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A recent Wall Street Journal article reported that many companies are giving themselves ethical facelifts and spending more to prove to consumers that they are responsible global actors. These actions take for granted the notion that consumers will reward for such behavior, yet few companies actually invest in research to investigate this assumption. June Cotte and Remi Trudel designed a set of experiments intended to measure just how much people will pay for ethically produced goods. For the purpose of the study, an ethically produced good was defined as a good that was manufactured by a company which had progressive stakeholder relations, followed progressive environmental practices, and respected human rights.

The first experiment, which asked coffee drinkers how much they would be willing to pay for a pound of coffee, revealed that consumers are indeed willing to pay slightly higher prices for goods they believe to be ethically produced and that they are only willing to buy unethically produced goods if they are available at a steep discount.

The second experiment focused on the degree of ethicalness which consumers demand and found that "once companies hit a certain ethical threshold, consumers will reward them by paying higher prices for their products. Any ethical acts past that point might reinforce the company's image, but don't make people willing to pay more." Essentially this finding suggests that while it makes sense for companies to pursue ethical practices, the financial rewards from consumers for ethical behavior will have diminishing returns.

In the final experiment, the importance of consumer attitudes was measured. Results indicated that when consumers who expected companies to behave ethically are compared to consumers who believe that companies' actions are governed by financial interests, those who expect ethical behavior are willing to pay higher prices for ethically produced goods. This suggests that companies would do well to segment their markets and target those consumers with high expectations.

One additional consideration which companies should not forget is summarized in this video interview by Wall Street Journal Reporter Erin White with June Cotte:

A significant risk of customer backlash exists if companies overstate their ethical or green credentials. While consumers are willing to pay more for ethically produced goods, they are also likely to frown on companies who they perceive make exaggerated claims or are insincere in their efforts to be ethical or green. Companies can avoid such backlash by being clear and honest about their practices and letting consumers know what they are doing for the environment without overstating their efforts.

The full article and various figures/graphics are available on the Wall Street Journal website. This summary was prepared by Crystal Oswald-Herold of the Atlantic Community's editorial team.

Remi Trudel is a doctoral candidate in marketing at the University of Western Ontario's Ivey School of Business. Dr. June Cotte is the George and Mary Turnbull faculty fellow and associate professor of marketing at the Ivey School.