In surveys, customers have long claimed that they’d pay more for ethically produced goods. But is that what happens when they actually buy things? New experiments offer answers.
That is a question that has long puzzled marketers who have heard from customers that they want to do business with ethically based firms — defined as companies that produce products under conditions of progressive stakeholder relations, advanced environmental practices and respect for human rights. Marketers had no reason to doubt that sentiment, but they have always wondered if consumers would be willing to pay a higher price for ethically produced goods (since they tend to be more expensive to create.)
It turns out that a series of controlled experiments proves that consumers will, in fact, pay a premium for ethically produced goods. But perhaps of equal interest is the fact that they will punish (by demanding a lower price) companies that are not seen as ethical. That relationship is not symmetrical. The punishment exacted is greater than the premium customers are willing to pay.
How ethical do you have to be? Perhaps not as much as you might think. The research shows that a small degree of ethicalness “pays off.” It is not necessary for a company’s product to be “100% pure” in order to receive a price premium.
This research is the first to find that consumers use price to punish unethical companies more than they use price to reward ethical companies, and that the ethicality of a company’s behavior is, indeed, an important consideration for consumers (as demonstrated in their willingness-to-pay decisions).
4 Comments On: Does It Pay To Be Good?
This is good and important study. Retailers need to know the volumes of goods which the acceptable pricing applies to.
Alice Peterson
Syrus Global
Yes, I’m not sure the world needs another chain of bistros. The ethical and fairtrade idea was much better.
People like to do business with those they know and trust. Ethical, fair trade businesses earn this trust faster than businesses that don’t factor this in. Perhaps the results are not always immediately evident, but in the long run ethical practices translate to more dollars.
I agree with annw. I think this lesson can translate into life as well: If you do the right, ethical thing–eventually you will be rewarded. Granted, there are probably some cities where this type of business wouldn’t do well. But doing a little market research beforehand could truly make a business like this successful–and eventually (hopefully) could possibly start a consumer trend in loyalty to these types of companies.