The Wall Street Journal published an interesting article on May 12 titled “Does Being Ethical Pay?”. It talked about:

Companies spend huge amounts of money to be ‘socially responsible.’ Do consumers reward them for it? And how much?

In the end of the article, the author information are: Mr. Trudel is a doctoral candidate in marketing at the University of Western Ontario’s Ivey School of Business. Dr. Cotte is the George and Mary Turnbull faculty fellow and associate professor of marketing at the Ivey School.

Here are my excepts from the article as their key findings:

In all of our tests, consumers were willing to pay a slight premium for the ethically made goods. But they went much further in the other direction: They would buy unethically made products only at a steep discount.

What’s more, consumer attitudes played a big part in shaping those results. People with high standards for corporate behavior rewarded the ethical companies with bigger premiums and punished the unethical ones with bigger discounts.

Finally, we discovered that companies don’t necessarily need to go all-out with social responsibility to win over consumers. If a company invests in even a small degree of ethical production, buyers will reward it just as much as a company that goes much further in its efforts.

Interesting research result?

Stay tuned.

An even more interesting thing is that an MBA student from the Haas School of Business, University of California, Berkeley responded in the Berkeley MBA Student Blogs by a blog entry titled “Does being ethical really pay?“.

Here are the Berkeley student’s key findings:

In our survey we found that consumers were not rewarding high ethical standards over a control group.

Unlike the study cited in the WSJ we found that in both the immediate questions and the delayed questions, participants actually had a lower willingness to pay when they were informed about the company’s ethical practices and we had to reject our initial hypothesis that ethical standards would increase our participants’ willingness to pay.

So at the end the blog article said:

So does being ethical really, really, really pay? As much as I would like to say “Yes”, all I can say is “Sometimes… Maybe“!

Anyway the Berkeley blog article mentioned their insights as:

It should also be noted that the way a company presents its production standards might influence a consumer’s perception and companies should carefully consider if they want to advertise their own corporate CSR standards, use press releases to communicate them or find other ways to make consumers aware of their practices.

It is very interesting to read these two articles together. And it is nice to learn from different perspectives to build our own critical thinking. And we can feel the beauty of academic research.


P.S. I pasted the full text of the Berkeley blog article here, because the Berkeley blog website is hosted on blogspot.com, but unfortunately the blogspot.com is blocked from mainland China, so most of my readers from mainland China actually cannot visit the Berkeley blog article easily. So I decided to paste the full text of the Berkeley blog article here.

The URL of the Berkeley blog article: http://berkeleymbastudents.blogspot.com/2008/05/does-being-ethical-really-pay.html

Saturday, May 17, 2008

Does being ethical really pay?

The Wall Street Journal ran an article last week titled “Does being ethical pay?“. The journal article was based on an experiment in which participants were asked for their willingness to pay for a pound of coffee or a T-Shirt. Different groups of customers were given varying information about the standards the company follows producing their goods. One group got positive information, one negative. A control group was provided with no additional information on the product.

In their experiment, the researchers found that consumers were willing to pay a premium for ethically produced goods over the control group and that consumers were demanding a steep discount for products produced following unethical standards.

Why do I mention the article in this blog? It reminded me of a quite similar survey I recently conducted with a team of students as part of my Consumer Behavior class. I would love to say we reached the same conclusion, but we did not. In our survey we found that consumers were not rewarding high ethical standards over a control group. (we did not test for unethical behavior).

Although we only tested for coffee products, our setup was quite similar to the one described in the WSJ article. We surveyed a total of 90 participants split into 4 groups: Two groups read a fictitious news article describing the expansion plans of a coffee house chain in purely financial terms. Two more groups received the same article with an additional paragraph that emphasized the company’s CSR and fair trade efforts. One of each groups was then asked for their willingness to pay for a specialty coffee drink (and some other questions masking the purpose of the survey). The two other groups received the same set of questions later – we wanted to see if the perception of a company’s ethical practices is sticky.

The results? Unlike the study cited in the WSJ we found that in both the immediate questions and the delayed questions, participants actually had a lower willingness to pay when they were informed about the company’s ethical practices and we had to reject our initial hypothesis that ethical standards would increase our participants’ willingness to pay.

There are some limitations to our results: We used the name of an existing coffee hosue chain. While that chain does not operate in the Bay area, existing perceptions might have tainted the results. We also did not sample random consumers: Our survey went to MBA students only. In addition, we did not control for people who do not drink coffee and the presentation of the company’s ethical standards might simply have been too short.

Yet, our results do have some significance. Just because one experiment tells you that consumers are willing to pay a higher price for an ethically produced product, this conclusion might not hold across different groups of consumers or different products. It should also be noted that the way a company presents its production standards might influence a consumer’s perception and companies should carefully consider if they want to advertise their own corporate CSR standards, use press releases to communicate them or find other ways to make consumers aware of their practices. The WSJ article mentions some of these limitations as well.

So does being ethical really, really, really pay? As much as I would like to say “Yes”, all I can say is “Sometimes… Maybe”!

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