Image source: H&M Conscious Actions Sustainability Report 2012
Following up to my previous post, it’s important to consider what motivates a brand or company to want to be perceived by consumers as ethical. As nicely summed up in a paper I just read, “morality has become an important factor for corporate brands, and an increasing number of companies are using the ethical dimension as a strategic element in terms of defining and promoting their brands”. You might think that it ultimately might not matter how ethical a company is or seems, since consumers are happy to say they want to buy ethically produced items but then don’t actually do so in practice. In light of that, you might think that a company that acts ethically might be choosing to act ethically just for the sake of, you know, being ethical. That’s a nice thought, and some [likely smaller] companies probably do conduct their business according to that sentiment (or were even founded with that sentiment in mind). But enormous international companies with shareholders to please and profits to maintain and extensive expansions to undertake? It’s probably going to be a bit more complicated.
Such a company might be motivated to pursue more ethical practices because it actually works out cheaper for them, which I guess could be considered a not particularly virtuous win/win situation. For example, a company that decreases its energy costs per square metre of store space is decreasing its carbon footprint per square metre of store space (seems ethical!), but more efficient energy measures also mean decreased energy consumption and decreased energy costs. So it might not be an entirely altruistic effort with only the good of the planet in mind, but hey, it’s better than if they didn’t give a crap at all.
But another more subtle factor to consider is what such a company stands to gain from appearing ethical to consumers (whether it’s through genuinely engaging in ethical practices or only making superficial efforts to seem ethical, or a mixture of both). What’s in it for the company?
Being perceived as ethical increases brand loyalty
A company that successfully portrays itself as being sustainable engenders increased brand trust and more positive brand affect (i.e. consumers’ feelings towards the brand), and these result in greater brand loyalty. Increasing these things likely results in increased patronage and increased profits. Quoting from the paper ‘Does Having an Ethical Brand Matter? The Influence of Consumer Perceived Ethicality on Trust, Affect and Loyalty’:
“…this research sheds light on one of the main concerns of marketing managers worldwide: do investments in CSR [corporate social responsibility] and ethics pay off at the corporate level? Of course, brands should behave ethically independently of the potential impact of such behavior on the bottom line. Moreover, in a connected world that has made brands more transparent, truly ethical behavior will be necessary to succeed in any marketplace. However, the findings of this research suggest that CPE [consumer perceived ethicality] positively impacts the product brand loyalty, and so can help facilitate customer retention, secure future purchases, and foster recommendation.”
So securing brand loyalty by being (or seeming) ethical pays off.
Consumers do pay attention to unethical behaviour
Despite that gap between ethical purchasing intentions and actual purchasing behaviour, consumers do have a reasonably complex awareness of potential ethical issues that might be associated with brands. As reported in the paper ‘Exploring origins of ethical company/brand perceptions — A consumer perspective of corporate ethics’, surveyed participants thought of issues in 36 different sub-categories that could describe possible ways that a company could act that would affect its ethical image: pollution, exploitation of labour, supporting questionable political regimes, involvement with charities, animal protection, pushing competitors out of business, fair trade involvement, corruption/bribery, sustainable farming, corporate travel policies and intellectual rights, among others. Given that consumers are becoming increasingly aware of these issues, brands need to make efforts to avoid being seen as unethical, as “often, unethical perceptions are at the root of a faltering company/brand image and reputation, with a potentially detrimental effect on consumer attitudes and purchase behavior following in its wake”. Especially since other research suggests that as consumer ethical awareness increases, that gap between purchase intentions and purchase behaviour will close.
Modelling the data shows that sustainable efforts improve profits
Depending on other assorted factors (such as customer satisfaction and brand innovativeness), sustainability efforts could increase profits. As reported in the paper ‘Corporate social responsibility, customer satisfaction, and market value’:
“Our finding that CSR [corporate social responsibility] contributes positively to market value suggests that managers can obtain competitive advantages and reap more financial benefits by investing in CSR. To be more specific, we calculated that for a typical company in our sample with an average market value of approximately $48 billion, one unit increase of CSR ratings would result in approximately $17 million more profits on average in subsequent years, a substantial increase of financial return”
In general, this is all something to keep in mind when considering your perception of a company that is positioning itself as ethical. In my previous post, my intention wasn’t to point out H&M’s ethical failings (we all know it has those) nor to totally dismiss the genuine positive efforts it has made (since it has made genuine efforts when it might have managed to get away with simply greenwashing). My point was that it’s important to critically evaluate the information that is presented by a company about its ethical position. This is even more important given what I’ve said above because companies would have a vested interest in seeming ethical rather than being ethical, since successfully creating an image of being ethical could have financial benefits. You need to be able to critically evaluate the information that’s presented if you’re going to know whether a particular “ethical” initiative is a genuine effort or just lip service, otherwise you can’t assemble a clear idea of your position on a company nor make an informed decision regarding whether to be one of its customers. Unless, you know, you don’t mind possibly being taken for a ride.