|
An online monthly research publication by the Ivey Business School
Volume 14, Number 12
December 2008
Do ethics pay?
June Cotte
finds that consumers pay a little more for goods
that are made ethically, but a lot less for
those that are not
 Many
companies today are facing the same dilemma.
They want to be more socially and
environmentally responsible in the way they make
their products, but are concerned about costs.
Their question is simple: will consumers pay
more for products made by companies using high
ethical standards?
It’s a question that intrigued Ivey professor
June Cotte and PhD student Remi Trudel. In a
series of controlled experiments, they tested
the buying behaviour of consumers who were told
that certain products were made ethically and
others weren’t.
Cotte and Trudel found that ethical standards
mattered, but perhaps not in the way that some
companies hope. “Consumers were willing to pay a
premium for the ethically made goods, but only a
small one,” says Cotte. “But we found another
important side to it. If consumers do not like
what you are doing on the ethical front they
will punish you by expecting to pay far less for
your product.”
Cotte and Trudel also found that consumers with
high ethical standards, unlike the average
consumer, were willing to pay significantly more
for ethically made goods. This is important,
says Cotte, because these consumers are a
growing segment of the marketplace. “Consumer
education could change things dramatically,” she
says. “A higher awareness or interest in ethical
issues should translate into bigger premiums.”
In one of their recent studies, they found that
raising ethical awareness in one product
category, chocolate, raised ethical awareness in
another, coffee.
Their research showed that even small
investments in ethical production might be
enough to win over consumers. For example,
consumers in their studies were willing to pay
almost as much for shirts made with 25 percent
organic cotton as shirts with 100 percent. “A
firm’s offering doesn’t have to be perfect,”
says Cotte. “Even if you do a little bit you
potentially have the chance to be seen alongside
some very ethical firms.”
Judging by the response to their research, which
has been published in the Wall Street Journal
and MIT Sloan Management Review, this
is a burning issue for businesses. Cotte has
recently received a grant from the Research
Centre for Building Sustainable Value to do a
systematic review of all the research going on
in this area.
In other studies Cotte and Trudel are focusing
on different ethical dimensions, such as
environmental or human rights concerns, and
their relative importance to the consumer. They
are also looking at whether consumers tend to
judge firms’ ethical standards in relation to
other companies in the same industry.
Although Cotte finds that firms are rewarded by
even small investments in ethical production,
she warns that they need to be careful not to
exaggerate their claims, a process called
“green-washing.” Watchdog consumer organizations
look for green-washing and expose it, usually to
the embarrassment of the firm. Cotte gives the
example of a limousine company that purchased a
hybrid SUV and began touting itself as
environmentally conscious. The company dropped
its claims when consumer groups objected that
one hybrid vehicle among 150 doesn’t make much
of a difference.
“Firms have to be honest and up-front with
consumers,” she says. “A firm that makes a big
deal about a small claim can suffer a backlash.”
Professor
Cotte's Homepage
Faculty Focus:
Q&A with Professor Ariff Kachra on the success
of the Ivey Consulting Project
Previous Issues of Impact
Register for
Impact
|
