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Why Customers Choose Companies that Care

The rise of ethical consumerism is benefiting brands that prioritise positive environmental and social impact. Being a good corporate citizen is becoming essential to deliver customer satisfaction and build loyalty.

Two-thirds of British consumers consider themselves to be ethical shoppers with many claiming that ethical behaviour by companies is critical to their decision-making.

Google’s simple ethical motto “Don’t be evil” was almost as famous as the company itself. When Google restructured itself recently to become a subsidiary of Alphabet Inc, the new parent company dropped the phrase from its Code of Conduct in favour of “Do the right thing”. Some people were appalled, but it seems that Alphabet had a point.

The new slogan set the bar higher. It’s no longer enough to avoid being bad. It’s now incumbent on companies to actually do good. In that sense, Alphabet is in step with the times; being perceived a good corporate citizen can bring huge benefits for a company, not least in terms of improved customer satisfaction.

Debate has long raged about whether corporations are constitutionally capable of being good. Joel Bakan, in his influential book, The Corporation, argues that public companies have all the characteristics of a psychopath, driven as they are by a need to maximise shareholder value above all else.

The Nobel Prize-winning economist, Milton Friedman, wrote a notorious newspaper article^ in 1970 entitled “The social responsibility of business is to increase profits”.

But the great management thinker, Peter Drucker, credited with introducing the very concept of customer satisfaction in 1954, saw it very differently. His view was that the customer provides the foundation on which every business is built. “To satisfy the customer,” said Drucker, “is the mission and purpose of every business.”

Profiling the ethical business

The issue that both the great economist and the great management guru touch on is whether being ethical and socially responsible makes any difference in increasing customer satisfaction, customer loyalty and improving customer experience.

There is no doubt that ethical consumerism is on the rise and customers today have greater awareness of the ways in which some corporations are doing good.

Although it’s hard to agree a pithy definition of an ethical company, most people would agree that, at a basic level, it is one that pays its workforce a fair wage, provides employment opportunities regardless of gender, age or background, and is considerate of sustainability and the environment.

One of the first genuinely ethical businesses was the Body Shop, launched in the UK in 1976 by Anita Roddick. From its original shop in Brighton it introduced some practices that were really innovative at the time: recycling packaging, insisting on natural ingredients that were ethically sourced and refusing to sell products that were tested on animals.

This proved appealing to customers and the company has grown into a global brand with over 3,000 outlets around the world.

Sustainable shopping

These days, corporate social responsibility (CSR) practices have become much more common with over 90% of large companies^ implementing specific policies and programmes. It’s becoming an ever-more important part of delivering customer satisfaction.

Consumer research group Mintel proved this trend with a recent investigation of UK consumer attitudes to ethical claims made by food and drink companies. It found that among customers who cared about ethically sourced goods, animal welfare was their primary concern followed by responsibly sourced ingredients, and then workforce welfare.

Environmental concerns, limiting carbon footprints and tax avoidance were seen as less important overall.

But Mintel’s research^ found that there were limitations for consumers when it came to buying ethical food products. Just over half of them said they would only pay more if they understood clearly where the extra money went.

Helen Merriott, consumer industry advisory leader at EY, acknowledges this: “The great British consumer sees themselves as an ethical shopper – and while it’s clear that the will is there to shop ethically, the way is blocked by the higher relative prices of ethical goods.”

Barclays Corporate Banking’s Head of Retail and Wholesale comments: “The unwillingness of consumers to accept higher prices for more ethical products is a major obstacle, with the additional costs absorbed by the retailer.

“This is a problem as retailers are facing a range of other cost challenges but there’s no room for compromise here – customers, and indeed shareholders, demand the highest standards and retailers have to find a way to meet these expectations.”

It’s no longer enough to avoid being bad. It’s now incumbent on companies to actually do good.

The caring consumer comes of age

While price remains the crucial factor for consumers, especially in times of economic uncertainty, there are very encouraging signs that canny consumers are ethically aware and responsive. They are increasingly keen to support ethical and sustainable businesses where they can, rewarding such companies with brand loyalty, even to the extent of paying slightly more for ethical goods.

The truth of this response is backed up by a study from YouGov and the Global Poverty Project which found that three quarters of those surveyed would be willing to pay 5% more for clothes if they could be sure that the workers were receiving fair pay and had safe conditions.

It seems then, that in an increasingly open, digital world where authenticity is paramount, consumers expect businesses to behave ethically in issues ranging from employee rights and gender discrimination to the supply chain.

Unilever

Unilever, the giant consumer goods company, shows how this can work in practice. It has committed to doubling its size while halving its environmental footprint. Its stance on sustainable capitalism has been praised by trade unions in the UK including the GMB.

The company got rid of short-term financial targets and said that it was focusing on improving the lives of the millions of people in its extended supply chain. It has set itself nine goals including a commitment to be net-carbon positive by 2030, in line with the United Nations sustainable development goals.

Since it launched its sustainability plan the company has reduced carbon emissions by half and slashed waste at its factories by 98%. It has identified 18 sustainable living brands – those that have a strong environmental or social purpose – such as Ben & Jerry’s ice cream. These brands have been the company’s strongest performers, growing 50% faster than other brands.

Such companies are increasingly sought by a new generation of ethical fund managers in the finance world who take social and environmental factors into account when building their portfolios. Today, so-called ESG (environmental, social and governance) investment accounts for an estimated £20 trillion^ of assets under management.

There is also a generational shift in attitudes. Millennial investors, those in their 20s and 30s, are twice as likely as older generations, to invest in companies or funds that target beneficial social and environmental outcomes, according to Morgan Stanley^.

With ethical consumerism on the rise, “doing the right thing” is rapidly becoming established a key component of customer satisfaction and brand loyalty. Corporate social responsibility is not just about altruism: it’s a hard-headed business practice that delivers to the bottom line.

Find out how Barclays Corporate could help your business to take action on environmental sustainability.

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