Wednesday, July 23rd, 2008...

does good matter?

Companies: How to Make Millions By Switching to A Green-Colored Logo
– Headline in The Onion’s “Obligatory Green Issue”

I’ve been thinking about this, the third in what’s evidently become a series of posts inspired by Buying In: The Secret Dialogue Between Who We Are and What We Buy, by Rob Walker, since I read the section in the book (it’s also been reprinted as a Fast Company article) where Walker writes about American Apparel changing its brand messaging. Initially the company’s identity hinged on its “Sweatshop Free” production, but sex, surprise surprise, turned out to be a much better sell than good labor practices. Walker writes:

American Apparel seemed to me to be a marquee example of a business that had positioned itself to respond to a rising tide of ethical, antibrand consumers. At a moment when practically every clothes maker was offshoring to cut costs, American Apparel made its wares at a U.S. factory in which the average industrial worker (usually a Latino immigrant) was paid between $12 and $13 an hour and got medical benefits. The company had taken out ads in little arty magazines, noting that it was “sweatshop free.”

[But] Another self-consciously ethical clothing brand, SweatX, had just gone out of business. The lesson of SweatX, [American Apparel CEO Dov] Charney said, was that building a brand solely around a company’s ethical practices was not a good strategy for reaching masses of consumers. The ethical sell was too limiting. It was a niche strategy, at best. Which was why American Apparel was moving away from the ethical sell to something very different.

Charney pulled out a copy of a book called The 48 Laws of Power and read me No. 13, which suggested that to get what you want, you must appeal to people’s self-interest, not to their mercy. “That’s the problem with the anti-sweatshop movement. You’re not going to get customers walking into stores by asking for mercy and gratitude.” If you want to sell something, ethical or otherwise, he said, snapping the book closed, “appeal to people’s self-interest.”

By the time I visited American Apparel’s headquarters and factory in Los Angeles to meet with Charney a second time, the company had transitioned to an image soaked in youth and sex. This was apparent in its stores — where the decor often included things such as Penthouse covers — and in its print ads. Yes, some of these ads mentioned quality and the sweatshop-free angle, but usually in small type, under a photograph of a half-naked young woman.

The company was producing 32,000 pieces a day and struggling to keep up with orders. In months, [the company’s] system was churning out 90,000 pieces a day and would eventually reach 250,000. While the company was projecting an air of almost reckless decadence in its ads, it was quietly building a thriving made-in-America business model.

All of which, of course, made me wonder–and perhaps might make you wonder, too: Does good matter?

Good itself, I mean, without a gloss of sex covering it over, does it matter as a selling point to us as consumers?

Researchers Remi Trudel and June Cotte were trying to figure out the same thing in their studies for the May 2008 Wall Street Journal piece Does Being Ethical Pay?

For corporations, social responsibility has become a big business. Companies spend billions of dollars doing good works — everything from boosting diversity in their ranks to developing eco-friendly technology — and then trumpeting those efforts to the public.

But does it pay off?

To find out, we conducted a series of experiments. We showed consumers the same products — coffee and T-shirts — but told one group the items had been made using high ethical standards and another group that low standards had been used. A control group got no information.

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.

Our first experiment asked two questions. How much more will people pay for an ethically produced product? And how much less are they willing to spend for one they think is unethical?

To test these questions, we gathered a random group of 97 adult coffee drinkers and asked them how much they would pay for a pound of beans from a certain company. We used a brand that’s not available in North America, so none of the participants would be familiar with it.

But before the people answered, we asked them to read some information about the company’s production standards. One group got positive ethical information, and one group negative; the control group got neutral information, similar to what shoppers would typically know in a store.

After reading about the company and its coffee, the people told us the price they were willing to pay on an 11-point scale, from $5 to $15. The results? The mean price for the ethical group ($9.71 per pound) was significantly higher than that of the control group ($8.31) or the unethical group ($5.89).

Meanwhile, as the numbers show, the unethical group was demanding to pay significantly less for the product than the control group. In fact, the unethical group punished the coffee company’s bad behavior more than the ethical group rewarded its good behavior. The unethical group’s mean price was $2.42 below the control group’s, while the ethical group’s mean price was $1.40 above. So, negative information had almost twice the impact of positive information on the participants’ willingness to pay.

Trudel and Cotte also researched just how ethical companies really need to be in order to reap marketplace rewards, that is, are consumers willing to pay more for a product that is 100% ethically produced versus one that is 50% or 25% ethically produced? Their findings showed that there is a certain “ethical threshold” beyond which any ethical acts might reinforce the company’s image, but don’t induce people to pay more. And lastly, they examined the effect of pre-existing consumer attitudes, and found that people with high expectations about how companies should behave doled out bigger rewards and punishments than those with low expectations.

For companies, the implications of this study — albeit limited — are apparent. Efforts to move toward ethical production, and promote that behavior, appear to be a wise investment. In other words, if you act in a socially responsible manner, and advertise that fact, you may be able to charge slightly more for your products.

