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Social Value Add

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Do Consumers Care About Ethics?

 In a post titled 4-2: Impacts of Value Added, outline the goals and indicators for measuring development progress for a nation in which your selected corporation does business. Which ones are most important? How do they relate to the business of your corporation? Is the corporation working with integrity in this environment? Research the value adds the corporation is creating for the community and itself. What are the community reactions? How does this affect the corporation’s success? Cite at least two sources. 

 

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Must be in APA format with references (please review new guidelines)

Recieved on or before the deadline.

Written in American Venacular English

Social Value Added: A
Metric for Implementing
Corporate Sociai
Responsibiiity

AT&T’s SVA tool helps quantify

the value of EH&S activities

Despite the fact that
“corporate social re-
sponsibility,” or
CSR, is one of the
hottest current cor-
porate buzzwords—
and an increasingly
popular course sub-
ject in many busi-
ness schools—there is little consensus on what
the concept actually includes. In part, this is be-
cause the current reincarnation of the term is not
a simple extension of past experience, but repre-
sents a new confiuence of a number of previously
independent trends.

In this article, we offer some background on
CSR, including some of the more recent policy
developments that have driven expansion of the
concept. We then describe and illustrate a metric
that AT&T has developed for measuring social
value added. This metric has helped AT&T under-
stand the advantages of implementing CSR activ-
ities; we believe it could be of use to many other
organizations as well.

Background: A Brief History of CSR
The idea that institutions have responsibili-

ties to the broader society within which they
function is clearly ancient. Business activities

have long been
constrained by
moral dictates (reli-
gious edicts against
usury, for example).
Religious and civil
authorities have
often judged and
controlled business

activity based on behavior, economic activity,
and the hke (Epstein, 1987).

That this idea of reciprocal privileges and du-
ties would extend to corporations as they began
to evolve in their modern form is not surprising.
The medieval merchant and craft guilds, and the
subsequent royal charter trading companies, were
entrusted with social expectations that reflected
the ethical structure of their times.

Many of these implicit expectations bridged
over with the advent of the truly modern firm, a
creature of general incorporation laws under
which any entity meeting statutorily defined cri-
teria was able to incorporate. (The first of these
laws was passed in 1811 by New York State.)

Even though the incorporation laws created a
structure where responsibility to shareholders

Clair Krizov and Brad Allenby

© 2004 Wiley Periodicals, Inc.
Published online in Wiley InterScience (www.interscience.wiley.com).
DOI: 10.1002Aqem.20036 Environmental Quality Management / Winter 2004 / 39

was paramount, this injunction has never pre-
vented firms in virtually all countries from en-
gaging in philanthropy, outreach, employee sup-
port, and other activities that reflect a broader
social role (Allenby, 1997). As the Committee for
Economic Development (1971) notes:

[B]usiness functions by public consent and
its basic purpose is to serve constructively
the needs of society—to the satisfaction of

society. Business
has a responsibility
for economic effi-
ciency—the core
responsibility. Out
of that responsibil-
ity comes a need to
be sensitive to so-

Many global firms now produce
annuai sustainability reports tbat
are eitber in addition to or
incorporate tbeir previous
environmental reports.

cial values and pri-
orities when per-

forming the economic function.

Modern-Era Policy Developments
The firm’s historic responsibility to behave

somewhat ethically has in the past few decades
been significantly augmented by four additional
policy developments, as discussed

below.

Ttie Environmental Movement
The first factor is the increasing power of the

environmental movement. This movement has a
long history but exhibited a significant increase
in activism and importance beginning in the late
1960s, especially in developed countries (Chou-
cri, 1993).

The Human Rights Movement
The second factor is the human rights dis-

course. This movement also has deep historical
roots (in antislavery activities and child labor leg-
islation, for example) but accelerated signifi-
cantly in scope and scale after WWII. Article I of

the United Nations Charter established as a core
purpose of the UN the promotion of relationships
among states “based on respect for the principles
of equal rights and self-determination of peo-
ples,” an approach confirmed in the subsequent
Universal Declaration of Human Rights of 1948.

The subsequent evolution of human rights,
and the rise of nongovernmental organizations
(NGOs) dedicated to that cause around the world,
has fundamentally changed the relationships
among nation-states, firms, communities, and in-
dividuals (Sassen, 1996).

Sustainable Development
The third element is the growth of the con-

cept of “sustainable development,” an effort to
integrate environmental and economic develop-
ment values.

The concept originally was popularized by the
World Commission on Environment and Devel-
opment (1987). Subsequently, the idea that cor-
porations should be agents of “sustainability,” in
addition to their statutorily defined role as profit
centers, has taken hold, and has been enshrined
in the idea of the “triple bottom line,” which
states that firms should attempt to perform well
not just economically, but also socially and envi-
ronmentally.’

At least from a public relations perspective,
the result of the sustainable development trend is
certainly apparent: many global firms now pro-
duce annual sustainability reports that are either
in addition to or incorporate their previous envi-
ronmental reports.^

Civil Society’s Reaction to Unethical
Corporate Behavior

The fourth factor, of course, is a continuing
reaction by civil society against perceived un-
ethical behavior by firms. From the 1960s
through the 1980s, reaction against corpora-
tions tended to center on their involvement in

40 / Winter 2004 / Environmental Quality iVIanagement Clair Krizov and Brad Allenby

unpopular wars (e.g., tbrough production of na-

palm) and on tragedies such as the Bbopal re-

lease of toxic fumes from a cbemical facility,

which killed thousands.

More recently, social disapproval has focused

on the criminal mismanagement of large firms in

the United States and Europe and disparities in

pay between top executives and workers.

The Evolution of CSR
Taken together, the effect of this “perfect

storm” of discourses, issues, and communities,

and the rise of nongovernmental organizations as

independent centers of perceived authority, has

profoundly changed the governance structure

within which firms conduct their business (Math-

ews, 1997). Thus, not only is the meaning of CSR

in the modern context less clear than it has been

for centuries, but the governance structure within

which CSR occurs is also increasingly undefined

and ambiguous.

This has important implications. It may be

relatively easy for parties to verify, and eventually

agree on the validity of, financial or scientific

data. But almost by definition, “social responsi-

bility” is a matter of values as well as performance

metrics. The question of “whose values” one sup-

ports remains open and contentious.

The Eiements of Corporate Sociai
Responsihiiity

Lack of Clear Definitions
As the above discussion suggests, a major

problem regarding CSR is that there is no general

agreement about its meaning from an opera-

tional or a managerial point of view. Although

somewhat dated, Friedman’s (1970) comment is

perhaps more true now than it was then: “The

discussions of the ‘social responsibilities of busi-

ness’ are notable for their analytical looseness

and lack of r i g o r . . . . The first step toward clarity

A major prohienn regarding CSR is
that there is no generai agreement

about its meaning from an
operational or a managerial point

of view.

in examining the doctrine of the social responsi-

bility of business is to ask precisely what it im-

plies for whom.”

Almost all of the existing definitions of CSR still

generally reflect vague concepts—desirable actions,

socioeconomic welfare, activities beyond the firm’s

direct economic or technical interests, ethical con-

sequences, voluntarism, satisfaction of society, so-

cial order, behaviors congruent with prevailing so-

cial norms, human competence, responsiveness,

beneficial rather than adverse affects, social legiti-

macy—rather than operational terms. (Although

some such standards do exist. They are codified in,

for example, antifraud and worker health and

safety laws.)

This lack of rigor is

frustrating both from

an academic perspec-

tive (because such lan-

guage fails to provide a

basis for empirical re-

search) and for compa-

nies (because the gen-

erality of the exhortations is difficult to translate

into organizational behavior, or into design and

operation of products and services).

A Changing Kaleidoscope of Issues
Of course, there have been efforts to put

substance around the concepts—not through

definitions, but through discussions around the

definitions.

For instance, in the 1950s and 1960s, societal

values noted in the literature included concerns

with pricing policies; shady sales inducements;

support of the arts; organizational pressures on

employees; involvement in military production;

antitrust activities and self-dealing; politics; wel-

fare of the community; education; and the “hap-

piness” of employees.

In the 1970s, other elements surfaced as

major components of CSR: working conditions;

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality iVIanagement / Winter 2004 / 41

There is very iittie tliat firms do,
or might do, that has not at one
time or another been associated
with CSR.

product safety; environmental effects; fraudulent
advertising; employment inequities; community-
oriented programs; environmental conservation;
labor policies; consumer transparency; fair treat-
ment; protection from injury; poverty and urban
blight; racial discrimination; pollution; urban
decay; employment of minority groups and asso-
ciated affirmative action policies; greater partici-
pation in programs to improve the community;
medical care; industrial health and safety; Third
World dealings; employee whistle-blowing; dis-
tributive justice; employee rights on and to the
job; sexual harassment; affirmative action for
women; and bribery of foreign officials.

