Why It’s Good for Business When Customers Share Your Values

News

1. How Third-Party Data Can Shape Customer Experiences in Financial Industry

2. AI, Data, and IoT Dominate Business Priorities

3. These Are the Top Challenges of Middle East CEOs

4. UAE releases new AI model to compete with big tech

5. How AWS, GCP, and Microsoft Azure Serve the Growing Demand for AI Inference

6. AI, Regulation, and Digital Transformation Feature Prominently in the NextTech Agenda

Values matter. Too often, however, they are relegated to the realm of fables instead of finance.

Take honesty, for example. We tell our children the story of the boy who cried wolf to teach them that when someone is dishonest, others are less likely to believe them the next time. But if we look just a tiny bit below the surface, the financial cost of the boy’s dishonesty immediately comes into focus: It results in the loss of his family’s entire flock of sheep.

If we calculated the loss caused by the boy crying wolf, we undoubtedly would find that it dramatically outweighed the combined gains generated by strategies like using AI-optimized grazing patterns, feeding the sheep a high-growth diet, or using consultant-recommended wool-marketing strategies. And yet, while all those things would clearly be considered business decisions, acting on values is not. But that’s wrong.

There is a very strong business case for acting on values. A $100 billion company I worked with discovered that there was a high return on investment from acting on its values and making sure customers knew about that. In fact, the return was many times greater than the ROI from its investments in upgraded technology or marketing campaigns. Yet the importance of technology and marketing are clearly understood as key areas of the business, while values-related impacts are left off of spreadsheets and are rarely — if ever — used to determine which actions have the highest ROI.

When I say values, I mean the kinds of values that are directed outward, toward doing good for the world and those who live in it. They include efforts such as combating the climate crisis, assisting people who have historically been excluded from job opportunities, and creating an open, inclusive environment for employees from different backgrounds.

These deeper values matter because they can be a key driver of business value in the domains of operations (increasing margins and reducing accident rates), risk (increasing resilience to crises), and employees (increasing productivity and innovation), as well as the more personal domain of leadership (making people more likely to follow you).

They also affect the behavior of customers. My company’s research has found that values:

• Enhance customer preference. For example, in a study of U.S. customers, adding the information that a shirt was produced using fair labor practices resulted in 20% of respondents reporting increased preference for that item.
• Reduce price sensitivity. In South America, the company tested the effect of raising the price of a food product against the effect of both raising the price and adding an attribute signaling environmental sustainability. In customer studies, 9% more people expressed a preference for the latter product over the former.
• Have leadership and “laggardship” effects. In Europe, being behind the competition on sustainability led to a 20% decline in preference for a personal care product.

Values Attract New Customers

Understanding customers’ values provides a window into what they are looking for, how they think, and where they might congregate.

And where is that most likely to be? In places where potential customers have common values: nonprofits, faith communities, and issue-focused groups, and in the media that reports on those topics. Knowing what customers value helps companies both map out where they are and break through the marketing clutter to get their attention. Values also help customers find you, even without advertising. Knowledge of your potential customers’ values, and where they go to express them — in person or online — tells you where to place yourself so they will see you.

Deeper values, such as doing good for the world and those who inhabit it, touch people very differently than more mundane concerns. For this reason, they attract attention more powerfully. There is a competitive advantage to values as well: Since relatively few companies focus on deep values, those that do tend to stand out. Many businesses cater to customers who value things like convenience. The field is far more open when it comes to organizations that speak to deeper concerns, such as leaving a positive legacy.

Engaging in this kind of positioning might seem like seeking a niche, but you can still serve a broader customer base. Customers you find within a value-based niche add to your current base rather than replace it. Many big brands and companies, like Procter & Gamble and Pepsi, are already household names. Nonetheless, they sponsor events around values, such as environmental sustainability, so that customers who care about those values can see that they do too.

Values-based market segments often start out small but rapidly grow much larger. Take ESG (environmental, social, and governance) investment funds, for example. Such funds have grown from a small portion of the market to one that totals trillions in assets under management.1 The recent anti-ESG activity notwithstanding, the inclusion of ESG factors in investment criteria (whether funds are labeled that way or not) continues to grow because they matter to investment performance. For instance, a four-year study of 16,000 equities by asset manager Lazard found that companies with lower greenhouse gas emissions enjoy enhanced price-to-earnings ratios.2

Not all value-based markets grow as quickly as ESG investing has, but many run ahead of the broader market, making new customer acquisition much more rewarding. For instance, the first Whole Foods Market opened in 1980 in the niche market for natural foods. When Amazon acquired the company in 2017, it paid $13.7 billion.3 The appetite for natural foods had grown from a niche into a major market.

Values can also pay off as you try to convert potential customers into paying customers. Mainstream customers might not prioritize deeper values over basic concerns such as price, quality, or performance — in fact, a strong majority of potential customers don’t. But the alignment of values can be the final enticement needed to draw them into your customer base.

Consider all of the companies trying to get you to buy from them. The average person sees or hears hundreds of marketing messages each day.4 Standing out amidst all that noise is both difficult and expensive.

It’s far easier to stand out when your values and offerings are aligned with customers’ values. It’s possible that Tesla’s innovative cars would have garnered plenty of attention if they were gas powered. But it was far less challenging to break through — against the likes of Mercedes, BMW, and other well-known luxury brands — as a maker of electric cars than it would have been selling standard internal-combustion vehicles. Ditto for Burt’s Bees, which had an easier time breaking through the crowded personal care products market by using natural ingredients, responsible sourcing, and recyclable packaging and not testing on animals. These companies had distinct values, and people who shared those values took notice.

