The Rise of the Ethical Consumer

There is increasing evidence to indicate that the ethical consumer is on the rise. So what is an ethical consumer? The definition in Wikipedia is:

“An ethical consumer is one who practices ethical consumerism”, which is “buying things that are made ethically. Generally, this means without harm to or exploitation or of humans, animals or the natural environment.”

The recent survey of business executives across Europe, the Americas, Asia, Africa the Middle East and Australasia reported that the ethical customer has emerged and expect this trend to grow (McKinsey & Company, Jul 2007). Further to this, consumers are “voting with their wallets”, such as purchasing organic products, even if they have to pay a higher price.

This is reinforced by a study of consumers in France, Germany, UK, US and Spain with about 1/3 of the 5,000 respondents highlighting that they would pay a 5-10% price premium for many ethical products. The UK is said to be leading the ethical consumerism market, with its consumers the most critical but also the most aware (Financial Times, 20 Feb 2007).

The President of Consumers International highlights that ethical trade products are growing exponentially each year, with the Fairtrade label alone retailing sales of over 2 billion Euro globally and an anticipated growth of 33% annually. UK consumers are the largest purchasers of fair-trade (ethical) products spending £25 billion on ethical goods and service in 2005.

In the US, Millennials (those born between 1999-2001) will reward a company based on its commitment to social issues with 69% considering a company’s social/environmental commitment when deciding where to shop, 89% likely or very likely to switch from one brand to another (price and quality being equal) if the 2nd brand is associated with a good cause and 66% considering a company’s social/environmental commitment when deciding whether to recommend its products and services (2006 Cone Millennial Case Study, Cone Inc & AMP Insights).

And this view is not just limited to the Millennials with a recent study showing that 1/3 of US consumers consider both social and business practices when deciding what to by and 85% saying the would switch to another company’s products or services if a problem with business practices was uncovered. Furthermore, 87% are likely to switch from one brand to another (price and quality being about equal) if the other brands is associated with a good cause, an increase of more than 31% from 1993 (Cone Inc. 2007).

This market segment is referred to as the “Lifestyles of Health and Sustainability” (LOHAS) in the Fast Company article, Business 3.0 (March 2007). These consumers are focused on sustainable living, social justice and alternative health care. They are said to represent 30% of the American market (63 million) and are a $227 billion market. They are not necessarily wealthier but they are willing to spend a 20% premium on clean, green products.

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