ESSA

ESSA

Why boycotts are sometimes more talk than action


Eddie Go

By

February 17th, 2017


Consumers have a history of speaking out with their wallets when firms behave badly, but exactly what does this entail? Eddie Go explores the economics behind the consumer boycott.


Sometimes, a shoe can be more than just a shoe. No matter how alluring it is in terms of comfort, quality and price, consumers may take their money elsewhere – simply because of something the manufacturer has said or done.

Boycotts have long been a popular way for consumers to collectively express their discontent with firms involved in morally questionable activities. The vast majority aim to punish ‘misbehaving’ firms and persuade them to cave in to some demand, through sustained economic loss and reputational damage. Many are organised in response to unethical production practices such as worker exploitation, whereas other boycotts are more partisan in nature, triggered by a position taken (sometimes inadvertently) by firms on a contentious subject.

Unsurprisingly, recent boycotts making the rounds have fallen into the latter category, provoked by a polarising leader and his controversial plans. #DeleteUber quickly became a trending topic on Twitter last month, after the company’s lack of solidarity with striking taxi drivers left consumers opposed to President Trump’s immigration ban fuming.[1] Likewise, the #GrabYourWallet campaign has targeted businesses associated with the Trump family, putting pressure on retailers such as Nordstrom to drop Trump-branded products from their shelves.[2]

Right-wing consumers have also jumped on the boycotting bandwagon, targeting firms viewed as being critical of the president – Budweiser, Starbucks and Netflix, to name a few. Closer to home, controversies such as Telstra’s backflip on marriage equality demonstrate how easily firms can become punching bags when it comes to divisive issues.[3] Boycotts are seemingly all around us, but are enough consumers willing to get behind them?

 

To boycott, or not to boycott

Deciding whether to boycott is not always simple. After all, if consumers are rational decision makers, then they should be buying products that generate the most utility, barring any moral considerations. For instance, a consumer may prefer a particular brand of milk because it offers the best taste, most competitive pricing or another element of value such as low fat content. If the consumer boycotts this brand, and milk is a necessity in their diet, then they might have to settle for an inferior brand. Alternatively, they could find a more comparable milk brand, though this generally involves concessions such as paying a higher price or incurring search costs. Either way, the consumer almost inevitably incurs some sort of opportunity cost in the form of utility, time or dollars. Depending on the availability and quality of substitutes, sacrificing a preferred product is often a costly and unattractive decision.[4]

Consequently, consumers tend to consider boycotting only when the firm’s actions conflict with a deeply held value. Take, for example, the Chick-fil-A boycott – organised in protest against the firm’s anti-marriage equality position.[5] The utility derived from one of their sandwiches remains the same tastewise, but the overall satisfaction delivered to a consumer supportive of gay rights diminishes, given the knowledge that their money could indirectly aid a cause they disagree with. Suddenly, rival products such as a KFC sandwich become more appealing to the consumer, even if they are inferior in taste and pricing. The idea is that if consumers genuinely care about the controversies surrounding firms, then these will be reflected in their preferences. In cases where the cost of boycotting outweighs the intrinsic benefits, consumers may still be willing to make short-term sacrifices if likely to spur positive change from the firm.

 

The free rider problem

There’s one more hurdle when it comes to pulling off a successful boycott – consumers are easily discouraged by the fact that their actions alone have a negligible impact on firms’ behaviour.[6] Boycotts require collective action, and consumers prefer to contribute only when necessary. If a boycott already looks likely to succeed, consumers have an incentive to free ride and continue buying the firm’s product. In doing so, consumers get the best of both worlds – they are free to consume their preferred product as well as reap the benefits of the firm’s positive change. However, boycotts fail to induce change when large numbers of consumers adopt this attitude. Interestingly, signs of an effective boycott, such as high social media traffic, can have the unintended effect of causing complacency.

 

The firm’s perspective

What should a firm do when once-reliable customers threaten to walk out on them? Remember, it is often in the interest of firms to maintain the status quo, since changes such as manufacturing overhauls can be costly. Vulnerable firms, such as small businesses and those in highly competitive markets, may be more likely to succumb to boycott pressure.

Sometimes, the optimal decision for a firm could be to just weather the storm. Boycotts lacking a clearly defined purpose do not tend to last very long, as consumers end up forgiving the firm or forgetting what all the fuss was about. Furthermore, when boycotts revolve around a polarising topic, firms could risk alienating more consumers by switching sides.

Boycotts can often be thought of as a war of attrition between the firm and its consumers.4 Both players incur greater losses the longer the boycott stretches out for, but conceding is even less desirable. The key question is, who will give in first?

 

 

Image: Australian banknotes in wallet” by Martin Kingsley

[1] Wendling, M. (2017, January 30). Why are Trump opponents deleting their Uber accounts? BBC News. Retrieved from http://www.bbc.com/news/blogs-trending-38798158

[2] Close, K. (2016, November 18). The Grab Your Wallet Movement Wants People to Boycott Donald Trump-Affiliated Retailers. Money. Retrieved from http://time.com/money/4575523/grab-your-wallet-anti-trump-boycott

[3] Trau, R. & Shao, J. (2016, April 21). The real cost of Telstra’s backflip on marriage equality. The Conversation. Retrieved from https://theconversation.com/the-real-cost-of-telstras-backflip-on-marriage-equality-57970

[4] Delacote, P. (2009). On the sources of consumer boycotts ineffectiveness. The Journal of Environment & Development, 18(3), 306-322.

[5] Severson, K. (2012, July 25). Chick-fil-A Thrust Back Into Spotlight on Gay Rights. The New York Times. Retrieved from http://www.nytimes.com/2012/07/26/us/gay-rights-uproar-over-chick-fil-a-widens.html

[6] John, A. & Klein, J. (2003). The Boycott Puzzle: Consumer Motivations for Purchase Sacrifice. Management Science, 49(9), 1196-1209.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Neil Aitchison

    What we are seeing is the “cult” of LGBTIQ2A+ form where once you are in, you can never leave – Telstra has been caught out and many other businesses/individuals/politicians are going to get caught out too – it’s the “Hotel California” scenario: “You can check-out any time you like, But you can never leave!”. Qantas has also been sabotaged by the gay activists. The decision by businesses to support SSM are being made by a few people in their leadership/marketing divisions and NOT by the shareholders or customers – the general populous has NOT been consulted. The intense, frenzied (bordering on hysterical) emotion that the pro-gay advocates are displaying when they don’t get their way coupled with their do-only-what-we-tell-you-or-else dogma is causing this cultish phenomena to develop in the extreme. Once you are in their clutches, their web, their strangle-hold and then you realise that their intentions are quite sinister, any back-tracking of support (or even becoming a “passive” supporter)….wow!….you are in for it. There’s no love or tolerance then from them, just plain hateful, malicious blackmail and bullying. The fun-coloured rainbow flags and ever-raining glitterati suddenly turns to bristling name-calling, abuse, threats, intimidation and flexing muscles, We can now start to see the ugly underbelly of the same sex lobby movement! Persecution is starting here (as it is already happening overseas) and will inevitably follow in all forms as the years pass and they thrust their agenda on everyone in every way possible.

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