In the 1980s and
1990s, the CSR focus
shifted toward still
other issues: white-
collar crime; business
indictments for al-
leged criminal acts;
overcharging in de-
fense projects; envi-
ronmental disasters;

employee communications, training, and devel-
opment; career-planning; retirement and termi-
nation counseling; layoffs; redundancies; plant
closings; stress and mental health; absenteeism
and turnover; health and safety; employment eq-
uity and discrimination; women in manage-
ment; performance appraisal; day care; public
policy; trade associations; flexible work hours;
unemployment programs; and employment of
children, especially in developing countries (Ep-
stein, 1987).

Input from NGOs
Civil society has also been an uneven source

of prioritization regarding CSR. While NGOs fre-
quently and visibly campaign on various aspects
of CSR, the ad hoc and single-issue character of
such organizations provides neither a compre-

hensive guide to CSR nor the assurance that all
aspects of CSR will be equally weighted.

Input from Business-Oriented Research
Business-oriented research organizations,

such as the Conference Board, have been very ac-
tive in attempting to help companies understand
the demands of the environment within which
they are now operating. But here again, achieving
a comprehensive approach has been difficult.̂

Input from Socially Responsible Investment
Funds and Groups

A relatively new source of input consists of the
socially responsible investment funds and invest-
ment indexes, such as the Dow Jones Sustainability
Group Index, and special interest groups, such as
the Council on Economic Priorities (CEP), which
have begun rating corporations on CSR issues.

For instance, the CEP has rated corporations
on their impact to the environment; support of
minorities; advancement of women; contribu-
tions to charities as a percent of income; treat-
ment of workers; and family benefits, such as
flexible work arrangements and paid leave
(Council on Economic Priorities, 2000).

AT&T’S Sooiai Value Added Tooi

Making Sense of CSR
It is apparent from the above discussion that

there is very little that firms do, or might do, that
has not at one time or another been associated
with CSR. This raises a number of risks: that firms
will ignore the concept completely as being im-
possible to operationalize; that firms and different
stakeholders will come into conflict over claims
regarding CSR because they may have different
operational concepts about what CSR means; or
that ideological conflict may negate otherwise de-
sirable initiatives (in the latter case, the best can
become the enemy of the good if companies re-

42 / Winter 2004 / Environmantai Quality iVIanagement Clair Krizov and Brad Allenby

fuse to implement CSR projects because it only

draws NGOs to attack them). Some of these risks

can be managed; others can only be accepted.

In evaluating its approach to CSR as that con-

cept integrates with environmental and safety

functions, AT&T’s environment, health, and

safety (EH&S) group identified one risk to which

it could respond, and which it could reduce: the

risk that firms may regard CSR as mere philan-

thropy and not as an economically justifiable ex-

penditure of corporate resources.

In understanding this approach, it is useful to

refer to a comment by Epstein (1987):

Business organizations and those who run

them have a crucial role to play in achiev-

ing that [good] world. The search for eco-

nomic efficiency constitutes the core of the

Science of Management, and efforts to

achieve justice and peace by means of the

sensitive and effective management of val-

ues lies at the heart of the Art of Manage-

ment. Together, these two endeavors can

contribute to a society which is both ra-

tional and humane, reasoned and civilized.

The achievement of this duality within the

American Business Civilization is what the

corporate social policy process is all about.

Fashioning a Practical CSR Tool
Thus, the challenge as AT&T EH&S under-

stood it was to integrate the science and art of

management in a practical CSR tool—that is,

without denigrating the social contributions of

corporate CSR activities, demonstrate that they

made sense from the company’s operational per-

spective as well, and do so in an intellectually rig-

orous and (if possible) quantitative way.

CSR anti the EH&S Mission
There are, of course, many things that organ-

izations do that are not in a broad sense CSR, but

AT&T’s EH&S organization also
pursues stakeholder management,

which includes EH&S’s contrihution
to social responsihiiity.

are required activities; compliance and remedia-

tion are obvious examples.

At AT&T, however, as in many companies, the

EH&S organization’s responsibilities do not stop

at compliance. AT&T’s EH&S organization also

pursues stakeholder management, which includes

EH&S’s contribution to social responsibility.

Stakeholtier Management
“Stakeholders” is a very inclusive category. It

includes employees; shareholders; communities

around the world; individuals that come into

contact with AT&T’s services in one way or an-

other; NGOs (ranging from the responsible to the

highly targeted and ac-

tivist); and govern-

ment regulators and

policy formulators,

both environmental

and otherwise.

Each community

may have its own in-

terests in a company’s

positions and actions, ranging from receiving

funds to collaborating on policy initiatives to

simply expecting responsible corporate behavior.

Thus, critical responsibilities of stakeholder

management include stakeholder communica-

tions; strategic planning to ensure that AT&T’s

EH&S policies, direction, and performance align

with external expectations; research regarding the

social and environmental implications of AT&T,

the telecom sector, and the service industry gener-

ally; and support of the external EH&S community,

including not-for-profit EH&S-related initiatives.

The stakeholder management function thus

requires investment—investment that is clearly

CSR in practice.

Social Value Added Tool
Traditionally, there are those who have con-

sidered investments in stakeholder initiatives.

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality Management / Winter 2004 / 43

from supporting not-for-profit organizations and

activities to the more traditional academic grant

support, to be purely philanthropic—correspond-

ing perhaps to Epstein’s Art of Management.

AT&T, however, combines this Art of Manage-

ment with the Science of Management by using

an in-house-created Web-based tool, tbe Social

Value Added (SVA)

tool.

“SVA” was chosen as the designator because it

tracked other metric systems—Consumer Value

Added (CVA), Personnel Value Added (PVA), and

tbe like—tbat were already used at AT&T. Tbe

name tbus reduced the sense of change or inno-

vation that would be associated with use of the

tool.

As a general rule,

dating back to AT&T’s

adoption of Design for

Environment in the

early 1990s, we bave

found tbat acceptance

of cbange is directly

proportional to tbe de-

gree to whicb tbe

cbange can be made to appear nontbreatening

and incremental to existing practices.

Using the SVA Tool
For several reasons, it made sense wben con-

sidering bow to construct an SVA tool to look at

financial analogs. Eor one, tbeir performance and

strengtbs and weaknesses were generally known.

Eor another, using such analogs gave a sense of fa-

miliarity and gravitas to the new tool, since tbose

using it respected tbe results of tbe financial cal-

culation process.

Accordingly, tbe SVA tool measures AT&T’s

EH&S-related initiatives based on tbe net oper-

ating profit margin financial ratio, a ratio used

by for-profit enterprises as an overall measure of

operating effectiveness. Tbe ratio is calculated

as follows:

For several reasons, it made sense
when considering how to construct
an SVA tool to look at financial
analogs.

[(Sales – CGS – SGA) / Sales] X 10

0

wbere “CGS” is “cost of goods sold” and “SGA” is

“selling, general, and administrative” expenses

(in otber words, the general cost of running the

business).

Eor EH&S-related initiatives, AT&T turns the

ratio into the following:

[(Total benefit – Total cost) / Total benefit] X 100

Eacb of tbese components in turn is broken

down into definable quantities, as described

below.

• Total Benefit
AT&T determines total benefit by calculating

(1) tbe potential retained, or gained, revenue as-

sociated witb an EH&S-related initiative and (2)

tbe estimated media value of AT&T EH&S-sup-

ported initiatives.

AT&T converts tbe external exposure pro-

vided by an EH&S-related initiative into a poten-

tial retained, or gained, revenue figure. Tbe con-

version is done by calculating tbe number of

people exposed to the AT&T-supported initiative

and then multiplying tbat number by botb tbe

estimated percent of Americans wbo make tbeir

purcbasing decisions based on a company’s EH&S

record and by tbe estimated monthly telecom-

munications services expenditures of tbe average

American.

Tbe estimated media value converts tbe “free”

publicity associated witb tbe EH&S-related initia-

tive (sucb as mention of AT&T’s support of tbe ini-

tiative in tbe organization’s membersbip newslet-

ter or Web site) into a dollar figure. Tbe estimated

media value is converted by using tbe Bacon

Media

Guide, a source tbat provides tbe estimated cost of

a typical advertisement in a publication based on

circulation size, or people exposed, and tbe num-

ber of column incbes (or minutes, if tbe exposure

is via television or radio). Tbus,

44 / Winter 2004 / Environmental Quality iVIanagement Ciair Krizov and Brad Alienby

Total Benefit = [(# of people exposed to tbe

initiative) X (% of Americans wbo make

purcbasing decisions based on a company’s

EH&S record) X (estimated monthly spending by

an American on telecommunications services)]

+ (estimated media value of tbe “free” publicity)

• Total Cost
Total cost for an initiative is determined by

adding tbe estimated AT&T labor expenses asso-

ciated witb tbe initiative, based on tbe time in-

volved, to tbe dollars invested in tbe initiative,

such as tbe dollar amount of a donation:

Total Cost = (AT&T labor cost) + (Dollars spent)

Versatility of the SVA Tool
Exhibit 1 sbows an example of an SVA cal-

culation using bypotbetical data. At AT&T EH&S,

every investment (sucb as a donation) tbat is not

de minimis in tbe portfolio bas sucb a calculation

run on it.

