Why Ethics is Important in Business

Ethical concerns play today an increasing role when it comes to business and marketing brand images. However, before talking about the impacts on ethics for businesses today, it seems essential to define what “ethics” really mean in relation to businesses. According to Crane and Matten in, Business Ethics (Oxford, Fourth Edition, 2016), business ethics can be defined as the study of business situations, activities and decisions, where issues of right and wrong are addressed. It refers to the situations that are not covered by the law or where it seems impossible to come to an agreement whether something is right or wrong. Today, businesses have to focus more than ever on ethics as they are a very powerful contributor to our society. A Businesses’ activities can have significant positive impact on the society and the environment, but they can also cause major harm. Their activities today involve most of the time many different stakeholders, often spread out all over the globe, and businesses have to pay attention to treat all of them ethically correct.

Over the past years, a growing number of organisations have been publicly accused of unethical behaviour. With the raising concern for sustainability since the end of the 20th century with the Club of Rome Report, “The Limits of growth”, in 1972 and the Brundtland Report in 1987, customers focus increasingly on ethical and sustainable behaviour. This includes topics such as the preservation of natural resources as well as rare species, efficient waste management, ethical treatment of human beings or the impact on climate change issues.

According to Mintel, 56% of consumers are today likely to stop buying from firms they believe unethical. Especially the younger generations care about environmental and ethical issues and adapt their purchasing behaviour accordingly. The article written by Davies & co “Do consumers care about ethical luxury?”, Springer Science+Business Media B.V. (2011), shows that almost one third of consumers care about ethics when it comes to their purchasing decision. Regarding commodity purchases, research illustrates that there is an increasing willingness to pay a higher price for an ethical product in comparison to a non-ethical one. Some consumers are willing to pay more than 10% of the original price for a product to be ethical. But what about luxury purchases? Does the luxury consumer really care about ethics?

Multiple studies illustrate that there seem to be a huge difference between commodity and luxury purchases. T.M. Jones has established a framework with six factors influencing purchasing decisions which should be taken into account when it comes to the impact of ethics regarding purchases. The six factors are the magnitude of consequences, social consensus, the probability of effect, the temporal immediacy, proximity as well as the concentration of effect.

Davies research shows that there is a significant difference between luxury and commodity purchases. A luxury good is defined in the article as a good that “is aspirational and irregular in its purchase incidence, it aims to increase personal well-being and self-pleasure through peer and self-identification of the creation/continuation of personal brand identity.” The results of their study illustrate that the most important criteria for consumers regarding luxury are prestige and self-image and that ethical conditions figure on the very bottom regarding the criteria ranking in comparison to commodity products.

Davies study clearly shows that consumers care significantly less about ethical issues for luxury purchases in comparison to commodity products. The question resulting from this observation becomes: why consumers follow this mindset when it comes to luxury?

The article “Is luxury compatible with sustainability? Luxury consumers’ viewpoint”, Journal of Brand Management (2014), from Kapferer and Michaut-Denizeau highlights the importance of ethical issues regarding today’s luxury brands.

Today’s evolution towards “mass luxury” raises multiple concerns for the luxury industry and supports the impression that luxury and sustainability are not aligned. Even if consumers have thought of luxury brands as aligned with sustainable actions in the past, as they perceived them as the incorporation of small family businesses featuring craftsmanship and unique products of ultra-high quality. However, with recent evolution making luxury more available for wider publics, leading to an increase in production, sustainability becomes a topic of concern for luxury brands. Growing production seems very lucrative to many luxury brands today as it enables firms to decrease their production costs. This often comes with a high price in terms of ethics, as it involves in general outsourcing to cheap labour countries, where luxury items are fabricated by employees working under poor working conditions.

Other issues of concern are the increase in waste production, animal mistreatment, the exploitation of underdeveloped and poor countries as well as harm caused to the environment for instance. This illustrates that there is definitely a need for consumers to care about ethics regarding the luxury industry and for luxury brands to take actions in order to become more sustainable.

However, despite the previous examples, consumers seem to care significantly less about ethical issues when it comes to luxury in comparison to commodity items, according to Davies & Co. What are the possible reasons that consumers seem to care less about ethics in their luxury purchasing decisions?

Davies & Co’s study gives some possible answers to this question. A first reason why consumers seem to care less is the price. When buying a luxury product, consumers care mostly about the image and self-pleasure, as well as about the quality of the products. They pay a high price in general for a luxury product, so the criteria of ethics become less important in comparison to prestige for example. In addition to this the results of Davies study show that some consumers are afraid that ethical luxury would be too expensive, as luxury itself without the ethical aspect is already very expensive.

Another reason that confirms the results of the study are the lack of information. Many consumers don’t know that ethical luxury exists. This suggests that if brands were more transparent about the existence of it, it might have more success. In addition to that 36% of the sample consumers of the study indicate that the irregularity of their luxury purchases is a reason for them to care less about ethics regarding luxury. This is closely linked to the fact that most of them think that they don’t make a difference whether they buy an ethical luxury item or a non-ethical one. To many consumers this one purchase they make once in a lifetime won’t make a big difference, whether they acknowledge the difference made if they buy their coffee fair trade or not. In comparison to luxury items, commodities like coffee are products they buy on a regular basis, as such they feel that if they pay a higher price for a fair-trade coffee, they’ll really make an impact. However, this is not the case for luxury items. Furthermore, Davies highlights a “Fallacy of Clean Luxury” which suggests that many consumers think of luxury as clean and sustainable. Sample consumers of the study were shocked when told that some luxury products are produced under poor working conditions and exploitation or cause significant harm to the environment. This shows again a lack of knowledge and information this time regarding the findings of Kapferer’s article. Many consumers still think of luxury as what it has been in the past and haven’t recognised yet the shift towards “mass luxury” and its consequences for the society and the environment.

Finally, a last reason for consumers to care less about ethics concerning luxuries is the lack of availability of ethical luxury items. One consumer claimed that next to a classic iPad “there is not an ethical iPad to compare”, whereas consumers often have a huge variety of different products when it comes to commodity products.

To conclude, it seems obvious that consumers pay less attention regarding ethical issues when it comes to a luxury purchase. 46% of the participants of Davies study indicate that they care more about ethics in commodity products than in luxury. Davies research reveals a couple of reasons for this behaviour such as the importance of price and prestige in comparison to ethics, the lack of information or the consumer’s feeling of being unable to make a difference.

However, with the increased growth of “mass luxury” I believe that luxury brands will increasingly be put on the spot regarding their actions in terms of sustainability and ethics. Especially the younger generations care significantly about ethics and corporate social responsibility and tend to adapt their purchasing behaviour according to their values and beliefs. In my opinion, luxury brands will have to send a clear message to the consumer informing him about the existence and the benefits of ethical luxury as well as increase the availability of ethical luxury items in order to survive in the future. Ethical concerns will become more and more important in the future and brands that won’t take them into account and don’t show consumers that they are acting in their best sustainable way won’t be viable in a long term in my opinion.

Bibliography

1. Davies, Iain A. “Do consumers care about ethical luxury?”, Science+Business Media B.V. (2011)
2. Kapferer, Jean-Noël and Michaut-Denizeau, Anne “Is luxury compatible with sustainability? Luxury consumers’ viewpoint” Journal of Brand Management (2014)
3. Crane, Andrew and Matten, Dirk. Business Ethics. Oxford, Fourth Edition, 2016

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