PATRICK DE PELSMACKER, LIESBETH DRIESEN,AND GLENN RAYP.docx

PATRICK DE PELSMACKER, LIESBETH DRIESEN,
AND GLENN RAYP
Do Consumers Care about Ethics? Willingness to
Pay for Fair-Trade Coffee
Consumers’ buying behavior is not consistent with their
positive
attitude toward ethical products. In a survey of 808 Belgian
respond-
ents, the actual willingness to pay for fair-trade coffee was
measured.
It was found that the average price premium that the consumers
were
willing to pay for a fair-trade label was 10%. Ten percent of the
sample
was prepared to pay the current price premium of 27% in
Belgium.
Fair-trade lovers (11%) were more idealistic, aged between 31
and
44 years and less ‘‘conventional.’’ Fair-trade likers (40%) were
more
idealistic but sociodemographically not significantly different
from
the average consumer.
The purpose of this study was to investigate to what extent
consumers
were willing to pay for the fair-trade attribute when buying
coffee, and

how consumers differed in terms of their willingness to pay.
First, we will
describe fair trade within the context of ethical consumer
behavior. Sub-
sequently, the research questions used in our study will be
examined.
Consumers can express their concern about the ethical behavior
of com-
panies by means of ethical buying and consumer behavior. In
general, the
ethical consumer feels responsible toward society and expresses
these feel-
ings by means of his or her purchasing behavior. Doane (2001)
defined
ethical consumption as the purchase of a product that concerns a
certain
ethical issue (human rights, labor conditions, animal well-being,
environ-
ment, etc.) and is chosen freely by an individual consumer.
There are
several dimensions of ethical consumer behavior. Some forms
of ethical
consumption benefit the natural environment (e.g.,
environmentally friendly

products, legally logged wood, animal well-being), while others
benefit peo-
ple (e.g., products free from child labor, fair-trade products).
Cutting across
this distinction, ethical consumption may benefit people or the
environment
close to home (e.g., some types of green products or organic
food), or
Patrick De Pelsmacker ([email protected]) is a marketing
professor at the University of
Antwerp. Liesbeth Driesen was a researcher at the Ghent
University. Glenn Rayp ([email protected])
is a professor in international economics at the Ghent
University.
Financial support of the University Development Cooperation of
the Flemish Interuniversity Council
is gratefully acknowledged. The authors wish to thank the
participants of the 33rd European Marketing
Academy (EMAC) conference for their useful comments and
suggestions. All remaining errors are ours.
The Journal of Consumer Affairs, Vol. 39, No. 2, 2005
ISSN 0022-0078
Copyright 2005 by the American Council on Consumer Interests

WINTER 2005 VOLUME 39, NUMBER 2 363
conversely in a faraway part of the world (e.g., fair-trade
products or legally
logged wood). Consumers can translate their ethical concerns by
means of
buying products for their positive qualities (e.g., green
products) or by
boycotting products for their negative qualities (e.g., not buying
products
made by children). Boycott campaigns against Nike because of
alleged labor
abuses and Nestlé because of the infant formula issue are among
the most-
cited examples of the latter (Auger, Devinney, and Louviere
2000; Carrigan
and Attalla 2001; Creyer 1997; Shaw and Clarke 1999; Strong
1996).
Consumers can decide to consider one or more ethical attributes
when
buying products.
Is ethical consumption growing? Evidence of a growing market
for eth-

ical products is often inferred from the results of opinion polls.
According to
a study by Hines and Ames (2000), 51% of the population had
the feeling of
being able to make a difference to a company’s behavior and
68% claimed to
have bought a product or a service because of a company’s
responsible rep-
utation. On average, 46% of European consumers also claimed
to be willing
to pay substantially more for ethical products (MORI 2000).
However, there
are differences as to the reported willingness to pay a price
premium for
different types of ethical products. For instance, American
consumers
agreed with a price increase of 6.6% for green products (The
Roper Orga-
nization, Inc. 1990), while French consumers wanted to pay
10%–25% more
for apparel not made by children (CRC-Consommation 1998).
With these
studies in mind, one could expect a high demand for ethical
products. How-

ever, the opposite seems to be the case. Most of the ethical
labeling initia-
tives with respect to, for instance, organic food, products free
from child
labor, legally logged wood, and fair-trade products, often have
market
shares of less than 1% (MacGillivray 2000).
One of the main reasons for this discrepancy is the attitude–
behavior
gap. On the one hand, consumer perceptions and attitudes
clearly influence
behavior, as conceptualized and tested in several models of
ethical con-
sumption behavior (Ferrell and Gresham 1985; Hunt and Vitell
1993; Shaw
and Clarke 1999; Vitell, Singhapakdi, and Thomas 2001). On
the other
hand, it is well documented that attitudes alone are generally
poor predic-
tors of buyer behavior (Cobb-Walgren and Ruble 1995),
especially in the
social marketing area (Shaw and Clarke 1999). While some
consumers

refuse to buy products with an unethical background (Crane
2001), the
majority of people evaluate product attributes jointly in making
purchase
decisions. Price, quality, convenience, and brand familiarity are
often still
the most important factors affecting the buying decision
(Boulstridge
and Carrigan 2000; Carrigan and Attalla 2001; CRC-
Consommation
1998; Norberg 2000; Roberts 1996; Tallontire, Rentsendorj, and
Blowfield
364 THE JOURNAL OF CONSUMER AFFAIRS
2001). Dickson (2001) identified four segments of consumers
based on the
importance they attach to various product attributes of clothes.
She found
that only one segment, containing 16% of their sample, attached
a lot of
importance to the no-sweat label. The other three groups were
qualified as
nonusers. Moreover, often the attitudes and intentions toward
ethical prod-

ucts are measured without explicitly taking the higher price of
these prod-
ucts into account (Browne et al. 2000). Other explanations for
the
discrepancy between attitudes and ethical buying behavior can
be the lack
of availability of ethical products, disbelief of ethical claims,
and lack of
information (Carrigan and Attalla 2001; Mielants, De
Pelsmacker, and
Janssens 2003; Roberts 1996).
What could explain the attitude–behavior gap? In attitude
research, people
often give socially desirable answers. Ulrich and Sarasin (1995)
somewhat
cynically claimed not to do any research and not to ask the
public any ques-
tion on this subject because the answers are never reliable and
often useless, if
not misleading. Especially in situations in which respondents
want to make
a good impression on the researcher or want to conform to
social norms,

attitudes measured tend to be more positive than actual behavior
(King
and Bruner 2000). Moreover, attitudes are traditionally
measured by means
of explicit attitude measures, mostly self-reported paper-and-
pencil tasks.
Respondents are not always able and willing to report their
attitudes and con-
victions accurately, especially in the case of socially sensitive
issues such as
ethical consumption behavior (Greenwald and Banaji 1995;
Maison 2002).
If one wants to study the importance of the ethical attribute in
buying
decisions, a number of factors have to be taken into
consideration. First of
all, measuring explicit attitudes is not the most valid method to
predict eth-
ical buying behavior. Instead, measures that are closely related
to the actual
purchase behavior are called for. Second, a lot of buying
behavior is based
on multiattribute decision making in which the ethical attribute
may or may

not be important. In estimating the (intended) buying behavior,
consumers
have to be confronted with realistic multiattribute buying
situations. Third,
one reason for the attitude–behavior gap is the price factor. The
measure-
ment of (intended) buying behavior has to take the willingness
to pay into
account. Finally, not all consumers are equally likely to buy
ethical prod-
ucts. Moreover, depending upon the characteristics and the
preferences of
individual consumers, different ethical dimensions may result in
differen-
ces in willingness (not) to buy products incorporating ethical
values. Bird
and Hughes (1997) claimed that the willingness to purchase
goods based on
ethical credentials is limited to a minority of shoppers.
Several studies have tried to identify the socially responsible
consumer
in terms of demographic characteristics. Anderson and
Cunningham (1972)

found that younger consumers were more socially conscious,
while the
effect of their education level was not clear, and income was of
no rele-
vance. Dickson (2001) found that age, income, and employment
status
was not discriminating between socially conscious consumers
who attach
a lot of importance to no-sweat labels on apparel and those
consumers who
do not. Although in the same study it was stated that no-sweat
buyers were
more often female, most studies concluded that ethical buying
behavior
was not influenced by gender (e.g., MORI 2000; Sikula and
Costa
1994; Tsalikis and Ortiz-Buonafina 1990). In his extensive
literature
review, Roberts (1995) found that people who did not buy from
businesses
that discriminated against minority groups or women were
mainly women

with a median age of 47 and slightly lower incomes but
concluded that
demographics were not very significant in identifying the
socially respon-
sible consumer. Other studies concluded that the ethical
consumer was a
person with a relatively high income, education, and social
status (Carrigan
and Attalla 2001; Maignan and Ferrell 2001; Roberts 1996).
However, demographics alone are not sufficient to define and
identify
the ethical consumer. People’s values appear to have a
significant impact on
their ethical consumption behavior. Values are abstract
principles that
reflect an individual’s self-concept (Dickson 2000). They are
enduring
beliefs that a given behavior or outcome is desirable or good.
As such, val-
ues serve as standards that guide our behavior across situations
and over
time. Values are often part of our personality system and
determine specific
attitudes. Anderson and Cunningham (1972) found that

dogmatism, conser-
vatism, status consciousness, cosmopolitanism, personal
competence, and
alienation were related to ethical consumer behavior. In
addition, Roberts
(1996) and Dickson (2001) stressed the importance of
psychographic var-
iables such as relevant attitudes, values, and personality
characteristics. The
Roper Organization, Inc. (1990) and Cowe and Williams (2000)
segmented
consumers in terms of their degree of ethical concern. Similarly,
Fritzsche
(1995) concluded that the values of people behaving ethically
were signi-
ficantly different from the values of people behaving
unethically, and in
Roberts’ (1996) study, perceived consumer effectiveness,
liberalism, and
alienation appeared to have a significant impact on ethical
consumption
behavior. In addition, Dickson (2000) studied the relevance of
personal
values in the context of socially responsible buying behavior.

