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The rise of the ethical consumer
What motivates the purchase of goods that have been produced in an ethical or sustainable way? This topic has been explored in a ground-breaking study that looks at the relationship between the price and consumption of ethically produced goods.
14 December 2021
Consumer purchasing decisions
Produced by academics at Newcastle University Business School, the study considers a group of consumers who care about the way goods are produced and distributed. These consumers base their purchasing decisions on ethical values – such as human rights, environmentally-friendly and sustainable production, and animal well-being – even if that means paying a little more for the products.
Researchers created a mathematical model which assumes that ethical consumers derive social esteem from purchasing goods that are more expensive than non-ethical products – a display of moral superiority that makes them feel more important than their peers. This assumption is based on the notion of “conspicuous ethics”, where a consumer expresses a superior ethical responsibility towards society by purchasing ethically produced and distributed goods. It’s the first time that this idea has been formalised in academic literature.
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The hypothesis of conspicuous ethics outlined in the study goes some way to explaining the behaviour of ethical consumers. The findings for the study revealed a positive correlation between the price and consumption of ethical goods, and indicated that consumers would boycott goods which they believed were not ethically produced.
The research also suggests that ethical consumers prefer goods made by companies that guarantee the existence of a sustainable working environment. This includes making sure that the environment is safe, that gender equality exists in the workplace, and that staff are paid a fair price for producing the goods. Unlike any other study, the research introduces an “ethical index” that takes into account all of these preferences which ultimately determine the price of the goods (or the price that ethical consumers are willing to pay for the goods). In comparison, previous studies have characterised the value of goods solely on their physical properties.
In essence, the mathematical model developed in this study is the first of its kind to include the way goods are produced within the framework of an analysis of ethical consumption and purchasing. On a practical level, the research is useful for ethically-minded manufacturers and retailers seeking to formulate marketing strategies that are tailored to the growing demand for ethical goods. The research also has other implications; it can help regulators to formulate more effective sustainable economic policies, reduce poverty and boost trade. For example, could governments incentivise the production of ethical goods within the framework of their economic policies?
Making ethical choices
One of the researchers behind the study is mathematician and economist, Dr Pascal Stiefenhofer, Senior Lecturer in the Department of Economics at Newcastle University Business School.
He says: “We observe the rise of the ethical consumer, which has led to the emergence of a market segment where consumers are increasingly making ethical choices when it comes to purchasing goods. They are also willing to boycott unethically manufactured goods and, if necessary, organise protests against the companies that make and sell them.
Ethical consumers are informed consumers with a powerful collective voice. By expressing their views in a coordinated way, they can have a positive influence on the quest to create a more sustainable economy.
They are more than just consumers; they are driving the economy in a new direction.
Helping companies understand the emerging market
“Our research is particularly important for retailers and manufacturers who are seeking to adapt their products and pricing structures to evolving consumer behaviours and preferences. They could take steps to label products as ethical and demonstrate their ethical practices when promoting these goods.
“Our paper is the first to rigorously formulate the concept of a social label, which is crucial to the development of our model of ethical consumption. This model can be used to help companies better understand an emerging market – the rise of the ethical consumer – and adapt their marketing strategies accordingly. Are they doing enough to meet the demands of ethical consumers and capitalise on their commercial potential? Do companies need to gain a better understanding of which products are deemed unethical by consumers? Are they doing enough to show customers that the goods have been ethically produced and distributed?
“Companies that don’t consider these factors could end up losing business as a result. There is also evidence to suggest that some consumers are boycotting brands that aren’t perceived to be ethically conscious. This is important on two levels. Firstly, it means that some products are unlikely to sell as well as companies had hoped. More importantly, however, companies that aren’t viewed as ethically conscious could see their entire brand tarnished. In this age of social media, where information and misinformation can spread like wildfire, it won’t take long for a brand to be tainted beyond repair.”
Building a brand with a strong ethical core is not the only challenge facing companies. Another conundrum for retailers in particular is how to price their products.
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“How much more will consumers be prepared to pay for ethically produced goods?” says Pascal. “Would they pay a 10 per cent premium or 30 per cent? Perhaps some consumers would be willing to pay more than that to demonstrate how much their purchasing decisions are based on moral considerations. Further research on ethical consumption may be needed to help retailers determine these price points.
“Our study provides the foundations for new statistical models that would shed light on the many questions and issues raised in this article."
Dr Pascal Stiefenhofer is a mathematician and economist. He joined the Newcastle Business School from the University of Exeter, where he was Deputy Director of Education. Pascal received a PhD in Mathematics (Dynamical Systems Theory) and a PhD in Economics (Applications of Differential Topology/Geometry to General Equilibrium Theory). He previously worked at the University College London (Department of Statistical Sciences) and the University of York (Department of Economics and Related Studies). His current research includes artificial intelligence and machine learning in the context of social science data, applied econometrics, economic theory, and dynamical systems theory and its applications. He supervises PhD students in these areas.