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Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

As Gregg Wallace’s 'Recession Bites' Money Programme illustrates, the current global recession is presenting new and difficult challenges for consumers who want to shop ethically and sustainably, and the retailers who want to provide the goods that allow them to do so.

Over the last few years, consumers of all ages reported behaving more ethically, while six percent of the UK adult population (2.8 million people) are committed ethical consumers. However, this growth in ethical consumerism has taken place over a period of low unemployment, low interest rates, soaring house prices and healthy retail conditions. The increased cost of living, tighter lending standards, growing unemployment and global recession has changed the economic landscape, and now that consumer spending is under pressure, there are concerns that the growth in the sustainable consumer goods market will slow.

six percent of the UK adult population are committed ethical consumers

Others argue that this is too simplistic, and that while price and value for money have become more pressing issues for consumers, those who are genuinely committed to ethical consumption will not discard their ethical credentials. This is a dilemma for marketers: can they afford to pursue a sustainable agenda when it appears that the market for their products and services may be shrinking? Can they afford not to pursue that agenda, given the risks to their reputation and revenue if they turn their back on the ethical market?

Fast food: Burger.
[Image © copyright Photos,com]

As the corporate greed of many business executives and public figures continues to be exposed, many have criticised marketers for being complicit through their encouragement of unsustainable patterns of consumption with messages of rampant consumerism, endless credit and disposable culture. In particular encouraging even greater consumption of alcohol, fossil fuels, fast food and cigarettes, as well as over-packaging products, and building in unnecessary product obsolescence have done little to position marketing as the planet’s saviour.

However as our research and teaching at the Open University Business School highlights, when harnessed responsibly, marketing encourages us to recycle, reuse, buy fairtrade, eat healthily, drink sensibly, save energy and support good causes. The potential for marketers in this current economic crisis to promote sustainability and provide ethical products and services remains considerable.

Marketing is at the heart of the sustainability debate because of its interface between the forces of production and consumption. Brands built upon value, authenticity and integrity hold even more currency now that many companies have betrayed customer confidence. Consumers have always sought brands which they can trust, but increased cynicism will mean even closer scrutiny of what those brands are built upon. If marketers don’t deliver on value and values, in today’s climate, many consumers will shop elsewhere.

Winners and losers

Recent figures from the UK show that some ethical sectors, such as organic food are showing signs of suffering. Mintel have reported that 48 percent of all organic shoppers will cut back or even stop buying organic food in the next year. However, other ethical choices, such as local produce, fairtrade and animal welfare are gaining ground. 42 percent of UK adults would like more retailers and manufacturers to source from local producers, and 28 percent are willing to pay more for food if it meant supporting local farmers.

This reflects other recent studies that found not only are consumers willing to pay more for locally produced and UK-grown food, but in some cases, perceive produce sold at farmers’ markets to be cheaper than supermarkets. Although local production is not about to replace international sourcing within the food market, the desire to support local farmers and brands in times of recession is one that connects to consumers’ ethical intentions. Retailers who promote the welfare of local suppliers and stock their produce are likely to find favour with the socially conscious consumer.

Moral values are socially and culturally constructed, and culture filters our perceptions of what is ethical or unethical consumption. For example, many consumers focus upon very local causes, and as the recession deepens and local firms struggle to survive, we might expect to see a deepening commitment by consumers to buy local rather than imports as a socially conscious activity that lends support to local business, but also one that potentially reduces air miles and environmental impact, and helps sustain local communities.

Trading down?

Few could have predicted the consumer trade down across Europe and the United States, where discount supermarkets such as Lidl and Aldi have become favorites of middle class shoppers. Fears have been expressed that this may signal that the credit squeeze and pressures of daily life are overriding the affluent consumer’s ethical conscience.

Reported signs of business growth include in the UK, Domino’s pizza chain reporting a 9 percent increase in sales. As people seek to balance shrinking incomes and family demands, the fast food business is responding swiftly to address those consumer concerns. Even as healthy eating campaigners and policy makers take a collective sharp intake of breath, it is important to reflect that the fast food retailers are also, slowly but surely, embracing the ethical trend and have a chance to repair their unhealthy image as concerned shoppers move downmarket.

McDonalds, a long time target of environmental and anti-globalisation campaigners now boasts fair trade coffee, free range eggs, organic milk and locally sourced beef in its restaurants. As many consumers are forced to change where they eat out, there is an opportunity for fast food chains to demonstrate their ethical credentials. While question marks still exist in conscious consumer minds about employee conditions, wages, suppliers and animal welfare, if fast food restaurants can make consumers feel better about eating there when they are forced to, they may continue to visit when they are not.

