Does it pay to be honest in business?

Most businesses would prefer to lie their way out of a stockout

In Summary

• There is no compelling economic reason to tell the truth or keep one’s word

Empty shelves
Empty shelves

Suppose you run a business but can foresee difficulties fulfilling customer orders. Would you be honest with your customers about the situation and risk losing business from people who were already planning to buy your products or services?

Would you post a public announcement about your shortcomings or would you rather hush up the challenges you are facing, hoping that you’ll somehow find a way through it all?

Most businesses would prefer to choose the latter option, believing that being too transparent about one's inability to fulfil orders is bad publicity. Of course this will inevitably result in some clients getting disappointed with delayed or unfulfilled orders.

Does it pay to be honest in a competitive business environment, where rivals will exploit your weaknesses to woo your customers?

“There is no compelling economic reason to tell the truth or keep one’s word. Punishment for the treacherous in the real world is neither swift nor sure,” reads part of a briefing in the Harvard Business Review.

On the other hand, proponents of honesty argue that transparency is key to turning customers into clients. A customer buys and may never return. Clients are people with whom you have ongoing, supportive relationships. Kathryn Koning, an adviser and motivational speaker, says that honesty adds value to your business.

“Offering and selling a product or service that you do not stand behind leads to a long reputation of bad services or goods,” Koning says. “Treat everyone who purchases products or services from you as a client, not merely a customer.”

Numerous studies have proved that providing clients and customers with relevant information helps build trust with your business. For large organisations, transparency is a powerful weapon in every corporate strategy and should be practised not just between the company and customers but between management and the rest of employees.

A 2018 report in the Business Horizons journal states that increased transparency eliminates any uncertainty that customers have regarding a company’s reliability. Transparency thus helps customers make quicker decisions. Transparency is very important in the social media era, where it is almost impossible to control or prevent the spread of negative information. Customers may see a business’s efforts to be transparent as a strong signal of the firm’s goodwill, and such efforts may be rewarded with greater customer trust.

As businesses strive for greater transparency, there is a danger of supplying too much information that may overwhelm clients and customers. The key secret here is to focus only on information that actively helps reduce uncertainty and increase trust.

“Too much information can also signal that the company is not clear about what really matters the most to its customers, and hence betray a lack of customer intimacy and focus,” reads part of the research report.

Does honesty matter in business? Concealing information from customers or outrightly lying to them does provide quick wins, but people will eventually find out the truth. Honesty is a desirable trait for entrepreneurs wishing to build long-term relationships with clients, suppliers, employees and other stakeholders.

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