Data suggest buyers willing to pay more to humane producers.
A majority of consumers want to do the right thing. That is, in numerous studies, consumers say that they are willing to pay more for products produced under good working conditions, rather than those that come from sweatshops.
But what consumers say and what they actually do when they pull out their wallets at the cash register is not as clear.
Michael J. Hiscox, professor of government, has been developing models to test actual consumer behavior when shoppers are confronted with a choice to buy a higher-priced item certified as produced under good conditions and cheaper items that are not so designated.
Preliminary results suggest that, indeed, consumers are willing to pay a premium if they believe that a product is made under good working conditions, Hiscox said during a Feb. 28 seminar sponsored by the Mossavar-Rahmani Center for Business and Government at the John F. Kennedy School of Government.
More research is needed, but “if this holds up, it’s pretty compelling evidence,” Hiscox told his audience during his talk on “Consumer Demand for Labor Standards: Experiments with Ethical Labeling of Imported Products.”
Hiscox, author of the Riker Prize-winning book “International Trade and Political Conflict” (2002), draws his conclusions from innovative study methods he and graduate students have devised over the past three years.
One such study was conducted in a major home goods retail store in New York City in 2005 with two products: candles and towels. Hiscox created special labels that indicated that an item was “made under fair labor conditions, in a safe and healthy working environment which is free of discrimination, and where management has committed to respecting the rights and dignity of workers.” These labels were posted on one set of candles and one set of towels—when, in reality, all the candles and towels in the displays were produced under good conditions. The labeled towels and candles were priced higher than unlabeled items, and the prices changed over time. Hiscox’s crew also switched labels at key points to the previously unlabeled products.
The result: “Sales rose for items labeled as being made under good labor standards, and demand for the labeled product actually rose with the price increases of 10 to 20 percent above pretest (unlabeled) levels,” according to Hiscox’s paper on his work.
Moreover, a higher price on a labeled towel seemed to actually stimulate demand. The higher price might be telling shoppers it’s a better product,” Hiscox said. They think, “Aha! The label is credible because I have to pay more for the goods.”
Still, the study was done in a high-end shop in a company with a known commitment to fair practice. The items may have had “snob appeal” to wealthy consumers already predisposed to buy ethical items. What about consumers really looking for a bargain?
So Hiscox turned to one of the biggest bargain-hunting markets in the world: eBay.
Hiscox’s team devised auctions around two items, gourmet coffee and polo shirts. All were produced under good conditions and all were extremely similar in presentation. (“It’s very good coffee,” Hiscox added.) But one set of coffee beans was labeled as “fair trade” and the other as “premium.” One set of shirts was described as “ethically made” while the other had no designation.
And again, “eBay shoppers were willing to pay a substantial premium for goods certified by label” as produced under fair standards,” Hiscox said. The results were, however, more dramatic for coffee than for the shirts.
Perhaps, suggested moderator F.M. Scherer, professor of public policy and corporate management emeritus, eBay shoppers are more “world-oriented,” a possibility that Hiscox conceded.
What, asked Jack Waxman, a master’s student in public policy, would happen to fair-trade markets in an economic downturn? “Yes, that’s a fear,” Hiscox said.
Jennifer Kurz, also a master’s student in public policy, wondered if products produced under good conditions would really—in the long run—cost more. “Maybe certification doesn’t increase prices,” she said.
It’s a possibility, Hiscox said. Perhaps healthy workers operating under safe conditions are actually more efficient, thus increasing productivity and lowering prices, he said. “It’s a really inherently open question.”
Hiscox cautioned against basing any business decisions on these initial results. More studies are needed, he said.
“At the moment there’s a prior question: Is there even a market for this that would support the expansion of these [socially accountable] systems? We don’t know that,” he said. “Before you start championing, “‘This is the answer,’ you have to know whether or not it’s feasible.”