Sustainability is a marketing problem
In their recent book, The Sustainability Edge, Suhas Apte and Dr Jagdish Sheth equate the sustainability journey to the game of golf—they say the intent is not to get the best score but rather pursue continuous improvement. They believe companies should e
Consumers are the largest piece of the sustainability puzzle, says Dr Jagdish Sheth, Emory University.
Most management discourse places sustainability primarily at the businesses’ doorsteps. You however say there is a major onus on the customer too. Why? Probably three separate reasons.
Let us look at the end consumers—the B2B end consumers (corporate offices which have factory, professionals, and
clerical workers) and the household market. In the first category, the sustainability dialog has already been initiated by the companies themselves—on employee behavior and norms. As far as the second segment is concerned, in most advanced countries, we have really gone beyond subsistence level of living. I strongly believe in Maslow’s need hierarchy. Consumers seem to be moving up and searching for meaning and purpose in their lives.
Let me try and put this in context—in most schools in the US, students have to participate in community service in addition to academic excellence. This is essential as it brings them out of the bubble they live in and helps them understand societal issues such as environment concerns, specially-abled people and their struggles, etc. As a result, when they reach college, their perspectives change—they look beyond what a company is doing to make money. They are keen to know how it contributes to the society and the environment. And more importantly, they no longer stop at just raising these questions; they actively engage themselves in such activities—one of the reasons for the rise of social entrepreneurship. In the US economy where there is a continuous war for talent, young college graduates raise these questions during interviews regularly. They no longer ask, ‘What is my career?’ They ask, ‘What is the company doing for the environment?’ This awareness is not limited to certain segments of society; it is rather a mass awareness. And companies are increasingly embracing these principles in their business. So this is one key area.
I also think there are two aspects on the consumption side where the consumers would like to be more educated. One is: how do I contribute to the environment through ‘mindful consumption’? Mindful consumption will prove to be beneficial because it is about restrained consumption. We are witnessing the dangers of overconsumption, whether food or resources. So consuming just right is key. There are three Rs—reduce consumption, recycle consumption, and reuse.
The second aspect is consumers—I am seeing this for the first time in my 55 years of work——are not looking for meaning not only in life, but also in consumption. In other words, exploring how they can contribute to the environment and society through their consumption. They realize consumption is inevitable and would like to explore if there are any environmental or societal benefits in their consumption. And therefore most companies, such as Unilever, the Tata Group, and Wipro have embraced sustainability. AT&T is getting serious about recycling of phones, and the list is pretty long. Companies have understood that they have to attach purpose to consumption in order to gain and retain consumer loyalty and consumers’ word-of-mouth influence. For example, the commercial for Hamam soap talks about how consumption can serve some purpose in society.
Coming back to the onus on the consumer, it is also because it is the largest base. Even the bottom of the pyramid (BoP) consumes. In fact, in my estimate, the size of the BOP—as defined by the United Nations as those having an income of $2 or less—is a $5-trillion market worldwide. It is unorganized, unbranded, and can be engaged in how they can serve society by changing their consumption habits.
Price will continue to play a major role, especially in emerging economies, which are the largest markets now and will be in the future too. So, given that ‘light green’ consumers will form the largest base how can companies control this conversation?
Let us go back to the quality movement. It was embraced by companies as an analogue not only for doing well for consumers (of course, better quality leads to consumer satisfaction), but also as a cost reduction strategy. So companies can, when consumers are receptive to buy sustainable product/services, come out with more affordable innovations, holding the price constant.
Most companies’ accounting systems were organized for the Industrial Age, which is mostly manufacturing- based— ie, cost plus pricing. Even today, because of GAAP rules and regulations, CFOs think of cost plus pricing. In other words, developing affordable innovations that masses can afford. This is similar to Model T in cars, Kodak in cameras, and Timex in the watch industry. Our concept says price minus costing and it is doable. In my view, this is the biggest opportunity.
Companies cannot and need not do this by themselves. They need to engage with governments because there will be some markets that resist change. For example, in many countries, traditional cooking methods involve gas cylinders, cow dung, or wood. Changing to a more sustainable fuel will require government intervention or a mandate. There is a need for public-private partnership to engage and shape consumption behavior. Educating consumers, innovating in the right way, and seeking government participation for bringing about a change will help companies win the sustainability game.