AT&T’s SVA tool allows social value added to

be calculated in wbatever way facilitates an orga-

nization’s analysis of its investments. SVA can be

calculated:

• for AT&T EH&S’s investment portfolio as a

wbole;

• for an EH&S-supported organization’s invest-

ment portfolio as a wbole;

Exhibit 1 . Sampie SVA Caicuiation

AT&T’s Sociai Vaiue Added (SVA) Report List

Category: Aii
Date Range: 01/01/03 – 12/31/03
Org Codes:

Activity

Contributions-
Monetary ABC
Organization • River
Cleanup • Donation
Pubiicity-Agenda

and Programs
ABC Organization •

River Cleanup •
Newsietter Pubiicit)

Time to
Implement

0.75 hrs

2.5iir3

TV Radio
Time

Omin

Omin

Coverage
Size

Column
Inch

0

6.5

# of Invites
or Promos
wlAT&T

Referenced

0
0

# o f
People

Exposed

0

350

Est
Market
Value

$0

$0

Est.
Value of

Labor

$38

$125

Dollars
Spent

$5,000

$0

Est Total
Cost

$5,038

$125

Est.
Revenue

Potential of
Audience

$0

$105

Est.
Value of
Media
$0

$65

Est. Vaiue of
Cost

Avoidance

$0
$0

Est. Total
Benefit

$0

$170

Net Vaiue

-$5,038

$45

SVA
Operating

Profit Margin

NA

26.47%

Note: All figures are hypothetical.

Estimated Totai Benefit
•Estimated Revenue Potential of Audience: (350 peopie exposed) X (3% of Americans make purchasing decisions
based on a company’s EH&S Performance) X ($10 estimate of monthly spending by Americans on teiecommunications
services each month) = $105
•Estimated Vaiue of Media: (6.5 column inches) X ($10 ad cost in pubiication of similar circuiation) = $65
•Estimated Total Benefit = $105 + $65 = $170

Estimated Totai Cost
•Estimated Labor Cost: (2.5 hours) X ($50 per hour) = $125
•Dollars Spent: ($0 spent) = $0
•Estimated Totai Cost = $125 + $0 = $125

SVA: [[($170 Totai Benefit) – ($125 Totai Cost)] / ($170 Total Benefit)] X 100 = 26.47

Sociai Value Added: A Metric for Implementing Corporate Sociai Responsibiiity Environmentai Quality iVIanagement / Winter 2004 / 45

• by issue (e.g., safety, telework, water, or air
policy);

• by activity category (e.g., contributions, dues,
exhibits, research support, or awards); or

• by individual project.

The SVA tool also allows the firm to establish
the activity category and EH&S-related issue at
the level of detail desired. For instance, an activ-
ity category may be “monetary contribution” or
“service contribution,” and the issue can be spe-
cific (as in air, water, industrial ecology, or recy-
cling) or just overall “environment.”

Conclusion
There are several important points worth not-

ing about this relatively simple methodology. An
obvious one is that SVA is calculated for a point-
in-time. In other words, the SVA tells AT&T the
effectiveness of its investment in the EH&S-re-
lated initiative as of a certain date.

Additionally, it must always be remembered
that, especially in as broad an arena as CSR, a tool
like the SVA calculator is only one input to the
deliberative process. Stakeholder contributions
and academic grants are provided for many rea-
sons, only some of which are captured and quan-
tified by any such tool.

While the SVA tool does provide AT&T with a
means of prioritization by allowing comparison
of an EH&S initiative’s total benefit and total
cost prior to making an investment, it is never
the only factor upon which such decisions are
based (although it may make the difference in
close decisions).

This is an important qualification to keep in
mind, especially when SVA numbers are used
within corporate communities, such as the CFO
organization, that are accustomed to operating
on a fairly quantitative basis. AT&T EH&S has
found an interesting “halo effect” as we have
used this tool, however. The very fact that we

have taken the initiative to develop and deploy
this tool tends to reassure internal critics (who
might otherwise be highly critical of more intu-
itive approaches to the donation and grant port-
folio) that EH&S is taking a responsible and ra-
tional approach to managing that portfolio.

Finally, it must be remembered that this tool
reflects the value of a CSR investment to the firm
and is a reflection of the firm’s interests. It does
not capture the value of the investment to other
communities or to society as a whole. While this
means that the tool is necessarily limited, it also
has the advantage of not requiring that differ-
ences in ethical or political values be quantified
and calculated, a problem that many broader ap-
proaches may have.

Firms, NCOs, regulators, and others will no
doubt continue to struggle to define and imple-
ment CSR for a long time. The history of CSR is
ambiguous, intimately tied as it is to the evolu-
tion of capitalism and market economies. It may
become more so in periods of rapid economic, so-
cial, and cultural change.

This confusion and disorder may be discon-
certing, but it is most likely healthy, in that it
encourages organizational and institutional in-
novation, and the development of new ap-
proaches that offer the promise of better inte-
gration of economic, social, and environmental
values and goals.

The SVA tool discussed here is certainly no
panacea, but it is perhaps an aid in understand-
ing and implementing CSR in today’s firm.

Notes
1. Previous articles in this journal have applied the triple-bot-
tom-line approach to issues such as telework and the evolution
of the netcentric firm (see, e.g., Allenby & Richards, 1999).

2. It would be unfair to the large number of firms that produce
such reports to cite only a few. AT&T’s online report at
http://www.att.com/ehs/ is not atypical, however. Some are
more elaborate, and a few companies have outside parties
“validate” their reports, an approach originating primarily in
Europe (BS 7750 and the EMAS methodology being exam-
ples). Given the nascent state of the art, the lack of standard-

46 /’Winter 2004 / Environmental Quality Management Clair Krizov and Brad Allenby

ized metrics and methodologies (and thus incomparability
among different reports) and the expense involved, it is not
clear to many firms what external validation accomplishes.

3. An idea of the difficulty of understanding and implement-
ing CSR can be obtained simply by considering just a few of
the publications the Conference Board has prepared over the
last few years for its members. A partial list would include “The
expanding parameters of global corporate citizenship” (1246-
99-CH); “Company programs for resisting corrupt practices: A
global study” (1279-00-RR); “Perspectives on a global econ-
omy: Are poor nations closing the gap in living standards?”
(1263-00-RR); “Innovative public-private partnerships: Public
safety initiatives” (1253-99-RR); “Doing good and doing well:
Making the business case for corporate citizenship” (1282-00-
RR); “Global corporate ethics practices: A developing consen-
sus” (1243-99-RR); “Consumer expectations on the social ac-
countability of business” (1255-99-RR); “The link between
corporate citizenship and financial performance” (1234-99-
RR); and “Building the corporate community economic devel-
opment team” (1205-99-RR). And this list doesn’t even include
the flood of studies that have responded to the recent Enron,
MCI-Worldcom, Ahold, and Parmalat frauds. Moreover, other
business organizations—notably the World Business Council
for Sustainable Development—have been equally prolific.

References
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lution of the private firm. In D. J. Richards (Ed.), The indus-
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Allenby, B., & Richards D. J. (1999, Summer). Applying the
triple bottom line: Telework and the environment. Environ-
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Choucri, N. (1993). Global accord: Environmental challenges
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Committee for Economic Development. (1971). Social re-
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Epstein, E. M. (1987). The corporate social policy process: Be-
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Mathews, J. T. (1997). Power shift. Foreign Affairs, 76(1), 50-66.

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Clair Krizov is Executive Director of Environmental and Social Responsibility at AT&T and is a doctoral student at the
Georgia Institute of Technology Public Policy School.

Brad Allenby is former Environment, Health, and Safety Vice President at AT&T, and a professor at Arizona State Uni-
versity in the Ira A. Fulton School of Engineering, Department of Civil and Environmental Engineering.

The opinions expressed In this article are the authors’ and not necessarily those of any organization with which they are
associated.

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality Management / Winter 2004 / 47

PATRICK DE PELSMACKER, LIESBETH DRIESEN,

AND GLENN RAYP

Do Consumers Care about Ethics? Willingness to
Pay for Fair-Trade Coffee

Consumers’ buying behavior is not consistent with their positive
attitude toward ethical products. In a survey of 808 Belgian respond-
ents, the actual willingness to pay for fair-trade coffee was measured.
It was found that the average price premium that the consumers were
willing to pay for a fair-trade label was 10%. Ten percent of the sample
was prepared

to pay the current price premium of 27% in Belgium.

Fair-trade lovers (11%) were more idealistic, aged between 31 and
44 years and less ‘‘conventional.’’ Fair-trade likers (40%) were more
idealistic but sociodemographically not significantly different from
the average consumer.

The purpose of this study was to investigate to what extent consumers

were willing to pay for the fair-trade attribute when buying coffee, and

how consumers differed in terms of their willingness to pay. First, we will

describe fair trade within the context of ethical consumer behavior. Sub-

sequently, the research questions used in our study will be examined.

