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Business-Society Relations in Retail Value Chain (23E54000, 6cr) 1.10.2012 Consumer ethics in retailing

Business-Society Relations in Retail Value Chain (23E54000, 6cr) 1.10.2012 Consumer ethics in retailing. Mika Skippari Senior researcher, PhD Aalto University School of Economics. Corporations-government-citizens : structuring of nonmarket environment.

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Business-Society Relations in Retail Value Chain (23E54000, 6cr) 1.10.2012 Consumer ethics in retailing

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  1. Business-SocietyRelations in Retail Value Chain (23E54000, 6cr)1.10.2012Consumer ethics in retailing Mika Skippari Senior researcher, PhD Aalto University School of Economics

  2. Corporations-government-citizens: structuring of nonmarketenvironment Nonmarket / politicalstrategies, csr Regulation Government Corporation Public relations (csr) Advertising Policydecisions Elections Interestgroups Interestgroups, protests, consumer demand, civilregulation Citizens NGOs, activists

  3. Consumer demand for virtue • Consumers (citizens) have a capability to pressurefirmsbychoosing 1) where and what to buy, 2) where to work, and 3) where to invest. • Somerecentexamples of increasedconsumer / customerdemand for virtue • The demand of responsible products is increasing • Firms with goodreputationattracts the best and mosttalentedemployees • Social investorshaveincreased in number and share of investments

  4. How responsibleconsumersare? • According to manyconsumersurveys: • Clearly the mostconsumers (80-90 %) choose to buyfrom the companythathas the bestreputation for CSR, if the quality, service and priceareequal • Mostconsumers (60-70 %) claimtheywouldbuychild-labor-freeorenvironmental-friendlyproductevenifitweremoreexpensivethanalternatives • Clearlymostconsumerssaytheyavoidpurchasing products made underpoorworkingconditions (iftheyonlyknewit!) • 60 % of consumerssaytheywouldcease to buyfrom a companyknown for irresponsiblebehavior, 30 % of consumershaveactuallyclaimed to haveprotestedagainstirresponsiblefirms

  5. How responsibleconsumersare? • Generally, studiesclaimthatthere is a majorgapbetweenwhatconsumerssaytheywoulddo and whattheyactuallydo • Thisraises a question of howethicalconsumersare • How willingtheyare to buysociallyresponsible products / services? • Is there a gapbetweenwhatconsumerssay and howthey act?

  6. Geographicaldifferences in consumercultures • Consumers in Scandinaviaarereported to be the mostethical (at least in attitudes!) • Consumers in Continental Europe arenotsoresponsible-driven as in Scandinavia, butclearlyoutperform U.S. customers • ”Green” consumption, as measuredbypurchases of recycled products, hasevenbeendeclining in U.S. • ”It is the responsibility of firms, notconsumers to domore to protectenvironment” • Consumerswillonlybuy a greenerproductifitdoesn’tcostmore, comesfrom a brandtheyknow and trust, is available at the storestheyalready shop, doesntrequire a significantchange in habits to use, and has the samelevel of quality!!!

  7. Boundaries of ethicalconsumption? • How ethicalconsumersareactually? For example, the marketshares of discountchainsincreasesconstantly… • A Finnishstudy on ethicalconsumption (Wilska, 2009) showesthatFinnsarestillquiteinconsistent and contradictory in theirconsumptionhabits • Responses of 1 500 people, agedbetween 18-65 • A largemajority of consumersthinkthatethicalissuesareimportant, butitdoesnot show in theirbuyinghabits • Cheapprice and ownpersonalsatisfaction is moreimportantthanethicalcriteria in determiningconsumptionchoices: ifconsumerslike the product, itwillbeboughtdespiteitcouldcontradicttheirethicalprinciples • Maybesurprisingly, olderpeopleweremoreethical in theirbuyingbehaviorthan the youngerones, but on the otherhand, youngpeopleweremoreaware of ethicalconsumption

  8. Britsarenotanybetter: only 11 per centarerealethicalconsumers (”Crusaders”) Sourcee: The goodconsumer. Economist 17.1.2008

  9. Dilemma of imperfectmarketinformation • Firmsthatarepraised for theirperformancecanturn out to behighlyirresponsible(e.g., Enron) • Consumershavelimitedresources to obtainallinformationneeded to makeethicalbuyingdecision • To whatextendconsumersmaketheirethicalbuyingdecisionsirrationally (based on feelings)?

