance gap of about 10% between, for example, the most and least transparent companies.
• SRI Research finds that the mean Market Value Added of the top 100 Corporate Citizens is $36 billion, more than four times the Mean Market Value Added of the remaining companies — which is less than $8 billion.
• Berkeley’s Haas School of Business: Study found that companies high in social responsibility had significantly higher profit margins, returns on equity, and returns on assets.

What type of behavior characterizes these types of companies? It’s important to note that these are self-regulated practices of companies that take responsibility for relationships with and impacts on a variety of stakeholders, and incorporate an active, conscious commitment to the public interest (versus self interest alone) in their decision-making.

For additional details see the entire blog article here.

By Kathleen Hosfeld

We live in an exciting time during which companies are questioning traditional models of marketing, and are pioneering new approaches that create better financial returns. More importantly, more companies are raising the ethical bar on their marketing and seeking to earn both the trust and loyalty of the market. Stakeholder marketing is an approach that does both. It’s something that you may hear more about in the coming months.

What is stakeholder marketing?  It’s an approach that recognizes that the “market” is not just a narrowly defined customer target (or series of customer segments). It perceives that customers are interconnected with employees, vendors, government and community, the environment and more.  It’s based on the premise that in order to effectively conduct commercial transactions companies must engage with a system of interconnected partners, known as stakeholders.

In the article Transformation of Marketing, I have identified three elements of the emerging model of marketing practiced by high-integrity companies: embracing a systems perspective, creating social good, and living the brand. Stakeholder marketing is an important part of embracing a systems perspective because it engages with the marketplace as such a dynamic system. It can also reflect the intention to create social good, depending on the degree of mutuality to which the company aspires.

The intention of those who’ve practiced stakeholder marketing is to establish, cultivate and deepen positive relationships of trust between their organization and the groups directly affected by their activities. These relationships result in cooperation that helps a company further its goals. For many who practice stakeholder marketing, their goals include service to stakeholders as an end in itself not as a means to an end. Some organizations may see the value of stakeholder relationships only in terms of how they might help the organization achieve goals for growth or profit. Research indicates that stakeholder orientation in a firm correlates to improved financial performance. However, as those who have practiced stakeholder marketing will tell you, the rewards can be far greater.

In the book Firms of Endearment, the authors assert that stakeholder marketing creates such positive relationships and perceptions with stakeholders, that those who practice it spend less to get the word out and to shape public perceptions of their brand. They benefit from significant word of mouth that is fueled by customer loyalty and advocacy.

Serving Instead of Managing

A primary characteristic of stakeholder marketing is that it is not an attempt to manage or control perceptions or behavior. Rather it expresses itself in efforts to engage stakeholders collaboratively to create value together. It incorporates a strong ethic of service not just to customers but also to other partners in the value chain. The following provides an evolving series of stances that organizations can take or have taken in response to stakeholders.

Prior to the advent of the Internet, companies with the financial resources to do so could more easily control the information that audiences received about products or services. Customers and other stakeholders had neither the time nor the money to fully investigate all the companies from whom they might purchase products or services, or with whom they might work. As a result, during this time companies assumed that marketing’s role was to create and protect perceptions of the firm and its products in order to sell.

With the advent of the Internet, all stakeholders gained considerable new information about and influence over perceptions of companies, products and services. Stakeholders were better able to communicate out their experiences of a product, service or company. Other stakeholders were able to access this information, giving them information to either confirm or undermine the company’s own messages. As companies lost some of their ability to control those perceptions, marketing became somewhat more collaborative and transparent. “Managing” perceptions and key stakeholder relationships was an evolution in marketing that acknowledged the difficulty of maintaining control while still seeing control as desirable.

Stakeholder marketing takes a leap into the void by ceding a great deal of control and shifting to an attitude of servant leadership in the exchange process. According to research on companies who practice stakeholder marketing, such companies disclose more, share their standards, ask for feedback and act on the feedback they receive. A company that adopts stakeholder marketing sees innovation potential in finding ways to align stakeholder needs with its own, and has confidence in the good will, loyalty and trust that the process will generate.

Implications for Marketing Planning

How does a stakeholder orientation change marketing planning? In a traditional environment, the company takes in information (from the sales force, from research, from analysts) and uses this to formulate its marketing strategies. In stakeholder marketing, the information gathering process broadens to employees, vendors/suppliers, distributors, communities and regulators – the stakeholder groups that the company identifies as appropriate to its situation  — and continues as a form of dialogue. Gathering information from stakeholder groups, feeding this information to the right internal audiences within the company, and formulating responses are the inhale and the exhale of stakeholder marketing. This can seem overwhelming if the company does not have a clear sense of direction and mission. This is provided by clear value propositions.

Value propositions are important ordering agents in traditional marketing planning. They are also extremely valuable in helping companies align stakeholder needs in a stakeholder marketing planning process.  The process of establishing a value proposition allows a company to define what it does best and how it contrasts with competitors or substitutes. In traditional marketing, however, the value proposition is created with only one target audience: the customer.  In stakeholder marketing, value propositions created for each stakeholder group help to fully develop and articulate both marketing goals and brand values. Creating these propositions also helps identify areas that need to be aligned or reconciled. As a result, marketing strategies become more robust, and marketing efforts more focused. (See related article on value propositions.)

Is it Marketing or is it Management?

