IBM execs say connecting with consumers can bring new market opportunities

 By George Pohle and Jeff Hittner

Businesses are facing a new question about who owns them. And the answer is that it’s no longer who it used to be.

A decade ago, the answer was pretty simple for publicly held companies--the shareholders. Senior management and the board of directors had one primary goal: to increase shareholder value by driving revenue and profit, paying bigger dividends and increasing the stock price. About 10 years ago, things started to change.

 The exploding growth of the Internet suddenly made it easy for all constituencies to gather and share more information about what companies were doing. In particular, consumers started seeking more information about environmental policies, product health and safety records, philanthropic activities, international trade practices, financial disclosures and how employees are treated.

As they watched and learned, they began to organize and share--often forming or joining NGOs and other advocacy groups--using the new-found power of the Web to communicate, organize and share information in ways previously not possible.

And they began to act--not only deciding what products and services they’ll buy, but also influencing media coverage and government regulation. Such is the power of grassroots connectivity that now when a tree falls in a rainforest, there is always someone there to hear it--and quickly arrange boycotts, protests and other counter-branding actions in response. Frequently, this happens before a company even knows about the incident that spurred the consumer response; the picketers at the front gate are the first indication of a problem. So, what are the consequences of this trend? The shareholders may still own the company, but consumers own the brand.

The Rising Power of Consumers

Consumers increasingly want products and services produced, packaged and distributed in a way that's consistent with their personal values. They have rising expectations for relevant information about company behavior on social issues. And, they are more frequently making buying decisions based on that company behavior.  In fact, a quarter of all consumers say they would switch brands for a given product or service if provided with a more ethical alternative. That’s a larger shift than it would take to make or break a large corporation.

 According to a study by GlobeScan, a public opinion and stakeholder research firm, nearly half the populations in North America and Australia report having rewarded socially responsible companies through their consumer behavior, and about one-third of the European population reports having done the same.

Slightly higher percentages have reported punishing companies they deem socially irresponsible by refusing to buy their products and speaking critically of them to others. Customers are joining with activist NGOs and advocacy groups, using blogs, wikis, social networking sites like Facebook, and video-sharing sites like YouTube to proliferate their messages.

What’s more, they’re even engaging in “counter-branding” activities-- attempting to hijack a company’s brand and ruin its reputation. As a result, brands that have been built over decades can be severely damaged in minutes. Think tainted toothpaste, poisoned pet food and lead paint in toys at Christmas.

This is a global phenomenon. When Chinese officials recently tried to build petrochemical plants in Xiamen and Chengdu, they were stopped by protests and complaints from hundreds of local residents, who were organized and prompted to action primarily through Web sites, blogs and text messages on their mobile phones.

NGOs and other advocacy groups in particular have risen to great prominence in their influence over corporate behavior, serving as a rallying point for consumers and using their collective authority to influence government regulation of industries.

Since 1990, the Web has spurred the growth of more than 100,000 new citizen groups devoted to social and political issues. While in the past these groups and businesses have viewed each other as adversaries, over the past decade some parties in both camps have found common ground, working together to find solutions to issues of mutual concern.

Fred Krupp, president of advocacy and consulting firm Environmental Defense, said in an interview last year that two decades ago the attitude of some people within his group toward corporations was “sue the bastards.” But it was through dialogue and collaboration that his group helped McDonald’s switch from polystyrene to recycled paper for its sandwich containers.

The good news for businesses is that if they find a way to connect with customers and NGOs and respond to their concerns, there’s an opportunity to deepen relationships, strengthen brand loyalty, and even open up new market opportunities. Businesses are beginning to recognize and respond to the growing influence of consumers, and other constituents.

In global survey of businesses conducted by IBM, 69 percent of CEOs said they see these more demanding and active customers as having a positive impact on their businesses, and two-thirds are investing to capitalize on what they view as an opportunity.

But along with this awareness are disconnects that need to be addressed. In the IBM survey, 76 percent of the business leaders admitted they don’t understand their customers’ concerns or demands, and only 17 percent are even asking their customers about it.

Engaging Consumers

As the influence of consumers continues to grow, how does a company address their concerns? First, it has to align these corporate social responsibility values of its customers with its business strategy. Linking them with core product and services can enhance the value proposition and create a new level of differentiation with consumers. An offering that meets consumer needs and matches their values is much more attractive.

Second, the company must take the wraps off information it once considered private or proprietary. With relentless pressure from consumers and advocacy groups, restrictions need to fall away, and visibility is best met with transparency. But what seems like an insatiable thirst for information is in reality a drive for relevant information that can reduce complexity and increase consumers’ comfort level.

And finally, the need for transparency leads to the need to engage consumers and advocates. True communication requires not just context, but interaction among the parties. Companies need to not only talk to these stakeholders but also listen. If they do, they’re likely to gain valuable information that can help them improve their products and services, uncover new market opportunities, and head off problems before they occur. When these activities are done in combination, they can become a dimension of a company's successful competitive strategy. Done right, they can offer a company improved relationships with all of its key constituents, more loyal customers, higher revenues and an overall improvement of the company’s standing in society.   

George Pohle is Vice President and Global Leader of IBM’s Business Strategy Consulting practice. Jeff Hittner is the Corporate Social Responsibility Leader for IBM Global Business Services. Their study, “Attaining Sustainable Growth Through Corporate Social Responsibility,” can be found at: www.ibm.com/gbs/csrstudy.