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

The Smart Manager - - Contents - JAGDISH SHETH IS CHARLES H KELLSTADT PRO­FES­SOR OF MAR­KET­ING AT THE GOIZUETA BUSI­NESS SCHOOL OF EMORY UNIVER­SITY.

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.

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