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05.23.2007

“HartBeat” is The Hartman Group's FREE online newsletter, providing insight, analysis, information and strategy to give business leaders the knowledge and vision to build sustainable brands.

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The Hartman Report on Sustainability

UNDERSTANDING THE CONSUMER PERSPECTIVE

The Hartman Report on Sustainability: Understanding the Consumer Perspective is the first major integrated quantitative and qualitative study to find out how consumers feel about a world struggling to live in balance today for the benefit of future generations.

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For more Hartman Group articles on SUSTAINABILITY, click here...

05.22.2007 "Sustainability: What's Green Now?"

03.28.2007 "The 'Fiber' of Organics"

01.24.2007 "What Makes 'Local' Special?"

01.17.2007 "A Nano Trend to Start 2007"

05.03.2006 "Transparency: What's Really Inside the Package...and the Company"

07.14.2005 "Is 'Buying Local' the Real Deal?"

04.27.2004 "The Symbolic Power of 'Organic'"

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Click here for an archive of past HartBeat articles

Sustainability: The Corporate Tie-breaker

Every student of economics has studied the logic of collective action and the problem of free-riders. In case you missed that class, the idea is that rational self-interest will lead individuals to "free-ride" on any attempts to provide a public good, which is something anyone can freely enjoy regardless of who does the actual providing. Cleaning up polluted air is an example of a public good. We all get to breathe the air, even if we don't contribute to cleaning it up. Those who don't contribute but still reap the benefits are free-riders. What makes the situation interesting is that efforts to provide public goods often collapse because no one wants to shoulder the burden of producing them while others simply free-ride.

Sustainability 2007» This week we debut findings from The Hartman Report on Sustainability: Understanding the Consumer Perspective. » Stay tuned for tomorrow's Sustainability: Pathways to a Brand Halo Did you miss yesterday's issue? Sustainability: What's Green Now?

Sadly, sustainability is the poster child for public goods and constantly suffers from the free-rider problem. The handful who put up with the inconvenience of mass transit make it easier for the rest of us to solo pilot SUVs to work each day. And so on. With everything that's against it, it's a wonder that sustainability is sustained at all.

Yet, it is and increasingly so. In The Hartman Report on Sustainability: Understanding the Consumer Perspective, our recent study of consumer attitudes toward and behaviors supporting sustainability makes it abundantly clear that the self-interested tendency to free-ride is under attack. It appears that rational self-interest is ceding ground to irrational communal interest. It is irrational because the ever-present threat of free-riding has paralyzed truly rational individuals into inaction. To date, the main successes in sustainability seem to be ones in which rational self-interest rather than appeals to high ideals is enlisted to serve the common good.

Communities have overcome the problem of free-riding in some cases by effectively paying us to act sustainably. In communities with recycling programs, for example, recycling often lowers an individual's solid waste bill. Likewise, energy-efficient devices, while conserving resources, also lower energy bills. At the national level, the friendly folks at the IRS encourage charitable giving by offering significant tax deductions. And to motivate companies, extending benefits to employees helps attract and retain the most productive workers. These and numerous other examples demonstrate effective ways that rational self-interest can be encouraged to produce what otherwise would be public goods. Because the producers are compensated directly for their actions there are no free-riders to upset things.

What we are currently witnessing with sustainability goes beyond these particular examples, however. Consumers are beginning to interpret questions of sustainability in more personalized terms as exposure to risks. And as their perception of these risks grow to encompass more and more causes, ranging from antibiotic-resistant bacteria to pollution to corruption to climate change, their desire to do something about it increases. Right now, our work on sustainability shows most consumers tend to respond to risk in one of five different ways, as characterized in the following table:

As you can see, most are not yet willing to throw in the towel. What we are interested in here is the number one response, Radical Engagement. At the heart of this particular attitude is the call to action. There is a felt need by a third of the population to do something and, by implication, to do it now.

Taking responsibility

Without necessarily realizing it, consumers are solving the free-rider problem by pushing manufacturers, retailers, distributors and marketers to "do the right thing." That is, rather than take on the responsibility themselves, individuals are expecting organizations to do so. In our survey of 1,604 consumers, over three-quarters (78%) agreed that businesses and corporations should provide leadership in the area of environmental protection, and almost three-quarters (72%) indicated their purchase decisions have as much, if not more impact on society than their votes. In contrast, only about a quarter (23%) explained that whenever they did not base purchase decisions on concerns for social or environmental responsibility it was because they didn't think they'd have much influence acting alone. What's clear is that consumers by a wide margin are beginning to incorporate issues of sustainability in their purchase decisions and half of them (53%) already feel their decisions are an effective way to express their values.

Being a Good Citizen

When we asked our survey respondents to weigh various criteria for deciding which company would earn their dollars, the message was clear: consumers expect the companies they do business with to act socially and environmentally responsible in very particular ways. For example, more consumers think it's important for businesses to minimize waste and pollution (62%) than to provide good wages and benefits (51%). And still fewer think it's important to maximize returns to investors (20%). What's revealing about these numbers is how the importance of particular practices spreads to more consumers as their impact hits closer to home. A company's waste and pollution contribute more directly to the risks individuals face than the size of the dividend going to its anonymous shareholders.

Business Practices Considered Very Important in Deciding to Buy a Company's Products

Taking these results at face value, it would seem the smart thing to do would be to spend more of the profits currently distributed to shareholders on waste and pollution management, but that would be a mistake. Despite what consumers say on surveys, we know there is an array of reasons they choose to buy products from some companies rather than others. Consumers are often quite unaware of the actual business practices, good or bad, followed by specific companies, and in many cases they form impressions of what they assume a company's practices are by what is most visible to them. This could be through contact with employees, experience with particular products, the condition of buildings and grounds, price comparisons, advertising style and a host of other factors. Second-hand information or misinformation spread through social networks also contributes to these impressions. So, before jettisoning current business plans in favor of a wholesale commitment to sustainability, it's worth reviewing what consumers are communicating.

First, they are frustrated by the inability to effect change because of free-riders. The number who feel it's necessary to band together and employ radical means clearly see free-riders as shirking this responsibility. Second, given the difficulty of getting self-interested individuals to address sustainability issues, consumers want the businesses that take their money to step up and take on the responsibility. Third, consumers believe they have the ability to encourage business to act more responsibly through their purchases. In short, consumers are feeling pressure to limit the number and severity of risks they are exposed to daily and are beginning to feel they must persuade business to help them.

While it is important to acknowledge the fact that sustainability is becoming increasingly important to consumers, it is not yet a deal breaker for most. Rather, it is a powerful tie breaker. If you're in need of something to differentiate yourself from your competition, take a serious look at sustainability.

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