I'd Like to Build The World A Brand

Outdoor clothing retailer Patagonia is perhaps one of the best examples of a company synonymous with purpose. Soon after Yvon Chouinard founded Patagonia in the 1970s, he realized the climbing spikes he was making hurt rock surfaces. So, he created a more environmentally friendly alternative. He also started supporting “clean climbing,” building awareness about how climbers can take better care of the planet.

Most recently, Chouinard and his family turned over ownership of Patagonia to a trust and non-profit organization. All profits will fund efforts to help with climate change and wilderness preservation. Chouinard said in a letter on the company’s site that “instead of going public” by selling shares to investors, “you could say we’re going purpose.”

More and more of today’s companies are embracing this type of purposeful stance. They’re leaning toward the idea that a successful company is more than a profitable bottom line. Businesses are going back to the basics by redefining why they exist and how they want to make an impact in the world past profit. Some companies have adopted “purpose as a business driver” as a strategic priority, rather than just a nice-to-have.

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But the conversation around purpose is complicated. Often the term “purpose” is used synonymously with “brand activism” — and there are important differences between the two. First, a company’s core purpose answers the question, “What impact are we trying to make in the world?” A company’s purpose is often inclusive of its values and impacts the company’s approach to corporate social responsibility — an effort on the company’s part to do its best for its employees, its customers, its investors, its supply chain and even the planet and the communities in which it operates. But those values don’t necessarily work their way into marketing or an externalized “voice” or point of view on broader issues. Brand activism, on the other hand, is the use of the brand to comment on social, political or global issues that the brand believes are important.

Indeed, there is some research that shows that, in theory, global consumers are more likely to trust, buy, champion and protect companies with a strong purpose.

“Some consumers want to know that their money is going toward a product with a bigger purpose, whether it’s sustainability, ethical supply chains or community impact,” says Duane Windsor, Rice Business Lynette S. Autrey Professor of Management.

One study by communications agency Zeno that evaluated 75 brands found that when consumers think a brand has a strong purpose, they’re four times more likely to buy from the company, six times more likely to protect it in the event of a misstep, and 4.5 times more likely to recommend it to friends and family.

In practice, however, factors like price and quality still come out on top when consumers make purchase decisions. A Deloitte study of 11,500 global consumers across industries found price and quality at the top of purchasing criteria between 61% and 86% of the time.

So what’s a company to do?

In addition to Windsor, we spoke with Vikas Mittal, Rice Business J. Hugh Liedtke Professor of Management; Doug Schuler, professor of business and public policy; and Bethany Andell ’01, CEO of branding and culture-building company Savage Brands, about the latest trend of companies stepping back to rediscover and define their purpose — and the ways in which brand activism does (or doesn’t) increase the bottom line.

Is Conscious Capitalism Good for Business?

Conscious capitalism involves what businesses want for others, not what they want from them, says Andell. “We don’t typically have business conversations that start from that place,” she adds. Conscious capitalism — a relatively new term in the business world — flips the conversation.

Proponents believe businesses need to act ethically by equally serving the interests of all stakeholders — not just management and shareholders. Companies that embrace conscious capitalism take a human-centered approach and hire based on values rather than solely on skills.

“You’re changing the legacy, the ‘profit first’ way of thinking, and remembering that profit is the outcome of a good business,” Andell says.

Instead, you approach your business from a conscious place of care for each of your stakeholders and look at your company as a living, breathing entity. Leading with purpose delivers better performance, and better performance results in higher quality and better profits, Andell says.

Conscious companies start out by creating a map that outlines their stakeholders (customers, employees, shareholders, and suppliers) and shows how they’re interdependent. Business strategy is then based on decisions that satisfy the highest number of stakeholders, whenever possible — creating a win-win vs. a zero-sum model, she says.

“The sustainability of the organization is a result of your employees staying and being safe, your customers wanting to come back, and suppliers wanting to work with you,” according to Andell.

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How much does ESG play a role?

