Microeconomics Coursework Essay Essay

Critically evaluate and discuss the advantages and disadvantages of Customer Boycotts. Compare and contrast either Coca Cola or Bacardi with another consumer boycott of your choice and discuss appropriate microeconomic theoretical models. Firstly to understand this question we need to understand what a customer or consumer boycott actually is. Well it is normally called by an organisation or a group of individuals, asking consumers not to buy a specific product, or the products of a specific company, in order to exert commercial pressure. This is usually done to get the company to change behaviour, to cease an activity or to adopt a more ethical practice. For this essay I am going to discuss many advantages and disadvantages of consumer boycotts and also I have decided to compare and contrast coca cola with the Nestle boycott. There are various ways to make a boycott efficient. To be efficient a reduction of 1-2% of turnaround of a company (or product) is seen as the critical mass needed. (27 Mar 2003, Demanding consumer [online]. Available at:). Boycotts can be successful, for example, in 1986 Rainforest Action Network launched a boycott of Burger King. This was because of Burger King importing beef from tropical rainforest countries because it was cheap. But the rainforests were getting destroyed in order to provide pasture for cattle. As a result of the boycott, Burger Kings sales dropped by 12%. In response, Burger King cancelled thirty-five million dollars worth of beef contracts in Central America and announced that the company would stop importing rainforest beef. Boycott calls are at times controversial because they may be called by groups from the political side or for activities that people don’t specifically disagree. Boycott efforts can include protests against everything from  investing in a politically undesirable country to discouragement of the eating or drinking of products from certain companies or countries. Boycotts are not always effective and only a limited percentage of countries consumers will participate in one. While many people are sympathetic to the reason behind a boycott, not enough people join in. One of the main reasons is that people do not see their actions as having any results. This may be partly due to only concentrating on what happens to the primary target of a boycott. But there are also secondary effects which I will talk about later. There are many advantages to consumer boycotts that I will discuss now. Obviously the main advantage is when the boycotts work, as said above with the boycott of burger king, and the company consequently changes its ways. But more often than not boycotts rarely change the companies ways or at least so that the consumer knows about it. One advantage is that boycotts are a way that consumers can use their power for positive social change. Boycotts can be effective because when successful they will result in increased public scrutiny of the company. This in turn will cause concerns inside the company about lost profits from the loss in consumer interest and companies are always concerned about their financial position. Another advantage is that a boycott can hold a company accountable for any policies that negatively affect the environment or people. This is an advantage because a company could be ignoring the problem but with a consumer boycott more and more people will find out about the problem and may also decide to join in. The negative coverage that will arise from media coverage of the boycott may become a big problem for the company in the long run, since competitors may gain a relative advantage. An example of this is that after the boycott of French wines in Denmark had calmed down, the French wines had lost 20 percent market share. Also there was a bigger problem, because the general impression was that consumers could be persuaded to switch back to French  wines. But many supermarket shelves had been reorganised in order to give more space to Italian and Spanish wines, and this was considered a more serious problem. (Can Consumer boycotts work, 2002 [online]. Available at: I mentioned briefly earlier something called a primary effect, well this would be where the target organisation changes its practice. Many targets are however reluctant to change as the result of hostile pressure, and even if changes are made they may try to hide the fact that the consumer action had any effect. There is also the fact that most boycotts are small by comparison to the overall sales, so a target can ride out a boycott. Thus the primary effects may be small and many boycotts may be judged not to have succeeded. So this could be seen as a disadvantage. But the secondary effects are an advantage and are the effects that are not connected to the target. They are effects on other organisations that are not in conflict and can therefore change without the public knowing. Secondary effects can be changes to regulations, lasting change in industry practices, allowing substantial growth entrance of ethical players into the market or effects on decisions of similar organisations to the target. (Why Secondary Effects, [online]. Available