Consumers can express their concern about the ethical behavior of com-

panies by means of ethical buying and consumer behavior. In general, the

ethical consumer feels responsible toward society and expresses these feel-

ings by means of his or her purchasing behavior. Doane (2001) defined

ethical consumption as the purchase of a product that concerns a certain

ethical issue (human rights, labor conditions, animal well-being, environ-

ment, etc.) and is chosen freely by an individual consumer. There are

several dimensions of ethical consumer behavior. Some forms of ethical

consumption benefit the natural environment (e.g., environmentally friendly

products, legally logged wood, animal well-being), while others benefit peo-

ple (e.g., products free from child labor, fair-trade products). Cutting across

this distinction, ethical consumption may benefit people or the environment

close to home (e.g., some types of green products or organic food), or

Patrick De Pelsmacker (patrick.depelsmacker@ua.ac.be) is a marketing professor at the University of

Antwerp. Liesbeth Driesen was a researcher at the Ghent University. Glenn Rayp (glenn.rayp@ugent.be)

is a professor in international economics at the Ghent University.

Financial support of the University Development Cooperation of the Flemish Interuniversity Council

is gratefully acknowledged. The authors wish to thank the participants of the 33rd European Marketing

Academy (EMAC) conference for their useful comments and suggestions. All remaining errors are ours.

The Journal of Consumer Affairs, Vol. 39, No. 2, 2005

ISSN 0022-0078

Copyright 2005 by the American Council on Consumer Interests

WINTER 2005 VOLUME 39, NUMBER 2 363

conversely in a faraway part of the world (e.g., fair-trade products or legally

logged wood). Consumers can translate their ethical concerns by means of

buying products for their positive qualities (e.g., green products) or by

boycotting products for their negative qualities (e.g., not buying products

made by children). Boycott campaigns against Nike because of alleged labor

abuses and Nestlé because of the infant formula issue are among the most-

cited examples of the latter (Auger, Devinney, and Louviere 2000; Carrigan

and Attalla 2001; Creyer 1997; Shaw and Clarke 1999; Strong 1996).

Consumers can decide to consider one or more ethical attributes when

buying products.

Is ethical consumption growing? Evidence of a growing market for eth-

ical products is often inferred from the results of opinion polls. According to

a study by Hines and Ames (2000), 51% of the population had the feeling of

being able to make a difference to a company’s behavior and 68% claimed to

have bought a product or a service because of a company’s responsible rep-

utation. On average, 46% of European consumers also claimed to be willing

to pay substantially more for ethical products (MORI 2000). However, there

are differences as to the reported willingness to pay a price premium for

different types of ethical products. For instance, American consumers

agreed with a price increase of 6.6% for green products (The Roper Orga-

nization, Inc. 1990), while French consumers wanted to pay 10%–25% more

for apparel not made by children (CRC-Consommation 1998). With these

studies in mind, one could expect a high demand for ethical products. How-

ever, the opposite seems to be the case. Most of the ethical labeling initia-

tives with respect to, for instance, organic food, products free from child

labor, legally logged wood, and fair-trade products, often have market

shares of less than 1% (MacGillivray 2000).

One of the main reasons for this discrepancy is the attitude–behavior

gap. On the one hand, consumer perceptions and attitudes clearly influence

behavior, as conceptualized and tested in several models of ethical con-

sumption behavior (Ferrell and Gresham 1985; Hunt and Vitell 1993; Shaw

and Clarke 1999; Vitell, Singhapakdi, and Thomas 2001). On the other

hand, it is well documented that attitudes alone are generally poor predic-

tors of buyer behavior (Cobb-Walgren and Ruble 1995), especially in the

social marketing area (Shaw and Clarke 1999). While some consumers

refuse to buy products with an unethical background (Crane 2001), the

majority of people evaluate product attributes jointly in making purchase

decisions. Price, quality, convenience, and brand familiarity are often still

the most important factors affecting the buying decision (Boulstridge

and Carrigan 2000; Carrigan and Attalla 2001; CRC-Consommation

1998; Norberg 2000; Roberts 1996; Tallontire, Rentsendorj, and Blowfield

364 THE JOURNAL OF CONSUMER AFFAIRS

2001). Dickson (2001) identified four segments of consumers based on the

importance they attach to various product attributes of clothes. She found

that only one segment, containing 16% of their sample, attached a lot of

importance to the no-sweat label. The other three groups were qualified as

nonusers. Moreover, often the attitudes and intentions toward ethical prod-

ucts are measured without explicitly taking the higher price of these prod-

ucts into account (Browne et al. 2000). Other explanations for the

discrepancy between attitudes and ethical buying behavior can be the lack

of availability of ethical products, disbelief of ethical claims, and lack of

information (Carrigan and Attalla 2001; Mielants, De Pelsmacker, and

Janssens 2003; Roberts 1996).

What could explain the attitude–behavior gap? In attitude research, people

often give socially desirable answers. Ulrich and Sarasin (1995) somewhat

cynically claimed not to do any research and not to ask the public any ques-

tion on this subject because the answers are never reliable and often useless, if

not misleading. Especially in situations in which respondents want to make

a good impression on the researcher or want to conform to social norms,

attitudes measured tend to be more positive than actual behavior (King

and Bruner 2000). Moreover, attitudes are traditionally measured by means

of explicit attitude measures, mostly self-reported paper-and-pencil tasks.

Respondents are not always able and willing to report their attitudes and con-

victions accurately, especially in the case of socially sensitive issues such as

ethical consumption behavior (Greenwald and Banaji 1995; Maison 2002).

If one wants to study the importance of the ethical attribute in buying

decisions, a number of factors have to be taken into consideration. First of

all, measuring explicit attitudes is not the most valid method to predict eth-

ical buying behavior. Instead, measures that are closely related to the actual

purchase behavior are called for. Second, a lot of buying behavior is based

on multiattribute decision making in which the ethical attribute may or may

not be important. In estimating the (intended) buying behavior, consumers

have to be confronted with realistic multiattribute buying situations. Third,

one reason for the attitude–behavior gap is the price factor. The measure-

ment of (intended) buying behavior has to take the willingness to pay into

account. Finally, not all consumers are equally likely to buy ethical prod-

ucts. Moreover, depending upon the characteristics and the preferences of

individual consumers, different ethical dimensions may result in differen-

ces in willingness (not) to buy products incorporating ethical values. Bird

and Hughes (1997) claimed that the willingness to purchase goods based on

ethical credentials is limited to a minority of shoppers.

Several studies have tried to identify the socially responsible consumer

in terms of demographic characteristics. Anderson and Cunningham (1972)

WINTER 2005 VOLUME 39, NUMBER 2 365

found that younger consumers were more socially conscious, while the

effect of their education level was not clear, and income was of no rele-

vance. Dickson (2001) found that age, income, and employment status

was not discriminating between socially conscious consumers who attach

a lot of importance to no-sweat labels on apparel and those consumers who

do not. Although in the same study it was stated that no-sweat buyers were

more often female, most studies concluded that ethical buying behavior

was not influenced by gender (e.g., MORI 2000; Sikula and Costa

1994; Tsalikis and Ortiz-Buonafina 1990). In his extensive literature

review, Roberts (1995) found that people who did not buy from businesses

that discriminated against minority groups or women were mainly women

with a median age of 47 and slightly lower incomes but concluded that

demographics were not very significant in identifying the socially respon-

sible consumer. Other studies concluded that the ethical consumer was a

person with a relatively high income, education, and social status (Carrigan

and Attalla 2001; Maignan and Ferrell 2001; Roberts 1996).

However, demographics alone are not sufficient to define and identify

the ethical consumer. People’s values appear to have a significant impact on

their ethical consumption behavior. Values are abstract principles that

reflect an individual’s self-concept (Dickson 2000). They are enduring

beliefs that a given behavior or outcome is desirable or good. As such, val-

ues serve as standards that guide our behavior across situations and over

time. Values are often part of our personality system and determine specific

attitudes. Anderson and Cunningham (1972) found that dogmatism, conser-

vatism, status consciousness, cosmopolitanism, personal competence, and

alienation were related to ethical consumer behavior. In addition, Roberts

(1996) and Dickson (2001) stressed the importance of psychographic var-

iables such as relevant attitudes, values, and personality characteristics. The

Roper Organization, Inc. (1990) and Cowe and Williams (2000) segmented

consumers in terms of their degree of ethical concern. Similarly, Fritzsche

(1995) concluded that the values of people behaving ethically were signi-

ficantly different from the values of people behaving unethically, and in

Roberts’ (1996) study, perceived consumer effectiveness, liberalism, and

alienation appeared to have a significant impact on ethical consumption

behavior. In addition, Dickson (2000) studied the relevance of personal

values in the context of socially responsible buying behavior.

One of the best-known instruments to comprehensively measure a per-

son’s value system is the Rokeach Value Survey (Rokeach 1973). The

Rokeach Value Survey contains a set of 18 terminal values that relate

to ‘‘end states of existence’’ and another set of 18 instrumental values relat-

ing to ‘‘modes of behavior.’’ Some studies have tried to identify ethical

366 THE JOURNAL OF CONSUMER AFFAIRS

values within the Rokeach scale and their effect on ethical behavior

(Fritzsche 1995; Nonis and Swift 2001; Sikula and Costa 1994). Dickson

(2000) used 12 Rokeach Value Survey terminal values in her study of

apparel-buying behavior. Two basic dimensions could be defined: macro-

societal (socially centered) and microsocietal (self-centered) values. To an

extent, the former predicted attitudes toward business intentions. However,

no systematic attempt has been made to relate consumers’ value systems to

ethical buying behavior.

