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6.3 Business Risks of Sustainability Marketing

Learning Objective

  1. Discuss the risks associated with sustainability marketing.

Although sustainability continues to grow as an important business concept, focusing on sustainability in marketing entails significant risks that need to be addressed. These risks can cause problems with a company’s marketing plan, short and long term.

The sustainable marketing risks can be categorized as follows:

  1. Market risks
  2. Operating risks
  3. Corporate image risks

Market Risks

Addressing market risks are part of a normal strategy and marketing plan development process, but sustainability adds a dimension of uncertainty due to its relative “newness.” Marketing sustainability is in its high-risk phase since the consumer appeal for sustainability is still not well defined. It is true that consumers, when polled, will espouse sustainability’s benefits and appeal, but a gap currently exists between the consumers’ words and actions.

As a result, the following market risks are associated with sustainability initiatives:

  1. Weakness in sustainability’s consumer appeal, particularly relative to more basic incentives, such as value, convenience, and efficacy
  2. Lack of understanding and personal appreciation of sustainability’s benefits among consumer groups

In the abstract, consumers easily agree that the coupling of economic and environmental sustainability is a very positive concept. Who would argue that working to ensure that future generations have the resources to enjoy success is a negative idea? This apparent universal appeal has led more than a few marketers to believe that sustainability as a consumer benefit has mass potential. Consumer purchasing behavior to date, however, has not confirmed sustainability’s appeal for the majority of potential consumers. When marketers pit sustainability’s strength as a benefit against value in a low-price or low-cost provider differentiation strategy, sustainability seems to have only a limited impact. When marketers pit sustainability’s strength as a benefit against convenience and effectiveness in a differentiation strategy, sustainability also seems to have very limited impact. Sustainability marketers need to understand their “pioneer” role in capturing and leveraging sustainability benefits. Consumers still seem to be processing the value of sustainability as a benefit. Most importantly, consumers are still processing how much they would pay for this benefit.

In addition, sustainability often addresses externalities or failures of conventional products or services to fully cost the negative impact they have. Therefore the “price” of sustainability, whether it be an additional financial cost or a time or effort cost, is something that may make society collectively better off, while making an individual worst off for absorbing that additional cost. The marketer must find ways to communicate personal benefit as well as societal benefits. “It’s good for the environment” may not be good enough to convince a consumer to justify any personal cost or sacrifice.

Initial attempts to use sustainability as a key marketing benefit have demonstrated the nascent appeal. Niche businesses, such as Simply Green and Seventh Generation, as well as larger-scale companies such as Stonyfield seem to be able to define an industry segment using the sustainability platform. When mass marketers, attracted by the high growth rates in the “good-for-you, good-for-the-planet” segment, attempt to duplicate niche marketers’ success on a larger scale, the mass marketers have generated mixed results.

Examples include “green” product launches from Clorox, SC Johnson, and Dwight and Church. Although some products, supported by heavy introductory marketing programs, experienced initial success, the premium pricing for the products with no accompanying added benefit except for sustainability eventually led to a reduction in the size of the business. This was the case with Green Works from Clorox. Sales of Green Works reached $100 million in its introductory year. Clorox spent approximately $25 million in advertising in 2008 and 2009. Due primarily to the recession, which put pressure on premium-priced products, Green Works sales fell to $60 million and Clorox dropped advertising support to approximately $1 million.

Sustainability as a key benefit is still developing, and the strength of the benefit versus established benefits of better value, lower price, more convenience, and more effectiveness is still not measurable or clear. Many consumers will purchase green products that make no compromises in other benefits. But most consumers will not buy when the green benefit comes at the expense of higher price or more conventional benefits.

The marketing discussion has focused on sustainability as a benefit in a product offered to consumers. When companies apply a sustainability focus as a corporate mandate, such as Timberland, the benefit to the business is also still to be determined. The number of consumers willing to buy a product from a “green” company or an outstanding corporate citizen instead of products from other companies with no such mandate is not definitive at this time. Marketers may believe that the “good” company will reap benefits over the “neutral” or “bad” companies, but unfortunately, this may not always be the case.

Nevertheless, current evidence suggests that consumers are finding the sustainability benefit to be appealing and will possibly become more influential for a consumer’s buying decision in the future. Sustainability as a benefit appeals to the logical and emotional sides of the consumer, offering potential for the development of a larger opportunity. Marketers must remember that they are still responsible for developing this opportunity by pioneering information dissemination to consumers and education about sustainability. Sustainability does not yet operate in a clearly defined opportunity space that allows companies to launch new products with no pioneering effort for mass success.

Operating Risks

Chasing the opportunity presented by the growing awareness of sustainability also can create operating risks that need to be addressed during marketing plan development and execution. Much discussion on this subject has taken place, and the issues are fairly straightforward. The following operating risks are associated with pursuing sustainability initiatives as part of a marketing plan:

  1. Loss in profitability
  2. Loss of focus

Just as sustainability would seem to be a rallying cry for consumers, some companies have jumped on sustainability as a rallying cry for employees. By incorporating sustainability into corporate mission statements and adding green to their products, some companies like Timberland believe that they can drive business improvement via a competitive advantage. All this seems to be a reasonable operating assumption, and a growing number of companies including Timberland have been successful operating under this assumption. Loss of profitability can occur, however, if a company uses more financial and human resources than competitors without gaining a commensurate benefit. As an example, activities designed to protect the environment have costs. If a company cannot price to recover these costs or if the costs do not lead to benefits that make products superior in the minds of the consumer, then the company now operates at a cost disadvantage versus competition. By internalizing these costs and not receiving a real benefit, a company may experience loss of sales, market share, and profitability.

