The only way is ethics: Study reveals the role of ethics in customer retention

In an age when consumers have more choice over which companies to give their money to, there is also a wide spectrum of reasons driving consumer behavior. Businesses can no longer rely on just being the brand that offers the best price, increasingly; non-financial issues are becoming more important to customers.

One such area that has become more important is the issue of ethical business practice, perhaps historically not a major issue for consumers, but now becoming an especially important aspect for a business to get right. Take the energy sector for example, where ethically focused companies such as Bristol Energy and Ecotricity are experiencing consistent growth.

Whether it’s implementing fair employee practices or promoting the green agenda, consumers are now putting more weight behind how a company acts, and how they are seen to react. We recently conducted research, which found that customers are giving more weight to corporate social responsibility when choosing a supplier – with 12% saying this would be the main issue when evaluating a potential provider.

Companies that find themselves on the wrong side of a bad headline are at more risk than ever of losing customers, especially as the rise of the “activist” consumer takes hold.

These consumers are particularly interested in giving their money to “good” companies and are much more likely to move their business elsewhere if a provider gets caught in a scandal or is exposed for negative practices.

Ethical is becoming essential

The fact that 66% of consumers are willing to spend more money with an ethical business, further serves to highlight the problem for businesses that fail to put enough focus behind this.

Those companies that take the time to develop a positive public image and commit to ‘doing the right thing’ are often finding themselves ahead of the competition, and that includes being ahead of businesses that base their customer acquisition and retention strategies entirely on price.

Two-thirds of consumers would spend more money with an ethical business.

While two-thirds of consumers would spend more money with an ethical business, according to our own research, which looks at how to retain customers in a world of choice, 16% would actually look to move their business away from a business they thought didn’t hold the same values as them, or was caught up in a negative story.

And in the water sector, which is currently a monopoly market, 20% of consumers said supporting a greener company would be a strong motivation for them to switch supplier, should they be given the opportunity in the future.

Given the possible government agenda to deregulate the household water sector in the future, ethical considerations will be important for companies in this sector to think about if and when consumers are able to make a supplier choice.

Commercial importance of ethics in business

A company’s ethical practices are an increasingly important aspect of long term business success, as falling foul of a scandal can present a very serious financial challenge.

The emissions scandal at Volkswagen is a prime example of a crisis of ethics that can rock a major business. There was no shortage of negative headlines aimed at the worldwide car manufacturer after it emerged the company had manipulated emissions scores against some vehicles.

In the months following the scandal the business saw a 1.2% fall in deliveries of vehicles, while its market share declined to 25.2% from 26.1%. While as a percentage this may not seem significant, in cash and revenue it was a big hit for the company to take, and even now the brand continues to suffer the effects of the scandal.

Businesses should consider that if customers are now putting more emphasis on ethics, it is something every company needs to take more seriously.

If customers are now putting more emphasis on ethics, it is something every company needs to take more seriously.

Brand image is of course nothing new in business and it has been long established that a company’s reputation will impact its ability to do business. As far back as 1998, a study by Burson-Marsteller highlighted the link and importance of a CEO’s reputation when it came to attracting investment; as people looking to put money into a company are more likely to want to be associated with a business with a better reputation.

Another study conducted by DePaul University found that companies with a “defined corporate commitment” to ethical principles did better financially than those that didn’t. In some cases, it wasn’t even that another company had a bad reputation but the more successful ones had taken strides to define this commitment and were regularly seen to be “doing the right things”.

A brave new world in business

Price and value for money will always be important factors in choosing which supplier to go with, particularly in a time of austerity and when household budgets get tight.

But it is important that businesses take note that consumers no longer view price and reduced bills as the be all and end all when choosing who to give their custom to.

Thanks to the rise of social media and the ability to share news and opinions on brands, businesses are coming under increasing pressure to put ethics and better business practices at the heart of what they do.

Those that fail to do this will quickly find themselves falling behind the competition and it may take a long time to recover.

Chris Cullen is head of sales and marketing at outsourced customer contact specialist, Echo Managed Services