With numerous tools available to help people learn about a company’s corporate social responsibility (CSR) practices, consumers now have higher standards for corporate dedication to sustainability and social rights. According to Markstein and Certus Insights, 70% of consumers want to know how the brands they support are addressing social and environmental issues, and 46% pay close attention to these efforts when making purchase decisions. Still, some decision-makers are unconvinced about the business case for monitoring social and environmental practices and reporting back to consumers. Longer, complex supply chains tend to be more costly to examine, which leaves leaders wondering about the best way to balance consumer expectations and cost.
The authors of this article set out to take a closer look at how a consumer-facing firm can benefit from disclosing supplier-monitoring activities (SMAs) to consumers as an effort to achieve supply chain transparency. Specifically, we chose to measure how consumer attitude toward the focal firm and consumer purchase intention was affected by SMA disclosure. We looked at three different kinds of variables: SMA depth, SMA breadth and SMA monitoring mechanisms.
Dig deep to ensure compliance
SMA depth is pertinent from a consumer perspective because they hold companies accountable for the actions of other members of their supply chains. For example, Mars, Nestlé, Hershey and other major candy manufacturers have come under fire for having child labor deep in their supply chains.
To discern the effects of SMA depth, we created a vignette-based, role-playing experiment to determine how consumer perception of a fictitious technology company, Techmax, changed as the firm offered details about how it monitored its suppliers. We recruited 214 participants from Amazon Mechanical Turk (M-Turk), an online crowdsourcing platform, and gave them this scenario: “You are going to buy a computer. When researching products online, you see the following option from a company called Techmax on an e-commerce site.”
We then randomly assigned participants to one of three scenarios and varied the amount of information presented to them:
- In the control scenario, participants were shown basic product information, including brand name and logo, plus product images and specifications. They were given this basic description: “We are passionate about driving human progress through greater access to better technology, for people with big ideas around the world.”
- For the first-tier SMA variable scenario, we offered this additional information: “We collaborate with supply chain partners to optimize transportation and materials usage and to increase energy efficiency in our tier 1 (direct) supplier factories.”
- In our first- and lower-tier SMA scenario, we gave participants this description: “As a multinational corporation, our direct (first-tier) suppliers procure materials and services from lower-tier suppliers, labeled tier two and tier three. Our supply chains can extend to many more tiers. Hence, compliance must be assured throughout the supply chain. We collaborate with supply chain partners to optimize transportation and materials usage and to increase energy efficiency in our tier 1 and lower tier supplier factories.”
In order to provide field-relevant context, the text in all vignettes was based on actual quotes from other companies’ websites or CSR reports.
Next, we measured people’s attitudes toward the firm and their purchase intention based on the information they viewed. Our analysis showed that the SMA depth had a meaningful effect on both dependent variables. Consumer attitude and purchase intention were both significantly more favorable when the participant was told Techmax conducted first- and lower-tier SMAs. Furthermore, first-tier SMAs generated significantly more positive consumer attitude and purchase intention levels than giving no specific SMA information.
CSR information has a halo effect
In another related study, we measured how the breadth of SMA — in terms of whether the focal firm did environmental monitoring, social monitoring or both — affected consumer attitude and purchase intention. Again, we gave our M-Turk participants a computer shopping scenario, as well as basic information about Techmax computers. We then randomly assigned the 199 participants to one of four scenario groups:
- In the control group, participants were given this description: “We are passionate about driving human progress through greater access to better technology, for people with big ideas around the world.” This description also was used in the previous study.
- In the environmental-only group, participants were given additional information about efforts to reduce the firm’s carbon footprint, lower energy and water consumption, and recycle waste.
- In the social-only group, participants were giving more details about community service engagement, diversity and inclusion priorities, and efforts to wipe out supply chain slavery.
- The mixed group was shown a combination of all of the above information.
We measured consumer attitude toward the focal firm as well as purchase intention. Although we expected them to be most positive when consumers were told the focal firm conducted both environmental and social SMAs, this was not necessarily the case. We found that providing some information about the social or environmental dimensions of SMAs was associated with more positive consumer attitude and greater purchase intention than when that information was not provided. However, there was no incremental benefit to communicating details about both types of SMAs. This could be because the information might create a halo effect — meaning that consumers might use information about environmental SMAs to infer that the focal firm also is conducting social SMAs, or vice versa.
How you monitor suppliers matters too
A key insight in both of the tests is that consumers seem to associate more spending on SMAs with more favorable companies and products. In the first test, as Techmax spent more money to monitor lower-tier suppliers, consumer attitude toward the firm improved. Similarly, as the fictitious company invested in environmental or social SMAs, consumer attitudes were more positive.
In the third part of this experiment, we aimed to determine if how a firm monitors its suppliers makes a difference in consumer attitude and purchase intention. In another vignette-based study, we gave our M-Turk participants the computer-shopping objective and then randomly assigned them to one of four groups:
- The control group was not given specific information about how supplier monitoring was conducted.
- The direct-monitoring group was given an explanation about how the focal firm personally conducted on-site audits.
- The indirect-monitoring group was shown information about what tier-1 suppliers were expected to do to monitor lower-tier suppliers.
- The third-party-monitoring group was shown information about the third-party supplier audits.
Consumer attitude and purchase intention were most favorable when participants were told the focal firm handled its own SMAs. We expect this is because consumers view direct monitoring as the most expensive approach, as the focal firm incurs time and financial costs to personally visit suppliers for inspections. In indirect monitoring, the focal firm just has to ensure the first-tier suppliers’ cooperation in the monitoring process through financial or relational incentives. Costs seem to be lowest when a third-party is hired to do the monitoring because these agencies have wider expertise and economies of scale.
Interestingly, we did find that communicating both social and environmental efforts is not necessary. This does not mean that companies should not engage in these practices — both are unequivocally important. Instead, consider shorter marketing messages that pique people’s interests.
What can SMA efforts do for your business?
These studies all show that SMAs have a critical influence on consumer attitudes and purchase intention. It’s not enough for companies to passively engage in SMAs when new regulations arise. They must proactively engage in SMAs that will improve their supply chains, then communicate these efforts to consumers.
The benefits are even greater as more investment and care are dedicated to the SMA cause — at least to a point. As our studies show, consumers value efforts to monitor lower-tier suppliers and to take the time to personally affirm that these suppliers are doing a good job. Yes, these are challenging tasks; but the payoffs could very well offset the costs.
Positive consumer perception often is the first step toward a sale. It’s important to show your prospective consumers all of the ethical value your company and products offer. Consumers are watching your SMAs. Don’t disappoint them.
To read the full study report, visit the article in The Journal of Operations Management