Podcast
October 2, 2023

SoS #5: Sustainability = Consumer Value: Is it a Myth?

Podcast
October 2, 2023

SoS #5: Sustainability = Consumer Value: Is it a Myth?

Podcast
October 2, 2023

SoS #5: Sustainability = Consumer Value: Is it a Myth?

Podcast
October 2023

SoS #5: Sustainability = Consumer Value: Is it a Myth?

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Transcript

Hey, everyone. Welcome to State of Sustainability, where we  deliver key information to sustainability professionals to help them create and transform their sustainability strategy. Today, we're going to be talking about how to really generate value from better consumer engagement around sustainability.

So this is B2C or Business to Consumer. We'll do another episode, or we've already released another episode, depending on when you're seeing or hearing this around better business-to-business engagement or better engagement behind the consumer side of this. So stay tuned for that. But right now we're going to really focus on the consumer side.I'm actually fresh from an event that I was just attending with a set of sustainability professionals in the fashion industry and another event with a set of sustainability professionals in the beauty or cosmetics industry. And so it's, it's really exciting to start to see some of the strategies that both of those industries are looking to put into play and happy to try and synthesise a bit of what I'm hearing and learning here as well for you guys.

So today we're going to sort of talk about two types of things.

One is where to play:  which is how do you think about market segmentation and what's available in terms of market capture? And just generally how do you size that opportunity? And the second is how to play:  which is assuming that you've sized the opportunity and you know where you're going to go and play, what are the strategies and approaches that work in terms of really starting to generate some value.And happy to go into more depth later as well with companies or individuals one to one.

So just to start off, let's go into where to play. Those familiar with my content will know that I tend to talk about companies as fitting within one of three categories. I normally talk about sustainability champions as the small set of companies, maybe 10 -20% of business max that are really spearheading the charge.These tend to be companies that have built their brand around sustainability led products from the ground up. They are often one product brands or brands with a very few products, and they're really oriented around sustainability. They're sustainability natives. So that's the first segment that I think about.

The second that I think about is sustainability adopters, which is. The sort of the large companies often that are seeing what the champions are doing and are trying to pick up some of those best practices and really deploy them. And so think about a Ben and Jerry's, let's say being a sustainability champion, and then think about a Unilever coming in and acquiring a controlling interest in Ben and Jerry's as the sustainability adopter and then trying to move its market in that direction. I think that the adopters can often be maybe 30-40-50% of the market.

The third category that I think about is sustainability followers, which is basically everyone else. And the key distinction here is that I think that most of the value creation potential, most of the upside is going to go to sustainability champions and to a slightly lesser degree, but maybe over more volume to sustainability adopters. And I think that sustainability followers in general. will not really accrue much of the benefit of improved sustainability financially or commercially because they're basically just meeting the bar set by others and in the consumer's mind, the agenda has been defined by others. These principles are at, you know, at least as true in the consumer space, probably more so.

And so in this episode, I will tend to talk more with reference to sustainability champions, because I think that a lot of the winning strategies that we're seeing be deployed for capturing consumer mindshare with sustainability tends to be a playbook that is deployed by the sustainability champions. That doesn't mean that you can't pick up some of these tricks. It doesn't mean that you can't start to deploy them. If you're in a different sort of business, you can, and I think there's a really good window to do that. And we'll also try and weave in a few examples of incumbents and larger players that are doing that today.

Chapter 1: Where to play

So let's maybe first just anchor around why a consumer cares about sustainability. And I think there are 50 different ways to put this, but the way that always resonates with me is that sustainability contributes to an identity-led purchase. This is about how the consumer wants to see themselves. And so you need to be able to tap into that identity-led purchase and graft yourself onto how the consumer sees themselves. We'll talk a bit about this, but the three types of opportunities that you're looking to capitalize on once you've managed that identity meld as such are:

  1. Upsell: can you now sell a more premium product, a premium product at a higher price, a product with a bigger margin because that consumer sees your brand and your product as more sustainable and therefore reinforcing their sense of self and how they perceive themselves?
  2. Cross-sell: can you actually now, you've sold them one product and the consumer trusts that you're a sustainable brand and you understand the identity of the, of this consumer, can you actually sell them other products as well? Can you create an umbrella where you get the positive benefits of that one leading product and you can bring other products to that same market.
  3. Loyalty: and by loyalty, I mean, You know, there's one which is, can I kind of sell more expensive products? There's another thing, which is, can I sell more products? And the third, the natural one is, can I sell product for longer over time? That's the loyalty piece.