In this study, the importance of a fair-trade label in the coffee-buying

decision was investigated. In a broad sense, ‘‘fair trade’’ can be described

as an alternative approach to trading partnership that aims for sustainable

development of excluded and/or disadvantaged producers. It seeks to do so

by providing better trading conditions, raising awareness, and campaigning

(Krier 2001). In the broadest sense, the concept incorporates environmental

as well as social issues. Littrell and Dickson (1999) developed a continuum

of business practices, from minimum to maximum fair-trade practices. Apart

from paying fair wages in a local context and providing a safe and clean

workplace (mainstream business), they defined maximum fair-trade prac-

tices as also encompassing the development of sustainable businesses,

empowerment of artisans, fostering well-being, establishing political and

social justice, and developing equitable trade.

In a narrow sense, fair trade is defined based on its best-known compo-

nent: fair prices for the products of farmers in developing countries. In

essence, fair trade means buying products from farmers in developing

countries on terms that are relatively more favorable than commercial terms

and marketing them in developed countries at an ethical premium (Bird and

Hughes 1997). This higher price to the consumer is warranted by the higher

price that farmers receive for their products and by the fair-trade control

mechanisms in the trade channel (for an extensive description of fair-trade

mechanisms, see, for instance, Littrell and Dickson [1999] and Krier

[2001]). Companies generally demonstrate their fair-trade behavior to con-

sumers by means of marketing fair-trade brands or by means of cooperating

with fair-trade organizations that accredit their fair-trade products and allow

them to market these products using a fair-trade label. Fair-trade organiza-

tions, on the other hand, go through considerable efforts to convince com-

panies to comply with fair-trade rules and sell fair-trade products. For

instance, in April 2000, after a year-long campaign by the human rights

organization Global Exchange, Starbucks decided to carry fair-trade coffee

in its 2,300 stores (Straus 2000).

Fair-trade buying is a specific type of ethical consumer behavior. Based on

the dimensions defined earlier, for a U.S. or a European consumer fair-trade

WINTER 2005 VOLUME 39, NUMBER 2 367

consumption means buying items for their positive quality of supporting

people in faraway developing countries. The question is to what extent con-

clusions from empirical research on other types of ethical consumption

behavior also hold for fair-trade buying. Fair trade is an issue of particular

concern for the ethical consumer. Based on a qualitative study amongst

ethical consumers in the United Kingdom, Shaw and Clarke (1999) con-

cluded that fair trade was the most important issue of ethical concern in

consumer behavior (as compared with, for instance, environmental issues

and vegetarianism). Fair-trade brands, or fair-trade labeled products (espe-

cially coffee), are also reasonably available. However, the relative impor-

tance of a fair-trade label in the purchase decision of consumers has not

yet been studied.

In this study, conjoint measurement (see hereafter) was used to confront

consumers with realistic multiattribute choice decisions. Instead of study-

ing their attitudes or preferences, their willingness to pay was measured. As

such, the importance of the price factor was explicitly taken into account.

Furthermore, willingness to pay is assessed as a measurement of buying

intention that can be considered a realistic proxy for actual behavior. A

fair-trade coffee label needs to be efficiently monitored and subjected to

third-party certification in order to become credible. This implies additional

costs and a price premium for the consumer. Indeed, fair-trade coffee is

more expensive than non–fair-trade coffee. Based on the willingness to

pay for this label, the size of the potential fair-trade coffee–buying popu-

lation was estimated.

As is the case with ethical consumption in general, not everyone is

equally likely to buy fair-trade products. For instance, Littrell and Dickson

(1999) found that buyers of cultural (ethnic) fair-trade products were demo-

graphically quite homogeneous and consisted of highly educated, well-off

Caucasian women in their forties. A large proportion of them were teachers,

health professionals, and social workers. Idea Consult (2002) concluded that

the Belgian fair-trade consumer is relatively highly educated and has a rel-

atively high income and social status. In addition, personal values appear to

play a role in fair-trade buying behavior. For instance, Littrell and Dickson

(1999) found that buyers of cultural fair-trade products attached more

importance to altruism, equality, peace, and a beautiful and environmentally

secure world, and less importance to inner-directed values such as self-

respect and inner harmony. In this study, consumers are segmented accord-

ing to their willingness to pay for different coffee attributes (including

the fair-trade attribute). The consumer segments are then defined based

on sociodemographic characteristics and their terminal and instrumental

values.

368 THE JOURNAL OF CONSUMER AFFAIRS

In summary, this study investigates the following research questions (see

also Figure 1):

1. What is the relative importance that consumers attach to a fair-trade

label in their coffee-buying decision, compared with other attributes?

Can segments of consumers be defined based on their relative will-

ingness to pay for different coffee attributes? What is their willing-

ness to pay a price premium for the fair-trade attribute? The narrow

definition of fair trade (a fair price for products of producers from

developing countries) is used.

2. To what extent are the consumer segments different in terms of demo-

graphic characteristics and personal values?

RESEARCH METHOD

Composition of the

Sample

This study is based on a sample of Belgian consumers. At the crossroads

of the Latin culture, with Roman Catholic roots, and the German and

Nordic culture, with Protestant roots, in a strongly internationalized econ-

omy where companies share a level-playing field, because of the absence of

strong national brands, the Belgian consumer market has in many aspects

a profile similar to that of the Europeon Union (EU). Concerning the ethical

FIGURE 1

Research Model

Coffee
Product
Attributes
(

Fair-Trade

Attribute)

Willingness-
to-pay for
Coffee
Product
Attributes
(Fair-Trade
Attribute)

Instrumental & Terminal
Personal Values

Sociodemographic Characteristics

WINTER 2005 VOLUME 39, NUMBER 2 369

aspects of consumption, the European survey by MORI (2000) points to

results for Belgium that are very similar to the European average with

respect to attitudes toward social responsibilities of firms, the importance

a firm’s commitment to social responsibility in buying intentions, as well as

in the supplementary willingness to pay for environmentally or socially

responsible products. This finding was corroborated from our exploratory

survey of the market share of fair-trade coffee. The 1% market share in

Belgium is similar to the market share of fair-trade coffee in France

(0.9%) and Germany (1%) and is midrange between the market share in

Switzerland (5%), the Netherlands (3%), and Denmark (2.5%) on the

one hand, and Norway (0.8%) and Finland (0.4%) on the other.

In this study, we surveyed the total administrative and academic staff of

Ghent University, which is one of the largest universities in Belgium

(26,000 students) and one of the largest employers in the city of Ghent

and the surrounding region. Concentrating the survey on a central spot

where people gather from a large area allowed us to obtain a diversified

sample in a cost-efficient way and to better monitor the data collection

process. More importantly, it allowed us to quantitatively and qualitatively

improve the response motivation by appealing to collegiality and by conduct-

ing the survey (for its major part) using the university’s intranet in a more

respondent-friendly way (e.g., without bothering people when they are at

home or busy, etc.). Several positive implications of the use of the Internet

are reported (Orme and King 1998). The use of the Internet significantly

reduces the costs of the survey, respondents can be reached more quickly,

and the response rate is higher. Finally, to further encourage participation

to the survey, 25 book vouchers were divided among the respondents.

An e-mail was sent to 4,664 staff members with an e-mail address, and

891 questionnaires were completed, of which 779 were useful (i.e., com-

pleted the majority of the questions). The remaining 550 staff members

without an Internet account were approached by mail. A total of 62 staff

members responded, of which 55 questionnaires were useful. Hence, the

response rate of our survey was 16%, i.e., double the average survey

response rate in Belgium (8%). Twenty-six respondents gave inconsistent

answers for the conjoint analysis (in the sense that they showed no prefer-

ence for any of the eight proposed product profiles) and were eliminated

from the sample. The final sample was composed of 808 respondents.

Table 1 shows the composition of the sample. As could be expected,

due to the specific university context, younger and better-educated re-

spondents were overrepresented compared with the total Belgian or EU pop-

ulation. In the analysis, we verified to what extent this affected our main

results.

370 THE JOURNAL OF CONSUMER AFFAIRS

The Outline of the Survey

As mentioned above, in order to minimize the social desirability bias

when questioning issues of ethical consumption (fair trade in this case),

we used a conjoint measurement of the price consumers were willing to

pay when facing a coffee-buying situation in a supermarket (where most

coffee types are available and which is the usual shopping place of the large

majority of Belgian consumers). In a conjoint analysis, consumers are

asked to indicate their preference (in this case their willingness to pay)

for products with varying characteristics. By simulating real marketplace

situations, conjoint analysis realistically models day-to-day consumer deci-

sions and has a reasonable ability to predict consumer behavior. Consumers

show their preferences by making trade-offs between different attributes of

a product (Carroll and Green 1995; Green, Krieger, and Wind 2001; Green

and Srinivasan 1978). These trade-offs can be decomposed into part-worth

utilities and importance weights for each product attribute. In this way, the

importance of different attributes or criteria in the consumer’s evaluation of

the product can be studied (Green, Rao, and Desarbo 1978).