In addition, adding sustainability to the marketing mix can lead to a loss of focus on the primary objective: economic profitability and economic sustainability. Driving activity through marketing to results that are not part of the core economic strategy may lead a company to damage its profitability by loss of focus and misallocation of critical resources.

Corporate Image Risks

The last risk classification deals with the risks to corporate image that can occur when pursuing sustainability marketing activities and goals. Although all marketing activities have implications for corporate image, sustainability marketing activities can create a higher level of positive or negative impact on image. This is probably because sustainability is a more altruistic and noble cause versus other business objectives and also increasingly of interest to the media and general public and therefore a highly visible company activity.

The following corporate image risks are associated with sustainability marketing:

  1. Negative greenwashing image
  2. Magnified negative impact of an inconsistent action

GreenwashingThe practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, or technology. is the use of green marketing to give the incorrect impression that the company’s strategy, operations, and products are designed to be beneficial to the environment. The company attempts to market their green credentials to improve their public image to generate greater sales through positive “spin.” Companies embarking on this path are taking a significant risk because exposure of the company’s true activities and footprint could result in a relatively large negative impact on all elements of the marketing and public relations plan and eventually sales and profitability. Even companies that are sincere but are perceived to be insincere by the public can suffer grave consequences. It is imperative for companies employing sustainability marketing to be genuine in their motivation and effective in its execution. The damage done by even a hint of insincerity or with poor execution is potentially irreversible.

Sidebar

Greenwashing

Environmentalist Jay Westerveld coined the phrase in his 1986 essay regarding the hotel industry’s practice of using placards in each room to promote reuse of towels to “save the environment.” He wrote that many hotels made little effort toward energy use reduction. The principal goal of this activity was to increase profits.

Since that time, the Federal Trade Commission (FTC) has put some parameters into effect to help minimize greenwashing with its Green Guide, which was first published in 1998 and revised again in October 2010. The FTC Green Guide mandates that companies provide clear substantiation to any environmental claims and that there is specificity surrounding these claims. In particular, the FTC warns of using more generic terms such as “eco-friendly” and “environmentally friendly” without documented and detailed evidence to these claims. Failure to comply can cost a company up to $16,000 per false claim.Lee van der Voo, “FTC Takes a Swipe at Greenwashing,” Sustainable Business Oregon, May 8, 2011, http://www.sustainablebusinessoregon.com/articles/2010/10/new_ftc_rules_take_swipe_at_greenwashing.html.

To see the "Sins of Greenwashing," visit http://sinsofgreenwashing.org/findings/the-seven-sins/.

Even a company that has demonstrated its commitment to sustainability over time is still vulnerable, if not more vulnerable, to a misstep in its sustainability initiatives and action. Some companies may be able to generate goodwill through their past actions, but some consumers may take a “what have you done for me lately?” mind-set that does not provide the opportunity to generate this equity. As a result, marketers who incorporate sustainability marketing as an integral element of their plan must be aware of the importance in maintaining consistency and effective execution in its approach and commitment.

As an example, Green Mountain Coffee, a company that has sustainability among its core beliefs, has had some setbacks to its public image due to its biggest business success, Keurig coffee cups. Per its mantra, the company is aggressively researching methods to build a recyclable cup, but its current cups are not biodegradable. Green Mountain’s history has given it some protection from negative publicity, but this protection may wear down if a solution is not found in the short term. Once the company loses that essential part of their corporate image, Green Mountain runs the danger of becoming just another coffee company. (Green Mountain Coffee is discussed in greater detail in Chapter 9 "Case: Brewing a Better World: Sustainable Supply Chain Management at Green Mountain Coffee Roasters, Inc.".)

Although there is some significant disagreement and experience to support that disagreement, there is evidence that marketing that leverages sustainability attributes is relevant and important. Due to the unique and continuously changing positioning of sustainability in consumers’ minds, sustainability marketing comes with its own set of rewards and challenges. To be successful in sustainability marketing, a company must recognize and be ready to deal with the risks associated with this relatively new business concept.

Key Takeaways

  • Marketers and strategists must consider the market, operating, and image risks associated with sustainability marketing to capture this relatively new business concept’s power and to minimize its downside.
  • Sustainability as a consumer benefit alone may not be enough to motivate the mainstream consumer to purchase. There exists an opportunity for better consumer cognitive balancing between “good for the environment” and “good for the pocketbook.”
  • Greenwashing practices have potential to inflict long-term damage to a brand and company franchise.

Exercises

  1. Find an example of a company that undertook a sustainability strategy that was perceived as greenwashing. Do you agree that the company was greenwashing or was its actions sincere?
  2. BP (British Petroleum) rebranded itself in 2000 as “Beyond Petroleum.” In 2010, the Deepwater Horizon drilling rig was involved in one of the worst oil spills in history. What is your reaction to their rebranding given this event? Have you changed your purchasing habits as a result of the BP oil spill?