at: An example of secondary effects is if someone refuses to buy Nescafe (the coffee brand from Nestle) then he may choose to buy a brand from a much smaller company. The positive effect to this smaller company is much larger than the negative effect to Nestle. The new company may find out that many people are switching to it on ethical grounds and position itself in the market to take advantage of this by, for example, publishing a code of conduct. Having switched brand once this person will have less brand loyalty and a newly formed company will know this by market research and will know they have a better chance of success in the coffee sector. (Why Secondary Effects, [online]. Available at: The boycott campaigns can also be important in developing political consciousness and can be one of the few non violent means to create political pressure. Another advantage is the exposure of the company and with less people buying their products the consumers will be looking at  buying substitute goods and therefore the demand for these will increase and therefore the supply will also increase. Consumer boycotts will increase competition in the market and firms will reduce their prices as a result to compete and also to gain the extra consumers that have less brand loyalty. The firms profits will also reduce and the smaller firms will gain more of the market share. There are also disadvantages to boycotts though. One of these could be a large reduction in jobs, â€Å"Boycotting Nestle products won’t help the poor farmers who sell to the company†, the head of Oxfam said. (Charlotte Denny, 2002. Retreat by Nestle on Ethiopia’s $6 debt [online]. The Guardian. Available at: ) They can have an adverse impact on individuals and communities which become innocent victims of the economic damage that boycotts can cause. Obviously there are disadvantages for the company as the reputation of the company will be harmed as a result of the impact of consumer boycotts, this isn’t good for it as it would need to lower its prices because the demand will become less. This is shown below As the demand falls so does the equilibrium price (Pe1 to Pe2). Another disadvantage to the company is that the company budgets will get ruined and will need to be analysed and changed. Also the gross domestic product of the host country could fall which is a disadvantage. In extreme cases there could be a loss of multinational specialisation and technology in a third world country as the company may not do their business their. There could be a loss of consumer choice if the product ceases after a boycott. Boycotts like that of advertising of cigarettes can cost businesses their survival, as in motor racing as half the advertising used to come from cigarette companies. Now a lot struggle to get the advertising money needed. There can also occasionally be some violence resulting from the boycotts and also resentment. Another disadvantage for consumers would be that some people would argue that all publicity is good publicity. Now I will compare and contrast the consumer boycott of coca cola with the consumer boycott of Nestle. Coca cola is the worlds fastest selling non-alcoholic beverage and the consumer boycott of it started on the 22nd July 2003. The reason behind the boycott is because they are accused of complicity in the assassination of 8 Sinaltrainal trade union leaders in Colombia since 1990. Sinaltrainal is a trade union and it organisers workers in the food and drink sector. Many other of the leaders have been imprisoned, tortured, forcibly displaced and exiled. Coca Cola deny any responsibility for these murders. They say that 100’s of union leaders are killed every year in Columbia. However many of the murders were made inside Coca Cola plants while negotiating agreements. Coca cola management were reported in the national press as meeting and contracting members of the AUC death squads to â€Å"sort out their labour problems†. (Boycott Coca Cola, [online]. Available at: Since 1977, Nestle has been the subject of an international boycott for its deceptive promotion of artificial baby milk as a superior alternative to mother’s milk. Artificial baby milk can harm babies because it does not contain the natural anti bodies which a mother’s milk provides, and because it is extremely expensive, causing many mothers to mix it with too much water resulting in mal-nutrition. Also, in many places the water used to dilute it is not portable. Once a mother starts giving her baby the formula, her own supply of milk dries up. Nestle provides free packages of formula in hospitals with the result that many babies never ever even get a chance to start nursing. In 1988 the boycott was re-launched when it was discovered that the company did not abide by its promise to follow the World Health Organisation’s International Code of Marketing of Breast-Milk Substitutes. (A Consistent Corporate Criminal, [online]. Available at: ). There have been massive impacts on Nestle because of the boycott. In 1984 the boycott forced Nestle to agree to abide by the World Health Organisation’s International Code of Marketing of breast Milk Substitutes. But now it was discovered that the company has not