Ethical pricing challenges amid Bangladesh protests

As Bangladeshi garment workers strike for better pay, major Western brands stand accused of avoiding ethical sourcing for low prices, but the news points to a much bigger brand story in which paying fairly will require more than just adapted business practices, it’ll need adapted marketing strategies. 

Why paying more matters

The trouble is that, across the West, consumers have grown used to very low prices and companies have built their business models selling lots of products at those prices. 

While some brands have created their image around the ethical treatment of workers and price accordingly, others have allowed low prices to become an expectation, and protecting margins often means squeezing suppliers. When laws change, this can leave margins and reputations vulnerable. 

This is not only true in the garment industry: in the food industry, supermarkets and other retailers with vast scale are diminishing the viability of farming in the UK; in the US, meanwhile, a Guardian investigation found that just 15% of what is spent in the supermarket goes to farmers.

Bangladesh protests and pressure from major brands

Major brands aren’t paying enough for Bangladesh-made clothes. The country has faced widespread protests, while police clashes have led to the deaths of four workers. In turn, that has led to the closure of over 100 factories in a country in which 85% of exports are garments. The largest buyers from the country’s garment industry include major household names like H&M, Inditex, and Walmart. 

• Effectively, both workers and the Bangladeshi exporters’ association (the factories’ body) do not consider the prices that Western fashion brands want to pay “ethical”, the FT reports. 
• In response to the protests, the government has announced a 56% increase in the monthly minimum wage of garment workers last week (to $113), which has further hit factory margins. 
• Inflation is rampant in the country, with imported fuels and raw materials hitting foreign currency reserves and pushing inflation way ahead of the 5% annual growth in the minimum wage.

The story highlights how many brands, especially in the fast-fashion space, have become reliant on extremely low manufacturing prices that squeeze workers. 

A solution will require brands in the West to pay more and probably charge higher prices to their end consumer or move elsewhere. 

Pricing power is a useful aim

Pricing power is vital to margin growth and is therefore the most efficient way to grow profit. On average, for every 1% gained in price, there is a gain of 10% in profits.

The trouble for many scale-focused retailers and brands is that their marketing activity can sometimes become so optimised as to forsake its ability to grow the brand’s pricing power. 

A transition from cheap to expensive

Moving from a perception of cheapness to a perception of quality strong enough to command higher prices is difficult to pull off, especially for high-street fashion retailers, fast-fashion e-commerce businesses, or even major retailers as consumers across the Western world trade down – sometimes to the benefit of those companies. 

Their offer is, after all, convenience and range rather than an authentic heritage of quality enjoyed by workwear-stalwarts-turned-streetwear-darlings Dickies and Carhartt, or function-focused outdoor brands like Patagonia. History can be baggage, but it can also constitute a boost.

A more modern price-rise story might come from Uber, which had priced aggressively in its early years as it sought hyper growth, before shifting strategies toward eventual profitability this year. 

The theory

Brands need to avoid a ‘discount spiral of doom’ to remain buoyant. When excessive discounting squeezes margins too much it’s the innovation and marketing budgets that suffer. Less innovation and marketing mean that brands fall behind the competition.

Some theorists argue that competing on price to rake in big revenues (if not profit) is unsuitable for the new dynamics of a higher interest rate and input cost environment. They argue that brands need to work toward finding a meaningful difference between themselves and the competition. 

Sourced from The Financial Times, The Guardian, Farmers’ Guardian, WARC, GQ, Essence, TechCrunch