One of the best-known instruments to comprehensively measure
a per-
son’s value system is the Rokeach Value Survey (Rokeach
1973). The
Rokeach Value Survey contains a set of 18 terminal values that
relate
to ‘‘end states of existence’’ and another set of 18 instrumental
values relat-
ing to ‘‘modes of behavior.’’ Some studies have tried to identify
ethical
values within the Rokeach scale and their effect on ethical
behavior
(Fritzsche 1995; Nonis and Swift 2001; Sikula and Costa 1994).
Dickson
(2000) used 12 Rokeach Value Survey terminal values in her
study of
apparel-buying behavior. Two basic dimensions could be
defined: macro-
societal (socially centered) and microsocietal (self-centered)
values. To an
extent, the former predicted attitudes toward business

intentions. However,
no systematic attempt has been made to relate consumers’ value
systems to
ethical buying behavior.
In this study, the importance of a fair-trade label in the coffee-
buying
decision was investigated. In a broad sense, ‘‘fair trade’’ can be
described
as an alternative approach to trading partnership that aims for
sustainable
development of excluded and/or disadvantaged producers. It
seeks to do so
by providing better trading conditions, raising awareness, and
campaigning
(Krier 2001). In the broadest sense, the concept incorporates
environmental
as well as social issues. Littrell and Dickson (1999) developed a
continuum
of business practices, from minimum to maximum fair-trade
practices. Apart
from paying fair wages in a local context and providing a safe
and clean
workplace (mainstream business), they defined maximum fair-
trade prac-

tices as also encompassing the development of sustainable
businesses,
empowerment of artisans, fostering well-being, establishing
political and
social justice, and developing equitable trade.
In a narrow sense, fair trade is defined based on its best-known
compo-
nent: fair prices for the products of farmers in developing
countries. In
essence, fair trade means buying products from farmers in
developing
countries on terms that are relatively more favorable than
commercial terms
and marketing them in developed countries at an ethical
premium (Bird and
Hughes 1997). This higher price to the consumer is warranted
by the higher
price that farmers receive for their products and by the fair-
trade control
mechanisms in the trade channel (for an extensive description of
fair-trade
mechanisms, see, for instance, Littrell and Dickson [1999] and
Krier

[2001]). Companies generally demonstrate their fair-trade
behavior to con-
sumers by means of marketing fair-trade brands or by means of
cooperating
with fair-trade organizations that accredit their fair-trade
products and allow
them to market these products using a fair-trade label. Fair-
trade organiza-
tions, on the other hand, go through considerable efforts to
convince com-
panies to comply with fair-trade rules and sell fair-trade
products. For
instance, in April 2000, after a year-long campaign by the
human rights
organization Global Exchange, Starbucks decided to carry fair-
trade coffee
in its 2,300 stores (Straus 2000).
Fair-trade buying is a specific type of ethical consumer
behavior. Based on
the dimensions defined earlier, for a U.S. or a European
consumer fair-trade

consumption means buying items for their positive quality of
supporting
people in faraway developing countries. The question is to what
extent con-
clusions from empirical research on other types of ethical
consumption
behavior also hold for fair-trade buying. Fair trade is an issue of
particular
concern for the ethical consumer. Based on a qualitative study
amongst
ethical consumers in the United Kingdom, Shaw and Clarke
(1999) con-
cluded that fair trade was the most important issue of ethical
concern in
consumer behavior (as compared with, for instance,
environmental issues
and vegetarianism). Fair-trade brands, or fair-trade labeled
products (espe-
cially coffee), are also reasonably available. However, the
relative impor-
tance of a fair-trade label in the purchase decision of consumers
has not
yet been studied.
In this study, conjoint measurement (see hereafter) was used to

confront
consumers with realistic multiattribute choice decisions. Instead
of study-
ing their attitudes or preferences, their willingness to pay was
measured. As
such, the importance of the price factor was explicitly taken
into account.
Furthermore, willingness to pay is assessed as a measurement of
buying
intention that can be considered a realistic proxy for actual
behavior. A
fair-trade coffee label needs to be efficiently monitored and
subjected to
third-party certification in order to become credible. This
implies additional
costs and a price premium for the consumer. Indeed, fair-trade
coffee is
more expensive than non–fair-trade coffee. Based on the
willingness to
pay for this label, the size of the potential fair-trade coffee–
buying popu-
lation was estimated.
As is the case with ethical consumption in general, not everyone
is

equally likely to buy fair-trade products. For instance, Littrell
and Dickson
(1999) found that buyers of cultural (ethnic) fair-trade products
were demo-
graphically quite homogeneous and consisted of highly
educated, well-off
Caucasian women in their forties. A large proportion of them
were teachers,
health professionals, and social workers. Idea Consult (2002)
concluded that
the Belgian fair-trade consumer is relatively highly educated
and has a rel-
atively high income and social status. In addition, personal
values appear to
play a role in fair-trade buying behavior. For instance, Littrell
and Dickson
(1999) found that buyers of cultural fair-trade products attached
more
importance to altruism, equality, peace, and a beautiful and
environmentally
secure world, and less importance to inner-directed values such
as self-
respect and inner harmony. In this study, consumers are
segmented accord-

ing to their willingness to pay for different coffee attributes
(including
the fair-trade attribute). The consumer segments are then
defined based
on sociodemographic characteristics and their terminal and
instrumental
values.
In summary, this study investigates the following research
questions (see
also Figure 1):
1. What is the relative importance that consumers attach to a
fair-trade
label in their coffee-buying decision, compared with other
attributes?
Can segments of consumers be defined based on their relative
will-
ingness to pay for different coffee attributes? What is their
willing-
ness to pay a price premium for the fair-trade attribute? The
narrow

definition of fair trade (a fair price for products of producers
from
developing countries) is used.
2. To what extent are the consumer segments different in terms
of demo-
graphic characteristics and personal values?
RESEARCH METHOD
Composition of the Sample
This study is based on a sample of Belgian consumers. At the
crossroads
of the Latin culture, with Roman Catholic roots, and the German
and
Nordic culture, with Protestant roots, in a strongly
internationalized econ-
omy where companies share a level-playing field, because of the
absence of
strong national brands, the Belgian consumer market has in
many aspects
a profile similar to that of the Europeon Union (EU).
Concerning the ethical
FIGURE 1
Research Model

Coffee
Product
Attributes
(Fair-Trade
Attribute)
Willingness-
to-pay for
Coffee
Product
Attributes
(Fair-Trade
Attribute)
Instrumental & Terminal
Personal Values
Sociodemographic Characteristics
aspects of consumption, the European survey by MORI (2000)
points to
results for Belgium that are very similar to the European
average with
respect to attitudes toward social responsibilities of firms, the
importance
a firm’s commitment to social responsibility in buying
intentions, as well as
in the supplementary willingness to pay for environmentally or

socially
responsible products. This finding was corroborated from our
exploratory
survey of the market share of fair-trade coffee. The 1% market
share in
Belgium is similar to the market share of fair-trade coffee in
France
(0.9%) and Germany (1%) and is midrange between the market
share in
Switzerland (5%), the Netherlands (3%), and Denmark (2.5%)
on the
one hand, and Norway (0.8%) and Finland (0.4%) on the other.
In this study, we surveyed the total administrative and academic
staff of
Ghent University, which is one of the largest universities in
Belgium
(26,000 students) and one of the largest employers in the city of
Ghent
and the surrounding region. Concentrating the survey on a
central spot
where people gather from a large area allowed us to obtain a
diversified
sample in a cost-efficient way and to better monitor the data
collection

process. More importantly, it allowed us to quantitatively and
qualitatively
improve the response motivation by appealing to collegiality
and by conduct-
ing the survey (for its major part) using the university’s intranet
in a more
respondent-friendly way (e.g., without bothering people when
they are at
home or busy, etc.). Several positive implications of the use of
the Internet
are reported (Orme and King 1998). The use of the Internet
significantly
reduces the costs of the survey, respondents can be reached
more quickly,
and the response rate is higher. Finally, to further encourage
participation
to the survey, 25 book vouchers were divided among the
respondents.
An e-mail was sent to 4,664 staff members with an e-mail
address, and
891 questionnaires were completed, of which 779 were useful
(i.e., com-
pleted the majority of the questions). The remaining 550 staff
members

without an Internet account were approached by mail. A total of
62 staff
members responded, of which 55 questionnaires were useful.
Hence, the
response rate of our survey was 16%, i.e., double the average
survey
response rate in Belgium (8%). Twenty-six respondents gave
inconsistent
answers for the conjoint analysis (in the sense that they showed
no prefer-
ence for any of the eight proposed product profiles) and were
eliminated
from the sample. The final sample was composed of 808
respondents.
Table 1 shows the composition of the sample. As could be
expected,
due to the specific university context, younger and better-
educated re-
spondents were overrepresented compared with the total Belgian
or EU pop-
ulation. In the analysis, we verified to what extent this affected
our main
results.

