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    International Trade Forum - Issue 1-2/2008

    The Growing demand for businesses to behave ethically is an opportunity, not a threat, for companies and countries smart enough to see it that way

    As the poet Murial Rukeyser said, 'The universe is not made of atoms, it is made of stories'. Stories are one of the great forces of the universe; they can pull us together or drive us apart; they make us laugh, or cry, or lean in spellbound; they give us values to believe in and reasons for being. They help us make sense of the world and find our place in it. The really good stories we make our own, add a little bit of ourselves, and pass on.

    I work for a company whose role is to tell stories to consumers on behalf of clients; stories that communicate what our client's product is or does, about who they are, and about how they behave as a company. Consumers are vital to the shaping of these stories for they make the private sector work through businesses and brands. And it's critically important to accept that the nature of these stories is changing, as is the context of storytelling itself.

    The global information revolution is creating a new culture of radical transparency, and a new meritocracy.

    Let's start with a story

    A couple of years ago, an American retailer called ABC Home Furnishings allowed two Harvard University researchers to conduct an experiment on two sets of towels in one of their stores. One set carried a label with the logo 'Fair and Square' and the message: 'These towels have been made under fair labour 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 labour.' The other set of towels had no label. Over five months, researchers monitored what happened when they mixed things up, by switching the label and raising prices. They found that not only did sales increase significantly on towels bearing the Fair and Square label, but they also increased each time the price was raised.

    That was just an experiment, but it illuminates a couple of important truths: people are willing to pay more for products and brands produced by companies with higher ethical standards; and, at price parity, they'll choose brands with the higher ethical standards.

    Levels of consumer engagement

    I work with some of the largest consumer- oriented businesses in the world. For these guys, the consumer is boss. Unless they are in tune with the changing needs and desires of their consumers, they will go out of business. It's my job to stay in touch with what consumers are thinking and feeling, and to help these companies better communicate with consumers, with the ultimate aim of selling more product and making bigger profits. One thing upon which we all agree is that consumers are increasingly looking to do business with companies that are, in some way, ethically, environmentally and socially responsible. People are worried about the fundamental challenges facing our planet and, increasingly, they want the things they buy to reflect their concerns.

    You only have to walk down a high street in the United States or the United Kingdom to see the result of consumer demand for ethically produced goods. You can buy fair trade coffee at a premium price in Starbucks. You can buy clothes from American Apparel safe in the knowledge that they've been made in the United States and workers were treated well. Or you can buy Green & Black's chocolate and indulge your conscience as well as your taste buds. Even Wal-Mart, for many the face of unbridled capitalism, now uses the strapline 'Save Money. Live Better' and has regular product offers under the headlines 'Save money. Save Energy. Save The Environment'.

    Consumers aren't poring over company reports or looking to pick holes in their processes and practices but, more than ever before, they are aware that their own buying decisions have consequences. Some are highly informed; most simply want to somehow 'make a difference'.

    In a study completed in June this year, The Henley Centre (a global consumer research consultancy) identified different groups of consumers with different levels of engagement - Pioneers, Adopters, Strugglers, Confused, Inert and Cynics. Pioneers are making real changes to their lives and are very careful when they buy something to ensure that it meets an ethical and environmental standard. Adopters are getting there. Strugglers know what they're supposed to do, but aren't always doing it. As for the Confused - well, they're just confused.

    As you can see from the table, the people who really engage with these issues and are changing their behaviour - Pioneers and Adopters - account for somewhere between 30% and 40% of the population of these countries. Interestingly, China has a higher proportion of these than the United Kingdom or the United States. Once you add in the other groups who at least have some motivation to consume ethically, then you're looking at a majority of consumers. Henley expects the Pioneer and Adopter segments to grow over the next few years.

    Even the confused among us are willing to make a difference if someone shows us how. The United Kingdom retailer Marks & Spencer conducted a large-scale survey last year to investigate the relationship between customers' attitude to green issues and what they bought. They found that only about 10% of customers were really committed to the cause of green consumption. About a quarter weren't interested at all. But - in similar findings to Henley - the rest were in the middle: keen to be green as long as they didn't have to make much of an effort to do so.

    Marks & Spencer sees this as a huge business opportunity: 75% of their customers care about environmental issues to some degree, and many of them want to be educated and shown how they can make a difference without changing their lives completely. Marks & Spencer want to be the brand that helps them do that.

