THE RISING IMPORTANCE OF TRANSPARENCY AND TRACEABILITY IN THE RETAIL INDUSTRY
By: Alexia Saumon
Tags: Transparency, Millennials, Ecommerce, Retail

In a world of instant communications, whistleblowers, inquisitive media, and Googling, citizens and communities routinely put firms under the microscope (Tapscott, 2011). The increasing importance of company transparency and product traceability as a response to customers’ inquisitions is a trend occurring across all industries. Because it evolves in line with the rise of environmental and wellness consciousness, it is likely to have an even bigger impact on the developed countries’ retail industries, both in B2B and B2C. We call retail any sale occurring when a business sells a product or a service to an individual consumer for his or her own use. The growth of the web and the mobile have completely redesigned consumers’ shopping patterns, as well as their expectations, needs, and desires, both online and in brick-and-mortar stores. But what are company transparency and product traceability? To whom it matters? Why is transparency such a big opportunity for retailers? What has been created to ease the transparency process? Finally, what are the limitations of transparency?

I. Company transparency and product traceability

Company transparency is defined as the practice of disclosing detailed information about products and services, company values and initiatives. Product traceability aims at communicating where products come from, what they contain and how they were produced (Spacey, 2016). From ingredient origination to sourcing to the point of sale, transparent companies make information clearly available to their customer base.

This trend occurs at two levels; product transparency and employee transparency.

A. Product transparency

On the one hand, consumers are increasingly concerned by the quality of the products they buy. Indeed, when surveyed in 2018, 75% of grocery shoppers were more likely to switch to a brand that provides more in-depth product information, beyond what was stipulated on the physical label, compared to only 39% of shoppers in 2016 (FMI, 2018).

B. Internal transparency

On the other hand, the general public now has access to millions of information about companies’ working environment, such as salary information, benefits packages and corporate culture (Morgan, 2017). The rise of social media has made it easier for employees to report and discuss their working environments. Talents are looking for organizations that invest in employee experience and wellbeing. Lacking these factors could drive companies down, both in terms of reputation and of internal recruitment.

In 2018, 75% of grocery shoppers were more likely to switch to a brand that provides more in-depth product information, beyond what was stipulated on the physical label, compared to only 39% of shoppers in 2016.

II. To whom it matters?

The rising value of company transparency has been introduced by millennial consumers but does not evolve purely around them. Indeed, millennials are not only transforming their own shopping behaviors but those of their parents, who are increasingly mimicking the demands of their children, as they become more and more digitally enabled (Donnelly, 2018). When shopping for groceries, millennials value companies who display allergen information, certifications and claims, explanations of ingredient usage information, and other details such as animal welfare, fair trade and labor practices (Hallett, 2018). Their parents (baby boomers and generation X) on the other hand, are more likely to focus on information displayed on the product itself — they value a complete list of ingredients, ingredient description, and nutritional information (Hallett, 2018).

However, it has become clear that retailers should go after millennials. Indeed, even though Gen X is the wealthiest part of the North-American population, they are aging and will soon be failing at keeping up with the rapid path of digital changes. Millennials, on the other hand, are still relatively young; if targeted efficiently, retailers could manage to create long-lasting relationships based on trust and thus increase their customer lifetime value.

Millennials were born between the 1980s and the 1990s. They extensively use social media for self-expression and believe in uniqueness. They are impatient and are taking in large amounts of information at a time. They are peer-oriented and seek advice from those they admire (Edwards, 2017). They research products online before purchase and make conscious consumption. Millennials make up roughly 80 million consumers in the United States alone, with annual spending of approximately $600 billion. Their US expenditure is expected to rise to $1.4 trillion annually by 2020, accounting for 30% of the total retail sales (Donnelly, 2018). As a result, companies and other customers are increasingly considering their insights and desires. Millennials are redefining the retail landscape. When making purchasing decisions, they are shifting away from the traditional drivers of taste, price and convenience towards principles of self (“how is the product that I am purchasing enhancing my quality of life?”), society (“What good is the company contributing to the broader community it serves?”), and the planet (“How are brands contributing to adding good to the world in which we live?”) (Karapetian, 2017).

Millennials’ US expenditure is expected to rise to $1.4 trillion annually by 2020, accounting for 30% of the total retail sales.

III. Transparency; a huge opportunity for retailers

In a world filled with scandals and conspiracies, transparency has become central to customers. They want to purchase products from companies they trust and can relate to. Being totally transparent has shown to have tremendous benefits in terms of profitability and brand loyalty. Researches denote that it also contributes to better internal effectiveness.

A. Transparency yields profits

Consumers are willing to spend more for products made by companies viewed as socially responsible and who are taking steps to ensure the protection of workers and the environment. More than half of shoppers (54%) are willing to pay more for a product that displays additional product information. More specifically, 37% of consumers are willing to pay up to 10% more for a traceable and transparent product (Figure 1). Because consumers have access to instantaneous and unlimited amount of information, they have more power than ever before. The rise of online customer reviews has made it crucial for retailers to stay up to customers’ expectations. Indeed, 37.3% of millennials are always relying on online product reviews before making a purchase (Figure 2), compared to fewer than 3% who previously relied on TV news, magazines or books (Swartz, 2016).

