Marketing guru Wally Olins once said ethics would be the last great differentiator in marketing. That could be true – it just depends on whether consumers get it

 

Marketing guru Wally Olins once said ethics would be the last great differentiator in marketing. That could be true – it just depends on whether consumers get it

The new season’s collection at Dorothy Perkins has a surprising addition. Amid the latest designs on the racks at the UK high street clothing store, shoppers will find a collection of Fairtrade cotton T-shirts and blouses.

Dorothy Perkins is one of a host of retailers participating in the Fairtrade Foundation’s cotton campaign. Now in its fifth year, the initiative aims to get certified cotton garments onto retailers’ shelves and into consumers’ wardrobes. Each item comes with the guarantee that the cotton farmer has received a fair price for his or her crop.

The timing could be better. The worst of the recession may be over, but consumers are still watching their wallets. Bar the odd blip, the general retail market remains flat. Now might not be the time for ethical price premiums.

Barbara Crowther, Fairtrade Foundation’s director of communications and policy, disagrees. The market share for fairly traded products has increased by 12% over the past year to nearly £800m, she says.

She has more statistics up her sleeve. The number of households that bought Fairtrade products increased from seven in 10 in 2008 to almost nine in 10 in 2009, she points out, quoting a survey by Kantar Worldpanel. UK sales of Fairtrade food and drink hit £635m last year, a 39% increase on the previous year.

Crowther credits two main reasons for Fairtrade’s surprisingly robust performance. Most importantly, consumers get the concept. “Fairtrade is seen as something very simple that they can do to make a difference,” she tells Ethical Corporation.

Second is consumer empathy. The recession brought home to shoppers the importance of equity, she argues. “People who themselves are struggling for their livelihood absolutely understand the importance of paying a fair price for a day’s work. And they are prepared to buy into that concept.”

Her optimism finds echoes among other ethical retailers. The Real Green Retail Group, for example, which represents nine UK retailers, cites some niche success stories. Vintage Roots, an organic wine seller, posted a jump in its mail order business as people chose to socialise at home rather than go out. Others adopted innovative ways of beating the recessionary bite. Ethical retailer Green Shop, for instance, saw its profits rise by introducing refills for its cleaning products.

“Everything we see points towards opportunities in this area. Good propositions are still compelling to consumers,” says Sarah Westwood, head of planning at GoodBrand, a marketing consultancy.

A major beneficiary of the recent torrid market conditions comes from an unexpected source. With consumer venom directed to the world’s mainstream banks, many savers have gone in search of an ethical alternative.

More than half of consumers say they are more likely to save with an ethical bank as a consequence of the financial crisis, a recent study by research firm GfK NOP found. Ecology Building Society provides clear proof. The specialist UK savings firm saw record levels of savings inflow as consumers shopped around for an alternative to the mainstream banking system.

Recession ripples

Advocates of ethical consumerism tend to be pathologically optimistic. It is in their blood. Through this enthusiasm, the ethical market grew from £14bn in 1999 to £36bn 10 years later, according to the Co-operative Bank’s Ethical Consumer Report.

One big warning must be made about survey data. Most consumers understandably like to think their intentions are good. Choose between an unethical and ethical product, and most will say they would opt for the latter.

Yet repeated studies show that such altruism rarely feeds through to till receipts. In a recent survey by GMA and Deloitte of 6,400 US shoppers, 95% said they were open to buying ethical products. In practice, only 67% looked for them, while less than half – 47% – found them. In total, only 22% parted with their cash.

And ethical consumption is not a universal trait. European buyers will go the extra mile, especially in the UK, Germany, France and the Benelux region. The scene in North America, Australia and New Zealand is patchier. With one or two exceptions, inroads in the developing markets of Asia, Africa and South America are absent.

When US coffee brand Starbucks moved all its espresso-based drinks to 100% Fairtrade late last year, it did so first in the UK and only latterly in wider Europe. Coffee drinkers in Starbucks’ hometown of Seattle still have to ask for Fairtrade if they want it.

And neither are all ethical brands faring as well as each other. Sales of organic produce were hit hard by the recent recession, according to market research company TNS Worldpanel.

The dip in organics dates back further. Total sales in the UK grew a mere 1.7% to £2.1bn in 2008, in stark contrast to the 22% leap the previous year. And the Soil Association, an organic certification body, concedes that the 2008 growth has more to do with higher food prices than increased sales volume.