We have seen quite a lot of demarketing or counter marketing in the cigarettes category. To me, the way in which we went about discouraging smoking is an interesting study. Firstly, local taxes were raised. Then smoking was disallowed in public places. All of a sudden, many people do not smoke any more. And we are a
‘smoking country’. This shows governments can, through incentives and regulations, bring about a change. It is about social and legal control.
I also believe that sustainability is really a marketing problem. Companies have just not done a good job of marketing it. It is not about listening to the consumers— what they are buying or wanting. It is about educating, informing, and persuading them to do things differently.
You say businesses are not proactive about the social and economic aspects of sustainability, but focus solely on environmental aspects. What do you mean by social and economic aspects of sustainability, and how can companies address these? Why do you say businesses are ignoring consumers, when most businesses exist to satisfy a particular consumer need?
Despite the importance of developing a customer perspective, most companies still have a product perspective. Marketing to them is an afterthought; the central activity is one of creating or making products. They may take a customer view, but most marketing departments in large companies think like this—I have got a product, how do I sell it? So the emphasis in marketing is on the buyer, and not on the user.
Today for the first time, with experience economy and all the other buzzwords we have created, companies are considering the user as the primary coustomer and not the buyer. This step requires a major shift in thinking. R&D departments have always taken a user perspective in their product design, whether it is an appliance or an automobile, or the packaging of a product. They ask, “how will users understand this?” Marketing, on the other hand, thinks of the buyer, who is not always the user.
For example, in the case of a family, the child may be the user of a product but not the buyer or the payer. The payer controls the budget and is the one who may do the shopping. Or, in some cases it may even be done by the domestic help. We separate these three roles significantly. In marketing, we only talk about buyers. My first theory was the theory of buyer behavior and not consumer behavior. That is a key difference. As we shift our orientation from buyers to users, companies will get more user-oriented. They are still not there.
You say the definition of consumerism will change in the future…
We in the academic world consider consumerism as consumer activism; being proactive towards consumer rights. In this book, we look at consumerism as consumer orientation. Redefining consumerism means shifting the focus from the buyer to the user. And we also separate customers from consumers.
Communication has to move away from clichés like green and eco-friendly, and capture the complexity of sustainability. However, the complexity also has to be presented in a simple fashion…
Bringing about a minor change or even changing one ingredient—removing caffeine from Coca Cola or making it sugar free—in a product is very complex and often difficult, especially when it involves chemistry. Consumers do not understand the complexity of the supply chain and the production process. They just enjoy what is delivered. Companies need to develop the skill set of articulating how complex a small change is and how long it takes to implement it: similar to the user experience that wineries and museums offer.
Consumers are skeptical about the motivation of a company. They believe companies are always capitalists and are more interested in profitability at the expense of
I also believe that sustainability is really a marketing problem. Companies have just not done a good job of marketing it.
consumers. But companies need to show them it is a winwin situation where both the consumers and companies can benefit. That is good marketing. We are definitely doing away with a win-loss, zero sum, and going towards a positive sum.
Companies need to understand and strive to align with the customers’ sustainability mandate. How would a company that has a preset mission and vision be able to do this?
The main point we are making is more with immediate customers, not with end consumers necessarily, except in a B2B market. So the immediate customer would be the procurement department and consumers would be the employees. The point that we try to make is that the procurement department in a B2B company ought to be in alignment with you. The best place to see this happening is the consumer markets by retailers. Power has now shifted from manufacturers to the ‘super-retailers’. So today you see a Walmart taking the initiative. They had a great wakeup call—till recently they were not considered community oriented and had a lot of employee issues. The last CEOs, Leo Scott and Mike Duke, then completely changed the Walmart paradigm, a culture shift. They are now offering to partner with their suppliers. This is on the supply side.
