Social Business
Commentary

Mythbusting: People buy from social enterprises purely on ethics

Burgess COMMENTARY
In my experience, the analysis of social business and initiatives like Fair Trade is not very deep. I have worked at various points in the value chain of many products including some agricultural products like coffee and cocao. The impact of Fair Trade has been 'sold' to a gullible public and has been embraced by mainstream marketers as a way to differentiate their product offering ... but the general state of the value chain has moved very little.

I usually am very positive about PBS programs, but a documentary they aired some time ago ... probably around 2009 (??) on the subject of Fair Trade was interesting as a travelogue, but rated near zero in terms of the analysis of Fair Trade it presented. It was a classic case of getting the analysis from the perspective of the project, identifying all the good things ... but missing out on the critical bad things that also were in play.

I was particularly concerned that farmers loved the idea that if they produced a high quality product they would get a better price, and they worked hard to achieve this. But the program did not talk about what happened if, despite their best efforts, the product did not come up to the standards being asked. The result of failure in this regard was not identified, but it was pretty clear that the farmers were on their own!

My experience trying to market fair trade coffee ... not the Fair Trade brand ... but coffee that really did deliver a much higher price to the farmer, was an education. I could have sold excellent coffee into the big marketers at a low price, but not at a fair price. The value chain is tightly controlled, with big profits for the established players and rather little for farmers and anyone who is on the periphery of the market. As productivity initiatives are introduced, the value chain adjusts with relatively few very the big players continuing to dominate the trade.
Peter Burgess

Mythbusting: People buy from social enterprises purely on ethics

Social businesses must do more than simply convince consumers that they are ethical. Quality is essential, says David Floyd

Social enterprises should learn from Fairtrade that consumers only consider ethial factors when price, quality and availability are of a high enough standard. Photograph: PA

As a model for social enterprise, the Fairtrade movement has a lot to answer for. I grew up in a Christian family and, although I'm no longer religious, I continue to recognise, with fondness and respect, many of the apparently bizarre but ultimately socially valuable things people to do as result of their faith.

Buying and, even more bizarrely, drinking some of the earlier brands of Fairtrade tea and coffee certainly fell into that category. Now those days have passed, it's probably OK to admit that some of these drinks were a cocktail of unpleasantness – if I close my eyes, it's still possible to recall the aftertaste 20 years on – and additional expense that, by any conventional logic, should have proved commercially lethal.

Instead, Fairtrade has proved to be a massive success because it's a movement based on a good idea. The idea that customers who buy Fairtrade products know that, as a result of their purchase, the producers and workers who make Fairtrade products are paid a fair price and a premium on top of that to invest in social projects.

The idea was so good that, with the support of particularly socially committed early adopters, it generated enough momentum to give specialist Fairtrade manufacturers time to make their tea and coffee first relatively drinkable, then relatively affordable, until it eventually tasted really good and cost a similar amount to other brands.

Now many Fairtrade brands have progressed from the stall at the church coffee morning to the shelves of the major supermarkets, while many of their corporate rivals are now also producing their own Fairtrade products.

Unfortunately, many in the social enterprise movement observed the success of the Fairtrade brand and make some giant leaps of thinking that were superficially comforting but ultimately wrong.

A reasonable message to take from the Fairtrade experience is that, when choosing which specific product from a range of available brands, a small percentage of people give a very high priority to ethical considerations and a significantly bigger percentage may consider ethical factors if everything else – price, quality, availability – is more or less the same.

This is also suggested by the limited research available on the subject. For many social entrepreneurs, the message has been that there are millions of people who buy Fairtrade products, and therefore there are millions of people who'd really like to buy products from social enterprises if only they could find them.

At the other end of the social enterprise optimism spectrum, in a recent piece social entrepreneur Robert Ashton apparently questioned whether social enterprises could possibly compete with (increasingly socially aware) mainstream businesses at all.

Reflecting on Starbucks' recent decision to boost its social impact, he noted that: 'Starbucks ran a series of full-page press ads explaining their plan to contribute directly to one of the UK's most pressing social problems: youth unemployment. They're going to take on 1,000 new apprentices over the next two years.'

Ashton predicts that: '… 2013 will see social enterprises challenged by large corporates. Starbucks sells an awful lot of coffee, sandwiches and cake. A turnover of almost £400m per annum, and 8,500 employees, makes it easy to make a big difference with a very little effort.'

Ashton may be right in the sense that simply boasting of being social enterprise is not a strong basis for a rival company to compete directly with Starbucks on the basis of price, brand awareness and general ubiquity.

However, it doesn't necessarily mean that a local, independent coffee shop – run on a social enterprise model – couldn't use the fact that it was a social enterprise as an additional selling point, on top of offering good coffee and cakes and alternative to the major chains.

The point is that, for most customers, the social enterprise element would be a bonus and, at best, one consideration among many others. And that's the situation for most social enterprises selling most goods and services to most customers.

As Matt Jarratt, director of social enterprise development at health and social care social enterprise, SCA Group, says: 'In our experience customers, be they private purchasers or commissioners, buy our services because they offer the highest quality and best value for money. They like the impact we create as a social enterprise, but the legal model itself is of little interest to them.'

He adds: 'As a social enterprise, it's up to us to use our model well, but the end result must be that we offer the best commercial and social value possible, regardless of the ownership status of the business.'

Like any other business, a social enterprise has to make use of any advantages it has in order to convince customers to buy what it's selling.

Depending on the situation, the fact that an organisation is a social enterprise may be a significant factor or entirely irrelevant to the choice a customer makes – but it's never going to be the sole reason for their decision.

David Floyd is managing director of Social Spider CIC and blogs on Beanbags and Bullsh!t