Recognising that downturns change consumer behaviour, marketers need to formulate a recession strategy to understand how those changes are going to impact upon their business. Will consumers continue to make these choices when the upturn eventually comes, or return to their previous patterns of behaviour? Embracing branded labels when they have been purchasing generic, buying bottled not tap water, ordering Starbucks rather than McDonalds lattes will, to some extent, depend upon their satisfaction with these new consumption experiences and the authenticity of the value and ethics they find within them. If marketers can deliver on price and ethics now, then customer retention post-recession is more likely.

Take it further

• Why choose local food?
• Packaging and the environment
• Cut prices, cut corners?

Courses

• Marketing in a complex world
• Marketing and society
• Ethics in real life

Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

You’d think that a service that cuts estate agents out of the house-buying process would be hailed as the best thing since sliced bread. Such services already exist, and can save you thousands of pounds, yet for some reason they have yet to make any significant impact.

The Money Programme 'Beat the Estate Agent' explores the growing range of alternatives to the traditional high street approach to buying and selling houses. These include a number of internet-based services, as well as leading supermarket chains, all keen to grab a slice of the market.

"Estate agents have seen their fees skyrocket tenfold in the last 25 years"

Estate agents have seen their fees skyrocket tenfold in the last 25 years, without doing a jot more work. In addition, many customers complain of dubious practices and poor quality service. Against this backdrop, it’s not surprising that some see this market as long overdue for change.

The internet has transformed the way we buy and sell most things. It has proved exceptionally successful at disintermediation, which is the ability to cut out the middlemen, especially where they’re seen as adding little or no value to the supply chain. So could it damage estate agents’ stranglehold on the property market?

The internet offers alternative business models which are attractive to house sellers in a number of ways, and a growing band of sellers are eager to switch. But this doesn't appear to be enough in itself to change this marketplace.

Very few innovations that rely solely on technology are successful. Technological innovation must be matched by market need, and so far house buyers seem reluctant to embrace this change. This acts as a brake on private sellers who would rather have a sale with a hefty estate agent’s fee, than no sale at all.

It’s not clear why buyers are slow to take up these new opportunities. Whilst some 70% of people now search for their next home online, many people still seem to be uncomfortable with the notion of engaging in direct negotiation with vendors.

Understandably, estate agents are not keen to see any growth in private sales. They suggest that sellers will lose out by not realising the full value of their property and not having an agent to manage viewings and screen-out undesirables. As Peter Bolton-King, chief executive of the National Association of Estate Agents, puts it “if you are selling it privately, any Tom, Dick and Harry can just come round”.

Much of the competitive advantage that estate agents have comes from controlling the flow of information at the various stages of the house buying process. However, this is gradually being eroded. For example, the Land Registry decided a while ago that the prices paid for homes must be made public. So both sellers and buyers can find out exactly how much was paid for other houses in their neighbourhood.

The availability of this information helps private sellers place an accurate value on their properties, effectively deskilling the estate agent’s role. Hopefully, as more information enters the public domain the house buying market will be exposed to more transparency, which (in theory) should be good for customers.

"The role of the estate agent could be on the cusp of a radical transition"

Everything suggests that the role of the estate agent could be on the cusp of a radical transition. But it’s not yet clear what will be the tipping point which will push the old business model aside. Until then I guess it’s business as usual.

Further reading

• Beat The Estate Agent – The Money Programme investigates some surprising alternatives to estate agents
• Network effects – new technology doesn't succeed or fail on its own merits
• Money and Management Forum – would you buy a house online? Or trust Asda to sell your house?
• War breaks out on the home front as old and new estate agents clash
• ThisIsHousePrices.co.uk
• The Rise of the Network Society: The Information Age by Manuel Castells, published by Blackwell Publishers

About the author

Matthew Hinton is Senior Lecturer in Information Management at the OU Business School. His research addresses the impact of e-business on operations and information technology evaluation, especially the performance management of e-commerce applications.

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Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

Who would have thought it – an edition of The Money Programme devoted to Fairtrade. It’s another sign that Fairtrade has come of age. It started in Oxfam shops and church halls 30 years ago. Last year 20% of coffee drunk in the UK was fairly traded.

And this is an international phenomenon. What is it about the Swiss and bananas? Apparently 47% of their bananas were sourced through Fairtrade. The fact that such figures are available – through IFAT – is another indicator of the scale and professionalism of these operations.

But what’s the point?