On the customer side, let us consider the example of an Indian company, MS International in the US, a distributor of flooring, countertop, wall tile, and hardscaping products in North America. It is headed by Manu Shah, an engineer, and his wife Rika Shah. The original idea behind the business was an opportunity for Mrs Shah to work at home during her pregnancy. From humble beginnings, today the company might be crossing billion dollars in revenue. Their biggest customer now is Home Depot, with whom they are partnering to educate customers. They encourage and challenge their employees, vendors, and customers to do their part in helping reduce pollution, and reuse and recycle wherever possible. One example of this is the conversion from styrofoam packaging to recycled cardboard packaging. Styrofoam has been the industry standard for packaging and shipping natural stone tiles for many years. Thirty years ago, no one really understood its negative impact. Over the last two years, MS International has succeeded in converting over 95% of their stone tile suppliers from styrofoam to cardboard and in many cases, post consumer recycled cardboard. Similarly, they changed tile shipments from crates to pallets. They succeeded in converting over 90% of their suppliers to change from industry-standard wood crates to more environmentally palletized packaging. In the process, they were able to reduce wood usage by over 70% per pallet and increase the total square footage per pallet, thereby saving thousands of trees annually. All that value streaming is done by taking their customer’s customers perspective into consideration.
If the companies consider the end customer’s perspective, as a marketer or a distributor, they can teach their partners quite a lot. P&G is doing the same with Walmart, as is Unilever now.
Companies need to show them it is a winwin situation where both the consumers and companies can benefit. That is good marketing.
If sustainability is a marketing issue, what are the three must-dos for companies to address it?
First is to increase awareness and share what the company is doing in a positive manner. Second is changing people perceptions, or shaping expectations. Consumers come from diverse backgrounds and experiences. They bring to the market diversity. So there is a possibility of homogenizing their thought process, like a good movement. That is what Mahatma Gandhi did. He engaged with a diverse set of people from different walks of life. But he created a mission and a vision—of Independent India—and everybody rallied behind him. Any movement, when you analyze, is all about shaping the expectations of the masses.
In marketing, the benchmark is always about exceeding customer expectations. I have taken a contrarian view. I published a paper, A framework for managing customer expectations, in 1996. Customers have often ungodly expectations and they are in a state of denial.
And last but not least, marketing is not about just selling; it is also about after-sales delivery. There is an ongoing debate on whether marketing is a before thought or an afterthought. I strongly believe that you cannot create or manufacture a brand and neither can you buy at a market place. You have to earn it. This means you cannot market anything without cleaning your house—you have to put operational processes in place before you go outside. Consumers look for a certain outcome based on created expectations and you will need to deliver on those. These are the three components— awareness, shaping expectations, and then delivering on those expectations.
It is imperative to interweave the sustainability function with a business process, but a lot of companies fail to do it...
Since CSR is mandatory now, many companies take up the cause of environmental sustainability. But it is not part of what they do; it is more philanthropy, charity. The company may be a polluter and may spend the money because they are also damaging the environment. This line of thinking is no longer acceptable, the culture has to change. And in most cases, more than its people, a company’s processes and systems are the biggest bottlenecks. They need to think about creating environmentally sustainable infrastructure.
Most processes followed today were put in place when we did not have to worry about environmental issues. But with India and China adding about 2.5 billion people, it is going to create a lot of pressure. The environment does not need a visa to travel, it is a worldwide problem. We cannot live in a silo and think that what happens in Beijing will not affect us. We must remember that the tsunami that hit Japan brought debris to the shores of Alaska in North America too.
This is why I think the quality analogue is perfect for sustainability too. Quality was about internal process changes, which is why companies were able to raise the level of quality without increasing costs. With ‘quality movement’ and more innovations one could get additional top-line growth by replacing existing products with better quality ones. Sustainability will work much better if it takes the quality approach to change.
You say companies need to effectively engage with all their key stakeholders. Does this not make sustainability more difficult to achieve?
Definitely. But that is exactly what leadership is all about. If leadership is only about continuing what you do, then it is not leadership; it is management. Leadership is all about change and it is always going to be difficult. I believe managing just investors alone is not enough. Learn to manage countervailing forces—so it is not an either-or proposition. It is about taking tough decisions.
CEOs who can survive are not the ones who think about ‘either-or’ but ‘and’. And this is where two disciplines, which are anchors to businesses, are not very helpful. Engineering where we are asked to make tradeoffs—you can either have this or that. The other is economics, which believes that tradeoffs are inherent.
In the book you say sustainability flows from leadership. Is that the case?
This is especially the case in the US where there are not too many family-owned businesses. The CEO is actually the representative of the company and the responsibility lies with him. However, in the Indian context the flow is from the promoter. CEOs are hired professionals. It is actually the family that owns the company and the responsibility lies with them. In both contexts, change does not happen unless it is initiated from the top. ■
If leadership is only about continuing what you do, then it is not leadership; it is management.