A growing proportion of consumers say they are willing to pay a premium to businesses that do good. How that translates to the bottom line is far from simple
Nielsen’s latest Consumers Who Care survey finds that a majority of consumers are willing to pay more for goods and services to reward companies that give back to society. And the proportion is growing, now at 50%, up from 45% in 2011.
The survey demonstrates that “people don’t just operate according to neoclassical utility functions,” says Gregory Brown, professor of finance at the University of North Carolina’s Kenan-Flagler business school. “There are other things that they care about.”
Consumers under the age of 30 remain the most likely to say they’re willing to spend more. But the sentiment is growing most strongly among older consumers, with 50% of those aged 40-44, for example, now agreeing they’re willing to pay more, rising from 38% in 2011.
The percentage of consumers willing to spend more varies greatly among 29,000 online respondents in the 58 countries that Nielsen surveyed. Many Asian consumers strongly support paying a premium, particularly in India (75%), the Philippines (71%), Thailand (68%) and Indonesia (66%).
Consumers in Europe, however, are less willing to pay more for companies that profess social responsibility – just 36% overall. The Nielsen report suggests this unwillingness may relate to greater cynicism about corporations, citing a European commission study showing that 41% of citizens in EU member states identified the overall influence of companies on society as negative – a higher percentage than in other places.
A word of caution
Alice Korngold, chief executive of Korngold Consulting and author of a forthcoming book, A Better World, Inc: How Companies Profit by Solving Global Problems Where Governments Cannot, says companies shouldn’t stake too much on the alleged willingness of consumers to pay more for social responsibility.
For starters, it’s necessary to determine how this supposed willingness to pay more translates into actual spending decisions – although the Nielsen study reported that 43% of respondents claimed they had rewarded companies in the last six months who’ve implemented social responsibility programmes.
Korngold says: “The ultimate goal is for companies to create new business models whereby their goods and services actually reduce expenses for their customers – or at least are cost-neutral, while also generating profits and long-term value for the company.”
The potential for doing well by doing good is clearly there. “There are tremendous opportunities for companies to profit by solving problems of poverty, human rights, education and healthcare while creating cost-effective products and services for customers,” Korngold says.
“Only global corporations have the international reach and human and capital resources to solve the biggest problems confronting our world today,” she says. NGOs lack capacity to address these challenges, and governments have shown that they don’t play well together.
Although the Nielsen findings suggest that companies will benefit from practising corporate responsibility, “what actually defines that is a pretty hard thing to quantify and pin down,” Brown says.
So, Brown believes that more corporations will have to pay increasing attention to managing their reputations. “Companies are going to have to say that they practise social responsibility,” he says.
Yet measuring the impact of these statements on actual corporate practice will be more challenging. Brown says: “It’s going to be difficult to measure in the long run the effect these professions of increased corporate social responsibility will have on actual corporate actions.”Consumer behaviour consumers corporate responsibility