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Does It Pay To Be Good?

Posted March 23, 2009 12:57 PM by Dylan Miyake

The Winter 2009 issue of Sloan Management Review had an article entitled Does It Pay To Be Good? For those of us in the social and public sector, the answer is "usually not enough." While this article focuses on the corporate sector, and how for-profit organizations are using corporate responsibility as a marketing scheme, it has a few important lessons for us in the social sector as well.

The key findings of the study are:

  • Yes, customers will pay a premium for ethically produced goods.
  • Conversely, they will punish companies (by demanding a lower price) that are not seen as ethical.
  • The punishment exacted is greater than the premium customers are willing to pay.
  • Companies needn't be 100% ethical to be rewarded.

What does this mean for those of us in the social sector? The first piece of good news is that despite a general turndown in the economy, people still care about ethically produced goods, and will reward organizations that produce those goods and punish those who fail their ethical standards. This means that our communication strategies can have an major large impact in the market -- think Nike and child labor.

The second piece of good news (although it might not seem to be at first blush) is that organizations do not need to be 100% ethical to be rewarded. The reason this is good news is that our sector can help and mentor organizations that are trying to become more ethical -- and these organizations will see short-term gains as they move towards a more ethical business model. If it was an all-or-nothing proposition, the short-term incentives of the corporate sector might make this impossible.

Here's the recommendation of the authors to companies that seek to pursue social responsibility as a marketing strategy. How would you use these ideas in your organization?

  • Pursue a socially responsible differentiation strategy. Consumers will pay a premium for ethically produced and sourced products, as long as they are made aware of it. Therefore, promote it so that consumer knowledge translates into willingness to pay.
  • Stay away from goods that are known by consumers to be unethically produced or pay the price (that is, know that your consumers will not pay the price).
  • It may not be necessary for all your products to be fair trade; select your most highly visible products and make them the "flagship" ethically produced goods. (But be aware that if 100% fair trade becomes expected, anything less may be perceived as unethical.)
  • Segment your market and offerings to consumers through messaging and media; finding consumers with high existing ethical expectations of companies will allow an even greater price premium.

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