2011 has been a year of many things, including Daily Deals. Groupon filed for IPO and has over 100 million subscribers. The likes of LivingSocial, Eversave, SocialBuy, and BuyWithMe followed in hot pursuit.  According to market research firm Lab42, more than 660 deals sites exist online today.   Amidst the daily deal euphoria, several sites offer ‘ethical’ daily deals: Blissmo, EthicalDeal, ecomom,  GreenDeals, and Fair Trade A Day. The time seems right for ethical deals sites: a global recession combined with a growing consumer awareness of and desire for sustainable enterprise and ethical products. Ethical deals include a wide range of ethical products, such as Fairtrade and organic food and body care products marked at greatly reduced prices. And while finding great deals on ethical products seems like a win-win situation—a product at a reduced price and making the world a better place, while providing increased exposure to ethical brands and causes—we would do well to ask ourselves whether this is, in fact, the case.

Business arguments for daily deals sites follow along a couple lines:

1. Consumers are price sensitive; by offering products at discounted prices, consumers will funnel toward similar products (substitutes) marked at the lowest price, thus congregating on a daily deal site, increasing sales revenue (by volume) and advertising revenue (eyes and clicks).
2. Daily deals are like promotional offers; by offering products at discounted prices, consumers will attain increased brand awareness. Once consumers find out just how great the brand/product is, they will become return customers. This helps lower customer acquisition costs, such as costs associated with traditional media outlays, and proposes to increase brand loyalty.
3. Daily deals provide new and exciting opportunities (at reduced risk) for consumers; by purchasing discounted products at new/unfamiliar retailers, consumer switching costs decrease. When prices are comparable, consumers favor brands with whom they are familiar, both in terms of quality and message; buying from an unknown brand is simply too risky an outlay when purchasing from a known brand is a ‘sure thing’. The threshold needed to overcome brand inertia is lowered through a daily deal, thus helping competitors offering daily deals gain increased market share.

Overcoming the price sensitivity barrier seems particularly salient for ethical goods, where the number one obstacle consumers generally report as to why they do not buy ethically is price. In an industry where retailers such as WholeFoods and trendy boutiques selling ethical wares are price point anchors, consumers expect ethical goods to be more expensive than commodity counterparts, even when, in many segments, ethical products are competitively priced. Hence, ethical product daily deals sites propose to help ethical retailers by helping them compete on price with hopes that, once the customer stops by, she will be swayed by the retailer’s story and message and purchase more of the retailer’s products marked at premium prices. So far so good.

But part of the message entailed in ethical products is the concept of transparency. An ethical retailer’s message is not only that a marked price is transparently broken down into components, such as Fairtrade wages, social premium, supply-chain costs, and retailer overhead, but also that, either explicitly or implicitly, that the commodities we buy in store cost not just the sum total of their sticker price. Commodities have externalities which are not adequately captured at the point of purchase. The real cost of commodities is only captured when we include environmental costs associated with waste generated during production and consumption, health costs associated with exposure to harmful toxins and processes, political costs associated with unrest attributable to inequality, and much more. When these costs—past, present, and future—are captured in a price tag, no longer are bananas $1, but $5 or $10 or more. The same goes for other commodities. We pay for commodities not just at the till, but in our taxes, our health, and our happiness.

While, on-the-surface, ethical daily deal sites are about ethical brand promotion and raising awareness, the focus is on price, price, price. Consider Fair Trade A Day’s landing page: classic anchoring strategies are used to convince consumers that they are getting a great deal on price. By stating the ‘original’ retail price, marking it out, and then listing the discounted price, Fair Trade A Day anchors consumers as to the inherent value of the product, making the discount price seem like a ‘steal’. Yes, a consumer can view product details and the ‘story’, but this is not the principle aspect which is influencing consumer decision, especially as the description and story are secondary, primarily used as support for the original retail price and further support the notion of a ‘steal’. Similar strategies are employed at Blissmo, EthicalDeal, and others.

If ethical products are about the story, the message, mission, and meaning, and the people, ethical retailers who participate on daily deal sites do themselves a disservice. Here, the end of getting consumers to an ethical retailer’s site does not justify the means. Using these sites and promoting them only serves to create the wrong expectations in consumer minds by reinforcing the supremacy of price, particularly the sticker price. The more important battle to be won is not about getting consumers to you (an ethical retailer’s site) so you can wow them, but about educating and promoting consumer understanding as to why ethical products are priced as they are—the battle is one over transparency and mindsets.