So between upsell, cross sell and loyalty, I think you end up covering a really holistic spectrum of the opportunities at play.

The good thing is that all of these opportunities are out there and there's actually really good data to suggest that all of these are working. What I mean by that is that you can already look at sustainability champions as very often entering the premium end of the range. You know, a couple of examples that I really like talking about and I'll talk about a bit more here are, for example, Lush Cosmetics or Tony's Chocolonely. These are really good examples of sustainability led organisations, products and brands, but also they do tend to play in the slightly more premium part of the market. So that upsell opportunity is definitely there.

In the cross sell space, there, there's a really good piece of research published by Nielsen,  recently which talks about how sustainability benefits tend to accrue to multiple products under the same brand portfolio and that consumers are more likely to trust the same brand when looking for other products.So that basket size expansion. There's also good data to support that, and the same the same piece of research by Nielsen also puts a forward good data to suggest that consumers that have made the cognitive decision to buy your product on the basis of higher sustainability credentials are also less likely to revisit that decision again and again, because they've already put some sort of brainpower into deciding that your product is more sustainable, they are just likely to keep defaulting to that decision and be ultimately a loyal customer.So there's good evidence to back up each of these three categories of opportunity as available for you.

Let's talk about the two elephants in the room.

One elephant is: does anyone really pay more or is it just something we're seeing in the survey data?

A big chunk of us in the sustainability space have all seen the same numbers, we've seen surveys that point to X% of consumers saying that they will buy the more sustainable product and X% saying that they will pay more for the more sustainable product. These numbers are a little different depending on which survey you see, but I've seen data that suggests that as many as 50% of consumers in some markets say that they will pay a bit more for a more sustainable product. And all of us that have actually tried to pitch this within the business and to pitch this to the marketing teams within our business and the sales teams within our business, all of us know that the actual data on the ground in terms of sales numbers.don't substantiate this survey data.

Let me just say that another way, right? There's a massive inflation between what consumers are telling us they want and will do and will pay for, at least in surveys, and what they actually do when it comes to walking down the aisle in a Tesco or an Asda and kind of actually buying something.So the jury is a little out on that. At the same time, the companies and individuals that I speak with in, some of the world's leading consumer oriented businesses, companies that have amazing sales and marketing data at their fingertips, the anecdotal information that they're giving me is that between two products of similar quality and similar price, a reasonable chunk of consumers will pick the brand or the product that they believe to be more sustainable.And so in most consumer spaces, that is frankly enough to get going with. Because most consumer businesses are in a hyper competition zone with a few other brands. And so, you know, that distinction between whether the consumer is going to pick your product versus another on the shelf, even at the same price, as long as it's other factors like quality or comparable, that's actually enough to start substantiating this and to go for a market share expansion.And at the same time, I think there is also some good anecdotal data to suggest that if you do want to actually start going into a higher price zone, then there is also a market for that. I think the difference is that it's not going to be as high as 50% of the market, nowhere near.My own estimates based on the data I've seen is that it's more likely to be somewhere between 5-15%, 5-20%, where if you're thinking about true upsell, true ability to premium price based on sustainability drivers, there's 5-15, 20% of the market in play. And I think that you'll find the larger end of that, the 15 to 20% end, to be more likely to be true in urban locations, certain demographics, certain customers.

The second elephant in the room: I've often been challenged around the fact that it's tends to be higher income countries or higher income people that will prioritise sustainability.The data doesn't back that up.

I ran a piece of analysis myself to see whether the data supports the fact that let's say there are more people likely to pay more for sustainability in the US and the UK versus India and Malaysia. For example,I ran this across eight or nine countries and actually that correlation isn't so strong. The correlation is a little stronger for age.

And so what you tend to find is that this sort of lifestyle of health and sustainability or that premium segment, that 5-15% or so is more likely to be urban, more likely to be young. But it doesn't necessarily need to be a super affluent segment as far as the data that I've seen goes.

