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.
A large consumer products company has decided to diversify even further by launching a chain of bistros. While trying to determine how it might distinguish itself from its competitors, the chief marketing officer (CMO) suggests a socially responsible differentiation strategy. “We could sell ethically produced goods, fair-trade coffee and chocolate, in addition to offering locally produced organic fruits, vegetables and meat,” she suggests. Knowing that ethical sourcing is likely to increase costs, the company faces some crucial questions: If it pursues a fair trade and socially responsible differentiation strategy, what sort of consumer will it appeal to? Will consumers pay enough extra in price to recoup the greater cost of production? Do all the products need to be fair trade? If less than 100% of them are fair trade, can the company still maintain its socially responsible positioning?
The leading question
Consumers say they like the idea of purchasing ethically produced goods. But will they pay more for them? How much more?
- Yes, customers will pay a premium for ethically produced goods.
- Conversely, they will punish companies (by demanding a lower price) that are not seen as ethical.
- The punishment exacted is greater than the premium customers are willing to pay.
- Companies needn”t be 100% ethical to be rewarded.
The era of self-interested companies trying to maximize shareholder wealth at any cost appears to have been supplanted by an era of corporate social responsibility, a phrase used to describe a decision by the company’s management to consider the impact their decisions will have on their customers, employees, suppliers and communities, as well as their shareholders. But as companies consider and strive to limit the negative impact of their operations on society and the environment, some questions remain unanswered: Are consumers willing to reward companies for their positive actions? Will consumers punish them for unethical acts by discounting how much they will pay? And how ethical does a company really need to be to be seen as ethical by consumers? (See “About the Research.”)