The same charge could be laid at the Fairtrade movement. Last year saw some celebrated coups, with leading brands such as Cadbury’s Dairy Milk, Sainsbury’s bananas and Nestlé’s KitKat going fully Fairtrade. Such moves have technically upped the space for fairly traded goods on the shelf. But that doesn’t necessarily translate to more ethically conscious shoppers on the street.

Producers are certainly clamouring for a bigger bite of the pie. Greaves Henriksen is typical. Owner of the United Nilgiri tea estate, he was the first Indian tea producer to go Fairtrade. Sixteen years later, only 10% of his sales receive the Fairtrade premium.

“Consumers need to buy more [Fairtrade tea],” he says. “Only then will buyers be prepared to pay more.”

The latest trend data suggests ethical producers may be waiting a while. “Late last year, we picked up a big decline in the importance of ethical purchasing as the recession began to bite. Since then, there has been no sign of green shoots or pick-up in terms of consumer action,” says Jenny Dawkins, research director at market research company Ipsos Mori. Of the British public, 40% currently say they are prepared to pay more for an environmentally friendly product.

The picture is not entirely bleak. Consumers are showing a strong appetite for ethical activities that present a cost saving or are cost neutral, such as energy efficiency measures or recycling, Dawkins says.

Consumer expectations for companies are not abating either. “Even though people don’t feel in a position to purchase ethically, underlying concerns about corporate conduct have not gone away,” she says.

Market observers also point to the long-term trends. The recession, they argue, should be seen as a temporary blip rather than a sudden reversal in ethical buying habits.

Rob Harrison, editor of Ethical Consumer magazine, dismisses economists who reject ethical purchasing as a passing fad in “middle class conscience-salving”. He says: “The weight of this movement is so great that even a global recession doesn’t have the power to snuff it out.”

Co-opting consumers

It is not just niche ethical players that expect business to bounce back. Mainstream companies are also banking on the long-term growth in ethical consumerism continuing into the future.

Independent analysis on the market suggests there are grounds for confidence. According to the Co-operative Bank’s benchmark Ethical Consumerism report, a hardcore 15% of consumers base their purchasing on ethical considerations.

Market opportunities are not restricted to that core group. An additional 33% of “activist” consumers are less ardent, but still regularly buy products that support their beliefs. A small minority of “showboaters” (4%) buy ethically because they think they ought to.

Harder to sell to, but not impossible are the 9% of “lapsed activists” who feel they should buy ethical products but don’t. The final 34% of “laissez-faire” consumers who buy according to their needs, not their beliefs, represent the toughest category.

First and foremost, retailers must make it easy for consumers to make ethical choices. Sometimes doubts over product performance or concerns over price dissuade purchasers, but poor communication and product education present the biggest obstacles to shoppers, the Deloitte study of US shoppers found.

“Companies must do a better job of communicating the sustainable attributes behind the products to show the value of buying green to the shopper,” says Scott Bearse, director of Deloitte’s enterprise sustainability group.

To date, product labelling has been the communications instrument of choice, and it has done some good. The most successful marks – the Soil Association logo, Fairtrade, Forest Stewardship Council, Marine Stewardship Council and the EU Ecolabel, among others – have stimulated consumer awareness and driven sales.

Yet the certification movement has been a victim of its own success. Joanna Daniel, marketplace director at Business in the Community, puts the number of ethical marks at more than 100. The result is a minefield for consumers, she says.

“On the one hand there needs to be simplification, but then on the other these issues are often very complicated,” according to Daniel. The solution, she argues, is twofold: take the pain out for consumers, and empower them to choose.

One simple way of achieving the former is to remove the element of choice. Ben & Jerry’s has done just that. Starting this year, all new flavours of the iconic ice-cream brand will be Fairtrade. It’s ethical purchasing by default.

Empowering consumers is harder. Finding alternative, innovative communication approaches certainly helps. Patagonia’s Footprint Chronicles provides just such an example. Via an interactive online map, the US outdoor clothing brand invites its consumers to track the complete journey of its products. At each stage, the map highlights the “good” sustainability aspects as well as the “bad”.

Product development can present another means of empowering consumers. Several leading washing powder manufacturers, for instance, have modified their brands to enable users to wash clothes at lower temperatures and thereby save energy. Ariel’s successful “Turn to 30” campaign is perhaps the best-known example.

