Provenance and transparency: secret weapons to revolutionise brand value
Modern consumers want to know where products originate and how they are produced. By offering honest information about provenance, companies can radically increase both their brand value and their culture.
Perhaps the most well-known examples of improving product provenance are Fairtrade coffee, conflict-free diamonds and sustainably sourced palm oil. Cleaning up their operations, transforming their supply chains and enacting environmental, social and governance (ESG) initiatives has enabled these industries to leverage one highly valuable intangible asset: that of honest and upfront product provenance.
Done correctly, product provenance can have a real impact on many other intangible assets such as brand, company culture, industry expertise, approvals and certifications.
Why does product provenance matter?
Product provenance outlines each of the steps required to produce, for example, one bag of rice. This information includes where and how the rice was grown and how it is dried, packaged and delivered to shop shelves.
As well as revealing to consumers how a product is made and distributed, the act of building a transparent supply chain can create valuable industry expertise for brands. Showing product provenance – and proving it – is also crucial for companies when applying for approvals and certifications (eg, Fairtrade International), which in turn helps to build more trust between brand and consumer, boosting sales and company value.
When the Fairtrade International certification initiative was founded in 2004, revenue from accredited companies was about $1.05 billion. By 2018, the total market of Fairtrade-certified goods had ballooned to nearly $11.7b.
This certification is just one part of a larger trend of companies choosing to adopt sustainable business practices in response to demand from an increasingly aware public.
Major brands such as Unilever, Starbucks and Dell are committing to building greater transparency in their supply chains and are proudly displaying their efforts to consumers in a bid to differentiate themselves in the market.
A cautionary tale
While many upsides accompany the improvement of products’ sustainable provenance, effective management of intangible assets is equally critical.
For example, in the early 1990s, Nike came under heavy scrutiny for the use of sweatshop labour and poor working conditions across its vast supply chain. Nike’s stock dropped by nearly 15% and the multinational struggled to shake the media image that it was putting profits ahead of worker conditions.
After prompting from US lawmakers, Nike acted to improve transparency of its supply chain. While Nike’s chief executive Phil Knight told The New York Times that the human rights accusations did not have a material impact on the company’s sales, it took nearly a decade for the brand to recover from the whirlwind of reputational damage.
Considering the emergence and impact of social networks, such a crisis would likely wreak greater havoc on Nike’s brand (and revenue) if it were to occur today. With a few clicks of a computer mouse, a single negative story about product provenance can gain momentum fast and erode decades of brand value.
The bigger picture
By implementing solid ESG practices, cleaning up supply chains and being honest about product provenance, a brand can generate more shareholder value while also making the world a better place.
In other words, business success is no longer about being the cheapest or most convenient. Reports from Morningstar, NYU Stern Centre for Sustainable Business and Barclays Research all found that companies scoring high on ESG factors outperform those that fall short, proving that companies cannot afford to be indifferent to ESG practices.
Honest product provenance and transparent supply chains are intangible assets in themselves, but the real value lies in how a company achieves them. Such intangibles can provide a company with a significant competitive advantage while having a material impact on its bottom line – but only if the related risks and opportunities are proactively managed.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
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