Daily Archives: November 16, 2014

Key Priorities for Ethical Supply Chains – An Interesting Study

Software Advice, a software review company which covers the supply chain management space, recently posted the results of its Key Priorities for Ethical Supply Chains Industry View 2014 that discussed the results of two surveys distributed to over 1,100 consumers. The findings are interesting, generally indicative of the current state of affairs, but, as far as SI is concerned, specifically off, though not due to any fault of Software Advice or the methodology employed by the researcher. What do we mean? Read on.

In the first survey, the group of over 1,100 consumers was split into three and each group of consumers was asked how much more they would pay for a product, normally priced at $100, that was produced more ethically with respect to one of three ethical initiatives: ethically sourced materials, carbon emission offset, and good working conditions. The first group said they’d pay an average of $18.50 more if the raw materials were ethically sourced, the second group said they’d pay an average of $19.70 more if the product had its carbon emissions offset, and the third group said they’d pay as much as $27.60 more if the product was made by workers working in good working conditions. A deeper dive revealed that 35% of consumers would not pay a penny more for products made under these ethical initiatives. And while the second finding does not surprise the doctor, he does not believe the first finding in its entirety. But more on that later.

In the second survey, the respondents were asked which of the three broad ethical initiatives would make them more likely to purchase a company’s products: working conditions, reduced environmental impact, or community involvement. The results were more-or-less evenly split. This does no surprise the doctor either.

So why doesn’t the doctor believe the average consumer would pay considerably more (an average of 21.93% if the above survey is to be believed) for an ethically sourced product? Three reasons.

  1. In the vast majority of verticals, it is not the most socially responsible company that is the market leader.
  2. Fly Research’s recent survey, which attempted to determine what factors are really important to consumers in their purchasing decision, found that only 9% of UK and 16% of US consumers rank “ethical company/brand” in their top 3 attributes but the vast majority are more concerned with value for money (86%), price (76%), and quality (73%). (See SI’s recent post on Do As I Say, Don’t Do As I Do!
  3. The study did not take into account the inherent bias of the consumer. As a result of recent disasters and media storms — including the fire in Bangladesh, the BP oil spill, and underground sweatshops in Russia — not only is corporate ethics and supply chain sustainability on the mind of many caring consumers, but it is stirring up their emotions. And an emotional subject is not an unbiased one. While a consumer might try her best to be unbiased when responding to a survey, when all of the questions stir emotional responses, her responses are going to be skewed relative to what they would be compared to the situation where only a small portion of the survey contains questions or answers that stir emotions. So had these been just three factors in a pool of ten or more that she is asked to consider when defining what is most important to her when selecting a product for purchase, and the other seven plus do not stir any emotion, she will be able to better balance her emotion with her objectivity. And this is why when you compare the results of this survey with the Fly Research study, you find a discrepancy (that cannot be easily accounted for unless there is emotional bias in the consumer responding to the surveys). How else do you explain that a third of consumers expressed a wilingness to pay over 10% more (and up to 100% more) while another third expressed a willingness to pay up to 10% more when the Fly Research study found that less than 43% would pay more than 5% extra and the percentage of respondents who would pay more than 5% declined much faster than the percentage of respondents in the Software Advice Study.

In other words, consumers are starting to care, aren’t necessarily sure which issue they care about the most, will definitely choose a socially responsible product over one that is not socially responsible if all things are equal, but if the cost differential is too high, the average consumer will not be swayed to a more socially responsible product, despite their desire for social responsibility. So while the issues are likely spot on, the relative worth to the average consumer is still in question.

However, in addition to confirming our suspicions that there is no high level issue with respect to social and environmental responsibility that is considerably more important than the others, the study did reveal that if you drill down, there are some specific issues that concern consumers more than others. For example, where environmental responsibility is concerned, more consumers care about reduced water use and biodegradable packaging than reduced carbon emissions. Where community involvement is concerned, 43% believe that the best thing a company can do is to open a factory where jobs are needed (and not outsource to another country). And where working conditions are concerned, 45% believe workers should be paid a fair wage. This gives you starting points in your CSR efforts that will earn you brownie points and increase your brand’s reputation if appropriate initiatives are undertaken. It will be interesting to see how these trend over the coming year.