Based on an exploratory group discussion with 12 coffee consumers of

varying age, gender, and education, we determined the relevant coffee

attributes and their appropriate levels as follows:

d Brand: manufacturer brand and private label. Manufacturer brand was

presented as ‘‘Douwe Egberts’’ (Sara Lee), which is the market leader in

Belgium, with a market share of about 50%. Private, or supermarket,

label was presented as an enumeration of supermarket brands, which

account in Belgium for another 25%–30% market share. The remaining

market share represents smaller and more specialized coffee brands.

TABLE 1

Description of the Sample

Characteristic Sample Percentage (N ¼ 808)
Gender

Male 46

Female 54

Age

24 or younger 8

24–30 50

31–44 27

Older than 45 15

Education

High school 16

Higher education 84

WINTER 2005 VOLUME 39, NUMBER 2 371

d Blending: 100% Arabica beans and a blend of Arabica and Robusta

beans. A coffee is considered of high quality when the blending is

100% pure Arabica beans.
d Flavor: dessert, decaffeinated, and mocha. In Belgium, coffee manu-

facturers mainly focus on three flavors.
d Package: ‘‘warm’’ and ‘‘cold.’’ Consumers can be attracted to a type of

coffee because of the exotic or warm appearance of the package.

Therefore, a cold and a warm level of packaging were developed from

the perception of the aforementioned exploratory group of

consumers.

A cold package consisted of a picture in blue and white. A warm pack-

age was brown and red showing a cup of freshly made coffee.
d The presence or absence of a fair-trade label.

Based on these attributes and their levels, 48 descriptions of coffee types

were possible (2 � 2 � 3 � 2 � 2). It was evidently impossible for respondents
to indicate a preference for 48 product types. Conjoint analysis instead uses

a fractional design, i.e., a systematic selection of a small number out of the full

set of product profiles, while maintaining the coincidence of uncorrelated levels

of different attributes appearing together. This design assures that an estimate of

the importance of one attribute is unaffected by the estimate of other attributes.

Using Orthoplan of SPSS, a fractional (orthogonal) design of eight product

profiles was generated out of the set of 48 profiles (see Table 2). These eight

product profiles were visually presented and described to inform the respond-

ents about the attributes. For instance, the fair-trade label was described as

a label on the package indicates that a fair price for the coffee harvest is guaranteed to

the farmers of the South

in addition to which we mentioned as an example the name of the best-

known fair-trade label in Belgium (i.e., Max Havelaar).

TABLE 2

Coffee-Type Profiles in the Orthogonal Conjoint Design

Label Brand Blending Package

Flavor

Profile 1 Fair trade Private label 100% Arabica Warm Dessert

Profile 2 No fair trade Douwe Egberts Arabica/Robusta Cold Dessert

Profile 3 No fair trade Douwe Egberts 100% Arabica Warm Dessert

Profile 4 Fair trade Douwe Egberts Arabica/Robusta Warm Decaffeinated

Profile 5 Fair trade Douwe Egberts 100% Arabica Cold Mocha

Profile 6 No fair trade Private label Arabica/Robusta Warm Mocha

Profile 7 Fair trade Private label Arabica/Robusta Cold Dessert

Profile 8 No fair trade Private label 100% Arabica Cold Decaffeinated

372 THE JOURNAL OF CONSUMER AFFAIRS

In the first part of the questionnaire, the respondents were asked to
express their willingness to pay for the eight different types of coffee.

A reference product profile was defined (and visually presented) as a coffee

with dessert flavor, a warm package, a blending of Arabica and Robusta

beans, without a fair-trade label, produced by Douwe Egberts, and set at

a price of e1.87 (corresponding to the then-ruling shop price). Respondents

were asked to express their willingness to pay by putting a price over or

under the reference price of e1.87 on each of the eight coffee profiles pre-

sented. By mentioning the fair-trade label in the conjoint task, we could

assume that all respondents were equally informed and that the fairly traded

coffee was perceptible for everybody. The conjoint analysis method

resulted in individual part-worth utilities for each level of each attribute

from which the relative importance of each attribute could be derived.

In the second part of the questionnaire, the respondents were asked about
their personal values and a number of sociodemographic characteristics

including gender, age, and education. The Rokeach (1973) value scale

was used to measure personal values. This scale contains a set of 18 ter-

minal values that relate to end states of existence (such as the importance of

material wealth for the respondent) and another set composed of 18 values

that relate to modes of behavior or instrumental values (such as the impor-

tance of ambition in the life of the respondent). Originally, these values

were expected to be rank ordered. In our study, the respondents were asked

to rate all items separately on a 9-point Likert-type scale. In this way, non-

parametric restrictions could be overcome. Literature has shown that similar

results follow from the two methods (see Finegan 1994; Munson and

McIntyre 1979). Munson and Posner (1980) asserted that the information

about the intensity of guidance in an individual’s life was more precise

using a Likert-type rating scale. In addition, the rating process is quicker

and is therefore more convenient for the respondent (Fritzsche 1995). We

used an unbalanced scale (from irrelevant, 21, to very important, 7) in

order to cope with the leniency effect (Antonides and van Raaij 1998).

RESULTS

Relative Importance of the Fair-Trade Attribute and

Segmentation of the Coffee Market

A conjoint analysis was carried out for each respondent (using

CONJOINT of SPSS).
1

It computes the part-worth utilities of the levels

of the attributes and the relative importance of each attribute (i.e., the ratio

of the utility range of the considered attribute and the total sum of the utility

WINTER 2005 VOLUME 39, NUMBER 2 373

ranges of all attributes). A summary for the whole sample was obtained by

averaging the part-worth utilities and relative importance of the attributes

over all the respondents. In Table 3, we show the average relative impor-

tance of the attributes and the part-worth utilities. The Pearson correlation

and Kendall rank correlation coefficients between the estimated and

observed preferences give an indication of the fit of the analysis.

TABLE 3

Average Part-Worth Utilities and Relative Importance of the Coffee Attributes
(Total Sample and Clusters)

Average Part-Worth Utilities

Clusters

Attributes

Total sample 1 2 3 4

Label

Fair trade 3.74 11.93 5.51 1.14 1.21

No fair trade 23.74 211.93 25.51 21.14 21.21

Brand

Douwe Egberts 3.27 1.34 1.64 1.92 7.85

Private brand 23.27 21.34 21.64 21.92 27.85

Blending

100% Arabica 1.04 .69 1.53 1.11 .37

Arabica/Robusta 21.04 2.68 21.53 21.11 2.37

Package

Warm 2.08 .10 2.12 2.04 2.15

Cold .08 2.10 .12 .04 .15

Flavor

Mocha 2.07 2.75 2.29 .20 .18

Dessert .90 1.31 .34 2.59 2.39

Decaffeinated 2.82 2.56 2.05 22.79 .21

Constant 78.17 80.29 78.17 72.89 71.43

Fit

Pearson’s R 1 (.000) 1 (.000) .999 (.000) 1 (.000) 1 (.000)
Kendall’s s 1 (.0003) 1 (.0003) 1 (.0003) 1 (.0003) .982 (.0004)

Average Relative Importance

Clusters
Attributes Total sample 1 2 3 4

Label 25.3 69.2 31.7 11.1 10.1

Brand 28.4 10.0 20.1 16.5 60.1

Blending 11.7 5.3 16.4 11.8 7.4

Package 9.1 4.1 10.5 11.1 7.2

Flavor 25.5 11.4 21.2 49.5 15.1

Respondents (percentage

of the total sample)

11 40 24 25

Note: p values in parentheses.

374 THE JOURNAL OF CONSUMER AFFAIRS

As could be expected, the brand attribute had the highest relative impor-

tance for the total sample. Fair-trade label and flavor came second in the

purchasing decisions of the consumers with an almost negligible difference

in importance. Label is judged almost as important as flavor and somewhat

less important than brand. Package and blending were of minor relative

importance. However, one has to remain cautious concerning the impact

of the three dominant attributes; brand, label, and flavor. Coffee is, as

opposed to a washing machine for example, a relatively low-involvement

good, which implies a relative low importance of any attribute. Buying

a specific type of coffee is often a matter of habit. This is also shown

in the conjoint analysis by the much superior part-worth utility of the

constant (i.e., the part of utility of coffee not explained by the five attributes)

compared with the part-worth utilities of the attribute levels.

From the results of the conjoint analysis, the consumers were assigned to

different groups based on a cluster analysis of the relative importance of the

attributes. First, the number of clusters was determined from a hierarchical

cluster analysis using Ward’s method. Next, the optimal cluster composition

was determined using a K-means cluster analysis. As suggested by Hair

et al. (1998), we used the percentage change of the agglomeration coeffi-

cient as a criterion to discriminate between different cluster solutions. We

opted for a four-cluster solution because of the substantial acceleration of

the increase of the agglomeration coefficient when passing from four to

three clusters, i.e., an increase of 23% compared with the 11.6% moving

average increase of the previous five cluster solutions and the 13% increase

of the agglomeration coefficient when going from a five- to a four-cluster

solution. A drawback of hierarchical methods is that an individual can never

be removed from the cluster to which he or she has been assigned. This

may result in a suboptimal clustering. Hence, once the number of clusters

was determined, we performed a K-means cluster analysis to determine the

optimal cluster partitioning.