The M&S factor

The stellar case study of a company making it easy for its consumers while also empowering them to make a change comes from Marks & Spencer, the UK retailer. M&S announced in March that all the 2.7bn products its sells annually will comply with its 180 Plan A sustainability targets by 2020.

“Our aim is to move sustainability from being a niche product in the corner of the store and broaden it across every product that we sell,” says Mike Barry, sustainability director for M&S.

In some cases, M&S will develop its own internal certification processes where existing schemes are lacking. It is in the final stages, for example, of developing a fair-wage label for all its suppliers in India, Sri Lanka and Bangladesh.

Where the retailer is making the biggest strides, however, is in consumer engagement. M&S’s consumer segmentation cuts roughly four ways: the “green crusaders” (10%), the “light greens” (35%), the “what difference can I make?” group (35%) and those who “are not interested at all” (20%).

The buying patterns of the first and last segments are entrenched. Where M&S is focusing its energies is therefore among the middle two groups. Price is a key determinant for the light greens, Barry argues, and some tactful nudging also plays a part. M&S’s recent decision to launch a £100,000 prize for the consumer with the best green idea is one such nudge.

The “what difference can I make?” consumers are less easily won over. On the surface, they are more cynical, Barry says. “They typically say, ‘what’s the point of me buying organic or fair trade if a billion people in China are beginning to fly or drive?’,” he explains.

Yet consumer focus groups run by M&S show that those in this sceptical category are willing to change behaviour as long as others follow suit. Consumer “tribalism”, Barry terms it. Alone, they perceive their actions as pointless. Act collectively, and they see the difference.

“If they can do one or two simple steps that everyone else can do and therefore be replicated among millions, then they will take part,” he says.

Take recycling. If 100,000 M&S customers donate their clothes for reuse rather than throw them away that adds up to a million or so items, Barry calculates. To encourage such behaviour, M&S now offers a £5 voucher (redeemable when spending more than £35) to all customers who recycle clothing through Oxfam’s charity store. Another gentle nudge.

Among M&S’s most ambitious targets is its goal to persuade one million customers to develop “their own personal Plan A” by 2015, increasing to three million by 2020. Essentially, the idea works like a new year resolution. The retailer hopes to convince consumers to make individual, specific pledges regarding their buying practices or product usage. The scheme will be rolled out through a consumer-facing website in the initial stages.

“As a major retail brand in the 21st century, it’s not just about us putting our own house in order – our products, our stores, our supply chain, our lorries – but it’s also about helping our customers to make a change where they want to,” Barry says.

Whiter than white

Even if external economic conditions may have flattened ethical sales, most consumers want to do the right thing. Ten years ago, the consumer who sought out eco-labelled tuna or organic cabbage was seen as an oddity. Now, they are in the ascendancy.

Companies, both niche and large, have helped promote this consumer turnaround, and driving prices down has been essential. Easily understandable labels, consumer awareness campaigns and innovative product designs have also helped.

The ideal situation for any consumer is to enter a store without having to think about ethics. The company’s processes should be so rigorous that all ethical question marks are removed.

“It shouldn’t be necessary for consumers to look at every single label on every single jam jar that they buy. It should be enough to see the brand and be comfortable that they know what the brand does and what it stands for,” says Kate Ives, senior principal at AccountAbility.

Such a scenario remains a long way off. Few if any brands are whiter than white. But many are getting closer, and consumers’ willingness to reward them is only set to grow.

Downward trend

Among UK consumers surveyed in 2009:

• 25% have bought because of an established link to a charitable organisation (cause marketing) (28% in 2008).
• 19% buy products because of a company’s ethical reputation (22% in 2008).
• 19% actively boycott products (17% in 2008).

Source: Ipsos Mori, August 2009

Switching to Fairtrade?

• 71% of UK consumers who don’t currently buy any Fairtrade products say they are willing to swap one or more products to Fairtrade.
• 55% of Fairtrade and non-Fairtrade purchasers say they would consider switching one or more of the products they buy to Fairtrade.
• Top swaps are bananas (42%), other fruit (31%), coffee (29%), tea (28%) and chocolate (26%).
• Just over seven in 10 consumers cut back on their personal budgets in some way as a result of the recession, such as eating out less.

Based on a YouGov survey of 3,359 adults, commissioned by the Fairtrade Foundation in February 2010.

