A recent Wall Street Journal headline posed this question: "Does Being Ethical Pay?"
Remi Trudel and June Cotte of the University of Western Ontario's Ivey School of Business devised two tests to find the answer.
Trudel and Cotte assembled three panels of consumers to determine the prices they'd pay for a pair of items they were shown — a pound of coffee and an all-cotton T-shirt.
One group was told the coffee and shirt manufacturers used highly ethical standards to make the items. The second group was informed the manufacturers used low ethical standards. A third group — the control group — got no information about the manufacturers.
In the coffee test, the control group determined that $8.31 per pound was a fair price.
The group told that the manufacturer was highly ethical was willing to pay 16.8 percent more than the control group, however, a hefty premium. The group told that the manufacturer was unethical said the coffee was worth 29.1 percent less than the control group's price, an even heftier swing in the opposite direction.
Of special note was a subset of those surveyed who insisted they had high expectations for companies; and that group was willing to pay 39.4 percent more for the coffee if it was produced with highly ethical standards.
For the T-shirt test, the panel was broken into five groups to test the variation between unethical behavior and three levels of social responsibility based on the percentage of organic cotton in the shirt.
The control group valued the T-shirt at $20.04. (It must have been a nice T-shirt, not just the basic three-packs available at most retailers.)
If the shirt contained 25 percent organic cotton and was made by an ethical company, the evaluating group boosted the price, but only slightly — 3.3 percent.
That increased to 5.8 percent if the shirt was made totally with organic cotton. However, the group evaluating a hypothetically unethical manufacturer using no organic cotton said the shirt was worth
13.5 percent less.
"Efforts to move toward ethical production, and (to) promote that behavior, appear to be a wise investment," Trudel and Cotte concluded. "If you act in a socially responsible manner, and advertise that fact, you may be able to charge slightly more for your product.
"On the other hand, it appears to be even more important to stay away from goods that are unethically produced. Consumers still may purchase them, but only at a substantial discount."
Harris Interactive recently released the results from its ninth annual corporate reputation survey. Top-ranked companies included Google, Johnson & Johnson, Intel, General Mills, Kraft Foods, 3M, Honda Motor Co. and Coca-Cola.
More than half of those surveyed encouraged companies to use advertising and publicity to spread the word about their good deeds.
"The American public has grown smart enough to discern those (companies) that are proactive about their reputations and give them credit for it. Companies that pay attention to enhancing their reputations see bottom-line results," said Robert Fronk, senior consultant of reputation strategy at Harris Interactive.
Good marketers have a seat at the table when fundamental decisions are made about products, and the lesson for companies is clear. Reputation influences consumers — a good reputation can allow for premium pricing, while a bad reputation drags prices down.
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