Not an overwhelming rallying cry to assert that good is here, it matters, and we should get used to it, exactly, but clearly an opportunity to explore a new ethical “market segment.” As Walker writes:

Perhaps this is why many big companies and brands are not so much changing their products as adding new alternatives to their existing product mixes, or carving a small donation to charity out of their profit margins. Pepsi-Cola is testing an all-natural version of its flagship drink called Pepsi Raw, and Clorox has launched an eco-friendly line of cleaning products. The Bono-promoted (Product) Red initiative brands existing products that dedicate a portion of the purchase price to the Global Fund to Fight AIDS, Tuberculosis, and Malaria. There’s even a (Product) Red version of the iPod.

A whopping majority of American shoppers may consider themselves environmentalists, but, according to the Journal of Industrial Ecology, only 10% to 12% “actually go out of their way to purchase environmentally sound products.” Similarly, Brandweek reported on a survey that found that even among consumers who called themselves “environmentally conscious,” more than half could not name a single green brand.

Ask most people whether they care about the environment, and it’s not particularly surprising that many would say yes. Ask whether they would back that up by “buying green” if they had the chance, and again, it’s likely that very few would admit to being hypocrites by saying no. What we do in the marketplace is another matter.

There is a real-world overload of factors that confront consumers in the marketplace — price, quality, convenience, pleasure, plus the countless number of symbols that provide us with rationales to buy. The Yale Center for Customer Insights designed an experiment to test this phenomenon. It divided 108 subjects into two groups. Members of one group were presented with a straightforward consumer choice. Would they prefer to buy a vacuum cleaner (a utilitarian object) or a pair of jeans (a bit of a luxury), each of which was assigned the same price, $50? About 72% chose the vacuum cleaner. Members of the other group were told to imagine they had volunteered to spend three hours a week either teaching children in a homeless shelter or “improving the environment.” They were asked to explain their choice, a process meant to prod them into engaging with the idea. Then they faced the vacuum-cleaner-or-jeans choice. In this group, a majority (57%) opted for the jeans.

Although very few of the subjects made the connection, the researchers concluded that “the opportunity to appear altruistic by committing to a charitable act in a prior task” gives us license to choose a luxury item. A similar set of studies indicates that subjects are more likely to splurge on fancier sunglasses or pricier concert tickets after giving to charity. If you buy ecological or green products or consume alternative health care or practice yoga, it’s easy to conclude, “Hey, I’ve done my part.”

These efforts [by big companies] add just enough options to the miles of retail shelves to give us all an ethical fix — to do our one good shopping deed. Then we can push our basket a little farther down the aisle, letting other rationales take over: Here’s a bargain, here’s a great product, here’s something that I could probably get cheaper elsewhere, but as long as I’m here, I’ll just get it — and here, yes, here is something ethical. I’ll take one of those, too.

Trudel and Cotte concluded at the end of their research: “The lessons are clear. Companies should segment their market and make a particular effort to reach out to buyers with high ethical standards, because those are the customers who can deliver the biggest potential profits on ethically produced goods.”

Rather than marketing ethical products to a mainstream audience, big companies can simply create a separate ethical brand or product line, repackage it as a luxury “good,” and sell it at a premium to the niche, conscientious consumer demographic–which may be willing to pay more for ethical products, but couldn’t scale to support a company like SweatX, or to motivate the big companies to change their practices overall.

Is that the fate of good, then? Is the extent of it’s significance as a selling point simply the justification for a reverse “ethical tax”?

At the PSFK conference in San Francisco last week, GOOD Magazine co-founder Max Schorr’s presentation, “Aligning Interests,” (echoing that 13th law of power) was subtitled: “When cynical people admit they’re idealistic you might be on to something.” At the beginning of his presentation Schorr asked a room full of marketers how many of us wanted to make a positive impact. Pretty much everyone raised their hands. When he asked how many of us wanted to make money, the same hands shot up. The idea then is that to effect real positive change these kinds of interests have to align. Doing good has to be separated from the bleak, unprofitable, un-fun, self-righteous, and ultimately ineffectual idea lf altruism, and the “triple bottom line” of sustainability, profit, and positive impact, needs to become a single bottom line. Schorr’s presentation was the most loudly applauded of the whole day, and thereafter the most frequently referenced. There is no doubt that marketers–well, those of us that raised our hands anyway–we WANT good to matter. We WANT consumer demand for ethics and sustainability to affect the substance of what the market supplies. We want good to succeed.

But does it have to matter as a selling point to do that?

In his presentation, Schorr talked about how the magazine has stopped using the word “Green.” The reason behind this move being to stop presenting sustainable practices as some kind of distinct “alternative” from what should simply be the default standard. In a sense, this is what American Apparel did as well when they stopped trumpeting their ethical practices to distinguish their brand identity.

Maybe it’s all about thinking ahead. We shouldn’t confuse current consumer attitudes with what they’re likely to be in the future. No doubt a company’s environmental friendliness matters more now to the average consumer than it would have before the release of An Inconvenient Truth. And I’d be willing to bet that ethical production practices in general matter more to us now than they did before the wave of mass internet adoption hit, and access to information about a company’s practices became easily accessible to the average web surfer. Trudel and Cotte even acknowledged that if 100% ethically produced products become the expected norm, anything less may be punished by consumers. So perhaps good actually WILL matter quite a bit more in the future than it does now.

But will it ever matter more than sex?

Maybe that gloss on top won’t hurt anyway. Just…. you know….. in case.

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