Doing the right thing costs more, do you pass those on to customers?

Milton Friedman wrote, “business of business is business”. Two companies seem to believe it is lot more than just making profit. They believe in doing the right thing, be it green manufacturing, sustainability, supply chain integrity, avoiding child labor or paying fair wages. They are Levi Strauss and Patagonia.

Their leaders recently participated in a Common Wealth Club Climate One forum for a discussion about their business and do-good principles. It is not that common for businesses to do the right thing for their customers, shareholders and employees but these two include doing the right thing for the world at large.

You should listen to full conversation (5th episode in the list) but here I want to point to two questions the moderator asked that are relevant to factors that drive us (marketers and product managers) – pricing and customer preference

When doing the right thing costs more or harder how do you manage that tension, pass that price on to consumers?

The moderator posed a open ended question but closed it right away with a question that requires a yes or no answer. Levi’s Strauss’ CEO made an excellent answer (applying all press training techniques),

“we fundamentally believe doing the right thing is ultimately good for the business. I truly believe what goes around comes around”

And he quickly pivoted to a story about terms of engagement they struck with their suppliers. (For sure we should learn his tactic on answering such pointed questions  – answer quickly albeit cryptically and bridge to something you want to convey. )  Yes doing the right thing costs more but that does not mean they are passing on those costs to customers as higher prices.

They are simply targeting those customer segments that value these non-product attributes and are willing to pay higher prices for a pair of jeans from a brand that is known to be doing good. Levi’s jeans don’t cost more because it costs them more to do the right thing but because their chosen customer segment values it enough to pay a higher price that is “ultimately more profitable for Levi’s”.

Next the moderator asked,

Do you think people who buy Levi’s jeans know and care about that?

Whether they do or don’t …. (he catches himself mid sentence)
Some do. And the one that do know and care about it, it is important to them.
Some don’t but as long as they are getting a good quality pair of jeans they are happy

Nicely summarizes his segmentation strategy but also illustrates a key point about what primary job were customers hiring Levi’s for. It is not for supporting a company that is doing the right thing. Customers are still buying a good pair of jeans, as an apparel, style statement etc. If Levi’s cannot fulfill that need better than other options then it does not matter how it is manufactured. Once they made the buy decision on the jeans they likely are willing to pay more than they would for another similar pair of jeans.

Customers hire your product for a basket of reasons but if it does not do the primary job it is hired to do then the rest does not matter.  Once the primary job is adequately met you can get them to pay more with the rest.

Do you know why your customers hire your products and what will drive them to pay more for your products?

Here is another company that got the primary job wrong and paid for its mistake: Sunchips Eco-friendly bags.