Ethically aware and environmentally conscious consumers are making up a larger market segment around the world, and this coincides with increasing wealth. It is the affluent who are able and interested in leveraging their purchasing power for a purpose and, given that social matters are where interests currently lie, marketers are choosing to comply.
Just as marketing plays an influential role in directing consumer demand, so too does consumer demand influence marketing strategies. And the demand is undeniable. More and more consumers in advanced markets are interested in buying in accordance to their preferred identities and perceived social values. And this was most recently demonstrated in the United States with numerous pride month promotions and notable new product lines (such as Target now featuring chest binders and packing underwear) to cater to a socially charged consumer base.
Although some global brands were criticized for not featuring their logo in rainbow outside of the western world (particularly in countries where homosexuality is a criminal offense), it should not be surprising as it is common practice for firms to target and tailor brand strategies and advertisements according to their audience type. And it is the ability to truly understand and engage with one’s audience that leads to greater market share.
Relationship building is currently the modus operandi for present day marketers, and CRM (customer relationship management) software and strategies are being harnessed like never before. Companies have taken a deep dive into discovering what impacts consumption rates and there is evidence that social matters are a determining factor.
According to a McKinsey report, Gen Z “consumers increasingly expect brands to ‘take a stand’” and, as featured in The Deloitte Global Millennial Survey, “Millennials and Gen Zs, in general, will patronize and support companies that align with their values.”
For some time now, and as noted by business strategist Michael Porter, there is a growing awareness of how purchasing power can have shared value in terms of meeting both economic and social needs – and those who are well-off are anxious to exercise their monetary muscles to signal the power of the purse for a purpose.
When purchasing power is limited, consumption is based on function and primary attributes, little concern is given to how a banana arrives at the grocery store when one is struggling to feed a family. But, when purchasing power is strong, buyer behavior shifts to conscious consumption, whereas it matters as to whether the banana is organic, supports small farmers, if it is transported in a sustainable manner, and the like. For this reason, Fresh Del Monte (FDM) has recently made plans for launching Fair Trade Certified bananas in the US.
Despite the assertion that “all of FDM’s bananas are grown responsibly,” the company can now feature a stamp of approval for the good it is doing by featuring the Fair Trade label – which signals to its consumer base that FDB bananas are more than a purchase but have a purpose.
Social labels have been successful in encouraging consumers to pay more for what they believe is a worthy cause rather than just a good product, which goes against traditional consumer behavior. And so, in addition to FDM’s existing production practices, the company thinks it necessary to pay a de facto regulatory body to certify its operations so it can promote its connection to the greater good.
Similarly, Chobani has opted to be the first in the U.S. dairy industry to become certified by Fair Trade USA (FTUSA) and in a Forbes article published shortly after Chobani’s FTUSA announcement, Paul Rice, founder and chief executive of FTUSA, notes that those supplying to Chobani must now abide by “a rigorous 200-point checklist of social, labor and environmental criteria” and undergo annual audits for confirming continued compliance.”
Although the checklist may sound admirable, some of FTUSA’s criteria seem overbearing or unnecessary for the developing world. For instance, many farmers across the globe are organic by default, since they are unable to afford pesticides and fertilizers, and yet costs must be incurred to have certification agencies come verify their operations. Moreover, many poor farmers could benefit from the use of herbicides to increase their crop yield and better manage use of their land, a tragic lesson learned by the Sri Lankan government, but this would be problematic for the terms of certification status.
Certification systems with one-size-fits-all standards and stipulations are shortsighted, and usually stifle opportunities for new ideas and innovations. And it must be noted that the gains for those on the production side of Fair Trade are not always guaranteed. One study on cocoa farmers in West Africa discovered benefits of certification as negligible at best, while another focused on Fair Trade certified coffee farmers found participants to be worse off in comparison to conventional producers. Moreover, it is not always evident that the certified landowners are sharing the monetary benefits with their hired help, and unjust compensation for labor on certified farms has been known to occur.
Nevertheless, the centralization of power and the imposition of industry standards by external auditors and appointed bureaucrats, rather than businesses, is growing – and we are all to blame.
Consumer trust in advertising is dismally low (as noted by Inc., 96% of consumers don’t trust ads), and so marketers are desperate for other avenues for attracting attention. This is why value-based advertising and social labeling are on the rise. It is no longer enough for companies to simply sell something of value, they must be viewed as having a social value. And one way of doing this is by affiliating with a cause or obtaining a third part seal of approval.
There is a real danger, however, in desiring products that not only suit personal wants but also social needs since the impact is not always measurable nor effective, and intentions and outcomes are not one and the same.
Moreover, expecting businesses to serve as social guardians creates a mandate for organizations and their brands to focus on societal welfare rather than on productivity within their operations. Social stewardship is about taking care of and maintaining the status quo – it is not a role that encourages risk-taking or experimentation which is needed within the business realm.
Pressuring businesses to serve as stewards will result in production being determined by external dictates and collective standards. And perhaps no one knows this better than Elon Musk given the recent elimination of Tesla’s spot on S&P’s 500 Index ESG rating – a removal that has sparked new (and desperately needed) debates on the absurdity and impracticality of ESG ratings.
If we want companies to stop engaging in woke-washing, we must steer the incentives back toward supporting firms for their core offerings and stop basing our purchases according to cause-related marketing messages and social labels.
Made available by the American Institute for Economic Research.