M&S: on track to becoming the world’s most sustainable retailer

On March 1, Marks & Spencer added 80 new commitments to its already extensive list of targets. The UK retailer promises to deliver on the new phase of its Plan A strategy by 2015, and in some cases 2020.

Highlights include:

• Build Plan A into every one of the 2.7bn individual M&S products by 2020 (50% of products by 2015).
• Help one million M&S customers develop their own personal Plan A by 2015.
• A £100,000 prize – Your Green Idea – for the best customer idea to help green M&S.
• A five-year, £50m internal innovation fund to help M&S identify and implement the breakthrough technologies of the future.
• Engage 10,000 farmers in a sustainable agriculture programme.
• Implement a process to ensure M&S clothing suppliers pay a fair living wage in the least developed countries.
• Source six key raw materials – soya, palm oil, coffee, tea, cocoa and leather – from sources that do not contribute to deforestation.

M&S existing Plan A commitments, to be delivered by 2012, include:

• Become carbon-neutral.
• Send no operational waste to landfill.
• Triple sales of organic food in the UK and Republic of Ireland.
• Extend the scope of ethical trading assessments to other parts of its supply chain.
• Remove children’s sweets from till points.

More information: plana.marksandspencer.com

From luxury to low-end – are there any budget ethical brands?

Ethical equals expensive. That simple equation is fixed in the minds of many consumers, and not without good reason. Compare a packet of organic Duchy Originals Highland All Butter Shortbread at £1.99 with Tesco Value Nice biscuits £0.59 in the same UK store, and the price differential is self-evident.

Yet the notion that paying for ethics means parting with more cash is not universally true. First, the comparison is often not like-for-like. Compare Duchy Originals with a premium biscuit brand and the cost will be similar, if not lower.

Second, retailers may choose to assume the premium cost themselves. This is becoming increasingly common, especially when mainstream brands switch to Fairtrade. Cadbury’s Dairy Milk, Sainsbury’s peas and bananas, and Nestlé’s KitKat are no more expensive now that they carry the ethical certification.

Third, the premium on an ethical product doesn’t necessarily link directly to the product’s ethics. Take the example of niche chocolate brand Green & Black’s. The producer is unabashed about its product being premium. Yet corporate responsibility is not the primary driver of price, the company maintains.

“We treat people well and we don’t go against the environment, but that’s not necessarily what makes us premium. We’re premium because we pay care and attention to get the best ingredients,” says Kellie Fernandes, Green & Black’s head of global marketing.

KitKat was hit by a highly successful internet campaign from environmental NGO Greenpeace in March. It linked palm oil used to make the chocolate bars to Sinar Mas, a company operating in sensitive Indonesian forest areas. In particular Greenpeace suggested that orang-utan habitat was being damaged. Nestlé subsequently cancelled contracts with Sinar Mas, reasserting its plan to source only certified palm oil for all its products by 2015.

Big changes are happening at the lower end of the price spectrum. As companies begin embedding social and environmental practices throughout their operations, mainstream products are becoming gradually more ethical. And gradually more affordable.

Ethical savings

In some cases, this mainstreaming process has led to an actual reduction in production costs. Energy saving and other early environmental management interventions demonstrate such an outcome. In other cases, there are economies of scale to be found. The relative cost of third party certification, for instance, drops in line with increased production volumes. Mergers with larger companies also help niche players bring efficiencies to their operations.

Finally, ethical retailers are finding innovative ways to save on sales costs. E-commerce provides the prime example. EthicalSuperstore, a UK web-based retailer offering everything from eco-friendly nappies to organic groceries, averages “just a few percentage points” more than high-street stores in terms of price.

“By using the internet and operating on a tight margin … we can offer a much more competitive supermarket style offer over a wider range of products,” says EthicalSuperstore’s co-founder Andy Redfern.

Retailers associated with the lower end of the consumer market are getting in on the act as well. Budget supermarket Lidl, for example, now boasts a range of own-brand Fairtrade products in its German stores. UK low-price retailers Asda and Morrisons, meanwhile, recently introduced Fairtrade melons from Brazil.

Modern consumers are becoming more demanding by the day. They don’t want to pay more and neither do they want to compromise on quality or consistency. Yet they also want basic ethical considerations covered. The companies that crack that equation in the future will be onto a winning formula.