ESG is the acronym for environmental, social, and governance. It is a way in which companies evaluate the robustness of their governance mechanisms and how well they manage their environmental and social impacts. ESG responsibility is difficult to define, says Windsor, especially when it comes to who should cover the costs. For example, in recent years, major airlines have offered customers the option of paying more for their ticket to help offset the carbon emitted by their flight. “Is that my responsibility or the airline’s though?” Windsor asks. “Maybe the company ought to take it out of their profits.” Often, even if consumers have strong convictions, in the end, they’re unwilling to pay more. “The customer may well want green products,” says Windsor. “The question is how much are they willing to pay for greener products? The producer wants the customer to pay for the enhancement. The customer wants the enhancement without paying for it.” One danger of sustainability promises, however, is “greenwashing,” which occurs when a company touts their sustainability through marketing — leaning toward brand activism — but isn’t doing anything meaningful toward helping the environment.

For example, consumer goods company Unilever drew criticism from a shareholder after it declared Hellmann’s mayonnaise as a brand that fights against food waste. The shareholder said management had “become obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.” Mittal agrees with the criticism, and cites his research, which has found that ESG-focused companies do not necessarily do better in the market than other organizations. Mittal suggests that Unilever is actually lagging its peers as a result of putting ESG ahead of profits.

Must leaders always be an extension of the brand?

CEOs and other leaders often struggle when it comes to publicly weighing in on social, national or global issues. On the one hand, employees may demand it, Schuler says. On the other, speaking up risks alienating some customers. 

“Maybe what companies should be doing is thinking about how these social trends might be associated with either their product or their general reputation,” he says. “Are there certain issues where perhaps there’s some advantage?” 

For example, Patagonia leaders speaking up on environmental issues important to their core customer base can serve their brand well.

But generally, Mittal says, personal opinions on issues and political agendas should remain private. “For a CEO to pick sides is eventually a losing battle.” The real test of a CEO’s strength is to stay neutral even when provoked by employees or external forces, he adds.

Andell, for her part, doesn’t make political statements.

“I believe very much in diversity, equity and inclusion,” she says. “All voices and perspectives are important, so, I don’t take a specific, public stand on political issues.” Instead, she would rather demonstrate her stance through action, or rather inaction — for example, by choosing not to work with companies that do not share her company’s values.

What should be at the center of my company — my people, the planet or company profit?

Mittal argues that companies that build a brand around putting employees first are misguided. The academic literature shows no consistent support for employee satisfaction correlating with a firm’s financial performance, according to Mittal. However, there’s consistent evidence that customer satisfaction and financial performance are linked. On the other hand, Andell argues that engaged employees deliver a better customer experience — the interdependence between the two makes sense in service industries, for example, in which the customer experience is part of the product.

“At the end of the day, customers are the largest and most stable source of cash flow for any company,” Mittal says. “A brand can only be healthy if it starts with a customer focus.”

It is possible to be customer-focused while holding true to your values around your employees or ESG initiatives, he suggests, but if key customer needs aren’t met — like quality and price — don’t expect an uptick in profit solely as a result of happy employees. Any initiatives “have to improve customer value first and foremost,” Mittal says.

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For example, airlines have worked toward paperless ticketing because it’s more convenient for passengers and helps fulfill their purpose of providing a seamless travel experience. But it also helps the environment. For a company that makes goods, a customer-focused approach to sustainability would be to invest in materials that don’t need to be recycled rather than creating objects that are wasteful and putting the added burden on customers to recycle, he adds. As another example, French cosmetics giant L’Oreal recently unveiled a new handheld makeup applicator that helps people with limited mobility or tremors apply makeup on their own. It’s a great example of a company using their customer focus to have purpose, Mittal says.

The debate around purpose continues and brings up critical questions in today’s competitive business environment. Doing the hard work of rediscovering and shaping one’s purpose and values is mission critical. “Any business that wants to still be here in 20 years is going to have to take a hard look at their character,” Andell says.

But when purpose veers toward activism, tread lightly. According to Mittal and his research, “Customers’ perceptions of a brand’s political activism do not translate into higher purchase intention or customer satisfaction,” he says, “and they hurt consumers’ willingness to pay for the brand.” In short: If the goal is profit increase, a company needs to place customer values and needs, including quality and price — not activism — at its center.