The Outline of the Survey
As mentioned above, in order to minimize the social desirability
bias
when questioning issues of ethical consumption (fair trade in
this case),
we used a conjoint measurement of the price consumers were
willing to
pay when facing a coffee-buying situation in a supermarket
(where most
coffee types are available and which is the usual shopping place
of the large
majority of Belgian consumers). In a conjoint analysis,
consumers are
asked to indicate their preference (in this case their willingness
to pay)
for products with varying characteristics. By simulating real
marketplace
situations, conjoint analysis realistically models day-to-day
consumer deci-
sions and has a reasonable ability to predict consumer behavior.
Consumers

show their preferences by making trade-offs between different
attributes of
a product (Carroll and Green 1995; Green, Krieger, and Wind
2001; Green
and Srinivasan 1978). These trade-offs can be decomposed into
part-worth
utilities and importance weights for each product attribute. In
this way, the
importance of different attributes or criteria in the consumer’s
evaluation of
the product can be studied (Green, Rao, and Desarbo 1978).
Based on an exploratory group discussion with 12 coffee
consumers of
varying age, gender, and education, we determined the relevant
coffee
attributes and their appropriate levels as follows:
d Brand: manufacturer brand and private label. Manufacturer
brand was
presented as ‘‘Douwe Egberts’’ (Sara Lee), which is the market
leader in
Belgium, with a market share of about 50%. Private, or
supermarket,
label was presented as an enumeration of supermarket brands,
which

account in Belgium for another 25%–30% market share. The
remaining
market share represents smaller and more specialized coffee
brands.
TABLE 1
Description of the Sample
Characteristic Sample Percentage (N ¼ 808)
Gender
Male 46
Female 54
Age
24 or younger 8
24–30 50
31–44 27
Older than 45 15
Education
High school 16
Higher education 84

d Blending: 100% Arabica beans and a blend of Arabica and
Robusta
beans. A coffee is considered of high quality when the blending
is
100% pure Arabica beans.
d Flavor: dessert, decaffeinated, and mocha. In Belgium, coffee
manu-
facturers mainly focus on three flavors.
d Package: ‘‘warm’’ and ‘‘cold.’’ Consumers can be attracted to
a type of
coffee because of the exotic or warm appearance of the package.
Therefore, a cold and a warm level of packaging were
developed from
the perception of the aforementioned exploratory group of
consumers.
A cold package consisted of a picture in blue and white. A
warm pack-
age was brown and red showing a cup of freshly made coffee.
d The presence or absence of a fair-trade label.
Based on these attributes and their levels, 48 descriptions of
coffee types
were possible (2 � 2 � 3 � 2 � 2). It was evidently impossible
for respondents
to indicate a preference for 48 product types. Conjoint analysis

instead uses
a fractional design, i.e., a systematic selection of a small
number out of the full
set of product profiles, while maintaining the coincidence of
uncorrelated levels
of different attributes appearing together. This design assures
that an estimate of
the importance of one attribute is unaffected by the estimate of
other attributes.
Using Orthoplan of SPSS, a fractional (orthogonal) design of
eight product
profiles was generated out of the set of 48 profiles (see Table
2). These eight
product profiles were visually presented and described to
inform the respond-
ents about the attributes. For instance, the fair-trade label was
described as
a label on the package indicates that a fair price for the coffee
harvest is guaranteed to
the farmers of the South
in addition to which we mentioned as an example the name of
the best-
known fair-trade label in Belgium (i.e., Max Havelaar).

TABLE 2
Coffee-Type Profiles in the Orthogonal Conjoint Design
Label Brand Blending Package Flavor
Profile 1 Fair trade Private label 100% Arabica Warm Dessert
Profile 2 No fair trade Douwe Egberts Arabica/Robusta Cold
Dessert
Profile 3 No fair trade Douwe Egberts 100% Arabica Warm
Dessert
Profile 4 Fair trade Douwe Egberts Arabica/Robusta Warm
Decaffeinated
Profile 5 Fair trade Douwe Egberts 100% Arabica Cold Mocha
Profile 6 No fair trade Private label Arabica/Robusta Warm
Mocha
Profile 7 Fair trade Private label Arabica/Robusta Cold Dessert
Profile 8 No fair trade Private label 100% Arabica Cold
Decaffeinated
In the first part of the questionnaire, the respondents were asked
to
express their willingness to pay for the eight different types of
coffee.

A reference product profile was defined (and visually
presented) as a coffee
with dessert flavor, a warm package, a blending of Arabica and
Robusta
beans, without a fair-trade label, produced by Douwe Egberts,
and set at
a price of e1.87 (corresponding to the then-ruling shop price).
Respondents
were asked to express their willingness to pay by putting a price
over or
under the reference price of e1.87 on each of the eight coffee
profiles pre-
sented. By mentioning the fair-trade label in the conjoint task,
we could
assume that all respondents were equally informed and that the
fairly traded
coffee was perceptible for everybody. The conjoint analysis
method
resulted in individual part-worth utilities for each level of each
attribute
from which the relative importance of each attribute could be
derived.
In the second part of the questionnaire, the respondents were
asked about
their personal values and a number of sociodemographic

characteristics
including gender, age, and education. The Rokeach (1973) value
scale
was used to measure personal values. This scale contains a set
of 18 ter-
minal values that relate to end states of existence (such as the
importance of
material wealth for the respondent) and another set composed of
18 values
that relate to modes of behavior or instrumental values (such as
the impor-
tance of ambition in the life of the respondent). Originally,
these values
were expected to be rank ordered. In our study, the respondents
were asked
to rate all items separately on a 9-point Likert-type scale. In
this way, non-
parametric restrictions could be overcome. Literature has shown
that similar
results follow from the two methods (see Finegan 1994; Munson
and
McIntyre 1979). Munson and Posner (1980) asserted that the
information
about the intensity of guidance in an individual’s life was more

precise
using a Likert-type rating scale. In addition, the rating process
is quicker
and is therefore more convenient for the respondent (Fritzsche
1995). We
used an unbalanced scale (from irrelevant, 21, to very
important, 7) in
order to cope with the leniency effect (Antonides and van Raaij
1998).
RESULTS
Relative Importance of the Fair-Trade Attribute and
Segmentation of the Coffee Market
A conjoint analysis was carried out for each respondent (using
CONJOINT of SPSS).
1
It computes the part-worth utilities of the levels
of the attributes and the relative importance of each attribute
(i.e., the ratio
of the utility range of the considered attribute and the total sum
of the utility

ranges of all attributes). A summary for the whole sample was
obtained by
averaging the part-worth utilities and relative importance of the
attributes
over all the respondents. In Table 3, we show the average
relative impor-
tance of the attributes and the part-worth utilities. The Pearson
correlation
and Kendall rank correlation coefficients between the estimated
and
observed preferences give an indication of the fit of the
analysis.
TABLE 3
Average Part-Worth Utilities and Relative Importance of the
Coffee Attributes
(Total Sample and Clusters)
Average Part-Worth Utilities
Clusters
Attributes Total sample 1 2 3 4
Label
Fair trade 3.74 11.93 5.51 1.14 1.21
No fair trade 23.74 211.93 25.51 21.14 21.21

Brand
Douwe Egberts 3.27 1.34 1.64 1.92 7.85
Private brand 23.27 21.34 21.64 21.92 27.85
Blending
100% Arabica 1.04 .69 1.53 1.11 .37
Arabica/Robusta 21.04 2.68 21.53 21.11 2.37
Package
Warm 2.08 .10 2.12 2.04 2.15
Cold .08 2.10 .12 .04 .15
Flavor
Mocha 2.07 2.75 2.29 .20 .18
Dessert .90 1.31 .34 2.59 2.39
Decaffeinated 2.82 2.56 2.05 22.79 .21
Constant 78.17 80.29 78.17 72.89 71.43
Fit
Pearson’s R 1 (.000) 1 (.000) .999 (.000) 1 (.000) 1 (.000)
Kendall’s s 1 (.0003) 1 (.0003) 1 (.0003) 1 (.0003) .982 (.0004)
Average Relative Importance

