Purpose – Trend or strategic, competitive advantage?

“People don't buy what you do. They buy why you do it.” - Simon Sinek

In this regard, consumers not only buy e.g. a T-shirt but they also promote the purpose of the company with their purchase decision. If you buy a T-shirt from Patagonia, you not only have something to wear when you get up, but you also participate in Patagonia's purpose; “We're in business to save our home planet.”

In the race between companies for consumers' attention, purpose emerges as a strategic competitive advantage. It represents the heart of the company, which goes far beyond pure profit maximisation or market leadership. This development is leading to natural differentiation on the market. On one hand, there are companies like Patagonia, whose purpose is openly communicated and recognised by the public. On the other hand, there are companies like (this example is for you to decide) that lack a clearly defined, meaningful purpose. This raises the question of how consumers react to these differences. Consumer reactions are particularly controversial in cases of public criticism of companies.

However, it is difficult to compare real companies because they differ significantly in industry, size, reputation and many other factors. The ideal comparison would therefore be between two identical companies; one with a clear purpose and one with an unclear purpose.

To this end, we recently conducted a study with the Institute of Marketing at the University of Bern. Thus the fictitious company Leafthread Apparel Inc. was founded. For one consumer group, Leafthread was a conventional profit-oriented fashion company (unclear purpose) and for the other essentially “Patagonia 2.0” (clear purpose). Otherwise, they manufactured the same products, achieved the same previous year's profits and employed the same number of people. After both companies were exposed to the same critical statements, consumer behaviour was observed.

Interestingly, consumers showed a higher willingness to forgive companies with a clear purpose, especially after they were criticised for their fallible behaviour. This is facilitated by the so-called halo effect, which enables positive qualities of the company to rub off on overall perception and thus have a protective effect. However, the study also revealed a downside: while a clear purpose increases consumer expectations, failing to meet these expectations leads to stronger feelings of betrayal and an increased apportionment of blame, making the path to forgiveness more difficult. This research thus underscores the dual nature of purpose — as a shield and as a potential source of criticism, if the brand does not live up to the expectations raised by its purpose.

For companies, this requires not only to develop and communicate a strong purpose, but also to carefully manage the associated expectations. Companies with an unclear purpose could benefit from lower expectations, but should nevertheless strive to strengthen their purpose in order to build long-term reputation and resilience benefits.

So for your next t-shirt, you can contact Leafthread. If, however, you need more tailored communication solutions or want to sharpen your company's purpose, contact Saige.