A consumer is moved to spend more on ethical products to ensure positive impact because ethical consumers understand that products are not commodities, but stories and represent entire ecosystems, a web of connections touching many families, villages, and lives. As such, stories cannot captured by price tags, but are experiences to be recounted, relived, and remembered. In effect, these products are priceless. By creating deal sites, we cheapen ethical goods and dilute, confuse, and make ambiguous the message. High end brands do not offer sales and discounts for a reason: nearly 20% of people view a business less favorably after running a daily deal. And ultimately, this cost  re-establishing consumer price point anchors, convincing consumers of brand quality, and reorienting consumers to focus on factors other than price is a steep mountain to climb.

Additionally, the ethical product industry stands in a difficult position: on the one hand, ethical producers are instructing consumers to make more conscious purchasing decisions, going to great lengths to educate consumers on how their purchases affect the world. On the other hand, ethical producers are nudging consumers to consume, consume, consume; this is especially the case when participating on daily deals sites where various pressures are used to convince the consumer to buy now (e.g., timers, tickers, limited supplies, flashing lights, etc.). Ultimately, ethical retailers confuse the message by tapping into the same deal euphoria of buy, buy, buy (just do so ethically) and then from the same mouth preach the benefits of less consumption and champion the mantra of reduce, reuse, recycle. We need to ask ourselves whether what is desired is an ethical consumer economy, or an ethical sustainable economy. The two are not equivalent.

Part of ensuring sustainability is not ending consumption, but rather ensuring consumers make fewer and more conscious purchasing decisions. Yes, so what if ethical products may be more expensive and consumers may have less disposable income as a result; is this necessarily a bad thing?!

By requiring consumers to pay the real cost of goods, transparently and ethically, we facilitate sustainable ethical consumption, where the emphasis is not on quantity, but on quality, on buying goods which we really want and need and where value transcends function by the relationships forged between consumers and producers.

As consumers, we would do well to ask ourselves not ‘where can I find something I do not need at the lowest price (and, if thinking ethically, with the least harm done)’, but ‘what do I really need, and what is really important?’ The idea is to buy less and buy wisely.

Ethical retailers would do well to ask themselves not ‘how can I maximize profits in the short term and benefit only my stakeholders’, but ‘how do I ensure the creation of a value economy, an economy which is sustainable and one in which consumption and production do not end, but where both consumption and production are to the benefit of all, both now and in the future?’  The idea is to co-create more with all stakeholders and produce wisely.

So, as this holiday season comes to a close, let us step back, reflect, and realize the true impact of purchasing decisions. Think twice about that ethical ‘deal’, but rather spend your money consciously, wisely, and ethically, endeavoring to build a sustainable relationship between you, the good, and the producer who brought that good to life. What is not so important is how great a deal we offer or find, but doing our bit of good by remaining true to our core values and ensuring a brighter, greener, more transparent, and ethical future.

Kristofer Gryte is the Founder and CEO of Emaji. He is a philosopher, scientist, and all-around techie who has developed an integrated software package for robust, automated data analysis. Outside of his research, he helps consult a Kenyan MFI on improving operations. He is currently a DPhil candidate at Oxford University mining data and using statistical analysis to study DNA-protein dynamics. He lives in London.

Related articles

• Running a Daily Deal site - The reality, good and bad (eu.techcrunch.com)
• The Three Worst Daily Deal Mistakes and How to Avoid Them (entrepreneur.com)
• Merchants get savvy about daily deals, to the detriment of consumers, Groupon and LivingSocial (venturebeat.com)

While we are up to our ears in data that says that consumers will pay a premium for ethical products and that the majority consider ethical factors in their purchase decision making, the still sliver sized penetration that ethical products (such as fair trade, organic, post-recycled packaging etc.) have achieved in conventional markets suggests otherwise.  It’s time to face the fact that consumers skew themselves greener or more ethical than their actual purchase decisions belie in these surveys.  So what can we do to spur not just ethical attitudes, but ethical purchasing behavior?

Dara O’Rourke of The Good Guide says a lot in this article about the complexities of ethical consumption.  He breaks down the barriers that the modern consumer has to adopting ethical consumption like this:

1. Habitual purchasing

2. Sophisticated marketing by conventional producers

3. Lack of good information to make an ethical choice

This is a great place to start.  There are many entrepreneurs and start-ups trying to solve this problem right now — but which ones will be able to come up with really great solutions to these barriers remains to be seen.

Over the next several weeks, I will be reviewing different start-ups within this framework: which of these barriers are they addressing and how well.  At the end of these reviews, it will be interesting to draw out any themes that will reveal the trends, strengths of and opportunities in the world of social entrepreneurship focused on ethical consumerism today.

If you know of a start-up that you would like to see reviewed let me know.

‘Til then!

Maria Konizeski is a Business Strategist specializing in consulting for social ventures and digital initiatives brings a wealth of insight into both the competitive advantages and challenges of the social start-up and the current state of the digital market.