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New Study Finds Ethical Business Is Naturally Advantaged

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Environment, fair trade, and human rights are all sensitive concerns for the global market place. A certain respect for those issues has certainly featured in the marketing strategy of many modern corporations.

Responsible business has a new heavy weight champion. A new study published in the MIT Sloan Management Review finds that consumers punish unethical business and reward ethical business.

Remi Trudel and June Cotte, both of the University Western Ontario, set out to discover whether or not consumers would pay more for ethically produced goods; and if so, how much more? Their experiments discover that businesses have greater reasons than reward for being socially responsible. Consumers punish unethical companies nearly twice what they’ll reward ethical companies in their willingness to pay.

During the first experiment subjects were asked to test a new brand of coffee. The subjects were told that a local grocery store was conducting the survey. Each subject was given the same information about the brand except for a final remark. There were three different conclusions offered – ethical, unethical, and no ethical information.

The ethical brand stated it was a ‘fair trade company’, and the unethical brand concluded with a statement claiming the company had been criticized for unsustainable farming practices and unfair trade. The study found that consumers were willing to pay $9.81 for ethically produced coffee, but only $5.89 for unethically produced coffee. The brand that didn’t offer any ethical information fetched $8.31 a pound.

A second experiment was conducted and yielded similar results. Interestingly the second experiment also attempted to gauge how ethical a business had to be. This time consumers were buying cotton t-shirts and told that cotton production “uses more insecticides than any other single crop.”

Participants were given one of five possibilities: shirts were either 100 percent organic cotton, 50 percent organic cotton, 25 percent organic cotton, no information, or told cotton production harms the environment, people, and wildlife. The results between ethical, unethical, and neutral products were comparable to the prior study. Interestingly, consumers awarded all three ethical companies similarly, whether they were 25 percent ethical or a 100 percent ethical.

The study demonstrates that consumers reward companies that are perceived as ethical and punish companies that are perceived as unethical. It seems to be a dual sided moral: Be good and show you’re good and you’ll be rewarded – but how do we know that a 25 percent socially responsible product isn’t covering a 75 percent unethical product?

Marketers certainly know the benefits of being socially responsible. The authors note that consumer expectations can change. While consumers are willing to reward companies for products that are 25 percent ethically produced, that can change with consumer expectation.

If consumers demand greater transparency, then being partial might not cut it. Perhaps the real lesson to take out of this is that the consumer will punish unethical behavior more than they’ll reward the socially responsible. That seems like a good reason to keep it authentic.

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