QUESTION WEEK 9 Robert Hein Franziska Keich Anke Sander Sabrina Schlothane

Agenda  Problem  Definition  Ethical Business  Competitive Differentiation  Examples  The Body Shop  Fairtrade  Conclusion

Problem 3 Is „Ethical Business“ a viable form of competitive differentiation in consumer markets? Illustrate the points you make by reference to examples from two sectors with which you are familiar

„Ethical Business“ Rania Ahmed Azmi, Alexandria University (July 2006)  Transactions after ethical principles  Study of good behaviour  Deals with corporate conduct Includes working towards the ending of child &forced labour as well as sweatshops looks at health and safety & labour conditions 4 “Ethical business means conducting all aspects of business and dealing with all stakeholders in an ethical manner”

Importance of Ethical business  Increasing importance of ethical behaviour  Growing demand for higher standards of corporate social responsibility  Stakeholders (esp. customers) hold companies responsible for their actions  Firms that want to sustain distinctive competitive advantages need to protect, exploit and enhance their unique intangible assets, particularily integrity  building firms of integrity is the hidden logic of business ethics

Competitive Differentiation  Competitive Differentiation  To distinguish company from competitors  Can be derived from: Employment principles Products Price Quality Brand Corporate Social Responsibility (environment, local communities)  Differential Advantage:  „perceived difference in value that leads target customers to prefer one company´s offer to those of others“ (Doyle, 2000)

…in Consumer Markets  Differentiation:  Price  Quality  Innovation  Distribution  Availibility ...  Ethical business ???

Customers  Four types of customers (Doyle 2000)

Competitive Advantage Creation

The Body Shop  Unique business philosophy  Not only limited to profits  BUT also try to encompass socially responsible principles  By 2004  > 1,980 Body Shop stores  > 40 countries  Voted the second most trusted brand in the U.K. Source: Shop-Becomes-a-Success.html

The Body Shop Corporate Values: Against Animal Testing Support Community Trade Activate Self Esteem Defend Human Rights Protect Our Planet  Unique philosophy  Differentiation from competition  Relative success in market niche

Fairtrade  Fair trade criteria  price that covers the cost of production  reasonable working conditions  environmental standards  long-term contracts to allow for sustainable production  AND additional payment of a social “premium” for development purposes

Fairtrade (cont.) Hugh Phillips, retail analyst (2006) “After BSE, salmonella and so on, people increasingly want to know where their food comes from. Initially this was to do with food quality, purity, with organics and so on, but more recently it has spread to the ethical basis of how it was traded.”

Is „ethical business“ a viable form of competitive differentiation?  „Consumers are increasingly reluctant to deal with companies they regard as unethical“  Bernoth (1996)  When customers percieve companies as trustworthy  More likely to choose products  More likely to repurchase  Competitive Advantage  Companies that trade ethically  Occupy market niche  Differentiate from competitors