Clusters
Attributes Total sample 1 2 3 4
Label 25.3 69.2 31.7 11.1 10.1
Brand 28.4 10.0 20.1 16.5 60.1
Blending 11.7 5.3 16.4 11.8 7.4
Package 9.1 4.1 10.5 11.1 7.2
Flavor 25.5 11.4 21.2 49.5 15.1
Respondents (percentage
of the total sample)
11 40 24 25
Note: p values in parentheses.
As could be expected, the brand attribute had the highest
relative impor-
tance for the total sample. Fair-trade label and flavor came
second in the
purchasing decisions of the consumers with an almost negligible
difference
in importance. Label is judged almost as important as flavor and

somewhat
less important than brand. Package and blending were of minor
relative
importance. However, one has to remain cautious concerning
the impact
of the three dominant attributes; brand, label, and flavor. Coffee
is, as
opposed to a washing machine for example, a relatively low-
involvement
good, which implies a relative low importance of any attribute.
Buying
a specific type of coffee is often a matter of habit. This is also
shown
in the conjoint analysis by the much superior part-worth utility
of the
constant (i.e., the part of utility of coffee not explained by the
five attributes)
compared with the part-worth utilities of the attribute levels.
From the results of the conjoint analysis, the consumers were
assigned to
different groups based on a cluster analysis of the relative
importance of the
attributes. First, the number of clusters was determined from a
hierarchical

cluster analysis using Ward’s method. Next, the optimal cluster
composition
was determined using a K-means cluster analysis. As suggested
by Hair
et al. (1998), we used the percentage change of the
agglomeration coeffi-
cient as a criterion to discriminate between different cluster
solutions. We
opted for a four-cluster solution because of the substantial
acceleration of
the increase of the agglomeration coefficient when passing from
four to
three clusters, i.e., an increase of 23% compared with the 11.6%
moving
average increase of the previous five cluster solutions and the
13% increase
of the agglomeration coefficient when going from a five- to a
four-cluster
solution. A drawback of hierarchical methods is that an
individual can never
be removed from the cluster to which he or she has been
assigned. This
may result in a suboptimal clustering. Hence, once the number
of clusters

was determined, we performed a K-means cluster analysis to
determine the
optimal cluster partitioning.
Table 3 indicates that the four identified clusters differed
substantially in
average part-worth utilities and relative importance of the
attributes. The
respondents in the first cluster expressed a high and clear
preference for
the fair-trade label. This group was therefore denoted the fair-
trade lovers
cluster. Cluster 2 is characterized by a relative balance between
each attri-
bute, although the fair-trade label still came out as the most
important one.
We called this cluster the fair-trade likers. The flavor lovers
comprise clus-
ter 3. They prefer the flavor of their coffee and barely make a
distinction
between other attributes. Finally, the salient characteristic of
cluster 4 is the
relative importance respondents lay on the brand of their
purchased coffee.
They are termed brand lovers.

Willingness to Pay for a Fair-Trade Label
In order to express their preferences for a given type of coffee,
respond-
ents were asked about their willingness to pay of the eight
coffee profiles, in
comparison with a price of e1.87 for the reference profile. Since
the ortho-
gonal design was representative for all combinations of attribute
levels, the
four profiles with a label only differed from the four profiles
without a label
in terms of the label itself. Therefore, we could determine the
willingness to
pay for a fair-trade label as the difference between the average
price of the
coffee profiles with a label and the coffee profiles without a
label (i.e., the
price premium of fair-trade coffee). In Table 4, we show some
benchmark
indicators for the willingness to pay for the total sample and the
four iden-

tified clusters: the average willingness to pay and the share of
the respond-
ents who were willing to pay a price premium of at least 10%
and at least
27%. The latter figure represented the actual price premium of
fair-trade
coffee based on all types of coffee available on the market in
Belgium
(ACNielsen 2002).
The average willingness to pay for the total sample was 10%
(e0.19) but
varied substantially from 36% (e0.62) for the fair-trade lovers
to less than
5% for the taste and brand lovers (e0.07 and e0.06,
respectively). A total of
35% of all the respondents were prepared to pay a price
premium for fair-
trade coffee of at least this average; ranging from more than
90% of the fair-
trade lovers to 18% (flavor lovers) and 13% (brand lovers).
Flavor and
brand lovers were definitely not prepared to pay the actual
premium of
27%. The same applies to more than 80% of the fair-trade likers

and almost
TABLE 4
Willingness to Pay for a Fair-Trade Label
Average Willingness to Pay for a Fair-Trade Label
(Price Premium as a Percentage of No Fair-Trade Coffee)
Clusters
Total sample 1 2 3 4
10 36 17 4 3
Share of the Respondents Willing to Pay the Price Premium (%)
Clusters
Price Premium (%) Total sample 1 2 3 4
At least 10 (e0.19) 35 91 65 18 13
At least 27 (e0.50)
(actual premium,
all types of coffee
included)
10 52 17 1 0.7

half of the fair-trade lovers. Table 3 indicated that about half of
the respond-
ents considered the fair-trade label when purchasing coffee.
However, when
the respondents’ willingness to pay the actual price premium
was taken into
account, potential market penetration (the share of the
consumers that can be
expected to buy fair-trade at a given price premium) of fair-
trade coffee
dropped to about 10%. Since the amount of coffee each of the
groups buys
is unknown, this market penetration potential should not be
interpreted as
a potential market share. Furthermore, this penetration potential
is only
valid under the assumptions of correct information and equal
availability.
The penetration potential of 10% was substantially less than the
68% in
the study of Hines and Ames (2000) who claimed to have
bought a product
or a service because of a company’s responsible reputation and

the 46% of
the European consumers who claimed to be willing to pay
substantially
more for ethical products (MORI 2000). As already mentioned,
American
consumers agreed with a price increase of 6.6% for green
products (The
Roper Organization, Inc. 1990), less than the average price
premium for
fair-trade coffee in our sample, but this figure may be somewhat
dated.
Similarly, French consumers indicate a willingness to pay 10%–
25% more
for apparel not made by children (CRC-Consommation 1998).
Our findings
for fair-trade coffee corresponded with the lower limit of this
estimate.
To what extent are our results affected by the
overrepresentation of young
and higher-educated respondents in the sample? In order to
assess this, we
calculated the average part-worth utilities, average relative
importance of the
attributes, and average willingness to pay for the subsample of

administra-
tive and technical staff (41% of the respondents), the
composition of which
was more in line with the total Belgian population. From the
Labour Force
Survey (Eurostat 2002), the age group younger than 24 years
represented
9% of the workforce in Belgium (12% in the EU, 5% of the
subsample in our
survey), the age group between 25 and 45 years 73% (67% in
the EU, 64%
of the subsample), and the age group between 45 and 64 years
17% (21% in
the EU, 31% of the subsample). The higher educated remained
overrepre-
sented in the subsample of administrative and technical staff
(60% of total
respondents), compared with the Belgian population (40%) and
EU average
(33%), although less than in the full sample.
For the subsample of administrative and technical staff, the
brand was
the most important attribute, counting for 28% of the total
utility of the five

attributes, as in the full sample. Again, flavor and label are
equally impor-
tant, accounting on average for 26% and 25% of the total utility
of all the
attributes, respectively. The relative importance of package and
blending
was also identical for the subsample and the full sample (12%
and 9%,
respectively). The average willingness to pay of the subsample
of the
administrative and technical staff amounted to 11%, i.e., close
to the 10%
for the total sample. Hence, it would seem that our results are
not too
severely affected by the specific composition of the sample
regarding
age and education. Nevertheless, we have to remain cautious to
extrapolate
our results to the total population.
Characteristics of Fair-Trade Consumers

From the second part of our survey, we profiled the clusters in
the coffee
market in demographic and personal value terms. As described
above, the
significance of demographic factors in ethical decisions is not
clear. Based
on the literature survey in the introduction of this study, only
age, gender,
and education were considered. The age variable was classified
into three
categories: 18–30 years, 31–44 years, and 45 years or older.
Two levels of
education were considered: high school (12 years of education
or less) and
higher education (more than 12 years of education).
Table 5 gives a description of each cluster in terms of age,
education,
and gender. For every independent variable, the p value of the
Pearson chi-
square test on equal means is given in parentheses. Regarding
gender, the
fair-trade lovers and likers consisted of an almost equal share of
men and
women. This confirmed earlier studies that have concluded that
ethical buy-

ing behavior was not influenced by gender (e.g., MORI 2000;
Sikula and
Costa 1994; Tsalikis and Ortiz-Buonafina 1990). Women
represented
a more than proportionate share of the brand lovers. The reason
for this
could be that women still do more shopping than men and
therefore could
be more brand aware. Men were more than proportionately
flavor lovers.
TABLE 5
Cluster Demographics (in Percentage of Full Sample or Cluster)
Total
Sample
Fair-Trade
Lovers
Fair-Trade
Likers
Flavor
Lovers