Just to kind of set the stage in terms of where you, where you play or where you go, I would really think about how do you target a few of those demographics. Maybe urban, maybe slightly younger and just think about what you're looking to achieve with that, whether it's an upsell and a premium pricing, or whether it's actually introducing more products into that market or whether it's trying to build loyalty and increase loyalty over time.

Chapter 2: How to target

We've talked about where to play. Let's now talk about how to play, or what strategies and tactics really work in this space.

The key principle: you want to go with simple narratives, memorably delivered.

Again, think about identity. What does the brand stand for? One of the things that I talk about elsewhere is. decide where you want to win the game versus where you want to play the game. There are hundreds of sustainability issues out there and you will not be amazing at all of them. No business is amazing at all of them. Frankly, I think no business can be amazing at maybe even more than five or six of them.So what you really need to think about is; what are the two or three and maybe even one sustainability issue around which you really want to build your brand and your narrative? And then the other is just need to be good enough, frankly, you just need to be above board enough that consumers can think that you're consistent in being a good people  product basically.And so when it comes to that sort of win the game aspect, or when it comes to those one or two or max three issues that you really want to be known for, let's now talk about how you own the issue and how you really  dominate the consumer mindshare for that issue as the one brand that is, is really spearheading the charge on that.And that's, I think, something that sustainability champions do really well. And it's not just that they do it well, they have to do it well. And the reason is that there's usually not enough space for more than one or two brands to really be that iconic with any given issue.

That's almost the easy bit, frankly, the hard bit is that you have to be consistent because now that you've staked so much on this one issue or these two issues, consumers will expect that you will now work backwards through every aspect of what you do and be consistent in your work, in your evangelism of this issue.

And so this tends to be a strategy that is easier for single product brands because they have less or just fewer variables to think about. They have less to solve for. It's a little easier. And that's also why most sustainability champions tend to be sustainability natives in that they tend to have started with sustainability principles in mind from the ground up, and that way they can kind of be quite consistent, right?If you think about some of the brands that most consumers associate with sustainability today, whether it's like a Pangaia or a Reformation, you know, in the fashion apparel space, these brands tend to have always tried to be sustainable. And that's why they can manage the consistency aspect a little easier than an incumbent, for example.

And so, I think you really need to start looking at what is the statement that you're making across a few different parameters:

How the product is designed. In the actual product design, are you communicating your message?

Example: a brand that I think does this really well and very subtly, but very consistently and powerfully is Tony's Chocolonly.  One of the things that is immediately visible to anyone who's bought a bar of their chocolate is that the pieces are shaped in really random, odd sort of formations which means that it's not like the traditional or you can just snap it off and it's three, three squares or four squares, but it's kind of this oddly shaped bar and the logic there is that it's meant to communicate the inequality and unevenness of resource distribution across the chocolate value chain and how the cocoa farmers that actually do some of the hardest parts of the work involved, get paid a much smaller share versus other players in the value chain. And so even from the product design aspect, they're communicating that message. It's that sort of consistency that is hard to do, but powerful when you get it right because it's there with every bar of chocolate that the consumer buys.

How the product is packaged.

Example: one of my favorite examples recently is something that I actually just came across just a few weeks ago while on holiday; the Evian Nude Bottle. Most of us will know Evian as a mineral water brand, one of the leaders in the world, but I was at a little kiosk in a train station, uh, in Paris, and I saw this, um, I saw this little, little see through plastic bottle with a pink cap and no plastic film label. And I tend to geek out about packaging because I worked a fair bit in waste management and, and, and ocean plastic and those sorts of spaces. And so anyone familiar with those topics knows that in a plastic beverage bottle, one of the worst, worst things from a sustainability standpoint is the film label because it's actually very easy to recycle the PET bottle. It's a little easy to recycle the cap, but it's really difficult to recycle the film label. And so even in an Asian market, let's say like in Indonesia or Thailand, you think about how waste management does or does not work, a waste picker can pick out a Pepsi or a Coke bottle and they're usually quite good at just stripping off the other bits and they'll throw away the film, remove the cap and then they'll kind of get that into a resale market so they can make a bit of money.But that film is really dead weight in the waste process and the recycling process. And so seeing this sort of nude champion bottle where it has no label. And the only way you know it's an Evian bottle is because if you look closely, you'll see the embossed Evian name on it. And actually it's not even that it's the iconic Evian water bottle.It's a slightly smaller, slightly different bottle. Like that was really amazing for me because it's a powerful sustainability message conveyed with the packaging. It's actually not about a new expense. In fact, it's about less actually they're taking stuff away. But what I really loved is the fact that now that they've done it, No one else can do it. There isn't space in the market for two mineral water brands to be out there with no label on the bottle whatsoever. The fact that they've done it first kind of blocks everyone else out of it, sends a powerful message, is super memorable. I think this is one of the best initiatives I've seen recently come out of an incumbent brand. And so just the lesson for the rest of us is how do you think about that sort of packaging element as even promoting some of the narrative that you're going for?

