Expert warns SMEs “unkind firms will be punished by consumers” during downturn

Small businesses have been warned not to neglect environmental and social commitments during the current downturn, as research shows consumers are doubling down on ethical consumption.

Management consultancy Baringa polled 1,002 consumers in the UK to explore what motivated their purchasing habits. 79% of respondents said that, in the context of the current economic downturn, they are more likely to purchase from companies they consider “kind”.

Despite the cost of living crisis hitting consumer wallets hard, it seems that cost is no longer the main factor that shoppers use to make a purchasing decision. Only 6% of UK respondents reported they would now choose a product or service on price alone.

A Baringa expert is now urging small business owners to review their Environmental, Social, and Governance (ESG) reporting and credentials, to ensure they do not sacrifice long-term customer relationships for short-term cash flow preservation.

‘Kindness’ named biggest consumer driver

The challenge of managing cash flow during a recession has seen many companies forced to make difficult decisions.

Some SMEs have had to raise prices to counteract the rising cost of raw materials. Or, at the very least, reevaluate their pricing strategies. Others have opted to make redundancies in order to keep staffing overheads down.

None of these are easy decisions for managers. However, in the age of the internet, people are quick to make moral judgements on firms. Business owners must be careful that their thinking is communicated sensitively to consumers, who are becoming more aware of, and strategic with, their spending power.

Of all UK respondents that Baringa surveyed, 50% reported they were more likely to buy from a company they considered to have a “kind” organisational culture, because they wanted these firms to succeed during the economic downturn.

Similarly, 48% of UK consumers said they had considered the behaviour of a company or its leadership while making a purchase.

Guy Dent, Partner at Baringa, states that smart companies should respond to the research by planning a review of the ethics of their actions. “They should do this for self-interested reasons,” he claims. “Unkind firms will be increasingly punished by consumers.”

As evidence, Dent points to the growing popularity of ethical company structures, such as B Corporations, which have grown exponentially since the first UK B Corp appeared in 2015.

“Put together this means a heightened awareness of ethical issues when making purchases,” he says. “And this awareness will persist even in the face of a recession.”

Ethical employment named top concern for consumers

In the face of growing strike action amongst UK employees, who are campaigning for better treatment and working conditions, it’s not surprising that respondents said the biggest offence a company could commit was employee exploitation.

80% of respondents reported they would avoid buying from a company who had recently laid off large numbers of staff. 40% claim they would do so even if this decision cost them more.

Likewise 54% of UK respondents said they would accept higher costs to avoid firms who were known to have treated their staff poorly. Almost the same number (53%) would pay more to avoid firms who treated their suppliers badly.

Commenting on the findings Dent advises recession-hit companies that efforts put into reputation and ethics should be seen as an investment, not as luxury spend.

“If you ditch your environmental and social commitments, lower your customer service standards, switch to unscrupulous suppliers, or cut staff in a manner that is unfair, you risk improving your balance sheet today only to damage your sales tomorrow,” he warns.

Being purpose-led can bring benefits to companies, not just their customers. Read more in our guide on how to use CSR to improve staff morale.

Younger generations use spending power to supercharge ethical firms

The shift in consumer behaviour towards favouring kindness may be due to the incoming “woke generation” of young buyers.

Back in 2018, a McKinsey report described Gen Z consumers as a group who will “mobilise themselves for a variety of causes [and] make decisions and relate to institutions in a highly analytical way.”

Post-pandemic, this trend has not faded. According to Baringa, Corporate Social Responsibility (CSR) activities had the greatest influence over purchase decisions amongst Gen Z respondents.

Baringa found that, of the cohort of economically-active “Gen Z” (people aged between 16 and 24) consumers in the UK, 62% refused to buy a product or service in the last two years because the company was unkind. Just over 2 in 5 of those aged 45-54 said the same.

Companies should use these learnings to maximise the impact of their ESG policies. For example, by publishing any social or green credentials on platforms such as TikTok, which 40% of young people now use as their main search engine.

Communicating any time or money spent on CSR commitments to consumers will help to translate the expenditure into higher engagement and, ultimately, greater profit.

This is not just a smart way to survive a recession – it will also put you in a greater position for growth once the UK economy begins to improve.

Sanjay Lobo is founder of onHand, an on-demand app for volunteering that featured in the Startups 100 Index earlier this year.

Lobo says, “at the end of the day, CSR should feed into all business decisions. Ultimately businesses who set this up from the outset are likely to set themselves up for success.”

Learn about the companies championing kindness:

• Kind Bag
• Grubby
• Beam
• Bide Planet