Values Enhance Customer Loyalty

Values help forge stronger, longer-term customer relationships by creating trust. You might expect people to trust a company based mainly on competence — its professionalism or the quality of its products. Yet, while competence certainly matters, it’s not the essential factor influencing trust. Think of how you choose whether to trust an expert. You might want to trust their judgment, and you might in fact trust their expertise. But do you trust them? Only if you trust their character — who they are down deep.

This is just as true when it comes to trusting companies, perhaps more so. As Edelman noted in describing the results of its 2020 Trust Barometer, ethics-related dimensions are three times more important than competence in building trust.5 How good a company is at what it does explains 24% of its trust score, but the ethical dimensions of its behavior — purpose, integrity, and dependability — contribute 76%.

This is part of why acting on values makes customer relationships more profitable. My team and I worked with a $20 billion company I’ll call Xynraso (a pseudonym) that sells high-tech products to businesses in science-heavy industries. One of Xynraso’s values is sustainability. Putting that into action included both working on the company’s own operations (such as designs for its environment program, renewable energy programs, and water use reduction) and engaging with customers to reduce their joint environmental impact.

To do this, the company created a one-of-a-kind, technologically advanced program to prevent used products from ending up in landfills. This required it to work with customers to recover products after they had reached the end of their useful life. During the time we worked with the organization, we saw this type of engagement’s power to boost the lifetime value of customers.

When we compared the customers who participated in the program to a control group, we found that they generated more profit across several dimensions, starting with how long they remained customers. We found that over a four-year period, the average customer lifetime of the shared-values customers was 12% higher than the control group’s (just under 27 months versus 24 months).

We also examined whether customers who were involved with Xynraso’s environmental program purchased more. They did, with 2% higher revenue per sale compared with the control group. They also bought more higher-margin products and services, resulting in an average margin that was 15% higher than for customers in the control group.

Reaping the customer benefits from acting on values isn’t automatic, of course. Ensuring that customers are aware of what you’re doing requires multiple actions. This can mean incorporating new messages into marketing and giving salespeople new talking points, for example, which don’t happen overnight. However, as Xynraso’s leaders discovered, that investment in acting on values — and communicating that to customers — is well worth making.

The Risks of Not Acting on Values

The flip side of the benefits that accrue from acting on values is the threat facing companies that don’t seek values alignment with their customers — leaving them vulnerable to losing market share to competitors who do use this tactic.

One company I worked with quantified this risk by talking to B2B customers and surveying tens of thousands of consumers to see how much it mattered if a company was less aligned with their social or environmental values than one of its competitors. It found that once buyers become aware of the alignment differences between companies, a lack of alignment on values could reduce sales by as much as 30%.

Values have the potential to upend the existing order in a market because they bring to the forefront a new dimension of competition. Values are not the primary determinant of purchasing for most customers, but they do matter. Values matter even more as a competitive differentiator when factors such as price, quality, and convenience are fairly similar (and especially when products are seen as commodities).

It’s important to keep in mind that customer expectations, industry standards, and competitors are not standing still. What is acceptable today in terms of acting on values might not be acceptable tomorrow. For example, a company my team and I worked with set an emissions-reduction goal that put it in the top 25% of its industry — but a year later, that same goal had the organization in the bottom 25% because competitors had committed to far more ambitious targets.

Competitive differences like this affect customers’ willingness to switch. That’s what a national household goods brand discovered a few years ago when it decided to try a new approach to its advertising: buying ads to inform consumers about its core values and specific values-related actions it was taking. It produced TV ads and ran print advertisements in big, prestigious publications.

The ads generated an increase in brand awareness of more than 30%, as well as an increase in the willingness of competitors’ customers to consider switching. In a monthlong ad campaign for laundry detergent, the increase in consideration was more than 8% — a very strong result in a mature market in which every point of market share comes out of a competitor’s pocket.6

B2B companies face the same risks that consumer-focused businesses do. When Walmart began to establish sustainability standards over a decade ago, it marked a major advance for the effort to make the use of values-based standards mainstream in purchasing and stocking decisions. Since then, Walmart and The Sustainability Consortium have continued to add new product categories and have created KPIs, baselines, and benchmarks that now cover more than 100 categories.7 Imagine if one of your biggest customers started comparing your performance on values-related issues to those of your competitors and buying accordingly. Would you be ready?

When you consider both customers’ rising expectations and the increasing commoditization of products and services, you can see that these twin pressures push in the same direction — toward greater importance for the social and environmental performance of brands. Now add in factors that reinforce this trend — disruptive events like pandemics, demographic trends, and people’s ability to express and promote their values to large audiences — and it’s no wonder that the risks of falling behind on values are growing.

Moving Forward

Once you decide to act on values, what should you do next? The details will vary, but at its core, putting values into practice comes down to three elements.

First, see more. Hone your ability to see the value of values and incorporate it into your own work — and help others see submerged value as well. Start noticing and challenging the assumption that acting on values costs too much. Just this simple change can make a big difference in your thinking and planning. Once you know how to think about acting on values, you will start to see new opportunities to create and capture value everywhere.

Second, do more. As you see opportunities to build values into operations, engage your company’s product development, marketing, and strategy personnel. There are many ways to do more and many models to emulate. You don’t have to do everything, but you can’t do nothing.

Third, say more. Once you’re doing more, realize the full benefit of values-based actions by making sure your customers, employees, or investors know you’re taking them. Our research has found that even if some people oppose what you’re doing, you’ll benefit overall from credibly telling your story

Companies and their leaders pay enormous attention to increasing efficiency, profitability, productivity, customer loyalty, and all of the standard things that are widely understood to help the bottom line. Now it’s time to add to that list and to truly recognize the value of values.