How the product is produced. And obviously, there are many brands out there that do this. Well, this is the core of it. What goes into your product? How do you manufacture it?And how do you communicate all the things that went on?

Example: One company that I think does this very well is, is Reformation. It has been transparent from the start in all the sort of processes and all the inputs or materials and what goes into making that product work. To get there, they also have to have a lot of consistency inside the business. One of the interesting things within Reformation is that the sustainability function and the Chief Sustainability Officer have a very prominent role in R&D and in shaping the R&D budget. They can also help direct where the R&D budget should be spent in terms of more sustainable alternative materials. That's a really powerful way to start bringing sustainability into the production process. Then it's comparatively easier to open up that process to the consumer and tell them what's going on. If you go to the Reformation website and you want to understand how they work with their suppliers, there's a lot of honesty and transparency there as well in what they think they're good at and what they think they're bad at. There are a lot of interesting ways in which even pain can be good marketing actually.

How the product is consumed. This is less intuitive for most companies because most companies tend to think about a one way street where they produce the product and they sell the product and their responsibility ends when the product has been sold.In Europe for sure, and likely in most other markets over time,there is now a more expansive role being conceived for the business by regulation and by consumers, which is that the business is actually responsible even beyond the point at which the product is purchased and bought by the consumer. Extended Producer Responsibility (EPR), shifts the responsibility onto you in how your products are actually consumed by the consumer and maybe even wasted or disposed of. There is an element of that responsibility that sits with you as the business, because those that long tail and that kind of post-purchase life of the product is defined by how you design the product actually in the first place.And so whether or not you agree in principle that this is a space where regulation should intervene. Whether or not you believe ideologically that this is a space that you as the business should own. The fact is that there are companies out there that are starting to shape, uh, that post-consumption journey or that post purchase journey rather and using that as a way to tell their story and their narrative.

Example: I was at this event with Waleda, in the beauty and cosmetic space. And one of the pieces that they speak most passionately about is how potentially the largest single contributor to their emissions inventory, their greenhouse gas inventory is actually how the product is used. It's the hot showers, it's the hot baths and the heating that goes into that for you as a consumer using their products, that contributes one of the largest shares to the overall greenhouse gas inventory of the products that they sell. And, you know, in, in fairness to them, they see that as a liability and a problem, and it's a problem that they need to solve.But I also think it's a really Amazing opportunity to create a better narrative, actually, which is if you can kind of own that and be the brand that promotes cold showers, right? I mean, I'm making this up, but there's a lot in there that you can actually go with and, and really change how the consumer uses the product.

One other example that I came across in the same vein is you know, a sort of spice mix, uh, company owned by Unilever. And what they found was that the standard recipe on the back of the pack used to call for meat. And so the recipe that you would read on the back of the pack would tell you, you know, take X amount of meat and then cook these spices with that meat to come up with your amazing nutritious food.They found that by replacing the meat with, with lentils, they could reduce the post purchase impact of their product with actually no direct impact on their own product itself and their revenue and how they sell it, but they could actually just alter the consumer behaviour. Those sorts of things allow you to take control of the consumer journey, even after your product has been purchased. And also to use that to reinforce the brand narrative that you're trying to communicate to the consumer. So I think those, those end up being quite powerful mechanisms as well.

