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Ideas for Leaders #269
Premium Pricing Socially Responsible
Products
Key Concept
Are consumers willing to pay a premium for socially responsible products?
According to two researchers from NYU’s Stern School of Business, the
answer is an unequivocal yes. Specifically, consumers will pay a higher
premium for socially responsible non-durable products, and a higher premium
for products that reflect a social commitment to humans, such as fair labour
practices, as opposed to products that benefit animals or the environment.
Idea Summary
Companies are making and selling socially responsible products, hoping to
benefit from the social conscious of their customers. Previous research on
what customers are willing to pay for social responsibility has been mixed —
while in many cases, the studies confirm the opportunity for a significant
premium, a smaller number of researchers have found little evidence that
customers are willing to pay more.
Meta-analysis from NYU’s Stern School of Business drills down into the vast
research conducted on social responsible products to identify which types of
socially responsible products (e.g. durable vs. non-durable) and what type of
social responsibility (e.g. benefits to humans or animals or the environment)
generate the greatest premiums. The analysis, by Professor Russell Winer,
chair of NYU Stern’s Marketing Department, and Stern PhD student
Stephanie Tully, covered 83 research papers, and looked at two dependent
variables:
The proportion of people who were willing to pay a premium for socially responsible products
The premium, in terms of percentage extra, that people were willing to pay
The results of the study showed that 60 percent of people were willing to pay
extra for socially responsible product, and the average premium that those
people were will to pay was 17.3 percent.
Not all socially responsible products were valued the same. Consumers were
willing to pay a higher than average premium for non-durable goods, such as
paper towels, while paying a lower than average premium for durable goods,
such as furniture.
Another differentiator in value to the consumer was the reason the product
was considered socially responsible. Fair trade food and fair labour practices,
for example, are socially responsible because they benefit the workers of
developing countries. Free-range chicken is socially responsible because it
benefits animals. Environmentally safe cleaning products are socially
Authors
Tully, Stephanie M.
Winer, Russel S.
Institutions
New York University Stern School of
Business
Idea conceived
March 2013
Idea posted
November 2013
DOI number
Subject
Sustainability
Business Ethics
Corporate Social Responsibility
Pricing
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responsible because they help protect and sustain the environment.
Winer and Tully’s study shows that people will pay a larger premium for
socially responsible products that benefit humans than for products that
benefit animals or the environment. And while there was no difference in how
much consumers were willing to pay for products that benefitted animals or
the environment, more people were willing to pay a premium for socially
responsible products that benefitted animals than the environment.
Business Application
The research by Winer and Tully does not only help retailers with
authoritative information to help guide their pricing strategies, it also provides
with information related to strategic product development choices.
“Companies need to know how consumers will respond to different types of
social responsibility or the different products for which socially responsible
practices are adopted,” write Winer and Tully in their 2013 working paper,
“Are People Willing to Pay More for Socially Responsible Products: A Meta-
Analysis.”
The results highlight the following lessons for business leaders:
Socially conscious non-durable goods can be sold at a profit; be prepared to charge
a premium. A majority of consumers are willing to pay more for socially responsible products.
Socially conscious consumers will pay a greater premium for frequently purchased non-durable
or consumable products.
Focus on non-environmental-related socially responsible products. Emphasis on
environmentally friendly products may be less profitable than focusing on products that provide
social benefits to people in need, or even animals. While companies accused of benefitting
from third world sweatshops have paid a financial and PR price, the research shows that
responsible sourcing practices related to labour practices and fair trade, have a greater impact
than environmentally friendly practices.
Take base price into consideration. The base price of a product didn’t impact the number
of people willing to pay a premium for socially responsible products, but it did have an impact
on how much of a premium they were willing to pay.
Where are your consumers? Europeans and Australians are willing to pay more for socially
responsible products than North Americans and significantly more than South Americans and
Asians.
Further Reading
Are People Willing to Pay More for Socially Responsible Products: A Meta-Analysis.
Stephanie M. Tully & Russel S. Winer. Working Paper (March 2013).
NYU Stern Study Shows Customers Are Willing to Pay More for Socially Responsible
Products. Stephanie M. Tully & Russel S. Winer. Experience Stern (7th August 2013).
Further Relevant Resources
Russell Winer’s profile at Stern School of Business
Stern School of Business Executive Education profile at IEDP
© Copyright IEDP Ideas for Leaders 2013
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