What motivated you to buy your $4 latte at Starbucks this morning? Was it the quality of the coffee, the convenience to your office, or the company’s belief that its success depends on the health of its employees and suppliers?
How about when you bought your kid’s birthday presents at Target? Did you choose that store over others because of price or convenience or because they are investing in ways to increase access to playgrounds and promote physical activity in low-income communities?
For decades, price, quality, and convenience have been the principal drivers of consumer purchasing decisions. Today, those drivers are competing with another important motivator: health. But while some companies like Starbucks, Target, CVS, and Unilever are recognizing this consumer trend, other companies may be lagging behind because the “business case” for health just isn’t clear. Indeed, there is a dearth of information on what consumers expect from companies, and how much purchasing behavior is motivated by positively impacting the health of consumers, employees, and communities.
To encourage more companies to act, we need real evidence that supports their potential investments in promoting better health. In addition, the current lens of corporate sustainability used by socially responsible investors—which centers on environmental, social, and governance themes, or ESG—does not consider health explicitly. To encourage investors to take this step, we need data that incorporates the voice of the consumer and highlights the influence of health on their purchasing behavior.
To fill that knowledge gap, the Robert Wood Johnson Foundation looked to Mission Measurement to study how companies’ efforts around the environment, social impact, governance, and health (what we call “ESG-H”) influence the everyday purchasing behavior of US consumers. Our goal was to quantify how much a consumers’ everyday purchasing is motivated by a company’s efforts to improve health so that executives, investors, and shareholders will better understand both the short- and long-term benefits of investments in good health. This kind of evidence can help business see health as a shared value that is good for the business, as well as for the world. And all consumers—including millennials and older adults—have a role to play in determining that value.
Our study surveyed 23,800 US consumers to learn about their purchasing decisions across nearly two-dozen categories and about their views on 400 major brands. We designed the research to provide a new benchmark that will help the private sector assess the financial impact of ESG-H outcomes. The research methodology was unique in several ways. First, the study compared companies’ ESG-H initiatives with traditional consumer drivers, such as price and convenience, to derive their relative importance. Second, we studied consumer decisions in distinct purchasing contexts—for example, when consumers purchase snacks versus hotel stays versuselectronics. The results show that purchase behavior (including spend, frequency, and likelihood to recommend) is directly correlated with perceived improvements in a company’s ESG-H performance across most categories.
What else did we learn from the research?
- A consumer-driven definition of “socially responsible.” We now have a definition of social responsibility based on what consumers think is important. Companies making efforts to promote social responsibility now have a collection of 12 consumer-defined factors (see chart below) grouped into ESG-H themes. This unique lens on corporate social responsibility provides a new framework for investors and corporate executives, one that is potentially more compelling than traditional compliance reporting standards.
- Quantified relevance of socially responsible initiatives. Between 11-28 percent of an average consumer’s purchasing decision is driven by ESG-H factors, depending on the category. Traditional factors such as value, quality, and price drove the remainder of that decision. Snacks and sweets was the category where ESG-H considerations were most influential, which explains recent headlines like “Healthy Snacks Growth Outpaces Overall Food and Beverage Market.”
- The emergence of health, an oft-overlooked factor. On average across all categories, consumers ranked health as 50 percent more influential than environment, driving 3-8 percent of consumer choice alone. This was particularly surprising given the emphasis of environmental sustainability and absence of health (explicitly) in existing frameworks of corporate social responsibility. Increasingly, thought leaders are recognizing that health is missing from the ESG framework. According to health expert Derek Yach of The Vitality Institute, “Health metrics are grossly underrepresented in integrated reporting platforms, but have been demonstrated to be fundamental drivers of social and financial return.”
- Positive demographic trends. ESG-H considerations were most influential among the most sought after demographic groups: millennials, females, people of color, and people living in cities. Coming up behind millennials, the so-called Gen Z has an even bolder perspective. According to Andy Last of the UK-based market research firm Salt, “New research into Generation Z in the US reveals that it’s time for businesses to ‘confess’ more openly that their sustainability and social programmes are designed to make them more money. 57% of those surveyed said they thought it was OK for businesses to make a profit out of making the world a better place.”
- A rare opportunity to create brand differentiation. In competitive categories where there is little or no differentiation on price and convenience (such as typical fast food chains or homecare products), ESG-H factors can play an important role. The recent success of companies like Panera Bread Company and The Honest Company demonstrate the value of ESG-H initiatives as differentiators. Across all categories, there was 70 percent more deviation on the perceived performance of brands on health factors compared to traditional factors, indicating significant opportunities for brands that can authentically improve on ESG-H factors.
- A positive relationship to growth. In certain categories, brands that perform better on ESG-H factors tend to have significantly higher growth. For example, in the restaurant category, top-quartile brands like Chipotle Mexican Grill had double the average annual growth rate over a three-year period than bottom-quartile brands like Burger King.
For companies, investors, and social impact advocates, these findings have significant implications. For companies, they help redefine the role of ESG in general and health in particular as important business drivers, rather than risks to mitigate. This research forges the link between ESG-H factors and consumer demand, enabling companies to use data to find ways to “do good” that actually enhance their competitiveness.
For investors, this provides necessary evidence to help analysts incorporate company performance on ESG-H factors into their financial models. For example, perceived performance on “healthiness” in the restaurant category is 80 percent correlated to the perception of “quality” (a known motivator for restaurant goers). Leading analysts like David Palmer at RBC Capital Markets have already used versions of this research to highlight the importance of such consumer trends.
For social change makers, our findings provide a market-based way to track the importance of sustainability and health-related issues to consumers. It is now possible to link issues such as mental health, employee pay, carbon emissions, and obesity to consumer choice, and therefore to business success. These metrics create a new vocabulary for nonprofits, foundations, and governments to engage companies on social good using economically valuable measures.
A host of companies are leading the way, led primarily by smaller, innovative startups that are delivering ESG-H factors in new and compelling ways to consumers. In recent months, we have seen many examples from companies such as Lyft, Target, Kraft-Heinz, Patagonia, Tesla, and others.
Professor Sinan Aral of the MIT Sloan School of Management has said, “Revolutions in science have often been preceded by revolutions in measurement.” Now that we can quantify the relevance of health and other social factors to consumer demand, we can use market forces to engage companies and investors to create both more social and economic value.