Brand
Lovers
Gender (.016)
Male 46 51 44 54 40
Female 54 49 56 46 61
Education (.037)
High school 16 8 16 21 15
Higher education 84 92 84 79 85
Age (.000)
24–30 58 54 57 49 69
31–44 27 37 26 25 25
45 and older 15 9 17 26 6
Note: p values in parentheses.
People in the 31–44 year age group were dominant in the fair-
trade lov-
ers cluster. This was in line with the profile that fair-trade
organizations see

as their target group. It confirmed the findings of Littrell and
Dickson
(1999) and (to a certain extent) Roberts (1995). The results are
not in line
with the demographic profiles found in studies relating to other
types of
ethical consumer behavior, e.g., Dickson (2001), concerning the
impor-
tance of the no-sweat label. The youngest age group is dominant
in the
brand lovers and less prevalent in the flavor lovers. Finally, the
flavor
lovers were older than the members of the other clusters.
The highly educated, defined as indicated above, constituted a
more than
proportionate share of the fair-trade lovers and a less than
proportionate
share of the flavor lovers. Studies tend to conclude that the
ethical con-
sumer is a person with a relatively high educational status
(Carrigan
and Attalla 2001; Littrell and Dickson 1999; Maignan and
Ferrell 2001;
Roberts 1996). This sociodemographic profile was confirmed in

the con-
text of fair-trade buying behavior in Belgium (Idea Consult
2002). How-
ever, the difference in education distribution of the clusters
became
insignificant if we defined those with higher and lower levels of
education
in alternative ways, i.e., as respondents with and without a
university
degree, or in three categories (university degree, college
nonuniversity
degree, and high school). It would seem that the relevant
education dif-
ference is between high-school-only consumers and higher-
education
consumers.
To define the basic dimensions that underlie the Rokeach scale
measure-
ments, an exploratory factor analysis was carried out on the 36
scale items.
2
We distinguished five factors: a conventionalism factor, a
competence
factor, a sincere and social factor, an idealistic factor, and a
personal grat-

ification factor. Their reliability was determined, using
Cronbach’s alpha.
This is a coefficient of reliability that measures how consistent
a set of items
(or variables) measures a single dimensional latent construct.
Alphas
should be higher than .7 but may decrease to .6 in exploratory
research
(Hair et al. 1998). Some of the five factors that result from this
analysis
are also found in previous studies (e.g., Crosby, Bitner, and Gill
1990;
Vinson, Munson, and Nakanishi 1977), but other studies have
found less
factors (e.g., Dickson 2000; Gibbins and Walker 1993) or
concluded that
the number of dimensions found are dependent upon moderating
variables
such as cross-cultural differences (see, for instance, the
overview by
Meglino and Ravlin 1998).
An analysis of variance for every factor was conducted to check
for sig-
nificant differences between the four previously identified
clusters using the

Bonferroni post hoc test. Table 6 provides the differences in
means between
the clusters for each factor. The means ranged between 3 and
almost 5 on
the scale between 21 and 7 and were mostly higher than the
midpoint scale
values.
The competence factor and the sincere and social factor were
not signif-
icantly different across the clusters. Fair-trade lovers were less
conventional
than flavor lovers and brand lovers. Next, fair-trade lovers and
fair-trade
likers were significantly more idealistic than the other two
clusters. Roozen,
De Pelsmacker, and Bostyn (2001) also found idealism as a
determining
factor for ethical behavior. Dickson (2000) found that societal-
centered val-
ues predicted attitudes toward socially responsible businesses.
Finally, the

brand lovers were significantly more motivated by personal
gratification
than any other group of respondents.
Overall, the four clusters could be described as follows. Fair-
trade lovers
accounted for 11% of the sample. For this group, a fair-trade
coffee label
represented the dominant attribute when buying coffee.
Members of the
group were largely between 31 and 44 years of age and higher
educated
than the other clusters. They were, together with the flavor
lovers, predom-
inantly male, more so than the other two clusters. This cluster
also tended to
be more idealistic and less conventional. The fair-trade likers
formed the
largest group, with 40% of the sample. They tended to choose a
fair-trade
label on coffee but also had the highest preference for blending
and the
second highest preference for any other attribute. Demographics
were

not notably different from other clusters, and they adhered to
the same val-
ues as the fair-trade lovers. The flavor lovers consisted of
approximately
one-quarter of the total sample (24%). There were more men in
this cluster.
They were older and less educated (although this could be
intrinsic to the
fact of being older, i.e., a generation effect). They were more
conventional
than the two former clusters and less idealistic. The brand
lovers accounted
for 25% of the sample and were mainly women with an
education profile
similar to the fair-trade likers. Brand lovers were significantly
younger than
TABLE 6
Bonferroni Post Hoc Tests for the Five Underlying Factors
Fair-Trade
Lovers
Fair-Trade
Likers

Flavor
Lovers Brand Lovers
Conventionalism 3.02 (1,3); (1,4) 3.35 (2,4) 3.65 (3,1) 3.78
(4,1); (4,2)
Competence 4.60 4.45 4.56 4.50
Sincere and social 4.91 4.79 4.70 4.72
Idealistic 4.53 (1,3); (1,4) 4.47 (2,3); (2,4) 4.06 (3,1); (3,2)
4.00 (4,1); (4,2)
Personal gratification 3.47 (1,4) 3.60 (2,4) 3.59 (3,4) 3.96 (4,1);
(4,2); (4,3)
Note: The figures in parentheses indicate significant differences
between cluster pairs of the mean factor
scores at the .05 level.
any other group. Considering personal gratification as a way of
life made
the difference between this and the other clusters.
CONCLUSIONS
In this paper, we investigated to what extent consumers
consider a fair-

trade label when purchasing coffee, using a sample of Belgian
consumers.
A substantial number of surveys showed that consumers value
the ethical
aspect in a product. However, consumers’ behavior in the
marketplace
is apparently not consistent with their reported attitude toward
products
with an ethical dimension. In this study, we tried to avoid the
misleading
general attitude indications by capturing the hypothetical
purchase inten-
tion for fair-trade coffee. In presenting a choice situation to
consumers in
a close-to-reality setting, we tried to determine the value of a
fair-trade
label, and hence the importance of ethics, by including
simultaneously
all the relevant dimensions of coffee-buying intentions. The
brand was
the most important attribute of coffee, closely followed by
flavor and
fair-trade label in third. The willingness to pay for a fair-trade
label on

coffee of the respondents indicated that about 10% of the
sample wanted
to pay the current price premium of 27% in Belgium.
Clusters based on differences in preference were defined to
estimate mar-
ket opportunities for fairly traded coffee and to profile potential
consumers.
Profiling was done by means of demographic features: age,
gender, and
education level, as well as underlying factors of the Rokeach
personal val-
ues scale. Four clusters were identified. The fair-trade lovers
accounted for
11% of the sample and were predominantly aged 31–45 years.
They were
more idealistic and less conventional compared with other
groups. The fair-
trade likers represented the largest group. They did not differ
significantly
from the rest of the sample in terms of demographic
characteristics, but they
were relatively more idealistic. The flavor lovers and the brand
lovers each
accounted for one-quarter of the total sample and were less

idealistic and
more conventional. In addition, brand lovers were more likely
to be
women. The fair-trade lovers constituted the group that was
most prepared
to pay the actual price premium (slightly over 50% of them). Of
the flavor
lovers and the brand lovers, who account for 50% of the sample,
only
a small minority was prepared to pay the sample average price
premium
of 10% for fair-trade coffee.
The 11% fair-trade lovers cannot be considered equivalent to
actual mar-
ket share because the amount of coffee they buy relative to the
total pop-
ulation is unknown. Furthermore, the results of this study were
based on the
assumption of extensive, equal, and correct information for all
respondents
and the availability of fair-trade coffee to the same extent as

other brands. In
reality, this is not the case. Second, the response rate of the
mailing was
only half that of the online survey. This adds to the explanation
why higher
educated and respondents younger than 45 years tended to be
overrepre-
sented in our sample (although our basic results are unaffected
by the spe-
cific composition of the sample). Due to the probable, but
unknown, bias in
the sample toward fair-trade issues, and because of the
overrepresentation
of the higher educated, we consider the market penetration
potential of 10%
as an upper limit. Nevertheless, the gap between this and the
actual market
share of fair-trade coffee of 1% on the Belgian market suggests
that even at
the actual price premium, there is an unexploited market
potential for fair-
trade coffee; however, this is somewhat more modest than that
suggested by
some other studies.

Although the fair-trade lovers are a considerable niche, the size
of the fair-
trade likers segment indicated an even larger market potential of
fair-trade
coffee. Fair-trade lovers and likers covered 50% of the
consumers. These
two groups could be convinced to buy fair-trade coffee if better
informed
and the right marketing efforts are pursued. Fair-trade likers
also attach a lot
of importance to attributes such as brand and flavor. To appeal
to them, the
quality of the fair-trade coffee should match that of regular
brands. The
creation of a genuine fair-trade brand, instead of labeling other
brands with
fair-trade, may be a more efficient and credible alternative to
promote the
fair-trade idea to a broader audience. Finally, although the
willingness to pay
the actual price premium for fair-trade coffee was relatively
strong in the fair-
trade lovers group, it was on the contrary relatively weak in the
fair-trade

likers segment. Apparently, the appreciation for the fair-trade
attribute was
not strong enough to support the actual price premium. Maybe
the most effi-
cient way to expand the market would be to reduce the price
premium of fair-
trade coffee to a level more acceptable by larger parts of the
population, e.g.,
by giving tax incentives such as lower value-added tax, similar
to the tax
reductions for environmentally friendly products in some
countries.
There are at least two directions in which this research could be
expanded. One direction for future research is related to the
increasing com-
petition on the ‘‘good-cause label’’ market. A growing number
of products
carry ‘‘green,’’ ‘‘bio,’’ ‘‘social,’’ or fair-trade labels. Ethically
oriented con-
sumers are increasingly faced with the choice between these
labels. A sim-
ilar study to ours is currently being conducted in which the type
of label

(and not just the presence or the absence of a fair-trade label) is
incorporated
as a product attribute. This will provide more insight into the
willingness to
pay for different types of ethical products in terms of what or
whom they
benefit (the environment versus people, the immediate context
of the
consumer versus geographically remote contexts, etc.). The
willingness to
buy and to pay for fair-trade products may also be contingent
upon the
availability of these products in shops, the credibility of the
issuer of
the label, and the amount and quality of the fair-trade
information. A
follow-up study is currently under way in which these aspects
are also
incorporated as product attributes. This will enable fair-trade
marketeers
and governments to optimize their marketing and information
efforts.