    Impact of economic downturn

    There's no doubt that growing ethical trade is going to be challenging in the short term, with economic pressures mounting. A recent study by Duke University's Fuqua School of Business suggests that Chief Marketing Officers are less concerned with cause-related issues now than a year ago, and there's a feeling that green product credentials are more 'nice to have' than essential. There certainly seems to have been a quietening of conversation around environmental or sustainability themes. For example, these themes have more than halved in Wal-Mart's press releases in the 12 months to September 2008.

    Given the economic turmoil, it might seem naive to argue that consumer attitudes towards ethical products are a powerful force in our economies. Will people still be concerned about the environment when they're worried about balancing their monthly budget? Will companies still think it's as important to pursue good ethical practices when their profits are being squeezed?

    I believe they will. This trend towards ethical consumption is not a bubble about to burst. It's not cyclical or cynical. It represents a deep and enduring change in the way consumers buy and companies sell. As you can see from the Henley table, to some extent people have made ethical shopping something they don't compromise on. And what underlies this deep-rooted change is the new global culture of transparency.

    The culture of transparency

    Business people reading about the towel experiment might decide that, to increase sales and profitability, all they have to do is slap on a suitable label. That might work for a few weeks or months but if it's not true and you get found out, the consequences would be disastrous. That label will only enable you to charge a higher price if it's telling a true story about your business. Authenticity and integrity are highly prized in the new communications order. The truth is, companies and marketers have never been the ones to determine brand perception, something that has always been in the hands of the public; or, more accurately, their hearts and minds. And now, what's in their hearts and minds is on the record for all to see.

    If you search for Coke 'products' on Google you will find 480,000 results; Coke 'employees' more than 2 million and Coke 'environment' almost 3 million. People are interested in a company's overall conduct. All this information is freely available and being organized and presented in new, digitally enlightened ways.

    More than ever before, companies today have to be honest and candid about what they do. Most consumers in the developed world and many in the developing world can capture, distribute and seek out information (in the form of pictures, words or video) in a way that is historically unprecedented. If a company relies on child labour to make its product, sooner or later there will be a photo of a child in one of its factories posted online. It will be passed around social networks, and the company will be publicly shamed. I call this 'radical transparency', but for digital natives and the next generation, it's something of a birthright.

    Every business has to get used to being open about its sourcing methods, its production processes, its employment policies, and its products. They have to open up to consumers, because if they don't, consumers will open them up and it will hurt. Countless brands - Nike, Apple and Dell among them - have felt the wrath of this expressive consumer culture.

    But this world of radical transparency shouldn't sound like bad news for businesses, like a threat we have to defend ourselves against. I believe it's the opposite, in fact. A culture of transparency is not only good for society, but also a good thing for businesses.

    Why? Partly because it forces us to be honest, and - just like your mother told you - in the end, honesty pays. It's also an invitation to share more, and more interesting, stories with consumers. And if those stories are good enough, consumers will enjoy sharing them with each other, and adding a little bit of themselves into the account.

    The most successful companies have always told great stories. In the past those stories have usually been about products and brand, but now we're telling stories about the whole company. The culture of transparency opens up whole areas of a business to consumers - and the smartest companies will be right out there in front, telling their own stories about what's going on inside their business.

    They will also be finding ways of getting people to share these stories with one another. In today's world, what your friend tells you is more influential than what you read in a newspaper or see in an ad. We're beyond the information age and into the recommendation age.

    If you're going to create stories about your company and how it does business, you want them to be shared as widely as possible. And that means making them entertaining: people only pass on stuff if it's interesting.

    Consider one of my clients, Ford, for example - a massive, monolithic company that has traditionally been somewhat slow to change but is now adapting to this new culture of transparency. It has been experiencing fierce competition and very tough times. In the age of transparency, that story is not confined to the business pages.

    The culture of transparency abhors a vacuum. If you're not telling stories about your company, other people's stories about your company will fill the void. Every day there was a new rumour about Ford's financial health. Consumers all over America knew that Ford wasn't performing well, and that made them wonder about the performance of Ford's cars.

    Instead of carrying on as normal, doing only traditional advertising, and pretending everything was OK, Ford decided to 'lift up the bonnet'; to show consumers what was going inside their business, on their own terms, rather than let stories leak out.

