McKinsey & Company

McKinsey on Society

 

Voices The Socially Conscious Consumer

The rise of mindful consumption

John GerzemaChairman
BAV Consulting

John Gerzema is a social strategist who uses data to help companies adapt to new consumer interests and demands. He is chairman of WPP Group’s BAV Consulting division. His forthcoming book The Athena Doctrine, written with Pulitzer Prize winning author Michael D’Antonio, examines the rise of feminine traits and values.

Örn Bárður Jónsson feared that his country had lost its way. The Icelandic government had just approved the sale of the nation’s complete genetic profile to a corporation that would make it available to researchers at drug companies. As the global real-estate bubble inflated, Iceland’s historically cautious consumers were financing luxurious lifestyles by taking out massive loans from local banks that had thrown credit standards out the window. In Iceland, as in so many other countries around the world, most assumed that the party would go on forever.

A Lutheran minister by profession and a writer by passion, Örn thought about his countrymen’s sudden obsession with money and sat down to write a fable, “Export Mountains Inc.” Published in the Reykjavik daily Morgunbladid, his essay described a mythical scheme to sell Mt. Esja, the iconic peak that’s visible from Reykjavik and defines the national landscape. Mt. Esja is so important to the Icelandic psyche that parents name their children after it. Selling it would be unthinkable to Icelanders, just as auctioning off the Statue of Liberty would be to Americans.

Then the government released a study suggesting that it would be feasible to separate the mountain from its bedrock and tow it to mainland Europe, where it could be used to fill lowland areas prone to floods. Faced with this intriguing challenge, Örn wrote, Icelandic entrepreneurs founded a company called Export Mountains and launched a marketing campaign based on this catchy slogan: “Go, sell ’em all the mountains.”

Q.Do corporations’ values affect your decision on whether to buy their product?
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In Örn’s fable, there was drilling and sawing around the clock. Slowly, Mt. Esja budged from its bedrock and ships pulled it out to sea. Disaster struck somewhere south of the Faroe Islands, where the mountain capsized and sank. The buyers on the mainland canceled their €1 billion check. And as foreign investors balked, Örn asked who would be “crazy enough to invest in the nonsense of a nonsensical nation.”

Last March, I met Örn in the sanctuary at his local parish church in Reykjavik. Warmly colored light streamed in through stained-glass windows positioned to maximize the precious few sunbeams that fall on the world’s northernmost capital. Icelanders are often confronted with forces beyond their control, including a harsh climate, active volcanoes that fill the sky with smoke, and earthquakes that make the ground shake. During the bubble years, Örn argued, Icelanders lost touch with the humility taught by an unrelenting natural environment. “We went a little crazy,” he told me.

The craziness peaked with the collapse of the Icelandic banking system in October 2008. The Icelandic krona became worthless abroad. The stock market lost 90 percent of its value, while unemployment rose ninefold. Import prices skyrocketed, imposing major hardship in a country where almost everything besides fish, wool, and dairy products must be imported. Inflation zoomed into the double digits, and the government was forced to take emergency loans from the International Monetary Fund (IMF). The prime minister announced the end of the banking “fairy tale” and called for a return to an economy based on tangible goods, including fish pulled from the sea and aluminum produced at smelters built to take advantage of low-cost hydro and geothermal energy.

The vehicle for restoring the country’s sanity would be a new constitution that would replace one inherited from Denmark, Iceland’s former colonial master. In a remarkable display of egalitarianism, the government invited 1,000 citizens, chosen at random, to join an online constitutional forum. At the same time, the national parliament, or Althing, created a constitutional assembly made up of 25 elected members who would write a new national constitution based on ideas harvested from the forum. Örn was elected to the new assembly. In 2010, he and his colleagues went to work—not behind closed doors, but in public view and with real-time reports to the public via Facebook, Flickr, Twitter, and YouTube. Citizens offered instant feedback, and their comments fed the deliberations. The new constitution now awaits ratification by the Althing. If approved, it will be the world’s first crowdsourced constitution.

***

Today Iceland has largely recovered from the global financial crisis. The government repaid its IMF loans ahead of schedule. The economy is expected to grow 2.5 percent this year, healthy by developed-economy standards. Beyond these statistics, something important has changed among consumers in Iceland and other countries throughout the world. Consumption has become far more mindful.

As chairman of BAV Consulting, a division of the global advertising conglomerate WPP, I oversee the Brand Asset Valuator, the world’s largest study of consumer and brand behavior. In our recent surveys of consumer populations in 18 countries, 63 percent of respondents said they make it a point to buy from “companies whose values are similar to their own.” And 69 percent feel “they and their friends can change corporate behavior by supporting companies who do the right thing.” These values-driven consumers currently represent the majority in countries as diverse as Austria, France, Japan, and the United States.

At the same time, consumer trust in corporations has declined by 50 percent since the crisis. Consumers now trust only one in four companies on average. The dearth of trust in the marketplace makes it an agent of differentiation. As a result, the correlation of trust to brand equity has increased by 35 percent in the past three years. Trust, once an afterthought, can even help companies enter new market categories. Recently, we asked consumers to answer the question, “Which brand would you open a bank account with?” Amazon, Wal-Mart, and Zappos all outperformed traditional banks.

While there are many pathways to trust, one largely overlooked is social responsibility. Once considered “back of the house,” corporate-social-responsibility practices now have a direct impact on purchasing habits and brand choice. Our research shows that brands from companies with a strong record of social responsibility have greater usage (+33 percent) and preference (+39 percent), as well as greater loyalty (+27 percent), among consumers worldwide representing 78 percent of global GDP. They also foster greater conversation and community (+24 percent) and even disassociate themselves from negative perceptions in sectors such as oil, tobacco, and pharmaceuticals.

Despite these striking advantages, corporate-social-responsibility activities are often narrowly defined as public affairs, disconnecting the company that does the good from the brand that should get the credit. Yet a strong record of social responsibility can create significant competitive advantage. For example, 70 percent of workers in our survey (and 91 percent of millennials) said they “would work for less money at a company whose culture they believed in.” Or consider this: we recently examined perceptions of Microsoft among consumers who were aware of the Bill & Melinda Gates Foundation. (Microsoft and the Gates Foundation are entirely separate and independent organizations, although both were founded by Bill Gates.) Against its category, Microsoft was considered 43 percent more trustworthy and 46 percent more caring toward its customers. And 45 percent considered it the “best brand” in its category.

Perhaps the boom times will return and the lessons in Örn Bárður Jónsson’s fable will be forgotten. More likely, the past 30 years of debt-fueled consumption will be the exception rather than the rule. Given less disposable income, soaring public debt, and persistent unemployment, capitalism needs to be about better, instead of more. Consumers today respond to companies that care about them and the larger world. When we asked our respondents to name the most important thing a company can stand for, “kindness and empathy” shot up by 391 percent between 2008 and 2012. This was the single biggest movement in any brand attribute over that time period—and in the history of our model going back to 1993.

The socially responsible company is ultimately a consumer-led organization that matches the newfound humility of global consumers by stressing action over rhetoric. Peter Drucker taught us that the only purpose of a business is to have a customer. Given that consumerism drives the GDP of most nations, catering to consumption of the mindful variety is more prudent than idealistic.

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