Just to quickly recap how the product is designed, how the product is packaged, how the product is produced, and how the product is consumed.There will be others, but these are just four that I'm thinking about these days.

Green labels

You will notice that I haven't really yet talked about labels and by that I mean like green labels, eco-labels friendly labels. We're going to do another episode where we talk about greenwashing and all that sort of stuff, all that fun stuff but let me just say a couple of words here. There are two aspects involved in this sort of space, this topic around labels.

One is greenwashing which is, are you putting out claims or statements that aren't true and that you're using as a marketing device. There is regulation coming out which will fairly heavily control greenwashing. Many markets authorities, especially in the UK, but other markets also are now taking a serious interest in this. And so. I'm expecting a lot of, a lot of action to come in on, on clamping down greenwashing.

And then the second area is green claims, which is kind of quite similar, but greenwashing tends to be more just sort of blanket statements. Green claims tend to be very specific and so they tend to be like this product is X and they reference some, external validation or some sort of thing third party or some credential of some sort. That space is also going to be quite tightly regulated over the next few years.

The short answer on the regulation side is that the space for creativity. In this territory of greenwashing and green claims, the space for creativity is going to narrow, and that's a good thing in the interest of lifting the bar for everyone so that those who are actually doing great work can be more comfortable being honest about it.

The second thing is that the need for third-party assurance is going to rise. This is again a good thing because it means that it's going to be less of the business taking matters into its own hands and being free to say whatever it wants. But also, frankly, I think most businesses will welcome having a third party to kind of set the standard and the guidelines and tell them if you know, most businesses I think inherently want to do the right thing if they can, in terms of just being honest and limiting their liabilities for a consumer backlash or regulatory one.And so third-party assurance will help with that.

The third one, and this, this is going to maybe sound strange, but I think that the number of labels out there is going to go up and then go down. And I think that right now, almost every industry association I have come across in every industry that I'm exposed to is looking to bring out its own type of label. And in some industries, there are maybe, you know, three or four industry-led coalitions trying to bring out their own type of label. And the logic is always: there are so many labels out there, we need one label to rule them all. We need one label that is better so that you don't have to go to these 20 other labels.And of course, that's what spawns more labels. So I think that in the next two, three, four, five years we're going to see a lot more credentials, labels, standards, whatever you want to call it. And then I think that gradually again as this space is better regulated, that number is going to fall and both regulators and industry and also to an extent consumers are going to get behind fewer and fewer labels that are more specific to individual industries and are a little more comprehensive, let's say.

Marketing campaigns

I also want to reflect a little on marketing campaigns. Because what you'll probably find is that marketing campaigns are going to sort of come and, and blow up and be big, and then suddenly they're going to die down and disappear.And we're seeing this with Apple right now.  The carbon neutral watch that they've produced is now going really big and everyone's talking about it. And I think that's probably going to die down in a couple of weeks or a couple of months, and then it's going to be onto the next thing.But the thing to remember is that the core message across different campaigns should be consistent and so you're going to need to build new marketing campaigns to sort of reintroduce that message to the consumer mind, but that core message should be consistent and the best brands that do this well again have a core message that goes, you know, again and again and again.

Oatly is a good example. Oatly has put a lot of its its consumer capital and credibility on the line behind its commitment to transparency. And so they started that with like the carbon numbers on the packet. But then also, you know, anyone who came across their recent campaign where you can go to a dedicated website that they've listedI won't, won't name the website for reasons that anyone who's visited it will understand. But you can kind of actually see all of the things that they believe they're doing wrong, listed up there and it's just a self critical website and it allows them to actually bring everything together in one place.And so kind of make themselves a little immune to criticism by having owned it. Whether it's criticism of their sustainability program or criticism of anything else they do. And it allows them to turn that into a marketing campaign. At its heart, however, it is again a reinforcement of the core narrative and the core message around transparency and honesty that they're trying to promote.

If you get this right, then the value behind the message is what consumers will remember the brand for. And by doing this right, you can actually build a backlog, almost like a latent brand value around sustainability that can be built on later.

