No Match Found
Estimated reading time: 5 minutes
This article is the first in a series of deep dives into the findings from PwC’s Africa Family Business Survey. Each will focus on one of three key stakeholder groups: customers, employees and family members.
The customer is king. It’s a mantra that businesses live by, whether they are B2B or B2C. And customer trust is essential for all businesses. Research using data from PwC’s Global CEO Survey shows that after industry conditions, the biggest contributing factor to profitability is levels of customer trust. Not surprisingly, PwC’s Africa Family Business Survey of 172 family business owners in 12 territories found that, when asked who it was important to be trusted by, 96% said the trust of their customers is paramount.
But it’s one thing to value the trust of customers and quite another to secure it. Just under half (44%) of the respondents said that they don’t believe they are fully trusted by their customers. This is a singularly honest assessment and speaks of the self-awareness of family business owners, who acknowledge that there’s a trust gap. In another recent PwC survey (PwC's 2023 Trust Survey) on trust, 84% of business executives think that customers highly trust the company, yet only 27% of customers say the same of the companies they buy from.
So, given the importance of customer trust and the fact that family businesses know they need to earn it, what should they be doing differently?
The short answer? They have to come to grips with the new, expanded formula for building trust highlighted in the 2023 Africa Family Business survey. Certainly, great products, top-class service and brand value are still ingredients for building trust, as evidenced by the fact that family businesses scored 20 points higher than non-family businesses on the Edelman Trust Barometer a decade ago. But today, those attributes are table stakes.
More than half of the world’s population are millennials and gen Z—people born after 1980—and they have new priorities in this fast-changing world. They want the businesses they support not only to deliver great goods and services but also to demonstrate their commitment to environmental, social and governance (ESG) issues and diversity, equity and inclusion (DEI)—all along the supply chain. And they want companies to take a stand on the issues that matter most to them.
Here, we’ll look at how this new formula affects the relationship between family businesses and their customers, and we’ll consider three no-regrets actions that businesses can take to transform their operations and bridge the trust gap.
"Reputation is an outcome of trust. It’s hard to have a good reputation if you’re not trusted."
Although family businesses say they listen to their customers, they are not demonstrating, beyond a baseline focus on quality products and services, that they share their customers’ concerns. And this is a problem. In the latest Edelman Trust Barometer, family businesses’ trust score is now just six percentage points above the average for all businesses.
Family businesses want the trust of their customers, but they are not getting it.
When asked about their priorities for the next two years, 52% of African family business owners in the survey say they want to increase customer loyalty. The number was 76% for Nigerians. But they are not listening to their customers. For example, as the chart above shows, 78% of family businesses do not actively communicate how they protect private data, even though the recent PwC Global Consumer Insights Pulse Survey of more than 2,500 consumers found that 79% of those consumers say data privacy is their top concern.
In a separate study (Consumer Intelligence Series survey on ESG) of more than 5,000 consumers from 2021, four out of five said that they are more likely to buy from companies that share their values, which gives considerable weight to ESG and DEI priorities. But the Africa Family Business Survey respondents don’t ascribe nearly the same importance to ESG or DEI: only 11% say that minimising the company’s impact on the environment is a priority; a third admit that they put little energy, resources or investment into ESG issues. Even fewer prioritise the company’s social responsibility or its performance on diversity.
There are some notable regional differences. Nigerian family businesses are ahead of others: 36% have a purpose statement that advances DEI, compared to 18% of South African family businesses. Also, 57% of Nigerian family businesses communicate their purpose externally, compared to 29% of South African family businesses. Overall, it’s clear that family businesses view customers primarily through a traditional lens of product quality and customer service. They don’t take into account wider concerns—and that’s what’s creating the trust gap.
Although the research doesn’t show a causal link between commitment to social issues and building trust, there are some telling correlations. Family businesses that are proactive in communications are more trusted. Those that have more processes in place to gather customer feedback and communicate how the company uses customer data and, crucially, how it performs against non-financial targets say they are more fully trusted by customers.
Today, customers want to know how the companies they do business with operate, what their values are and how they demonstrate those values. To assess where family businesses stand in relation to trust, our survey used a trust measurement model developed by Sandra Sucher, a Harvard Business School professor of management and the author, with Shalene Gupta, of The Power of Trust. The model is based on four pillars for building trust: competence (is the company good at what it does?), motive (whose interests is the company serving?), means (is the company using fair means to achieve its goals?) and impact (what is the tangible impact the company has, as opposed to the impact it claims to have?).
As our results show, family businesses are strong on prioritising competence, but they are stuck on understanding whose interests they are serving and are not using the right means to satisfy the expanding needs of their customers. The survey shows that only 44% of family businesses publish values and mission statements; only 44% have a senior leader in charge of ESG; and 38% have one dedicated to DEI.
These sins of omission are not hard to correct: 70% of family businesses say they have clear values, so they should take the time to articulate those values publicly and demonstrate that they operate according to them.[Kenya: 61%, Nigeria: 64%, South Africa: 76%]
‘We have to say what we mean and mean what we say,’ says Farhad Forbes, co-chairman of Forbes Marshall, a business dedicated to improving process and energy efficiency and making its customers more environmentally responsible. His third-generation family business also publishes data on how it helps local communities by improving healthcare, the education of girls, and working conditions for informal workers in its supply chain.
Addressing the widening trust deficit will require family businesses to focus on three key actions:
Case study: The Pick n Pay Group, for example, which employs over 90,000 people, is committed to sourcing 50% of its cotton as a more sustainable cotton by 2024, which includes recycled cotton, organic cotton and Fairtrade cotton. Of its clothing suppliers, 95% are registered on the SEDEX (Supplier Ethical Data Exchange), up from 77% last year. The company has specific targets for improving its social and environmental impact.
Case study: Moose Toys, an Australian toy designer, has a very clear values statement, which includes “treating others the way we want to be treated” and “taking personal responsibility for your actions and outcomes”. In 2007, the company was riding high, competing successfully with huge multinationals, and had won the Australian Toy of the Year award for a craft kit of multicoloured plastic beads called Bindeez, which accounted for 90% of its rapidly growing revenue. Then disaster struck. A subcontractor started using a glue that was potentially deadly to children if ingested. When Moose Toys CEO Manny Stul found out, he immediately recalled all Bindeez products and offered a full and immediate refund to all customers even though the move threatened to bankrupt the company. Stul persuaded the company’s distributors to allow Moose Toys to continue trading, found a food-grade glue that could be used on the production line and signed personal guarantees that the revised product was safe. Today, Moose Toys is thriving.
Case study: Nestlé was acknowledged by the Bloomberg Gender Equality Index (GEI) for its transparency in gender reporting and enhancing women’s equality. This highlights Nestlé’s efforts in empowering women across its value chain and continuously creating equal opportunities for all its employees, for example. According to the 2021 Global Gender Gap Index, Rwanda and Namibia were in the top ten countries with the highest gender equality in the world. Within Africa, women play a huge role in small sized/ micro family businesses but are invariably excluded from leadership positions in large, internationally active family firms, according to the Women in African family businesses publication.
Family businesses pride themselves on a reputation for quality products and services. They have also traditionally relied on philanthropy as a way to give back to society—and to build trust with communities. Going forward, their reputation will not be linked so much to their charitable giving as to how they address the issues that concern the public directly: the way they do business in a world challenged by climate change; who they select as their business partners; how they control their levels of pollution; what they do about diversity and inclusion; whether they speak up and take a stand on social issues. This is family business values 2.0.