Fair Trade Certified Label Increases Likelihood of Purchase Among Consumers

Ethical product labels and marketing messages are an increasingly common sight in retail settings, calling attention to particular aspects of the way goods have been made (e.g. labor practices, environmental standards, the treatment of animals), and to particular causes that stand to benefi t when the goods are purchased (e.g. research on HIV/​AIDs, provision of clean drinking water in developing countries). The Fair Trade label, which aims to guarantee a "better deal" for poor farmers in developing countries, is perhaps the most well-​known ethical label. Fair Trade coff ee, tea, and chocolate are now marketed not just on college campuses and in fashionable cafes, but also in most major supermarket chains across the U.S.  By buying Fair Trade certi fied products, many consumers hope to improve livelihoods for poor producers in the developing world. 

New research confirms that the prominent appearance of the Fair Trade Certified label increases sales among coffee-​buying consumers. To investigate the topic of consumer demand for Fair Trade products, researchers from the Massachusetts Institute of Technology, Harvard University, and the London School of Economics, conducted a six-​month research study in partnership with a prominent national grocery retailer, examining purchasing behavior among actual consumers at 26 stores.

MAJORITY OF SURVEYED CONSUMERS CLAIM TO PREFER ETHICALLY CERTIFIED PRODUCTS

According to the field research, sales of the two most popular bulk coffees sold in the stores rose by almost 10% when the coffees were labeled as Fair Trade. Demand for the higher priced coffee was inelastic: sales of the labeled coffee remained steady when its price was raised by 8%. Demand for the lower priced coffee was more elastic: a 9% increase in its price led to a 30% decline in sales, as buyers switched to low-​priced unlabeled alternatives. Overall the findings suggest that there is substantial consumer support for Fair Trade, although a segment of price-​sensitive shoppers will not pay a large premium for the Fair Trade label.

The findings are consistent with a Globescan study conducted in 2010, which revealed that 75% of consumers said Fair Trade certification makes them feel "very positive or positive" about products; 30% said Fair Trade is "likely to increase their purchase interest;" and over half said "independent third-​party certification is the best way to verify" a product's social and environmental claims.

Fair Trade coff ee, the largest selling certifi ed product, accounts for over 3% of the total retail market for coff ee and for close to 20% of the market for specialty coff ees, the fastest growing segment of the U.S. coffee market.  Brands and retailers may thus be able to win market share and boost sales by off ering more Fair Trade certi fied goods, either targeted to particular segments and priced at a premium, or marketed more generally at regular prices.

[Source:  "Consumer Demand for the Fair Trade Label: Evidence from a Field Experiment."  Jens Hainmueller, Massachusetts Institute of Technology. Michael J. Hiscox, Harvard University.  Sandra Sequeira, London School of Economics.  April 2011.  Web.  5 May 2011.]