Leading With Transparency Promotes Customer Loyalty

What is transparency in business and how does it promote customer loyalty?

Transparency is defined as “a “lack of hidden agendas or conditions, accompanied by the availability of full information required of collaboration, cooperation and collective decision-making.” Companies that embrace transparency as a business value find that this practice leads to trust, which leads to customer loyalty, which leads to business success. 

“Transparency tells your customer: You matter. We respect you,” Lasandra Barksdale, founder and principal consultant at Kompass Customer Solutions, LLC, told business.com. “It signals that the brand has nothing to hide, which makes it easier to buy, to stay and to refer. We trust what we understand.” 

Transparency results in more sales.

Businesses that are transparent are able to build a strong foundation of customer trust and loyalty, which in turn can help drive sales. “Transparency is also how you cut through the noise,” Barksdale said. “In a world full of spam, scams and shady fine print, clarity is a competitive advantage. It’s how you say: “We’re not here to trick you. We’re here to serve you.”

A lack of transparency, which significantly contributes to loss of customer trust and loyalty, leads to the loss of long-term customers and a missed opportunity to reap the bottom-line impact of customer loyalty. “When customers see that [transparency] in your words, your pricing and your actions, they feel safe,” she said. “And when people feel safe, they come back. They spend more. They tell their friends.”

Transparency creates loyal customers.

Studies have documented that customer loyalty can pay huge dividends. One of these dividends is that companies spend fewer resources in keeping loyal customers. Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. 

“When customers find a brand to be reliable, it’s one less thing to worry about in their daily lives,” Prashanth Krishnaswami, head of market strategy, CX at Zoho, said. “One of the most underrated moats in business is ‘mechanical reliability,’ when customers don’t think about alternatives because they’re so used to the reliability and convenience delivered by a particular brand.”

Transparency increases profits.

This kind of reliability bolsters profits in significant ways. Bain & Company, working with Earl Sasser of Harvard Business School, found that increasing the customer retention rate by five percent increases profits by 25 percent to 95 percent. The study also noted that loyal customers tend to purchase more and frequently refer new customers to a supplier, offering another profit source.

There are three concrete fiscal realities of loyalty and engagement:

• Loyal customers spend 67 percent more on products and services than new customers.
• Almost half (46 percent) of loyal customers are likely to keep buying from a brand even after a negative experience, according to KPMG.
• New prospects who are referred to you by existing customers convert more than non-referred prospects.

Business transparency is a game changer that can lead to business success. Companies that practice transparency build strong, positive relationships that increase long-term customer loyalty. Additionally, businesses that strive to be open and honest with customers set themselves apart and improve ROI in the form of profits and long-term sustainability. 

How to be transparent in your business

With all of this in mind, businesses can build transparency in multiple ways.

Being transparent in your pricing

Being honest and transparent about pricing and products is foundational to business transparency. Pricing is one area where consumers of all types expect complete transparency. Companies that don’t provide accurate and complete pricing information foster mistrust and lose an opportunity to build customer loyalty. 

Customers appreciate businesses that are forthright about services provided, fees and contract terms. Pricing transparency emphasizes value, not prices. For instance, if you have to raise your prices because of inflation, be upfront about it and explain the reason. “Don’t just raise prices,” Barksdale said. “Raise understanding. Inflation isn’t your fault, but how you handle it is your responsibility. Customers get that costs are going up. What they don’t get, or appreciate, is being blindsided.”

Here are a few things to remember when communicating a price increase: 

• Explain the reason behind the increase. If a price increase is needed because your manufacturing costs have risen, let your customers know. “I’ve noticed some brands communicate to customers how their underlying costs have gone up and how they’re updating their prices to reflect that,” Krishnaswami said. “Needless to say, it’s best for brands to be transparent about the factors influencing the increase in prices.”
• Compare price increases across your industry. If inflation is impacting your costs, chances are your competition is feeling the pressure, too. Reviewing industry-specific pricing data is essential to helping your business get ahead. Looking at how others are handling cost increases can help you establish a baseline for how much you should raise your own prices. [Learn how to use data science to get ahead in business] 
• Provide an estimated range for services upfront. Communicating price increases can be a simple practice for someone like a restaurant owner, in which pricing is easily outlined on a menu. However, it can be difficult for trade-based professions like plumbers or electricians, who provide services that fluctuate in cost. In these situations, one option is to share the average cost range for your core services. Additionally, be sure to communicate that customers will need an estimate to understand the actual cost and that this information is clearly listed on the website, not in fine print or hidden. This way, customers have an idea of what the average spend is, but they understand that their unique situation will affect the price of the associated service(s). 