How much help does this really provide to poor producers? Are the supermarkets taking advantage of a consumer fad, adding big mark-ups because a certain sort of soft-headed consumer doesn’t think things through? And isn’t Fairtrade still, if not a drop in the ocean of world trade, not much more than a bucketful?

Fair questions - and ones that Fairtrade activists have argued and agonised about more than most. They know the immediate benefits Fairtrade provides to producers – and that on their own such advances are not enough to ‘Make Poverty History’. They also appreciate the reasons why supermarkets may reasonably charge a higher mark-up on Fairtrade products. Clear arguments and explanations of their case are available on the Fairtrade Foundation’s website.

But perhaps arguments about mark-ups, and whether consumers really know what is happening, are failing to see the wood for the trees? They overlook the way Fairtrade is an example of two broader, long-term trends: global governance and social enterprise.

Fairtrade as global governance

The first big trend is global governance, and the part played by civil society organizations within that. This is not ‘world government’, focussed in a single remote institution, as people used to envision it. Governance is different – it is a distributed, multi-level, form of regulation that takes many forms, blending governmental, commercial and independent elements. Certification, of the sort provided by the Fairtrade Foundation, is one such form.

Global governance has grown dramatically over the last ten years, especially in relation to environmental issues (for example, the mark of the Forestry Stewardship Council) and labour practices in developing countries (for example, the SA 8000 standard of Social Accountability International). Simliar schemes are emerging in energy supply. These are usually the result of dialogue between NGOs (non-governmental organisations) and leading multi-national companies. However, governments can and do play an important role in the background, both in providing discreet support and as major purchasers – the UK’s Ethical Trading Initiative is a case in point.

Fairtrade as social enterprise

The second of these trends is the resurgence of social enterprise around the world. Within the UK the range and variety of products and services available from social enterprises is now so great that it is beginning to look like a parallel economy. It’s not just:

• food
• crafts
• clothing

but:

• banking
• breakdown services
• eco-tourism
• green electricity
• herbal remedies
• polymer resins
• professional services
• telephone systems

There is a whole swathe of public service contractors from housing and regeneration through health and social care to juvenile offender management. And if you are really dying to be ethical...you can choose a green burial.

"If you think this is just beards and sandals...then you should get out more

Viewed in these terms, the Fairtrade Foundation is an international trading intermediary – just one of several, in fact – within a burgeoning alternative, value-based economy. This has been taking shape, almost under the radar of mainstream society, for at least thirty years. If you think this is just beards and sandals and idealistic amateurs, then you should get out more. Or at least visit some websites.

New economy – new brands

Describing things in this way means grouping together very different initiatives:

• ‘green’ businesses
• the trading arms of charities
• co-operatives
• community enterprises

Some are purists, holding to tightly defined principles – others are ‘pale green’ or just struggling to avoid the worst practices of their industries. Like any lively family, they squabble and compete for attention, complain about each other – but also know what they have in common.

That diversity is their strength. There isn’t just a single ‘party line’: you chose the one you most identify with. And identity is important nowadays: what sort of people we are or want to be, is no longer a given, as it used to be. We are back with brands: Fairtrade has become a strong brand. It expresses values, it makes a statement, it offers consistency – you can trust it. It is the archetypal brand of this new economy.

Its social change, Jim, but not as we knew it

What is interesting is the effect of these trends on the mainstream economy. The major retailers dare not ignore this shift in customer values – but by embracing it they also reinforce it.

"No political party can afford advertising on that scale"

Tesco’s website boasts that one third of Fairtrade sales in the UK are made through its supermarkets. And all those Fairtrade messages are scattered though their stores up and down the land, effectively challenging the acceptability of so many other products, along with the business processes and trade regimes that deliver them. No political party can afford advertising on that scale.

Big changes do not start with legislation – that happens towards the end of the process. Whether it is slavery or children being sent up chimneys, the change starts when these practices become controversial. The loss of social acceptability is the turning point.

Of course, the vested interests fight rear-guard actions. Think about tobacco companies and smoking; or the purveyors of junk food in the face of Jamie Oliver and Super-Size Me. But the more thoughtful in the business community, quite apart from the bright young things setting out on their careers, know better. Who wants to spend their life working in a dirty and declining industry? You either clean it up or get out.

Further reading

• You can find out more about Social Enterprise in the UK from the Social Enterprise Coalition
• For a US and international perspective try Ashoka
• Transforming trade – fairtrade has come a long way from church halls and Oxfam shops

About the author

Rob Paton is Professor of Social Enterprise at the Open University Business School. He has had a long-standing interest in values dilemmas and leadership, in hybrid organizations.

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