One of the tricky things about stakeholder marketing is that it is difficult to isolate the actions of stakeholder-oriented firms that are discretely marketing focused. This, of course, depends on your definition of marketing.  In the Michael Porter Value Chain model, marketing is the function of communicating and selling that happens later in the process of supposedly “creating value.”

If, however, your definition of marketing is like Peter Drucker’s – the entire company as seen through the eyes of the customer – then you believe that all departments and functions hold pieces of the marketing function, and stakeholder marketing identifies the opportunities all along the value chain to create value for all partners – not just customers.  The transformation of marketing requires the adoption of such a systems view which breaks down the silos between strategy, management and marketing.

The Firms of Endearment authors assert that companies with a stakeholder orientation spend less money “on marketing.”  Based on the case histories of the book, which include Costco, Harley Davidson, and other recognizable names, I disagree. What may more likely be true, however, is that these companies spend less money on sales and promotional efforts – such as advertising – that seek to form or build positive awareness for their goods or services.  Why? By virtue of their organizational behavior, and fostering authentic, positive relationships with stakeholders, they have earned such positive awareness. They don’t need to buy it.

As a result, I am tempted to think of principle-based stakeholder marketing as more than an approach. It’s also a philosophy of marketing that is collectively held by all members of the firm. If all company’s decisions are focused on the question of “what creates mutual value between our firm and our partners” the decisions that have the potential to benefit profit and growth can be made virtually anywhere in the organization.

Getting started. Would you like more information on how to get started exploring or understanding how to implement stakeholder marketing? I am working on another article to describe that process. Let me know what you’d like that to cover. Please contact me with your questions and ideas.

By Kathleen M. Hosfeld, President

Once a year or so, my mentor and former professor, Cliff Rowe, asks me to return to Pacific Lutheran University to speak to one of his classes about communication ethics. I sit in front of a classroom of about 20 students who have varying degrees of interest in how I apply ethics to my work. Most are polite. Some fall asleep.

In recent years, the students have started asking if I use the TARES test in my work. I always have to say I don’t, because I didn’t learn the TARES test, which was published in 2001, when I was in school. But, in fact, the philosophy of the TARES test is reflected in everything we do at Hosfeld & Associates.

What is the TARES test? It’s a five-point test for what the authors call “ethical persuasion.” Published by Sherry Baker, a professor at Brigham Young University, and David L Martinson, of Florida International University, the TARES test seeks to establish robust principles for ethics in action and to support the creation of a more ethical approach to persuasion – particularly commercial persuasion such as takes place in the marketing process.

The TARES test consists of five principles: Truthfulness (of the message), Authenticity (of the persuader), Respect (for the persuadee), Equity (of the persuasive appeal) and Social Responsibility (for the common good). The authors offer checklists of questions for each of the five principles that help the practitioner explore their implications:

Truthfulness examples:

• Is this communication factually accurate and true..? Does it lead people to believe what I myself do not believe?
• Has this appeal downplayed relevant evidence?

Authenticity examples:

• Does this action compromise my integrity?
• Do I feel good about being involved in this action?
• Do I truly think and believe that the persuadees will benefit…?

Respect examples:

• Is the persuasive appeal made to persuadees as rational, self-determining human beings?
• Does this action promote raw self-interest at the unfair expense of or to the detriment of persuadees?
• Am I doing to others what I would not want done to me or to people I care about?
• Do the receivers of the message know that they are being persuaded rather than informed?

Social Responsibility examples:

• Does this action take responsibility to promote and create the kind of world and society in which persuaders themselves would like to live with their families and loved ones?
• Have I unfairly stereotyped constituent groups of society in this promotion/communications campaign?

There are many facets of the TARES test worth exploring. One of the first that strikes me is that ethical persuasion begins with the realization that our choices create the world we ourselves live in. This is not a new insight; it’s been part of mainstream marketing thinking for a while. One of my first positions in marketing communications was with an Ogilvy & Mather division where I was introduced to the philosophy of advertising pioneer David Ogilvy. A prolific author, Ogilvy once wrote in a treatise to young advertising executives: “The customer is not an idiot; she is your wife.”

I was startled the first time I read it. It took a moment to sink in. Ogilvy was speaking at the time when most of the industry was populated by white males. We can pardon him some 1960s sexism because he got the basic idea right. He may have gone on to say “Or your mother, or your daughter.” He was trying to tap the innate empathy we have for people we love, for whom we want the world to be a good, safe and equitable place. He was trying to make the connection between what we do as persuaders and how that affects the world.

The TARES test is described as five principles of ethical persuasion. It’s been my experience that discussions of ethics and what is ethical can be interpreted from the perspective of compliance. We set ethical codes in order to define the minimum standard of acceptable behavior. One of the things I like about the TARES test is that it flips this into a creative discussion. Instead of setting a minimum standard it sets one of the highest possible. It asks the questions: “What kind of world do I want to create for myself and people I care about? How can my marketing choices help create that world?”

So, consider the TARES test and how it applies to your advertising, sales materials, media relations – in short, all marketing speech. Let it spark your imagination as to the kind of world you’d like to create with your work. To learn more, you can order the original scholarly paper (an easy read that includes all the questions), from Lauren Erhlbaum Associates Online: http://www.leaonline.com Title: The TARES Test: Five Principles for Ethical Persuasion.