Being transparent in your communications

Brands that prioritize transparency in their digital strategy realize gains in consumer trust, increased sales and a bolstered brand reputation. Social media platforms are key for customer retention and are some of the best places to be real with customers since it is considered to be more personal than other marketing channels. This is especially true with millennial and Gen Z consumers. A recent study by NielsenIQ found that Gen Z is especially concerned with corporate transparency when making purchasing decisions. 

Companies can use their social platforms and websites to boost their transparency through direct communication with customers and stakeholders. Here’s how to ensure your digital communication fosters trust:

• Keep your content current and accurate. Outdated information implies a lack of transparency. Update your websites and social media platforms with the most current and accurate information about things like product availability, inventory, pricing and policies. 
• Delegate social platform responsibilities. Since small business owners are wearing many hats, updating these channels regularly can fall by the wayside. With this in mind, owners should designate someone to maintain the social channels and website to ensure these updates are made. If resources don’t allow for this, setting monthly reminders to update these channels yourself would be beneficial to start including this in ongoing business practices. 
• Show authenticity through discernment. Just because updated content is important, it doesn’t mean that your brand needs to speak on everything happening in the world. “It’s unnecessary for brands to take advantage of every trend or take a stand on every social or public issue,”  Krishnaswami said. “Customers also feel confused and alienated when brands take a stand on unrelated topics.” 
• Use your platform to educate your customers. Utilizing your communication channels to showcase your brand’s mission and values can build trust when done correctly. “Brands can take to social media to educate their customers and the broader public on their values, their priorities, how they do business, how customers can take better advantage of the brand’s offerings, and even explain actions like a pricing change or product recall,” Krishnaswami advised. “When they’re transparent and educational, customers respect the brand more and keep engaging with the brand.”

Being transparent by admitting mistakes

In a world where consumers have easy access to company information and reviews, customers expect and demand transparency from businesses. As today’s digital landscape puts businesses under a microscope, acknowledging mistakes when they happen and being open about how the company is handling them are vital. 

This includes addressing bad reviews of the company’s products or services, using them as an opportunity to be transparent about issues and how they’re being resolved. People actually trust companies that have a few bad reviews, because it shows that they are transparent and not just allowing glowing reviews to be posted. “A well-handled mistake can actually create stronger loyalty than if everything had gone perfectly,” Barksdale said. “Many loyal customers are won over not by the absence of problems, but by how those problems are addressed. It’s a moment that reveals a company’s true character.” 

Being transparent by sharing your company’s ongoing efforts

Treating transparency as a core company value that guides all aspects of a company’s operations is key to long-term success. Transparency is not a one-and-done initiative. Businesses should put transparency into practice on a continuous basis to build and maintain trust with customers.

This can include regular updates to the website with pricing or product information as well as business practices. It can even be as simple as sharing what vendors your business chooses to work with, which can demonstrate a commitment to other core values like their sustainable business model or equality. If this is done early and often, being transparent will become second nature and be mirrored by your entire organization, rather than an afterthought.

Furthermore, businesses should regularly benchmark whether they are delivering on their core values, and if not, determine the best course of action and be open to customers about what they’re doing to remedy the situation. “Transparency isn’t just an external strategy. It has to start inside the business,” Barksdale advised. “One of the most powerful places to practice it is in your hiring and culture. Be clear about what it’s like to work for you. Talk openly about expectations, values and how decisions get made … Customers can tell when the inside doesn’t match the outside. But when your team feels informed, respected and included, that shows up in every interaction.”

Natalie Hamingson and Jennifer Dublino contributed to the reporting and writing in this article.