We all know that customer trust is essential and the foundation of any successful business. Customer trust goes beyond simply providing quality products or services. It is a combination of honesty, transparency, reliability, and consistency. When you consider that just a 5% increase in customer retention can boost your profits by as much as 95%, the rewards for gaining and maintaining customer trust are massive. Beyond just retention, 83% of customers say they would recommend a business they trust to others.
This multi-part series will delve into nine ways companies can lose and create trust.
Part 1: Your Board wants you to blame your customers: Don't do it! Be Honest!
Pushing your problems off on the customer is a customer service mistake that can erode trust and damage your brand's reputation. When customers encounter problems or issues with a product or service, they expect the company to take responsibility and offer solutions to resolve the issue.
In 2021, a hospital in Florida came under fire for sending out bills to patients that contained sensitive medical information. The statements included the patients' names, medical conditions, and treatments, which were visible to anyone who received or handled the mail. When patients raised concerns about the privacy violation, the hospital initially responded by placing the responsibility on the patients, claiming they should have requested their bills to be sent electronically instead. This response was insensitive and inadequate. Patients and privacy advocates argued, rightfully so, that the hospital had a duty to protect their patients' sensitive medical information.
This incident highlights the importance of hospitals taking responsibility for their actions and their impact on their patients. Hospitals risk eroding trust and damaging their reputation by pushing their problems onto patients, which can seriously affect patient care and safety.
The hospital's failures seem quite apparent to an outsider. But, as a consultant, I have frequently worked for companies that get themselves into similar situations. Hindsight is always 20/20. On the inside, executives get caught up in damage control mindsets. They don't want the board or the public to realize their faults – in this case, considerable holes in data protection. But you will always be better off admitting mistakes. Customers trust businesses that can admit fault more.
Research has shown that customers trust businesses that admit fault and take responsibility for their mistakes. According to a study by Accenture, 52% of consumers said they would stay loyal to a brand that admitted to a mistake and resolved their issue, compared to only 28% who would remain loyal if the company did not admit fault. Another study by Edelman found that 81% of consumers said that it's important for companies to admit their mistakes and take responsibility for their actions.
These studies suggest admitting fault and taking responsibility can significantly increase customer trust and loyalty. By acknowledging mistakes and working to resolve issues, businesses can show that they value their customers and are committed to providing quality products or services.
So, why do companies so infrequently admit fault? A study by Kim and Davis (2016) at the Stanford Graduate School of Business found that corporate boards prioritize avoiding legal liability and reputational damage over admitting fault and taking responsibility for mistakes. The study suggests that boards may be more likely to take a defensive approach to crisis management, which can hinder their ability to respond effectively to issues and maintain trust with stakeholders. Whether the company is a large public company or a sole proprietor, the defensive reaction is more common than simply admitting fault. The defense approach reduces customer satisfaction and trust, eroding revenue and profits.
That being said, it's worth noting that the attitudes and priorities of corporate boards and managers can vary widely depending on the specific company and industry. In some cases, boards may prioritize transparency and accountability as critical components of their corporate governance strategy. Overall, while there may be some reluctance among boards and managers to admit fault, companies need to prioritize transparency and accountability in their crisis management strategies to maintain trust with stakeholders and mitigate the impact of adverse events. No matter the short-term gain, quickly admitting fault and taking necessary steps to remedy the problem is always the best action plan.
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