    Now here's the thing. The more stories you share with consumers, and the better those stories are, the more interested they become in you, the better relationship they have with you, and the more likely they are to buy your products. It's early days yet with Ford but they believe this innovation in storytelling is helping them turn their business around. It's just one example of how the culture of transparency is an opportunity for businesses.

    It means that companies have to open up about the way they do business. Consumers are showing a willingness to pay more for ethical products so the companies that have great stories to tell about their social responsibility, and who tell those stories well, have a great future.

    Creative capitalism

    Being a socially responsible business is not the same as being a charity, or being charitable. It's not about giving a percentage of your profits away, admirable though that is. It's about how you earn those profits in the first place. Perhaps the most famous example of this is the company founded more than 30 years ago by Anita Roddick, The Body Shop, which made good corporate citizenship one of the central pillars of its business model. The Body Shop went on to be bought by L'Oreal for $1.32 billion.

    In a world where many people are concerned about their carbon emissions, Toyota created the world's first hybrid-engine car, the Prius. It took a long view on this technology and chose to be a pioneer. The Prius now makes Toyota a lot of money, but also provides a great story about its business and brand.

    And now a story that brings to mind Alexander Graham Bell's enthusiasm after he invented the telephone and is reported to have said, 'It is my firm belief that the day will come when there will be a telephone in every town in America.' In 2000, when Vodafone bought a large stake in a Kenyan cell-phone company, it figured the market would max out at 400,000 users. Today that company, Safaricom, has more than 10 million.

    The company achieved this by finding creative ways to serve low-income Kenyans, by charging them by the second rather than the minute. Safaricom is making a profit, and a difference. Farmers use their cell phones to find the best prices in nearby markets. As a rule, for every 10% increase in mobile phone penetration, there's a 1% rise in GDP.

    The clothing manufacturer Patagonia stopped making its best-selling range because it involved pesticides that were bad for the environment. But it turned out to be good for the business and great for the brand. As its CEO says, 'Every time I've done the right thing for the environment I've made money.' General Electric created a programme called ecomagination, a big push to invest in green technology and to sell more products with better environmental performance. It is making big investments and expects a big return: $25 billion by 2010. It's turning out to be great for the business and for the GE brand. GE isn't doing this because it's philanthropic; it's moving in the direction its consumers are pushing it, using the increased concerns about the environment as a spur to create new revenue streams.

    There's a lot of debate over what Bill Gates means when he talks about 'creative capitalism'. To me it's the culture of transparency and the desire of our consumers for ethical consumption that are spurring creativity in the business community. They make us think of new products and new services that can meet these consumer demands; that are good for society and that make money. They give us more stories to tell.

    Those companies that see this new era as an opportunity to make money from the changing demands of their consumers, and to tell more and more powerful stories about themselves - about how they behave internally, about where they source their raw materials, about what goes into their products - will be the ones that prosper.

    Advantage for developing countries

    Companies in emerging economies have the biggest opportunity of all. Consumers across the world, and especially in developed economies, are more eager than ever to hear stories about the companies that sell them things, and our interest is being stimulated by the global medium of the Internet. We love stories about the foreign, the exotic. And we're willing to pay more for them. Most global brands are actually very local and have a strong sense of provenance. Nike is very American, Ikea very Swedish, and Chanel could only be French. Where you're from is a great way of talking about who you are, de-commoditizing sectors and persuading people to pay a premium price.

    Businesses can also be branded more locally. Think about how Jack Daniel's has turned its hometown of Lynchburg, Tennessee, into a global landmark. Sometimes this sense of geographical belonging can be explicitly written into the name, and even legislated for, as in the case of Parma ham, Merino wool, and French champagne.

    If businesses can be branded around countries, countries can also be branded around businesses and industries: The Swiss became famous for their watches, cheese and chocolate, America for its entertainment industry, Germany for its engineering and so on.

    Way back in 1917, J. Walter Thompson (founder of the JWT advertising agency) said, 'Somewhere in your product, or in your business, there is a "difference", an idea that can be developed into a story so big, so vital and so compelling to your public as to isolate your product from its competitors, and make your public think of it as distinctly a different kind of product.'

    Businesses in developing countries have the best stories to tell. Stories like where mineral water is sourced or how employees interact might seem banal to the people in those businesses, but they're fascinating to the rest of us. Examine how your own company does business, colour it with local customs, and you're sure to come up with stories the rest of the world will find interesting. And be assured the rest of the world is listening.