One example that, that comes to mind is, is Tom's Shoes.  I used to talk about this a lot back in the 2015, 2016 era. I think a lot of people still remember Tom's Shoes. It's gone through a pretty bad patch over the last few years. They had a lot of financial difficulties.I think they're now coming out of it. But the, the thing that everyone knew about Tom's Shoes was... That every pair of shoes you buy from Tom's, finances the gift of a pair of shoes to someone who needs them. And everyone that I come across who remembers Tom's shoes remembers that. And they remember that mission and that value at the heart of the product. And that's true even though they don't see any reinforcement marketing of that. But it's a sort of a latent value that makes, makes the marketing easier later on because there's already that context to build on, that context in the consumer mind.

Interfacing with the marketing team

If I go on the other side, I was recently speaking with a sort of a head of sustainability at a big apparel brand, a big fashion brand, and one of this person's main complaints when it comes to interfacing with the marketing team is that the marketing team keeps coming back to them and asking them what's new? Has something changed? Is there a new story for us to tell? What are the numbers now? And this individual refreshes the sustainability data and gives it back to them and says, “look, the numbers are all slightly different, but, you know, we're still caring about these two or three issues. The needle has moved a bit.It hasn't moved a lot. No, we're not the number one brand in the world on all these issues yet that might come later.”

There's not anything new and spicy for them to feed to the marketing team. And I think that actually what the marketing team should kind of, you know, recognise and play ball with this sort of sustainability team on is let's understand what's at the heart of the messaging that we want to do.And then it's the job of the marketing team to build creative ways to get that message across, to get that core value across. And the more that you do that, the more equity you're going to create, and the easier it will get, and the more memorable it will get. What we're noticing on our side with every business that we speak with is that if you can succeed in raising the bar in this way, you're really going to create a moat around the business.You're basically editing the consumer's understanding of their own identity. You know, just to again, go back to that sense of sustainability as one of the defining aspects of identity for a reasonable chunk of consumers. And that means that you can still lose the customer, the consumer. You can still lose them to a competitor, but you're more likely to lose them to someone who's behind the same moat as you, rather than to a mainstream competitor.What I mean by that is, at some point, five or six years ago, I started caring about buying ethical chocolate. And, you know, it was probably some brand that first conveyed that to me and made me recognise that ethical chocolate purchasing was consistent with my sense of identity and my sense of self when, you know, as far as it came to my chocolate buying habits. I don't even remember necessarily which, which brand it was that did that. And so they probably didn't capitalise on that individual message really well. But the brand that they lost me to would have been another ethical chocolate brand and along the way I might have tried five or six different ones but I'm always within that small coterie of brands that are behind the moat I don't go back to the mainstream because this element has already been grafted onto my sense of personal identity. And so I think that's something quite powerful which really effectively narrows the playing field.

If you can find a way to exclude basically 60% of your competitors through a really effective values based narrative that you can again and again reinforce with creative marketing campaigns, that's effectively what you're going for. And that's what helps you, you know, upsell effectively, play into a more premium market.It'll also effectively help you cross sell because the same narrative will support your other products and it will help you find more loyalty as well because it makes that moat just so much deeper around your business and around your products.

Conclusion:

So, just to sort of conclude, right, hopefully this, this episode has been useful for you in how you think about engaging with consumers on the basis of sustainability.Just in summary, we've talked about two aspects:

Where to play. So what is the upside, right? Whether it's upsell, cross sell, loyalty, and who are you targeting? Is it sort of more urban, younger, is there, are you, are you going for a really narrow niche segment because you're really going for an upsell play or are you trying to cater to the whole market and just kind of build, build sustainability resonance?That where to play aspect is the first piece.

How to play, which is focus on simple narratives. Focus on a few issues. Own those issues. And then kind of craft your marketing campaigns on top of those issues in a way that reinforce them. And don't just confine yourself. It's not just about ads.It's also about how the product is designed. It's about how the product is packaged. It's about how the product is produced. It's about how the product is consumed. And so that sort of holistic picture forms the how you play in terms of capturing some of this upside.

So thank you for listening to today's episode of State of Sustainability.If you have any questions on the points I've just shared, feel free to drop a message or join, join my monthly LinkedIn live Q&A sessions that you can find my LinkedIn page as well. Look forward to hearing from you. And again, hope this has been helpful.

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