What is your ethics reputation worth at the checkout? How consumer products and retail companies can build on their purpose to gain a competitive edge.
Ethical shopping: an aspiration or a reality? Today, consumer studies consistently show that people are full of good or ethical * intentions when choosing which products and services to buy. Yet, closer analysis often suggests that the reality of consumer behaviour may be somewhat different. The results of our primary research into the extent to which ethical considerations influence consumer purchasing decisions are no exception. 67 % of consumers rate ethics as important when shopping. 77 % of consumers cite price as the biggest single factor affecting their shopping behaviour, ahead of quality and functionality. Only 17 % of consumers spend more than half of their budget on ethically sourced products. * Ethical consumerism includes the purchase of ethical food and drink (organic food, free range products, sustainable fish and tea/coffee 2among others), green home products and ethical personal items. Our findings suggest that most consumers are quick to claim ethical credentials but whilst 76% of consumers say ethical supply chains are crucial to their purchasing decisions, when it comes to choosing between a warm glow from doing good and a lower price, many still opt for the latter. However, survey results also confirm that the ground is shifting. As the younger consumers come to dominate the marketplace, they bring with them a greater focus on the ethics of the companies they buy from. Guarantee of ethics is the primary factor influencing 25- to 34-year-olds (41%) to pay more for a product but comes a distant fourth, behind factors such as locally sourced products and clear labelling, in swaying those aged over 55 (31%) to pay more. Ethics is a long-term societal, demographic and commercial trend that consumer-facing companies ignore at their peril. In this paper, we turn the spotlight on the rise of ethical consumerism, explore its implications for companies and examine why it means they must clarify their core purpose to compete successfully in a more ethically-aware future. About the survey EY commissioned independent research in which a nationally representative sample of more than 2,500 UK consumers were asked about the effect that ethical considerations have on their shopping habits and buying decisions. The 2017 survey was conducted via an anonymous online poll.
A clear trend emerges Twenty years ago, a company unwittingly using a subcontractor that was doing something unethical without its knowledge or permission such as employing child labour in a developing country could be fairly sure that few consumers would ever hear about it. Today, the news would be instantly published around the world, potentially influencing consumers buying decisions in minutes. Our research suggests that UK consumers are split on the importance of ethics to their purchasing choices but that most take it seriously. Despite 67% of consumers rating ethics as important when making purchasing decisions, 52% cite product cost as the leading barrier to shopping more ethically. In fact, only half (53%) of consumers say they are willing to pay more for an ethically sourced product, with the majority (68%) only willing to pay up to 10% more for such items. Deeper analysis reveals that these contrasting views are strongly influenced by age with younger consumers voicing a much greater willingness to take ethics into account. Add to this their generally heavier use of social media, and it is clear that younger generations possess both the mind-set and ready availability of information needed to apply ethical criteria in their buying decisions. In our view, this combination of factors represents a gradual but fundamental change in the UK consumer marketplace: a clear trend where the rising tide of younger, more ethically-aware, shoppers is pushing ethics rapidly up the agenda for all consumer-facing companies. Regular conversations with clients confirm that businesses are already seeing the effects of this shift in the emergence of GEN Z and GEN Y consumers and the most forward-looking are taking steps to address the resulting impacts. 34 % GEN Z Percentage of consumers willing to pay 20% or more for an ethical product. 32 % GEN Y 17 % GEN X GEN BB GEN Z refers to the age-group of 16-to 24-year-olds, GEN Y refers to the age group of 25-to 34-year-olds, GEN X refers to the age-group of 35- to 54-year-olds. GEN BB refers to the age group of over-55-year-olds. 5 % 2
What this means for your business The ethical dividing-lines in today s consumer landscape go beyond the divergences between individual consumers and different age demographics. The influence that ethical considerations exert on buying decisions also varies between different regions and socio-economic groups, and at an international level among countries. Ultimately, these differences come down to variations in individual attitudes, behaviours and personal or time specific circumstances around ethical purchasing, which are increasingly difficult to predict. This growing unpredictability makes it difficult for consumer product companies and retailers to determine how best to respond and means this is an area where they may need to focus more effort and resources, perhaps using analytical capability to better inform their choices. What percentage of consumers dedicate up to three-quarters of their overall spending on ethically sourced products? 76 % 75 % 68 % 63 % So, what does closer analysis show? Inevitably, price and disposable income can be key factors in variations in behaviour. Experience in emerging markets shows that as the aspiring middle-class population grows, so does ethical awareness. Even in a developed market like the UK, price remains the single most powerful influence on buying decisions of the survey respondents. Yet only 5% of all UK consumers regard ethics as completely unimportant when shopping and, despite generally having less disposable income, younger consumers are more likely to research a company s values and spend a higher proportion of their money on ethical products. All of this points to the emergence of the future consumer a trend investigated in a recent EY programme, Future Consumer. Now. During the programme, we held a series of global hackathons with senior executives in consumer-facing industries, leading futurists and industry experts to paint a picture of the consumer of the future, shaped by forces ranging from shifts in social structures and consumer aspirations to the rising use of artificial intelligence (AI) and robotics. What emerged was a better-informed, more ethically aware consumer whose loyalties are defined by their values, and whose basic buying decisions are delegated to AI, leaving them free to shop for the things they truly want. GEN Z GEN Y GEN X GEN BB GEN Z refers to the age-group of 16-to 24-year-olds, GEN Y refers to the age group of 25- to 34-year-olds. GEN X refers to the age group of 35- to 54-year-olds, GEN BB refers to the age group of over-55-year-olds. This is the emerging consumer whose loyalty UK retailers and consumer goods companies need to capture and retain. To do this, they will need to realign their businesses and brands with consumers evolving priorities. 3