    If a company doesn't have a good story about social responsibility to tell, make one up. That's not to suggest telling a lie - because that won't work - but create an initiative that is good for business, has a socially responsible dimension, and creates a great story - like General Electric, Patagonia and Vodafone did.

    Schools of thought

    Perhaps, even after reading this far, you're still wondering why businesses should even bother thinking about this stuff. Shouldn't we just stick to what we know about - making money? Economist Milton Friedman thought so, as did generations of free-market economists who figured that as long as a business abides by the law, asking it to worry about anything else is a dangerous mistake. But recently a different view has come to the fore. It's embodied by John Mackey, founder and CEO of Whole Foods, the American chain of organic grocers that prides itself on the highest ethical and environmental standards. Mackey knows a thing or two about generating profits for shareholders. In conversation with Friedman himself, Mackey proposed that an enlightened corporation should create value for all its stakeholders (including customers, employees, suppliers, and the community) and not just investors. 'Each of those groups,' he explained, 'will define the purpose of the business in terms of its own needs and desires, and each perspective is valid and legitimate.'

    In my field, we're always asking our clients to think about the benefit of whatever it is that they're selling, not just the product. A professor of marketing once reminded his students that people don't want a quarter-inch drill; they want quarter-inch holes. Whatever you're selling, you have to get the product right before anything else - and businesses have to ensure that they generate profits.

    But making money isn't an end in itself; it's the means. The ultimate benefit of a business is always bound up with the society in which it exists. It's the thing that gets us out of bed in the morning: the quest for reputation, respect, meaningful work, education and health care, providing better tools, giving people jobs they like and so on.

    Different business people will frame that benefit in different ways depending on what they do and what they care about. The way I've framed it is the way I feel about it. I do what I do because I want to generate more interesting, more compelling stories for people to hear and share and discuss. The fact that consumers are demanding higher ethical standards is a huge creative spur for many businesses. It drives us to create and communicate more and better stories about what we're doing for the communities we work with and the planet we live on.

    Sustainability is about meeting the needs of the present generation without compromising the ability of future generations to meet their needs. And here, in an organically grown, fair trade nutshell, is my point.

    The spectacular events of the past several weeks in financial markets and, more broadly, in the global economy will continue to have far reaching effects on consumer behaviour. It may be that concerns with ethical business practice and the environment take a back seat for many people in the short term. But these issues are very real, pressing and will not be resolved by themselves. My view is that the key themes of this paper hold true, global reccession or not.

    Consumers will find their own balance between values and 'value' in their buying decisions. The combined forces of humanity and technology make increasing levels of business transparency an inevitability. Doing good has been and will continue to be good for business.

    And finally, the power of storytelling, that has held true for thousands of years, will remain true through a downturn. How these factors are woven together in stories entertaining, informative and useful enough to be shared will be a key driver of progress.

    Beware: The perils of greenwashing The practise of 'greenwashing' - where a brand or business markets itself to be more environmentally responsible than it actually is - benefits no one and hurts us all. The company risks its reputation while consumers get increasingly confused and cynical, and the environment itself is ultimately the loser.

    There is certainly advantage to be had in promoting the environmental and ethical qualities of your product in clear and engaging ways, but exaggerating your claims will undermine your credibility. Australia's Total Environment Centre recently published advice on how to get green marketing and communications right, and suggests the following guidelines:

    G:Genuine claims - If you use terms like 'green', 'carbon neutral', 'eco-friendly', 'natural', or 'recycled' to describe your product, be clear about how you can justify the claim.

    R:Realistic portrayals - Don't get carried away with the use of evocative imagery, colour or music. Make sure that portrayals are realistic and factually sound and don't get swept up by green aspiration unsupported by achievement.

    E:Ecological and environmental savvy - Get informed about the terminology and relevant concepts (e.g. ecological refers to living organisms and their inter-relationships in ecosystems specifically, while environmental goes much wider to describe external conditions and surroundings including human society and economy and applies to the full life cycle of products).

    E:Energy and emissions performance - Understand that energy use and greenhouse gas emissions are critical to climate change, the defining environmental issue of the 21st century. Be careful with climate and energy claims, especially ill-defined terms like 'carbon neutral'.

    N:No tricks, no spin, no gimmicks - Cheap gimmicks and puffery have no place in bona fide green marketing.




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