Why Trust Matters More Than Ever for Brands (Harvard Business Review)

We've all been taught that trust and reputation are important elements of branding. Today, though, trust is not simply a nice thing to have, but a critical strategic asset. Therefore, it makes sense to be specific about how and why it adds value. The drivers of brand value have changed over time, and there are three forces at play that have brought the issue of trust to the center stage:

1. If we look at company valuations, an increasing portion of a firm's value resides in intangibles. In The Brand Bubble, John Gerzema and Edward Lebar highlight the fact that in the 1950s, about 30% of firm value was intangible (at the high end); today it is closer to 62% globally.

Let's look at some of the components of intangible value. Gerzema and Lebar offer this construct:

Sources of Intangible Value
Brand: Brands, trademarks, customer goodwill, company reputation
Market Position: Contracts, licenses, legal monopolies, customer lists
Business System: Organizational models, software investment, proprietary process, franchise rights
Knowledge: R&D, patents, human capital, IP

If we look at these from the perspective of trust, there is a really interesting pattern. The bottom two components, business system and knowledge — with items like R&D, patents, business systems and proprietary processes — really speak to how well companies are able to mobilize people and build trust inside the company.

Companies cannot get these outcomes by simply hiring bright people or paying them a lot of money. They must create an environment in which people can work well together and where they are engaged with the mission of the firm. They must treat suppliers and collaborators well. They have to give freedom to ask tough questions and experiment with new ideas. Trust is a prerequisite for all of these.

The top two elements, market position and brand — with items like goodwill, customer lists, reputation and contracts — are largely a measure of how well companies are building trust with consumers and the wider community. They touch issues like, How well are we taking care of the environment? What are the causes the firm is championing?

So creating value today is not only about the quality of the product or service we deliver. It's very much about the quality of a firm's conduct, both internally and externally. With more consumers, more "noise" from brand messaging, and more people invested in the stock market, there is greater transparency to these elements. It is easy to see how a trust deficit will ultimately slow long-term growth prospects, regardless of favorable macro indicators.

2. Another major shift is a fairly profound convergence of brand and design. Consumers today are trying and bonding with brands through design touch points and their experiences, not through advertising alone. Brand leaders today — Apple, Nike, P&G — are also design leaders. Advertising and marketing can amplify the success of a great design, but they can rarely compensate for a poor one. Here, trust is a function of the brand messaging lining up with the consumer's actual interaction with the product or service. When brands now have to speak to an increasingly diverse global consumer audience, design is critical to delivering a consistent experience and calling attention to innovations.

There is another reason that trust is so critical to the innovation process. We also know that the statistics on successful innovation are not great anywhere in the world. Like people, brands need a community of friends to offer suggestions, call out missteps and help a company change course and refine its offerings. Only trusted companies are likely to have this luxury in a crowded marketplace. The trust inside companies helps to build some of the fundamental building blocks of innovation, and the trust with consumers enables companies to engage in co-creation, enjoy high levels of engagement and ensure the relevance of their offerings.

3. Technology has also changed the picture for many brands in terms of building trust. It's a mistake for us to keep thinking and talking about technology simply as a platform for people to learn or communicate about brands. If we look at Interbrand's 2011 global survey, six of the world's top ten brands (IBM, Microsoft, Google, Intel, Apple, HP) today are technology companies. They are brands in and of themselves and have been forging the same kind of deep emotional connections with consumers that we used to see in other categories such as personal care and automobiles. This is not altogether surprising, because the amount and sensitivity of personal data that is entrusted to technology companies today is unprecedented.

The most profound effect of the increasing share of intangible value, and the role of design and technology is that some of the metaphors of brand meaning have changed. It is no longer just about exclusivity and status. It's also about networks, connections and communities.

Although there has been some erosion of trust from recent scandals, anecdotal evidence suggests that consumers are quite forgiving of strategic mistakes. People understand that the world is becoming more complex, that companies are under constant earnings pressure, and that innovation is really hard work. The mistakes that are hard for companies to recover from are largely from poor conduct. Consumers are not looking for perfection — they are looking for decency. Trust and brand leadership is also a function of the many quiet decisions and judgment calls a company makes about its own values. It's Apple saying that it will not accept apps for pornography. It's SC Johnson going beyond the industry standard to be more transparent about the ingredients in its products. It's the Tata group retaining every single employee and hotel contractor after the 2008 Mumbai attacks while the Taj Mahal Palace hotel was being rebuilt.

Finally, the issues that companies have set their sights on today require an unprecedented degree of collaboration. Delivering great consumer experiences today means combining the capabilities of many companies. When it comes to business trying to address larger issues such as sustainability, security and poverty reduction, this trend is only amplified as NGOs, governments and citizens are brought into the fold. Today, trust is more important than ever — and it can be an important source of strategic advantage.

Read the entire article at Harvard Business Review here: http://www.stumbleupon.com/su/2WkxVv/blogs.hbr.org/cs/2011/12/why_trust_matters_more_than_ev.html/

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