The way forward in the future consumer landscape As we have highlighted, survey findings indicate the emergence of a clear trend over time, towards consumers attaching growing weight to ethical considerations. However, generational and population-wide shifts in consumer opinion and sentiment are, by nature, relatively gradual. By the time they become obvious, it may be too late to rescue a brand that has failed to keep pace. It follows that doing nothing is a risky option, and that consumer companies should start responding to this shift now before its full impacts manifest themselves. So, what should a company s response involve? The way forward lies in gaining a clear view of the company s core purpose and then aligning its ethical positioning with this purpose. There are two important aspects to consider: First, avoid being seen as unethical. Ensure you are not caught doing something you should not be doing, and which is out of line both with your stated purpose and with the ethical values of consumers. To do this, you will need to root out and address any hidden weak points in your business or supply chain that, if brought to light, could undermine your reputation or even attract regulatory fines. This de-risking gives you a platform on which to build and sustain an ethical reputation with consumers. However, in creating this platform it is important to remember that what is considered unethical is not fixed and is constantly evolving. There is a need to continually adjust processes in areas like risk assessments to ensure they are attuned to current sentiment. Second, project a positive ethical image for competitive advantage. As highlighted, the definition of what is ethical changes over time and varies between different consumer groups. So, in ethical terms, you cannot be all things to all people. The key is to determine what ethical issues are most appropriate to your brand, purpose and consumer base, and then take action to ensure you stand out in those specific areas. It might be adopting an industry-leading position in addressing high-profile social or environmental issues, or any other ethical differentiator. What matters is that it is an ethical stance that is aligned with your purpose and one that consumers will value. 43 % of consumers factor some form of ethical thinking into their decision-making: Only 28 % 17 % by a company s treatment of its staff 8 % by data privacy 8 % 7 % 3 % by environmental impact by ethical sourcing are influenced by tax affairs of consumers never buy ethical products. 4
Addressing the issue How can you avoid ethical pitfalls whilst building positive differentiation and a competitive edge? 1 2 3 Sustainability compliance: Solutions include our Climate Change and Sustainability Services, which can help you set realistic and relevant targets for all areas of sustainability, monitor your performance against them, and report that performance in a robust and credible way. Risk management services: Helping you assess, pinpoint and mitigate risks in your organisation and along your supply chain, supported by controls and auditing services aligned with your purpose and brand values. Purpose-led transformation: Assisting you in creating and executing a strategic framework that has your organisation s core purpose front and centre, as a North Star to navigate by. This concept was examined in a recent paper by the EY Beacon Institute, How can purpose reveal a path through disruption? 1 1. How can purpose reveal a path through disruption?, EYGM Limited, 2017. 4 5 6 Driving consumer engagement: Helping you distil and communicate desired messaging to consumers with, quite often, short attention spans. Our digital consultancy, EY Seren is a leader in this area, combining deep consumer and commercial insight with leading-edge design capabilities to effectively explain complex issues and deliver experiences that set clients apart. Predictive analytics services: You are confronted by a landscape where consumers behaviours are variable and constantly changing, driven by a shifting balance between considerations such as price and ethics. We can help you understand this environment by harnessing the power of predictive analytics, utilising structured and unstructured data including social media analysis to monitor consumer sentiment, and predict how consumers might respond to a specific company or brand, adopting a specific ethical stance on a specific issue. Tax transparency and tax risk management: Helping you to evaluate the risk within your organisation and develop a tax strategy that effectively communicates your organisation s attitude and approach to managing tax. 5
Time to act on ethics Every day, younger consumers dominance of the UK consumer market increases another notch. And every day for all consumer-facing businesses the importance of taking the ethical agenda into account grows by a similar amount. It is a gradual process, but a measurable one. And it is taking us towards an inevitable future: one where organisations or brands or both will stand or fall by customers perceptions of their ethical values. Those brands and companies seen as failing this test will be at a severe, and potentially fatal, disadvantage. Faced with this situation, companies cannot afford to stand still. It is vital to take steps now to start embedding ethical values into your brand and purpose, or face having to catch up later at pace a move that may well be seen by consumers as cynical lip-service. The UK s consumers are changing. You must change with them. It is time to act on ethics. 6
Contacts Helen Merriott Partner and Consumer Products & Retail Lead UK and Ireland Ernst & Young LLP hmerriott@uk.ey.com Mike Michael Consumer Products & Retail Global Tax Lead UK and Ireland Ernst & Young LLP mmichael@uk.ey.com Martin Armistead Associate Partner Advisory UK and Ireland Ernst & Young LLP marmistead@uk.ey.com EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2018 EYGM Limited. All Rights Reserved. EYG no. 01206-184GBL BMC Agency GA 1006775 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com