Table 3 indicates that the four identified clusters differed substantially in

average part-worth utilities and relative importance of the attributes. The

respondents in the first cluster expressed a high and clear preference for

the fair-trade label. This group was therefore denoted the fair-trade lovers
cluster. Cluster 2 is characterized by a relative balance between each attri-

bute, although the fair-trade label still came out as the most important one.

We called this cluster the fair-trade likers. The flavor lovers comprise clus-
ter 3. They prefer the flavor of their coffee and barely make a distinction

between other attributes. Finally, the salient characteristic of cluster 4 is the

relative importance respondents lay on the brand of their purchased coffee.

They are termed brand lovers.

WINTER 2005 VOLUME 39, NUMBER 2 375

Willingness to Pay for a Fair-Trade Label

In order to express their preferences for a given type of coffee, respond-

ents were asked about their willingness to pay of the eight coffee profiles, in

comparison with a price of e1.87 for the reference profile. Since the ortho-

gonal design was representative for all combinations of attribute levels, the

four profiles with a label only differed from the four profiles without a label

in terms of the label itself. Therefore, we could determine the willingness to

pay for a fair-trade label as the difference between the average price of the

coffee profiles with a label and the coffee profiles without a label (i.e., the

price premium of fair-trade coffee). In Table 4, we show some benchmark

indicators for the willingness to pay for the total sample and the four iden-

tified clusters: the average willingness to pay and the share of the respond-

ents who were willing to pay a price premium of at least 10% and at least

27%. The latter figure represented the actual price premium of fair-trade

coffee based on all types of coffee available on the market in Belgium

(ACNielsen 2002).

The average willingness to pay for the total sample was 10% (e0.19) but

varied substantially from 36% (e0.62) for the fair-trade lovers to less than

5% for the taste and brand lovers (e0.07 and e0.06, respectively). A total of

35% of all the respondents were prepared to pay a price premium for fair-

trade coffee of at least this average; ranging from more than 90% of the fair-

trade lovers to 18% (flavor lovers) and 13% (brand lovers). Flavor and

brand lovers were definitely not prepared to pay the actual premium of

27%. The same applies to more than 80% of the fair-trade likers and almost

TABLE 4

Willingness to Pay for a Fair-Trade Label

Average Willingness to Pay for a Fair-Trade Label

(Price Premium as a Percentage of No Fair-Trade Coffee)

Clusters
Total sample 1 2 3 4

10 36 17 4 3

Share of the Respondents Willing to Pay the Price Premium (%)

Clusters

Price Premium (%) Total sample 1 2 3 4

At least 10 (e0.19) 35 91 65 18 13

At least 27 (e0.50)

(actual premium,

all types of coffee

included)

10 52 17 1 0.7

376 THE JOURNAL OF CONSUMER AFFAIRS

half of the fair-trade lovers. Table 3 indicated that about half of the respond-

ents considered the fair-trade label when purchasing coffee. However, when

the respondents’ willingness to pay the actual price premium was taken into

account, potential market penetration (the share of the consumers that can be

expected to buy fair-trade at a given price premium) of fair-trade coffee

dropped to about 10%. Since the amount of coffee each of the groups buys

is unknown, this market penetration potential should not be interpreted as

a potential market share. Furthermore, this penetration potential is only

valid under the assumptions of correct information and equal availability.

The penetration potential of 10% was substantially less than the 68% in

the study of Hines and Ames (2000) who claimed to have bought a product

or a service because of a company’s responsible reputation and the 46% of

the European consumers who claimed to be willing to pay substantially

more for ethical products (MORI 2000). As already mentioned, American

consumers agreed with a price increase of 6.6% for green products (The

Roper Organization, Inc. 1990), less than the average price premium for

fair-trade coffee in our sample, but this figure may be somewhat dated.

Similarly, French consumers indicate a willingness to pay 10%–25% more

for apparel not made by children (CRC-Consommation 1998). Our findings

for fair-trade coffee corresponded with the lower limit of this estimate.

To what extent are our results affected by the overrepresentation of young

and higher-educated respondents in the sample? In order to assess this, we

calculated the average part-worth utilities, average relative importance of the

attributes, and average willingness to pay for the subsample of administra-

tive and technical staff (41% of the respondents), the composition of which

was more in line with the total Belgian population. From the Labour Force

Survey (Eurostat 2002), the age group younger than 24 years represented

9% of the workforce in Belgium (12% in the EU, 5% of the subsample in our

survey), the age group between 25 and 45 years 73% (67% in the EU, 64%

of the subsample), and the age group between 45 and 64 years 17% (21% in

the EU, 31% of the subsample). The higher educated remained overrepre-

sented in the subsample of administrative and technical staff (60% of total

respondents), compared with the Belgian population (40%) and EU average

(33%), although less than in the full sample.

For the subsample of administrative and technical staff, the brand was

the most important attribute, counting for 28% of the total utility of the five

attributes, as in the full sample. Again, flavor and label are equally impor-

tant, accounting on average for 26% and 25% of the total utility of all the

attributes, respectively. The relative importance of package and blending

was also identical for the subsample and the full sample (12% and 9%,

respectively). The average willingness to pay of the subsample of the

WINTER 2005 VOLUME 39, NUMBER 2 377

administrative and technical staff amounted to 11%, i.e., close to the 10%

for the total sample. Hence, it would seem that our results are not too

severely affected by the specific composition of the sample regarding

age and education. Nevertheless, we have to remain cautious to extrapolate

our results to the total population.

Characteristics of Fair-Trade Consumers

From the second part of our survey, we profiled the clusters in the coffee

market in demographic and personal value terms. As described above, the

significance of demographic factors in ethical decisions is not clear. Based

on the literature survey in the introduction of this study, only age, gender,

and education were considered. The age variable was classified into three

categories: 18–30 years, 31–44 years, and 45 years or older. Two levels of

education were considered: high school (12 years of education or less) and

higher education (more than 12 years of education).

Table 5 gives a description of each cluster in terms of age, education,

and gender. For every independent variable, the p value of the Pearson chi-
square test on equal means is given in parentheses. Regarding gender, the

fair-trade lovers and likers consisted of an almost equal share of men and

women. This confirmed earlier studies that have concluded that ethical buy-

ing behavior was not influenced by gender (e.g., MORI 2000; Sikula and

Costa 1994; Tsalikis and Ortiz-Buonafina 1990). Women represented

a more than proportionate share of the brand lovers. The reason for this

could be that women still do more shopping than men and therefore could

be more brand aware. Men were more than proportionately flavor lovers.

TABLE 5

Cluster Demographics (in Percentage of Full Sample or Cluster)

Total

Sample
Fair-Trade

Lovers

Fair-Trade

Likers

Flavor
Lovers
Brand
Lovers

Gender (.016)

Male 46 51 44 54 40

Female 54 49 56 46 61

Education (.037)

High school 16 8 16 21 15

Higher education 84 92 84 79 85

Age (.000)

24–30 58 54 57 49 69

31–44 27 37 26 25 25

45 and older 15 9 17 26 6

Note: p values in parentheses.

378 THE JOURNAL OF CONSUMER AFFAIRS

People in the 31–44 year age group were dominant in the fair-trade lov-

ers cluster. This was in line with the profile that fair-trade organizations see

as their target group. It confirmed the findings of Littrell and Dickson

(1999) and (to a certain extent) Roberts (1995). The results are not in line

with the demographic profiles found in studies relating to other types of

ethical consumer behavior, e.g., Dickson (2001), concerning the impor-

tance of the no-sweat label. The youngest age group is dominant in the

brand lovers and less prevalent in the flavor lovers. Finally, the flavor

lovers were older than the members of the other clusters.

The highly educated, defined as indicated above, constituted a more than

proportionate share of the fair-trade lovers and a less than proportionate

share of the flavor lovers. Studies tend to conclude that the ethical con-

sumer is a person with a relatively high educational status (Carrigan

and Attalla 2001; Littrell and Dickson 1999; Maignan and Ferrell 2001;

Roberts 1996). This sociodemographic profile was confirmed in the con-

text of fair-trade buying behavior in Belgium (Idea Consult 2002). How-

ever, the difference in education distribution of the clusters became

insignificant if we defined those with higher and lower levels of education

in alternative ways, i.e., as respondents with and without a university

degree, or in three categories (university degree, college nonuniversity

degree, and high school). It would seem that the relevant education dif-

ference is between high-school-only consumers and higher-education

consumers.

