Does It Pay To Be Good?

That is a question that has long puzzled marketers who have heard from customers that they want to do business with ethically based firms — defined as companies that produce products under conditions of progressive stakeholder relations, advanced environmental practices and respect for human rights. Marketers had no reason to doubt that sentiment, but they have always wondered if consumers would be willing to pay a higher price for ethically produced goods (since they tend to be more expensive to create.)

It turns out that a series of controlled experiments proves that consumers will, in fact, pay a premium for ethically produced goods. But perhaps of equal interest is the fact that they will punish (by demanding a lower price) companies that are not seen as ethical. That relationship is not symmetrical. The punishment exacted is greater than the premium customers are willing to pay.

How ethical do you have to be? Perhaps not as much as you might think. The research shows that a small degree of ethicalness “pays off.” It is not necessary for a company’s product to be “100% pure” in order to receive a price premium.

This research is the first to find that consumers use price to punish unethical companies more than they use price to reward ethical companies, and that the ethicality of a company’s behavior is, indeed, an important consideration for consumers (as demonstrated in their willingness-to-pay decisions).