Editor’s note: Mahmood Ghazizadeh is a recent marketing graduate from the University of Guelph, Canada, and currently resides in Toronto.
Ethical products have become quite prevalent nowadays. These products are produced and delivered based on a set of ethical rules and include an extensive range of product categories from coffee beans to detergent to apparel. Regardless of the product category, ethical products are usually more expensive than their conventional alternatives. The purpose of this higher price is to compensate for the increased cost associated with the production and delivery of ethical products.
Perceived value
Research on ethical consumption reveals that although consumers have a favorable attitude toward ethical products, the market share of these products remains low, suggesting that consumers’ attitude and behavior are inconsistent when it comes to purchasing these products. Many reasons can contribute to this inconsistency. Consumers may not have sufficient information on a particular ethical product, or they may be skeptical as to whether an ethical product is actually addressing an ethical concern. Or perhaps consumers may refuse to pay for a higher cost. Considering the importance of value in today’s marketplace, perhaps it is beneficial to examine this inconsistency from a value perspective by understanding what consumers perceive as value and more importantly, how this perceived value is influenced.
Perceived value results from evaluating the utility of a product based on what consumers expect to receive from that product in return for the money they give up to own it. The perceived value consists of three dimensions: the consumers’ perception on the performance and quality of the product (functional value); the feelings generated by that product (emotional value); and the consumers’ belief on how society perceives them by purchasing or using that product (social value). If consumers perceive the utility of the product is worth more than the money they are giving up, they will purchase the product. With regards to most products, the functional value is usually more salient than the emotional and social value. This is because in most products, performance and quality are usually more attention-grabbing than the feelings and beliefs created by those products. As a result, consumers are usually willing to pay more and deem a product more worthy when that product is believed to have a higher quality and/or performance.
Understanding the concept of perceived value in the context of ethical consumption will help determine the consumers’ purchase behavior in this domain. Since the ethical product is more expensive than its conventional alternative, consumers will assess whether the ethical product provides any additional utility. If the ethical product provides additional utility for consumers, consumers will perceive a higher value for this product and will pay the additional cost to purchase it. For instance, organic products are believed to have greater nutritional value than their conventional alternatives and their production does not involve the use of harmful fertilizers. As a result, consumers will perceive a higher value for organic products compared to their conventional alternatives and it will be easier for them to justify the higher price of these ethical products.
Consumers need a reference point
However, there are certain ethical products that provide no additional benefits for the consumer despite being more expensive than their conventional alternatives. Examples include eco-friendly products which serve to preserve the environment and fair-trade products which focus on the well-being of distant others. Compared to their conventional alternatives, the performance and quality of these ethical products are similar, if not lower. Therefore, if consumers do not perceive a strong emotional and or/social value from these ethical products, it will be extremely hard for them to justify the higher price of these products and consequently the chances of purchasing them will be low. In this context, price is used as a cue to justify the ethical product’s value, suggesting that changing the price can influence consumers’ perceived value for these products.
Research has shown that price evaluation cannot be conducted in isolation. Consumers need a reference point to compare the price. In the context of ethical consumption, the price of the ethical product is usually compared against the price of the conventional alternative. Therefore, the price of the conventional alternative should be considered when making a change in the price of the ethical product. Furthermore, the price change should not involve changing the unit price of the ethical product because the goal here is to influence the perceived value of the product, not the actual value. Finally, the change in price should make the non-functional values (i.e., emotional and social values) of ethical products more salient. Based on these conditions, it seems that the best strategy is to make the price of the ethical product equal to the price of the conventional product by downsizing the ethical product (decreasing its quantity while keeping its unit price constant). When the price of both products is the same, consumers will expect the same performance and quality from them. However, the emotional and/or social value dimension of the overall perceived value will be more salient for the ethical product. This implies that when the price of both products is the same, it is possible for consumers to perceive a higher value for the ethical product and the chances of purchasing this product over the conventional alternative will increase.