To define the basic dimensions that underlie the Rokeach scale measure-

ments, an exploratory factor analysis was carried out on the 36 scale items.
2

We distinguished five factors: a conventionalism factor, a competence
factor, a sincere and social factor, an idealistic factor, and a personal grat-
ification factor. Their reliability was determined, using Cronbach’s alpha.
This is a coefficient of reliability that measures how consistent a set of items

(or variables) measures a single dimensional latent construct. Alphas

should be higher than .7 but may decrease to .6 in exploratory research

(Hair et al. 1998). Some of the five factors that result from this analysis

are also found in previous studies (e.g., Crosby, Bitner, and Gill 1990;

Vinson, Munson, and Nakanishi 1977), but other studies have found less

factors (e.g., Dickson 2000; Gibbins and Walker 1993) or concluded that

the number of dimensions found are dependent upon moderating variables

such as cross-cultural differences (see, for instance, the overview by

Meglino and Ravlin 1998).

An analysis of variance for every factor was conducted to check for sig-

nificant differences between the four previously identified clusters using the

Bonferroni post hoc test. Table 6 provides the differences in means between

WINTER 2005 VOLUME 39, NUMBER 2 379

the clusters for each factor. The means ranged between 3 and almost 5 on

the scale between 21 and 7 and were mostly higher than the midpoint scale

values.

The competence factor and the sincere and social factor were not signif-

icantly different across the clusters. Fair-trade lovers were less conventional

than flavor lovers and brand lovers. Next, fair-trade lovers and fair-trade

likers were significantly more idealistic than the other two clusters. Roozen,

De Pelsmacker, and Bostyn (2001) also found idealism as a determining

factor for ethical behavior. Dickson (2000) found that societal-centered val-

ues predicted attitudes toward socially responsible businesses. Finally, the

brand lovers were significantly more motivated by personal gratification

than any other group of respondents.

Overall, the four clusters could be described as follows. Fair-trade lovers

accounted for 11% of the sample. For this group, a fair-trade coffee label

represented the dominant attribute when buying coffee. Members of the

group were largely between 31 and 44 years of age and higher educated

than the other clusters. They were, together with the flavor lovers, predom-

inantly male, more so than the other two clusters. This cluster also tended to

be more idealistic and less conventional. The fair-trade likers formed the

largest group, with 40% of the sample. They tended to choose a fair-trade

label on coffee but also had the highest preference for blending and the

second highest preference for any other attribute. Demographics were

not notably different from other clusters, and they adhered to the same val-

ues as the fair-trade lovers. The flavor lovers consisted of approximately

one-quarter of the total sample (24%). There were more men in this cluster.

They were older and less educated (although this could be intrinsic to the

fact of being older, i.e., a generation effect). They were more conventional

than the two former clusters and less idealistic. The brand lovers accounted

for 25% of the sample and were mainly women with an education profile

similar to the fair-trade likers. Brand lovers were significantly younger than

TABLE 6

Bonferroni Post Hoc Tests for the Five Underlying Factors

Fair-Trade
Lovers
Fair-Trade
Likers
Flavor

Lovers Brand Lovers

Conventionalism 3.02 (1,3); (1,4) 3.35 (2,4) 3.65 (3,1) 3.78 (4,1); (4,2)

Competence 4.60 4.45 4.56 4.50

Sincere and social 4.91 4.79 4.70 4.72

Idealistic 4.53 (1,3); (1,4) 4.47 (2,3); (2,4) 4.06 (3,1); (3,2) 4.00 (4,1); (4,2)

Personal gratification 3.47 (1,4) 3.60 (2,4) 3.59 (3,4) 3.96 (4,1); (4,2); (4,3)

Note: The figures in parentheses indicate significant differences between cluster pairs of the mean factor

scores at the .05 level.

380 THE JOURNAL OF CONSUMER AFFAIRS

any other group. Considering personal gratification as a way of life made

the difference between this and the other clusters.

CONCLUSIONS

In this paper, we investigated to what extent consumers consider a fair-

trade label when purchasing coffee, using a sample of Belgian consumers.

A substantial number of surveys showed that consumers value the ethical

aspect in a product. However, consumers’ behavior in the marketplace

is apparently not consistent with their reported attitude toward products

with an ethical dimension. In this study, we tried to avoid the misleading

general attitude indications by capturing the hypothetical purchase inten-

tion for fair-trade coffee. In presenting a choice situation to consumers in

a close-to-reality setting, we tried to determine the value of a fair-trade

label, and hence the importance of ethics, by including simultaneously

all the relevant dimensions of coffee-buying intentions. The brand was

the most important attribute of coffee, closely followed by flavor and

fair-trade label in third. The willingness to pay for a fair-trade label on

coffee of the respondents indicated that about 10% of the sample wanted

to pay the current price premium of 27% in Belgium.

Clusters based on differences in preference were defined to estimate mar-

ket opportunities for fairly traded coffee and to profile potential consumers.

Profiling was done by means of demographic features: age, gender, and

education level, as well as underlying factors of the Rokeach personal val-

ues scale. Four clusters were identified. The fair-trade lovers accounted for

11% of the sample and were predominantly aged 31–45 years. They were

more idealistic and less conventional compared with other groups. The fair-

trade likers represented the largest group. They did not differ significantly

from the rest of the sample in terms of demographic characteristics, but they

were relatively more idealistic. The flavor lovers and the brand lovers each

accounted for one-quarter of the total sample and were less idealistic and

more conventional. In addition, brand lovers were more likely to be

women. The fair-trade lovers constituted the group that was most prepared

to pay the actual price premium (slightly over 50% of them). Of the flavor

lovers and the brand lovers, who account for 50% of the sample, only

a small minority was prepared to pay the sample average price premium

of 10% for fair-trade coffee.

The 11% fair-trade lovers cannot be considered equivalent to actual mar-

ket share because the amount of coffee they buy relative to the total pop-

ulation is unknown. Furthermore, the results of this study were based on the

assumption of extensive, equal, and correct information for all respondents

WINTER 2005 VOLUME 39, NUMBER 2 381

and the availability of fair-trade coffee to the same extent as other brands. In

reality, this is not the case. Second, the response rate of the mailing was

only half that of the online survey. This adds to the explanation why higher

educated and respondents younger than 45 years tended to be overrepre-

sented in our sample (although our basic results are unaffected by the spe-

cific composition of the sample). Due to the probable, but unknown, bias in

the sample toward fair-trade issues, and because of the overrepresentation

of the higher educated, we consider the market penetration potential of 10%

as an upper limit. Nevertheless, the gap between this and the actual market

share of fair-trade coffee of 1% on the Belgian market suggests that even at

the actual price premium, there is an unexploited market potential for fair-

trade coffee; however, this is somewhat more modest than that suggested by

some other studies.

Although the fair-trade lovers are a considerable niche, the size of the fair-

trade likers segment indicated an even larger market potential of fair-trade

coffee. Fair-trade lovers and likers covered 50% of the consumers. These

two groups could be convinced to buy fair-trade coffee if better informed

and the right marketing efforts are pursued. Fair-trade likers also attach a lot

of importance to attributes such as brand and flavor. To appeal to them, the

quality of the fair-trade coffee should match that of regular brands. The

creation of a genuine fair-trade brand, instead of labeling other brands with

fair-trade, may be a more efficient and credible alternative to promote the

fair-trade idea to a broader audience. Finally, although the willingness to pay

the actual price premium for fair-trade coffee was relatively strong in the fair-

trade lovers group, it was on the contrary relatively weak in the fair-trade

likers segment. Apparently, the appreciation for the fair-trade attribute was

not strong enough to support the actual price premium. Maybe the most effi-

cient way to expand the market would be to reduce the price premium of fair-

trade coffee to a level more acceptable by larger parts of the population, e.g.,

by giving tax incentives such as lower value-added tax, similar to the tax

reductions for environmentally friendly products in some countries.

There are at least two directions in which this research could be

expanded. One direction for future research is related to the increasing com-

petition on the ‘‘good-cause label’’ market. A growing number of products

carry ‘‘green,’’ ‘‘bio,’’ ‘‘social,’’ or fair-trade labels. Ethically oriented con-

sumers are increasingly faced with the choice between these labels. A sim-

ilar study to ours is currently being conducted in which the type of label

(and not just the presence or the absence of a fair-trade label) is incorporated

as a product attribute. This will provide more insight into the willingness to

pay for different types of ethical products in terms of what or whom they

benefit (the environment versus people, the immediate context of the

382 THE JOURNAL OF CONSUMER AFFAIRS

consumer versus geographically remote contexts, etc.). The willingness to

buy and to pay for fair-trade products may also be contingent upon the

availability of these products in shops, the credibility of the issuer of

the label, and the amount and quality of the fair-trade information. A

follow-up study is currently under way in which these aspects are also

incorporated as product attributes. This will enable fair-trade marketeers

and governments to optimize their marketing and information efforts.

A second direction for further research may focus on the increasing use

of fair-trade labels on other types of products besides coffee, such as

bananas, honey, chocolate, and clothing. A similar study as for fair-trade

coffee could be set up to investigate the relative importance of fair-trade and

other ethical labels across product categories, to assess the willingness to

pay a price premium for the ethical label attribute, to estimate the market

potential of fair-trade and other ethically labeled products, and to define

promising market segments of consumers in different product categories

and markets.

ENDNOTES

1. All the computations were performed using SPSS.

2. For the sake of brevity, factor loadings and other detailed figures are not reported. They are

available from the authors upon request.

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