The NZ Initiative's Khyaati Acharya says that while Kiwi consumers claim to be environmentally conscious, purchasing habits can reveal otherwise

By Khyaati Acharya*

"I only buy certified organic, fair-trade, palm oil-free, ethically-sourced, free-range, sustainable, eco-friendly, non-GMO products."

Yeah right.

Over the past few years, companies have noted a change in consumer preferences, particularly among younger cohorts. Analysing changes in consumer preferences matters for companies in a competitive world, ensuring they tailor products to future consumers’ needs and requirements. Companies have noted that, compared to their elders, the so-called Millennial Generation appears to have much loftier demands. They share a disdain for goods that fail to adhere to laudable social goals. Products should be ethically produced and manufactured by a company that embraces corporate social responsibility. Foods should be at least organic and fair-trade, not to mention rainforest friendly.

At least, that’s what they say they prefer.

But that may not be so. At least, according to a study released late last year by Kansas State University, Millennials and chocolate product ethics: Saying one thing and doing another.

Researchers at the university designed an experiment to see how Millennials (those currently in their lower to mid-twenties) weighted various characteristics, with the exception of price, in their consumption of chocolate products. They later checked how things changed when products had at least a notional price.

Consumer choice theory seeks to analyse how individuals choose among competing options in a world where they cannot have everything.

Faced with a choice between two equally priced bundles of goods of different characteristics, whichever bundle a consumer veers towards indicates a direct preference for the qualities and characteristics of that bundle over the other.

And within consumer choice theory, sits the theory of revealed preference.

Many individuals are quick to say they care enough about certain qualities in a good, and claim they are willing to pay the associated premium. But that premium can differ substantially depending on the particular good and characteristic. A carton of one dozen regular, size seven eggs can cost as little as NZ$3.89. By contrast, a carton of one dozen, size seven, bio-organic eggs can cost around NZ$13. A generic white cotton t-shirt can cost as little as NZ$24.99, whereas prices for an ethically-made, organic cotton t-shirt start at around NZ$65.

Actual purchasing behaviour often reveals fewer consumers are willing to put their money where their mouths are. Stated survey preferences can differ from revealed preferences.

This was aptly shown in the chocolate study. Participants in the experiment were keen to endorse chocolate products that possessed universally recognised labels for “social factors”. These included labels identifying whether products were ethically produced, organic, Rainforest Alliance Certified, or non-GMO. According to the researchers, these characteristics are deemed social factors because their endorsement might reflect an attempt to express socially acceptable attitudes about certain product qualities. Stated consumption preferences then, were more intent on reducing guilt and adhering to popular norms rather than reflecting a real personal concern.

While participants were asked to weight their preferences based on both emerging social factors considered important to millennial’s (GMO-free, organic, rainforest-friendly, ethical and clean labels), as well as more traditional product attributes, like taste, sugar and fat content, price was excluded.

But when price is included, the story changes quite dramatically.

When faced with the cost of the different chocolate goods, few of the stated choices were matched by purchasing behaviour, even though the choices remained hypothetical. Consumers are more willing to choose the cheaper, better tasting chocolate product than one that espoused socially-conscious characteristics.

And when real money is on the line, things change further. Operating within a budget constraint, consumers have to weigh up and trade-off between the different characteristics of different goods. And price often trumps more moralistic qualities in a good.

The variance between stated and revealed preferences is also observable in attitudes towards green and eco-friendly products and practices in New Zealand. Researchers at Victoria University of Wellington, have found that consumers' purchasing habits do not necessarily match their attitudes when it comes to being environmentally-friendly.

While many Kiwi consumers claim they are environmentally conscious, purchasing habits can reveal otherwise.

Researchers found that discrepancies between stated environmental attitudes and revealed purchasing habits were due to a number of reasons. First, being environmentally conscious may require time, effort and money and sacrificing daily niceties. Second, many consumers admitted they were sceptical about the efficacy of eco-products, and whether purchasing them will make a real difference to the world. Third, consumers noted perceiving no difference between often more expensive green products, and their cheaper substitutes.

Many customers do have real and strong preferences for ethical and environmentally conscious products. Free range pork and eggs cost more than barn-raised alternatives, but taste and feel better. Likewise, ethically produced clothing may have a high price premium, but is often better-tailored, constructed from robust fabrics, and more durable compared to cheaply mass-produced alternatives. And many people do buy these goods. But firms should still be cautious about extrapolating demand for new products from survey data.

Stated versus revealed preferences matter, whether it be for companies seeking to better tailor products for future generations of consumers, or for researchers analysing consumer behaviour. When price is taken into consideration, choices can change dramatically.

Trust what people do, not what they say. 

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*Khyaati Acharya is a research assistant at the New Zealand Initiative, which provides a weekly column for interest.co.nz.