A second direction for further research may focus on the
increasing use
of fair-trade labels on other types of products besides coffee,
such as
bananas, honey, chocolate, and clothing. A similar study as for
fair-trade
coffee could be set up to investigate the relative importance of
fair-trade and
other ethical labels across product categories, to assess the
willingness to
pay a price premium for the ethical label attribute, to estimate
the market
potential of fair-trade and other ethically labeled products, and
to define
promising market segments of consumers in different product
categories
and markets.
ENDNOTES
1. All the computations were performed using SPSS.
2. For the sake of brevity, factor loadings and other detailed
figures are not reported. They are
available from the authors upon request.

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Social Value Added: A
Metric for Implementing
Corporate Sociai
Responsibiiity
AT&T's SVA tool helps quantify
the value of EH&S activities
Despite the fact that
"corporate social re-
sponsibility," or
CSR, is one of the
hottest current cor-
porate buzzwords—
and an increasingly
popular course sub-
ject in many busi-
ness schools—there is little consensus on what
the concept actually includes. In part, this is be-

cause the current reincarnation of the term is not
a simple extension of past experience, but repre-
sents a new confiuence of a number of previously
independent trends.
In this article, we offer some background on
CSR, including some of the more recent policy
developments that have driven expansion of the
concept. We then describe and illustrate a metric
that AT&T has developed for measuring social
value added. This metric has helped AT&T under-
stand the advantages of implementing CSR activ-
ities; we believe it could be of use to many other
organizations as well.
Background: A Brief History of CSR
The idea that institutions have responsibili-
ties to the broader society within which they
function is clearly ancient. Business activities
have long been
constrained by
moral dictates (reli-
gious edicts against
usury, for example).
Religious and civil
authorities have
often judged and
controlled business
activity based on behavior, economic activity,
and the hke (Epstein, 1987).
That this idea of reciprocal privileges and du-
ties would extend to corporations as they began

to evolve in their modern form is not surprising.
The medieval merchant and craft guilds, and the
subsequent royal charter trading companies, were
entrusted with social expectations that reflected
the ethical structure of their times.
Many of these implicit expectations bridged
over with the advent of the truly modern firm, a
creature of general incorporation laws under
which any entity meeting statutorily defined cri-
teria was able to incorporate. (The first of these
laws was passed in 1811 by New York State.)
Even though the incorporation laws created a
structure where responsibility to shareholders
Clair Krizov and Brad Allenby
© 2004 Wiley Periodicals, Inc.
Published online in Wiley InterScience
(www.interscience.wiley.com).
DOI: 10.1002Aqem.20036 Environmental Quality Management /
Winter 2004 / 39
was paramount, this injunction has never pre-
vented firms in virtually all countries from en-
gaging in philanthropy, outreach, employee sup-
port, and other activities that reflect a broader
social role (Allenby, 1997). As the Committee for
Economic Development (1971) notes:
[B]usiness functions by public consent and
its basic purpose is to serve constructively
the needs of society—to the satisfaction of

society. Business
has a responsibility
for economic effi-
ciency—the core
responsibility. Out
of that responsibil-
ity comes a need to
be sensitive to so-
Many global firms now produce
annuai sustainability reports tbat
are eitber in addition to or
incorporate tbeir previous
environmental reports.
cial values and pri-
orities when per-
forming the economic function.
Modern-Era Policy Developments
The firm's historic responsibility to behave
somewhat ethically has in the past few decades
been significantly augmented by four additional
policy developments, as discussed below.
Ttie Environmental Movement
The first factor is the increasing power of the
environmental movement. This movement has a
long history but exhibited a significant increase
in activism and importance beginning in the late
1960s, especially in developed countries (Chou-
cri, 1993).

The Human Rights Movement
The second factor is the human rights dis-
course. This movement also has deep historical
roots (in antislavery activities and child labor leg-
islation, for example) but accelerated signifi-
cantly in scope and scale after WWII. Article I of
the United Nations Charter established as a core
purpose of the UN the promotion of relationships
among states "based on respect for the principles
of equal rights and self-determination of peo-
ples," an approach confirmed in the subsequent
Universal Declaration of Human Rights of 1948.
The subsequent evolution of human rights,
and the rise of nongovernmental organizations
(NGOs) dedicated to that cause around the world,
has fundamentally changed the relationships
among nation-states, firms, communities, and in-
dividuals (Sassen, 1996).
Sustainable Development
The third element is the growth of the con-
cept of "sustainable development," an effort to
integrate environmental and economic develop-
ment values.
The concept originally was popularized by the
World Commission on Environment and Devel-
opment (1987). Subsequently, the idea that cor-
porations should be agents of "sustainability," in
addition to their statutorily defined role as profit
centers, has taken hold, and has been enshrined

in the idea of the "triple bottom line," which
states that firms should attempt to perform well
not just economically, but also socially and envi-
ronmentally.'
At least from a public relations perspective,
the result of the sustainable development trend is
certainly apparent: many global firms now pro-
duce annual sustainability reports that are either
in addition to or incorporate their previous envi-
ronmental reports.^
Civil Society's Reaction to Unethical
Corporate Behavior
The fourth factor, of course, is a continuing
reaction by civil society against perceived un-
ethical behavior by firms. From the 1960s
through the 1980s, reaction against corpora-
tions tended to center on their involvement in
40 / Winter 2004 / Environmental Quality iVIanagement Clair
Krizov and Brad Allenby
unpopular wars (e.g., tbrough production of na-
palm) and on tragedies such as the Bbopal re-
lease of toxic fumes from a cbemical facility,
which killed thousands.
More recently, social disapproval has focused

on the criminal mismanagement of large firms in
the United States and Europe and disparities in
pay between top executives and workers.
The Evolution of CSR
Taken together, the effect of this "perfect
storm" of discourses, issues, and communities,
and the rise of nongovernmental organizations as
independent centers of perceived authority, has
profoundly changed the governance structure
within which firms conduct their business (Math-
ews, 1997). Thus, not only is the meaning of CSR
in the modern context less clear than it has been
for centuries, but the governance structure within
which CSR occurs is also increasingly undefined
and ambiguous.
This has important implications. It may be
relatively easy for parties to verify, and eventually
agree on the validity of, financial or scientific
data. But almost by definition, "social responsi-

bility" is a matter of values as well as performance
metrics. The question of "whose values" one sup-
ports remains open and contentious.
The Eiements of Corporate Sociai
Responsihiiity
Lack of Clear Definitions
As the above discussion suggests, a major
problem regarding CSR is that there is no general
agreement about its meaning from an opera-
tional or a managerial point of view. Although
somewhat dated, Friedman's (1970) comment is
perhaps more true now than it was then: "The
discussions of the 'social responsibilities of busi-
ness' are notable for their analytical looseness
and lack of r i g o r . . . . The first step toward clarity
A major prohienn regarding CSR is
that there is no generai agreement
about its meaning from an
operational or a managerial point
of view.

in examining the doctrine of the social responsi-
bility of business is to ask precisely what it im-
plies for whom."
Almost all of the existing definitions of CSR still
generally reflect vague concepts—desirable actions,
socioeconomic welfare, activities beyond the firm's
direct economic or technical interests, ethical con-
sequences, voluntarism, satisfaction of society, so-
cial order, behaviors congruent with prevailing so-
cial norms, human competence, responsiveness,
beneficial rather than adverse affects, social legiti-
macy—rather than operational terms. (Although
some such standards do exist. They are codified in,
for example, antifraud and worker health and
safety laws.)
This lack of rigor is
frustrating both from
an academic perspec-

tive (because such lan-
guage fails to provide a
basis for empirical re-
search) and for compa-
nies (because the gen-
erality of the exhortations is difficult to translate
into organizational behavior, or into design and
operation of products and services).
A Changing Kaleidoscope of Issues
Of course, there have been efforts to put
substance around the concepts—not through
definitions, but through discussions around the
definitions.
For instance, in the 1950s and 1960s, societal
values noted in the literature included concerns
with pricing policies; shady sales inducements;
support of the arts; organizational pressures on
employees; involvement in military production;

antitrust activities and self-dealing; politics; wel-
fare of the community; education; and the "hap-
piness" of employees.
In the 1970s, other elements surfaced as
major components of CSR: working conditions;
Social Value Added: A Metric for Implementing Corporate
Social Responsibility Environmental Quality iVIanagement /
Winter 2004 / 41
There is very iittie tliat firms do,
or might do, that has not at one
time or another been associated
with CSR.
product safety; environmental effects; fraudulent
advertising; employment inequities; community-
oriented programs; environmental conservation;
labor policies; consumer transparency; fair treat-
ment; protection from injury; poverty and urban
blight; racial discrimination; pollution; urban
decay; employment of minority groups and asso-
ciated affirmative action policies; greater partici-
pation in programs to improve the community;
medical care; industrial health and safety; Third
World dealings; employee whistle-blowing; dis-
tributive justice; employee rights on and to the
job; sexual harassment; affirmative action for
women; and bribery of foreign officials.

