The tables have turned. Globalism is out. Localism is in. What does such a vision mean for companies, especially those in Houston? Do customers pay more for only locally produced goods? Should companies try to turn their production local in a bid to raise prices? A simplistic logic goes like this: Consumers who are “localists” will pay more for locally produced goods and services out of their sense of patriotism.
According to a report by the Greater Houston Partnership, Houston shipped more than $97.1 billion in goods and commodities overseas in 2015, leading all other metro areas, including New York and Seattle.
If localists pay more for only locally produced products and services, then Houston’s economy may be in trouble.
Take a randomized study we did in a grocery store in China. We gave out two versions of the same pamphlet to customers. Half the customers, selected at random, got the localist version of the pamphlet. It was titled “Think Local” and contained this statement: “We are promoting the ‘Think Local Movement,’ which encourages people to take a local perspective on their daily life.” It reinforced the localist perspective with statements such as “You belong to the local community” and “You respect your local traditions.”
The pamphlet did not mention the origin of any products. The contrasting globalist pamphlet was given to the other customers. We then recorded actual sales for the two groups. Our results showed that by promoting the “Think Local Movement,” the store could boost its annual revenue as much as 13 percent. This occurred because localist customers – who were less price-sensitive – bought relatively more than globalist consumers, even with a price increase.
What do these results mean for Texas? Take, for example, H-E-B, a prominent supermarket chain in Texas that had 2015 sales of $23 billion. For H-E-B, activating consumers’ local identity with no changes in its supply chain could raise its annual revenue by $2.9 billion.
Similarly, take the example of Halliburton with 2015 sales of $23.6 billion. Hit with declining oil prices, Halliburton and other oil field services companies have been competing by slashing prices. By using communication strategies that appeal to their clients’ localist identities, they might be able to decrease their clients’ price sensitivity. A communication-based approach to appeal to localism may be less expensive and more effective in reducing losses than costly promises of local sourcing and setting up local infrastructure in host countries.
Does this imply price gouging? Not necessarily. First, if low-cost national or global companies can raise their prices, local producers and manufacturers do not have to lower their prices; the latter can then compete better by differentiating on nonprice factors.
Second, global companies should remember that localist consumers care about local issues. Therefore, companies will need to be sensitive to serving local communities through other investments such as supporting local causes, education and training.
In short, they need to give localist consumers a good reason to make the sacrifice of paying higher prices.