As this article explains, "for corporations, social responsibility has become a big business." In other words, corporations believe that consumers are willing to pay a premium price for ethically produced products. The authors of this article created three experiments to put this idea to the test.
In the first experiment they gave the three groups different information regarding the production standards of a coffee company, one group got positive information, one group received negative information and the last group (control group), received no information. The groups were then asked to write down the price they would be willing to spend on a pound of this coffee. The ethical group’s mean price was substantially higher than the control group and the unethical group, (See exhibit one). The second experiment was designed to test the sensitivity between the price the consumer is willing to pay and the degree of ethical standards, e.g. whether a 100% organic cotton shirt would be worth more than a 75%, or a 50%, and so on. The results prove to be insignificant, (See exhibit two). In the last experiment the authors place the subjects into two groups, one with high-expectations and one with low-expectations; they do not explain how they go about this. They found that the group with high-expectations was more price sensitive when it came to ethics than the group with low-expectations, (See exhibit three). In the end they come to the conclusion that companies should target ethically minded consumers with ethically marketed products because their willingness to pay is greater than an average consumer.
It surprises me however, that they don’t explore the issue that in all these experiments the groups were given specific information about the ethical or unethical production standards of the company they were surveyed about, whereas most consumers outside of the experiment are not informed about production standards. If you are to go with the conclusion in this article then surely your next step would be to start an elaborate marketing campaign to generate high-awareness of the ethical production of your product; a cost not mentioned in this analysis. The other issue I have with these experiments is we’re never informed who they surveyed. The way an experiment is designed and the sample of people used have a great effect on the outcome. If everyone sampled was from a university in the northwest versus a small town in Arkansas, the results are going to vary greatly. All-in-all a very interesting article that carries with it significant implications that could affect how industry operates for generations to come.
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