  10. Ways to overcome the dilemma • Labelsfor responsibleproductionhasbeendeveloped • Rugmark: certifiesthatrugs and carpetsarebeing made withoutchildlabor • ForestStewardshipCouncilhasintroducedlabel for woodproductharvestedfromsustainablymanagedforests • Fair Trade label: certifiesthat the producersarebeingpaidabovemarketprices • How consumersvaluetheselabels? • How consumerscanbe sure thatthesestandardsarebeingmet?

  11. Ways to avoid the problem of imperfectinformation • Discuss in smallgroups: • Areconsumerstoounaware? Who is to blaim? • Whatdifferentwaysfirmscanuse(on store-level, company-level, society-level) to increase the marketinformation of csrpractises (i.e., supportconsumerawareness of theircsrefforts)? • Giveexamples of companiesthat in yourmindareactive in communicatingtheircsrpractises.

  12. Marketing communicationfromethicalperspective • Marketing communicationshouldbebased on honest and open information • Task is to promote the demand for responsibly and ethicallyproduced products (productsafety, environmental-friendly) • Provideconsumers with rightinformationabout the origins of the products • To supportconsumers to make ”right” decisions • Services marketing: providingintangibleservicesinstead of products • Maintain and reinforcegoodreputation of corporate image and brand

  13. Whichfirmsare the mostvulnerable to consumeractivism? • Firms in consumer business (vis-a-vis B2B) • Firms with highlyvisiblebrands (brandsrefer to ideas, emotions, values and beliefsthat a firmconveys) • Firms operating in extractiveindustries (forest, oil, mining) • Firms with highmarketpower (Wal-Mart, Shell) • Firms operating on highlyregulatedindustriesorhavinggovernment as a keycustomer (e.g., defenceindustry) • And paradoxically…firmsthatclaim to be the mostaccountable / responsible • E.g. Starbuck, afteragreeing to sellFair Trade coffee, wascriticizesbyactivists of usingmilkfromcowstreated with growthhormones • Problem of stickybadreputation??

  14. Twoperspectives on ethicalconsumption • Extreme resistance of the growingmass-consumption of goods • Arguesthatallexcessive and unnecessaryconsumption is bad; idea of degrowth, more with less • Problem: how to definewhat is excessive / unnesessary: peoplehavedifferentneeds and habits • Consumption is a tool for moral and politicalactivity • Attempts to influence on howpeopleconsume • Donotarguethatconsumption as such is bad and shouldbereduced, butpeopleshouldconsumemoreresponsible products • E.g. Fairtradeideologysupportsthisview • Acknowledges (and approves to a certaindegree) the linkagebetweencsr and cfp

  15. Example of succesfulethicalbranding: Fairtrade • FT products aresold in 70 countries • 1,2 millionproducers and employees in 60 developingcountries • Dozens of thousand products in the market (1700 in Finland) • World-widemarket of FT products 3,4 billioneuros.

  16. Development of fairtrade • Initiated in the Netherlands in late 1980s, thenspread to othercountries: In 1997 international consortium, Fair Trade Labeling Organization International, wasestablished • Coffeewas the firstproduct, hasremained the mostimportant FT product • NowadaysSwitzerland and U.K. are the leadingcountriesin FT sales(e.g. marketshare in bananas 50 %) • FT arrived in Finland in 1998 (Fairtrade Finland), first products werecoffee and tea • Slowgrowth in the beginning (e.g., marketshare of FT coffee in 2003 was 0,3 %), butincreasedremarkablyrecently • The fastestgrowth in sugar, pineapple, and coffee

  17. Increasingdemand for fairtradeproducts • UK and Switzerlandleaders in fairtrade (even 50 % marketshare • in certain products • Total salesquadrupledbetween 2004 – 2007, tripled 2007-2010 • Twomostimportantreasons for not to use: hard to findfrom the store, • limitedavailability

  18. Amount of fairtrade products sold in Finland - Mostfamous products (2009): coffee, bananas, flowers, wine, cotton products - Biggestmarketshares in pineapples (17 %), roses (10 %), bananas (11 %)

  19. Sales of fairtrade products per inhabitant in Finland • - Salesper inhabitantincreasedrapidlyfrom1,44 euros (2003) • to 6,55 euros (2007); c.f., in Switzerland 20,8 euros (2007) • Fastgrowth in 2007-2009, butsloweddown in 2010: maturing of • markets (c.f. sales, products)??? • - FinnsconsumemostamongScandinaviancountries (6th in the world)

  20. Consumptionhabits of fairtrade products in Finland (2009) • The number of LOHAS consumers (Lifestyle of Health and Sustainability) are estimated to about 1 million • 20 % of consumers tend to buy regularly FT products, 77 % occasionally, 3 % never • 80 % of Finns know what the FT brand means and includes • Most important reason to buy: acknowledging the principles of FT, trust in brand, brings good feeling

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