In the 1980s and
1990s, the CSR focus
shifted toward still
other issues: white-
collar crime; business
indictments for al-
leged criminal acts;
overcharging in de-
fense projects; envi-
ronmental disasters;
employee communications, training, and devel-
opment; career-planning; retirement and termi-
nation counseling; layoffs; redundancies; plant
closings; stress and mental health; absenteeism
and turnover; health and safety; employment eq-
uity and discrimination; women in manage-
ment; performance appraisal; day care; public
policy; trade associations; flexible work hours;
unemployment programs; and employment of
children, especially in developing countries (Ep-
stein, 1987).
Input from NGOs
Civil society has also been an uneven source
of prioritization regarding CSR. While NGOs fre-
quently and visibly campaign on various aspects
of CSR, the ad hoc and single-issue character of
such organizations provides neither a compre-
hensive guide to CSR nor the assurance that all
aspects of CSR will be equally weighted.
Input from Business-Oriented Research
Business-oriented research organizations,

such as the Conference Board, have been very ac-
tive in attempting to help companies understand
the demands of the environment within which
they are now operating. But here again, achieving
a comprehensive approach has been difficult.̂
Input from Socially Responsible Investment
Funds and Groups
A relatively new source of input consists of the
socially responsible investment funds and invest-
ment indexes, such as the Dow Jones Sustainability
Group Index, and special interest groups, such as
the Council on Economic Priorities (CEP), which
have begun rating corporations on CSR issues.
For instance, the CEP has rated corporations
on their impact to the environment; support of
minorities; advancement of women; contribu-
tions to charities as a percent of income; treat-
ment of workers; and family benefits, such as
flexible work arrangements and paid leave
(Council on Economic Priorities, 2000).
AT&T'S Sooiai Value Added Tooi
Making Sense of CSR
It is apparent from the above discussion that
there is very little that firms do, or might do, that
has not at one time or another been associated
with CSR. This raises a number of risks: that firms
will ignore the concept completely as being im-
possible to operationalize; that firms and different
stakeholders will come into conflict over claims

regarding CSR because they may have different
operational concepts about what CSR means; or
that ideological conflict may negate otherwise de-
sirable initiatives (in the latter case, the best can
become the enemy of the good if companies re-
42 / Winter 2004 / Environmantai Quality iVIanagement Clair
fuse to implement CSR projects because it only
draws NGOs to attack them). Some of these risks
can be managed; others can only be accepted.
In evaluating its approach to CSR as that con-
cept integrates with environmental and safety
functions, AT&T's environment, health, and
safety (EH&S) group identified one risk to which
it could respond, and which it could reduce: the
risk that firms may regard CSR as mere philan-
thropy and not as an economically justifiable ex-
penditure of corporate resources.
In understanding this approach, it is useful to
refer to a comment by Epstein (1987):

Business organizations and those who run
them have a crucial role to play in achiev-
ing that [good] world. The search for eco-
nomic efficiency constitutes the core of the
Science of Management, and efforts to
achieve justice and peace by means of the
sensitive and effective management of val-
ues lies at the heart of the Art of Manage-
ment. Together, these two endeavors can
contribute to a society which is both ra-
tional and humane, reasoned and civilized.
The achievement of this duality within the
American Business Civilization is what the
corporate social policy process is all about.
Fashioning a Practical CSR Tool
Thus, the challenge as AT&T EH&S under-
stood it was to integrate the science and art of
management in a practical CSR tool—that is,

without denigrating the social contributions of
corporate CSR activities, demonstrate that they
made sense from the company's operational per-
spective as well, and do so in an intellectually rig-
orous and (if possible) quantitative way.
CSR anti the EH&S Mission
There are, of course, many things that organ-
izations do that are not in a broad sense CSR, but
AT&T's EH&S organization also
pursues stakeholder management,
which includes EH&S's contrihution
to social responsihiiity.
are required activities; compliance and remedia-
tion are obvious examples.
At AT&T, however, as in many companies, the
EH&S organization's responsibilities do not stop
at compliance. AT&T's EH&S organization also
pursues stakeholder management, which includes
EH&S's contribution to social responsibility.
Stakeholtier Management

"Stakeholders" is a very inclusive category. It
includes employees; shareholders; communities
around the world; individuals that come into
contact with AT&T's services in one way or an-
other; NGOs (ranging from the responsible to the
highly targeted and ac-
tivist); and govern-
ment regulators and
policy formulators,
both environmental
and otherwise.
Each community
may have its own in-
terests in a company's
positions and actions, ranging from receiving
funds to collaborating on policy initiatives to
simply expecting responsible corporate behavior.
Thus, critical responsibilities of stakeholder

management include stakeholder communica-
tions; strategic planning to ensure that AT&T's
EH&S policies, direction, and performance align
with external expectations; research regarding the
social and environmental implications of AT&T,
the telecom sector, and the service industry gener-
ally; and support of the external EH&S community,
including not-for-profit EH&S-related initiatives.
The stakeholder management function thus
requires investment—investment that is clearly
CSR in practice.
Social Value Added Tool
Traditionally, there are those who have con-
sidered investments in stakeholder initiatives.
Social Responsibility Environmental Quality Management /
Winter 2004 / 43
from supporting not-for-profit organizations and
activities to the more traditional academic grant

support, to be purely philanthropic—correspond-
ing perhaps to Epstein's Art of Management.
AT&T, however, combines this Art of Manage-
ment with the Science of Management by using
an in-house-created Web-based tool, tbe Social
Value Added (SVA) tool.
"SVA" was chosen as the designator because it
tracked other metric systems—Consumer Value
Added (CVA), Personnel Value Added (PVA), and
tbe like—tbat were already used at AT&T. Tbe
name tbus reduced the sense of change or inno-
vation that would be associated with use of the
tool.
As a general rule,
dating back to AT&T's
adoption of Design for
Environment in the
early 1990s, we bave

found tbat acceptance
of cbange is directly
proportional to tbe de-
gree to whicb tbe
cbange can be made to appear nontbreatening
and incremental to existing practices.
Using the SVA Tool
For several reasons, it made sense wben con-
sidering bow to construct an SVA tool to look at
financial analogs. Eor one, tbeir performance and
strengtbs and weaknesses were generally known.
Eor another, using such analogs gave a sense of fa-
miliarity and gravitas to the new tool, since tbose
using it respected tbe results of tbe financial cal-
culation process.
Accordingly, tbe SVA tool measures AT&T's
EH&S-related initiatives based on tbe net oper-
ating profit margin financial ratio, a ratio used

by for-profit enterprises as an overall measure of
operating effectiveness. Tbe ratio is calculated
as follows:
For several reasons, it made sense
when considering how to construct
an SVA tool to look at financial
analogs.
[(Sales - CGS - SGA) / Sales] X 100
wbere "CGS" is "cost of goods sold" and "SGA" is
"selling, general, and administrative" expenses
(in otber words, the general cost of running the
business).
Eor EH&S-related initiatives, AT&T turns the
ratio into the following:
[(Total benefit - Total cost) / Total benefit] X 100
Eacb of tbese components in turn is broken
down into definable quantities, as described
below.
• Total Benefit
AT&T determines total benefit by calculating

(1) tbe potential retained, or gained, revenue as-
sociated witb an EH&S-related initiative and (2)
tbe estimated media value of AT&T EH&S-sup-
ported initiatives.
AT&T converts tbe external exposure pro-
vided by an EH&S-related initiative into a poten-
tial retained, or gained, revenue figure. Tbe con-
version is done by calculating tbe number of
people exposed to the AT&T-supported initiative
and then multiplying tbat number by botb tbe
estimated percent of Americans wbo make tbeir
purcbasing decisions based on a company's EH&S
record and by tbe estimated monthly telecom-
munications services expenditures of tbe average
American.
Tbe estimated media value converts tbe "free"
publicity associated witb tbe EH&S-related initia-
tive (sucb as mention of AT&T's support of tbe ini-

tiative in tbe organization's membersbip newslet-
ter or Web site) into a dollar figure. Tbe estimated
media value is converted by using tbe Bacon Media
Guide, a source tbat provides tbe estimated cost of
a typical advertisement in a publication based on
circulation size, or people exposed, and tbe num-
ber of column incbes (or minutes, if tbe exposure
is via television or radio). Tbus,
44 / Winter 2004 / Environmental Quality iVIanagement Ciair
Krizov and Brad Alienby
Total Benefit = [(# of people exposed to tbe
initiative) X (% of Americans wbo make
purcbasing decisions based on a company's
EH&S record) X (estimated monthly spending by
an American on telecommunications services)]
+ (estimated media value of tbe "free" publicity)
• Total Cost
Total cost for an initiative is determined by

adding tbe estimated AT&T labor expenses asso-
ciated witb tbe initiative, based on tbe time in-
volved, to tbe dollars invested in tbe initiative,
such as tbe dollar amount of a donation:
Total Cost = (AT&T labor cost) + (Dollars spent)
Versatility of the SVA Tool
Exhibit 1 sbows an example of an SVA cal-
culation using bypotbetical data. At AT&T EH&S,
every investment (sucb as a donation) tbat is not
de minimis in tbe portfolio bas sucb a calculation
run on it.
AT&T's SVA tool allows social value added to
be calculated in wbatever way facilitates an orga-
nization's analysis of its investments. SVA can be
calculated:
• for AT&T EH&S's investment portfolio as a
wbole;
• for an EH&S-supported organization's invest-
ment portfolio as a wbole;