abided by its promise so the boycott was re-launched. Also in one afternoon 8,500 people emailed Oxfam to complain about Nestle, this was the fastest response Oxfam says it has had to a campaign. (Charlotte Denny, 2002. Retreat by Nestle on Ethiopia’s $6 debt [online]. The Guardian. Available at: ). Coca cola is in the non-alcoholic beverage market whereas Nestle is one of the world’s largest food manufacturers; it is also though same as coca cola in the beverage market. With a consumer boycott against both of these two companies, this means that the demand for both of their products will decrease as a result, causing an increase in the demand for substitute goods, like Pepsi instead of Coca Cola. Also because there is a shift in the demand curve this leads to a movement along the supply curve so the price of the goods, coca cola or a nestle brand will go up from P1 to P2 and the quantity in equilibrium falls from Q1 to Q2. This is a supply and demand graph for what has happened with coca cola and Nestle because of the consumer boycott against them. This is a supply and demand graph for what happens to the demand for a substitute good like Pepsi for coca cola because of the boycott. If a company has a strong consumer loyalty then a boycott would be unlikely to have much of an effect on the number of people who choose to join in and not purchase their products, however if a company has failed to build up a strong consumer loyalty then consumers will find it easy to decide to no longer purchase their product and will purchase the competitors products. Why have both Coca Cola and Nestle continued to upset consumer groups when  they could easily change there policies and consequently have the boycotts against them lifted. The answer to this is that the company must be getting more financial gain from what ever is upsetting the consumer groups than the loss of revenue that the boycotts have brought about. Both Nestle and Coca Cola are oligopoly markets because there are just a few firms that share a large proportion of the industry. Both of the markets of Nestle and Coca Cola are differentiated, because they both produce many types of the product. Coca Cola and Nestle are the same as much of the competition between such oligopolists is in terms of the marketing of their particular brand. There are barriers to entry into both markets, these could be product differentiation and brand loyalty, where there are differentiated products where the consumer associates the product with the brand, and it will be very difficult for a new firm to break into that market. The problem would be being able to produce a product sufficiently attractive to consumers who are loyal to the familiar brand. (John Sloman, 2003. Economics. Fifth edition. (s.l.): Pearson Education). Another barrier could be lower costs for an established firm. The companies are likely to have specialised production and marketing skills. They are more likely to be aware of the most efficient techniques and the most reliable and/or cheapest suppliers. They are also likely to have access to cheaper finance, therefore operating on a lower cost curve. New firms would find it hard to compete and be likely to lose any price wars. Aggressive tactics or intimidation could also be used. (John Sloman, 2003. Economics. Fifth edition. (s.l.): Pearson Education). Because Nestle and coca cola are in the oligopoly markets they both are affected by their rivals actions and vice versa. Because of this the firms could wish to collude and act as though they are a monopoly so they could jointly maximise their profits, or the firms could try and compete with their rivals to gain a bigger share of industry profits. Because Coca Cola and Nestle are both the leading firms in their industries, tacit collusion could form where they set the prices for their markets. Oligopolists will not engage in price cutting, excessive advertising or  other forms of competition. By doing this profits will be maintained in the long run. If oligopoly firms compete, profits are low and consumers benefit. If there were a rise in price of Coca Cola or a Nestle product e.g. Nescafe, then this would lead to a large fall in the quantity demanded. This is because consumers would buy alternative substitute goods like Pepsi or another coffee brand. The reason is because both coca cola and Nestle products are elastic products. After looking at both the advantages and disadvantages of consumer boycotts, I have found out that even though the firms lose consumer loyalty, lose revenue and get public scrutiny the firms must be coming out on top and are gaining financially, otherwise they would change their ways. This is probably why Nestle maybe did start to abide by the World Health Organisation’s International Code of Marketing of Breast-Milk Substitutes, then realized how much revenue they were losing so changed back even knowing they were likely to have the boycott brought back aswell because they must be gaining financially, but this is only my opinion. Also the other businesses in the market that whilst their competitors are having their products boycotted can take advantage and increase their own financial position and customer base.