By Chandran Nair
This column by Chandran Nair appears in the September 2008 issue of the Ethical Corporation magazine.
The true relationship between corporate reputation and consumer purchasing is a topic where many myths survive. Virtually every study shows that there is a large discrepancy between what consumers say matters to them and their actual purchasing decisions.
For most people to choose an “ethical” product over a regular product, that product must not cost any more than an ordinary one, it must come from a reputed brand, require no special effort to buy or use, and it must be at least as good as its alternative.
No wonder then, despite all the talk about rising consumer awareness, that ethical products are being sold by companies such as Tesco, M&S and Wal-Mart to only a niche market. For the majority of consumers, cheap products of decent quality remain the popular choice.
So what of the belief that growing consumer concern about corporate behaviour will push businesses to strive to do the right thing? If consumers do not care, what incentives do businesses have in maintaining responsible or ethical standards?
One incentive is, of course, that the short-term reputational risk of an ethical blunder is real. Numerous high-profile brands such as Nike and Coca-Cola have experienced first-hand the threat that negative perceptions of their brand can have on sales. While this damage may not have actually reduced earnings in the wake of reputational risk, companies are fortunately not cynical enough to avoid taking action.
With some consumers being able to look at remote supply chains on YouTube, and the media and activists ever ready to capitalise on potentially damaging incidents, the threat to companies remains real in the eyes of public relations professionals – albeit for the short term.
So companies must be concerned not just about consumers but also about other outside groups that have something to gain from the negative publicity; namely competitors, media, politicians and activists. But if this sort of reputational risk were the only concern, this would mean that ethical and responsible business behaviour is nothing more than what the Economist labels a “smug form of public relations”.
No sponsor boycott
Despite the media-driven outrage in the west about China’s human rights record, global consumers did not stop buying Coca-Cola or Samsung products because the companies sponsored the Beijing Olympics. One of the few companies to suffer from a boycott was in fact not a sponsor of the games. French retailer Carrefour was boycotted by Chinese citizens who felt insulted by protests in France about China’s role in Tibet.
It is clear that consumers act on issues that affect them or others they can identify with personally. This explains the poor follow-through on buying greener products – think of items less attractively wrapped to save on wasteful packaging – as opposed to the strong reaction to boycotting Nike products in the mid-1990s when the company was alleged to have bought from sweatshops.
As for Olympic sponsors, Tibet and Darfur are not problems that Coca-Cola, Samsung, McDonald’s and others have directly contributed to, and perhaps this explains the lack of consumer interest in the media and activist campaigns. Another reason could be that people in the west simply do not care about faraway places such as Darfur and Tibet, despite the protests surrounding the Olympic torch relay.
What does this all mean for the movement to encourage companies to up the ante on ethical practices or risk being shamed and thereby face consumer boycotts? If it is true that only the most visible issues – those that affect consumers personally and those they most identify with (such as those related to children and the poor) – are the ones that will be acted on, then some of the most pressing problems such as climate change stand little chance of being overcome.
Companies should not wait for a consumer mandate to do the right thing, as it will probably not arrive. Executives who subscribe to such a cynical approach to responsible business are most probably risking the future of their businesses – not because consumers will hurt them, but because the future will have to be one in which governments and regulators will have to take a much tougher line on the way externalities are priced by business.
Chandran Nair is the founder and CEO of the Global Institute For Tomorrow.