Exhibit 1 . Sampie SVA Caicuiation
AT&T's Sociai Vaiue Added (SVA) Report List
Category: Aii
Date Range: 01/01/03 - 12/31/03
Org Codes:
Activity
Contributions-
Monetary ABC
Organization • River
Cleanup • Donation
Pubiicity-Agenda
and Programs
ABC Organization •
River Cleanup •
Newsietter Pubiicit)
Time to
Implement
0.75 hrs
2.5iir3
TV Radio
Time
Omin
Omin

Coverage
Size
Column
Inch
0
6.5
# of Invites
or Promos
wlAT&T
Referenced
0
0
# o f
People
Exposed
0
350
Est
Market
Value
$0

$0
Est.
Value of
Labor
$38
$125
Dollars
Spent
$5,000
$0
Est Total
Cost
$5,038
$125
Est.
Revenue
Potential of
Audience
$0
$105
Est.

Value of
Media
$0
$65
Est. Vaiue of
Cost
Avoidance
$0
$0
Est. Total
Benefit
$0
$170
Net Vaiue
-$5,038
$45
SVA
Operating
Profit Margin
NA

26.47%
Note: All figures are hypothetical.
Estimated Totai Benefit
•Estimated Revenue Potential of Audience: (350 peopie
exposed) X (3% of Americans make purchasing decisions
based on a company's EH&S Performance) X ($10 estimate of
monthly spending by Americans on teiecommunications
services each month) = $105
•Estimated Vaiue of Media: (6.5 column inches) X ($10 ad cost
in pubiication of similar circuiation) = $65
•Estimated Total Benefit = $105 + $65 = $170
Estimated Totai Cost
•Estimated Labor Cost: (2.5 hours) X ($50 per hour) = $125
•Dollars Spent: ($0 spent) = $0
•Estimated Totai Cost = $125 + $0 = $125
SVA: [[($170 Totai Benefit) - ($125 Totai Cost)] / ($170 Total
Benefit)] X 100 = 26.47
Sociai Value Added: A Metric for Implementing Corporate
Sociai Responsibiiity Environmentai Quality iVIanagement /
Winter 2004 / 45
• by issue (e.g., safety, telework, water, or air
policy);
• by activity category (e.g., contributions, dues,
exhibits, research support, or awards); or
• by individual project.

The SVA tool also allows the firm to establish
the activity category and EH&S-related issue at
the level of detail desired. For instance, an activ-
ity category may be "monetary contribution" or
"service contribution," and the issue can be spe-
cific (as in air, water, industrial ecology, or recy-
cling) or just overall "environment."
Conclusion
There are several important points worth not-
ing about this relatively simple methodology. An
obvious one is that SVA is calculated for a point-
in-time. In other words, the SVA tells AT&T the
effectiveness of its investment in the EH&S-re-
lated initiative as of a certain date.
Additionally, it must always be remembered
that, especially in as broad an arena as CSR, a tool
like the SVA calculator is only one input to the
deliberative process. Stakeholder contributions
and academic grants are provided for many rea-
sons, only some of which are captured and quan-
tified by any such tool.
While the SVA tool does provide AT&T with a
means of prioritization by allowing comparison
of an EH&S initiative's total benefit and total
cost prior to making an investment, it is never
the only factor upon which such decisions are
based (although it may make the difference in
close decisions).
This is an important qualification to keep in
mind, especially when SVA numbers are used

within corporate communities, such as the CFO
organization, that are accustomed to operating
on a fairly quantitative basis. AT&T EH&S has
found an interesting "halo effect" as we have
used this tool, however. The very fact that we
have taken the initiative to develop and deploy
this tool tends to reassure internal critics (who
might otherwise be highly critical of more intu-
itive approaches to the donation and grant port-
folio) that EH&S is taking a responsible and ra-
tional approach to managing that portfolio.
Finally, it must be remembered that this tool
reflects the value of a CSR investment to the firm
and is a reflection of the firm's interests. It does
not capture the value of the investment to other
communities or to society as a whole. While this
means that the tool is necessarily limited, it also
has the advantage of not requiring that differ-
ences in ethical or political values be quantified
and calculated, a problem that many broader ap-
proaches may have.
Firms, NCOs, regulators, and others will no
doubt continue to struggle to define and imple-
ment CSR for a long time. The history of CSR is
ambiguous, intimately tied as it is to the evolu-
tion of capitalism and market economies. It may
become more so in periods of rapid economic, so-
cial, and cultural change.
This confusion and disorder may be discon-
certing, but it is most likely healthy, in that it
encourages organizational and institutional in-
novation, and the development of new ap-

proaches that offer the promise of better inte-
gration of economic, social, and environmental
values and goals.
The SVA tool discussed here is certainly no
panacea, but it is perhaps an aid in understand-
ing and implementing CSR in today's firm.
Notes
1. Previous articles in this journal have applied the triple-bot-
tom-line approach to issues such as telework and the evolution
of the netcentric firm (see, e.g., Allenby & Richards, 1999).
2. It would be unfair to the large number of firms that produce
such reports to cite only a few. AT&T's online report at
http://www.att.com/ehs/ is not atypical, however. Some are
more elaborate, and a few companies have outside parties
"validate" their reports, an approach originating primarily in
Europe (BS 7750 and the EMAS methodology being exam-
ples). Given the nascent state of the art, the lack of standard-
46 /'Winter 2004 / Environmental Quality Management Clair
ized metrics and methodologies (and thus incomparability
among different reports) and the expense involved, it is not
clear to many firms what external validation accomplishes.
3. An idea of the difficulty of understanding and implement-
ing CSR can be obtained simply by considering just a few of
the publications the Conference Board has prepared over the
last few years for its members. A partial list would include "The
expanding parameters of global corporate citizenship" (1246-
99-CH); "Company programs for resisting corrupt practices: A

global study" (1279-00-RR); "Perspectives on a global econ-
omy: Are poor nations closing the gap in living standards?"
(1263-00-RR); "Innovative public-private partnerships: Public
safety initiatives" (1253-99-RR); "Doing good and doing well:
Making the business case for corporate citizenship" (1282-00-
RR); "Global corporate ethics practices: A developing consen-
sus" (1243-99-RR); "Consumer expectations on the social ac-
countability of business" (1255-99-RR); "The link between
corporate citizenship and financial performance" (1234-99-
RR); and "Building the corporate community economic devel-
opment team" (1205-99-RR). And this list doesn't even include
the flood of studies that have responded to the recent Enron,
MCI-Worldcom, Ahold, and Parmalat frauds. Moreover, other
business organizations—notably the World Business Council
for Sustainable Development—have been equally prolific.
References
Allenby, B. R. (1997). Environmental constraints and the evo-
lution of the private firm. In D. J. Richards (Ed.), The indus-
trial green game: Implications for environmental design and
management (pp. 101-116). Washington, DC: National Acad-
emy Press.
Allenby, B., & Richards D. J. (1999, Summer). Applying the
triple bottom line: Telework and the environment. Environ-
mental Quality Management, 8(4), 3-10.
Choucri, N. (1993). Global accord: Environmental challenges
and international responses. Cambridge, MA: The MIT Press.
Committee for Economic Development. (1971). Social re-
sponsibilities of business corporations. New York: Author.
Council on Economic Priorities. (2000). Shopping for a better
world. New York: CEP Books.

Epstein, E. M. (1987). The corporate social policy process: Be-
yond business ethics, corporate social responsibility and cor-
porate social responsiveness. California Management Review,
29(3), 99-114.
Friedman, M. (1970, September 13). The social responsibility of
business is to increase its profits. New York Times, pp. 122-
126.
Mathews, J. T. (1997). Power shift. Foreign Affairs, 76(1), 50-
66.
Sassen, S. (1996). Losing control: Sovereignty in an age of
globalization. New York: Columbia University Press.
World Commission on Environment and Development (The
Brundtland Commission). (1987). Our common future. Ox-
ford, UK: Oxford University Press.
Clair Krizov is Executive Director of Environmental and Social
Responsibility at AT&T and is a doctoral student at the
Georgia Institute of Technology Public Policy School.
Brad Allenby is former Environment, Health, and Safety Vice
President at AT&T, and a professor at Arizona State Uni-
versity in the Ira A. Fulton School of Engineering, Department
of Civil and Environmental Engineering.
The opinions expressed In this article are the authors' and not
necessarily those of any organization with which they are
associated.
Social Responsibility Environmental Quality Management /
Winter 2004 / 47

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