B. Transparency fosters brand loyalty

Transparency fosters brand loyalty and influences shopper behavior. Indeed, 39% of customers say they would switch to a new brand if it offered full product transparency and 56% say they would be loyal for life if it provided complete transparency. Moreover, 81% of consumers would consider a brand’s entire portfolio of products if they switched to that brand as a result of increased transparency (The 2016 Label insight Transparency ROI study). The San-Francisco based online retailer Everlane has experienced the strong benefits of “radical transparency”. Its entire business model is centered around price transparency. The company is targeting millennial shoppers who value a high quality of products for a good deal. The company uses its website and social media to give voice to its workers, show their factories around the world, and share their price and markup breakdown on each transaction. As a result, sales have been doubling annually for the past 3 years, and the company shipped products to more than a million customers, including celebrities such as Angelina Jolie and Meghan Markle (Segran, 2018).

C. Transparency increases internal productivity

Internally, transparency in-between employees enhance communication, knowledge sharing, and collaboration. Implementing a transparent culture helps to build trust among leaders and employees, leading to improvements in terms of alignment, problem solving and engagement. (Lavoie, 2015). Providing as many information as possible to staffs result in greater productivity. Ultimately, companies promoting good communication are 50% more likely to have lower levels of turnover. Moreover, businesses with high levels of engagement reported 22% higher productivity (Gillett, 2014). The well-known company Patagonia has been publicly stating how they hire and what kind of talents they look for on their website (Figure 3). The company seeks employees who also are their products’ end users, rather than looking for extremely talented and over-qualified talents. Moreover, the company avoids hierarchy and reduces micromanagement by having a flat organizational structure (Pfeffer, 2018). As a result, in addition to great financial performance, Patagonia has been ranked the 18-best workplace in retail in 2018, with 96% of employees being proud to tell others they work there.

IV. Tools easing the transparency process

There are a lot of tools retailers should embrace in order to become more transparent.

Technology is evolving in line with customers’ needs. It is thus increasingly enabling retailers to build trust with consumers by actively demonstrating traceability and transparency from end-to-end. By implementing a digital core and leveraging advanced technologies such as IoT and blockchain, retailers could easily provide the information consumers want, when they want it (Mitchell-Keller, 2018).

A. Use of blockchain for supply-chain transparency

Supply chain transparency has been revolutionized by the blockchain. It helps companies record price, date, location, quality, certification and any significant information related to sourcing (Laaper, 2018). An increasing number of tools are made available for companies to help facilitate their transparency initiatives. Provenance is a digital platform that empowers brands to take steps toward transparency. Their software enables businesses to easily gather and present information and stories about products and supply chains. SmartLabel was created to develop a shared retailer-manufacturer agenda on supply chain efficiency. It uses, among others, QR codes to enable customers to have instantaneous material about nutritional information, ingredients, allergens, third-party certifications, company information, along with other pertinent information about the product. Coca Cola is leading the way in using technology for transparency purposes. The company has been using SmartLabel since 2016 and is on track to have a QR code on all of its US products. 1,500 US customers visit their SmartLabel page every day, with 99% coming from mobile sources (Mitchell, 2018).

B. The rise of retailer coalitions

Under strong pressure from both boards and customers, an increasing number of retailers have gotten together to create tools and systems to standardize the ways they engage with their suppliers. The Sustainable Apparel Coalition, for example, aims at creating an apparel industry that produces no unnecessary environmental harm and has a positive impact on the people and communities associated with its activities. Retailers could now easily be informed about the way their suppliers and other components of the supply chain operates, easing the transparency process and freeing them from stress related to unknown and questionable practices (Siegel, 2015) and associated risks of scandals.

V. Transparency: how much is too much?

Companies are facing numerous challenges when dealing with transparency. Indeed, in addition to the fact that information may be distorted, misunderstood or misrepresented, becoming a transparent company does not happen overnight. It takes time and resources and may slow organizational processes (McNaughton, 2013). Moreover, the excess of transparency could backfire both within the internal and external retail company.

A. Dangers of an overly transparent workplace

Full transparency in all areas of a company’s activities could harm profitability and innovation. More importantly, it is crucial for managers to understand that radical transparency does not suit every workplace nor every employee. Researchers have found that transparent atmospheres increased employees’ fear of losing, causing them to play it safe when it came to risk-taking. They often found the limelight constraining and anonymity liberating (Arringdale, 2016). Companies thus have to find the right balance of workplace transparency, otherwise, they will be put at risk.

B. Cost transparency affects retailers

The rise of the internet has empowered consumers to gain an accurate understanding of companies’ cost structures. Cost transparency has caused problems for retailers.

It impairs the seller’s ability to obtain high margins (Sinha, 2000). Indeed, buyers now easily have access to companies’ costs structure, and unless they manage to justify their high-profit-margin accordingly (luxurious goods, local sourcing, innovative products…) retailers will be forced to lower their markup to remain competitive and relevant. If companies do not take the impact of online cost comparison into account, their reputations will be damaged by consumers’ perceptions of price unfairness, ultimately leading to mistrust (Sinha, 2000).