Is 'Low Cost at All Costs' the New Business Mantra? It Doesn't Have to Be.
Sustainability is a hot trend.
In fact, when asset manager BlackRock analyzed the stock market performance of 1,850 companies to track sustainability correlation, it found that the 20 percent of companies that made the biggest cuts to carbon intensity beat the market average by 6 percent. The 20 percent of companies with the lowest cuts to carbon footprint trailed the market by six percent.
It's important to note that the companies BlackRock analyzed are large, including mega-brands such as McDonald's, GM and Walmart. These companies are large enough and have enough power over supply chains, that they can make core sustainability changes to strategy without it impacting existing cost and pricing models.
And many of the companies analyzed in this research are only trying to reduce their negative impact or diversify their existing portfolio with sustainable or renewable alternatives. Often, the core products they sell are not environmentally friendly.
What does this mean for emerging, sustainable brands?
And the independent, sustainable business-to-business companies that are helping to green supply chains?
When new brands (often ecommerce) hit their first plateau in growth, it's a logical next step to expand sales by entering new channels -- online marketplaces and/or brick-and-mortar retailers.
Today, 50 percent of online product searches originate on Amazon and Walmart remains the nation's leading retailer, with $495.8 billion in revenue (2017 fiscal year) and U.S. sales reaching $318.5 billion.
When companies begin playing the Amazon and Big Box Retailer game, consumers are no longer propelled to the brand itself. Instead, they are experiencing the brand alongside core competitors. This setting limits a brand's ability to communicate its ethos and sustainability standards. Instead, factors such as price, product reviews, packaging and shelf space are the things consumers see first.
Pricing experts suggest that a differentiated company can price goods up to 20 percent higher than the category's average and still compete in a Big Box setting, gain a first page ranking or win the coveted "Buy Box" on Amazon.
But, small to mid-sized eco-friendly companies that move into wholesale or Amazon find that to compete, lowering their costs must become a key part of pricing strategy. These companies lack the scale to lower costs through negotiation, so rethinking the entire supply chain is often part of the equation. It's possible to keep one or two elements of the original eco-focused strategy to maintain a competitive differentiation, but sustainable brands often must cut corners on sustainability to reduce costs and pricing.
At this stage, companies also often take on outside investors to propel upward growth. Many investors also focus on cost cutting, with the hope of seeing an immediate bump to cash flow while positioning the companies to lower price points long-term.
What should companies with a strong commitment to sustainable practices do to grow and thrive?
Data uncovered by Nielsen in its 2015 Global Corporate Sustainability report showed that 66 percent of global consumers report a willingness to pay more for sustainable brands. So, how can green companies benefit from that data?
Based on our work with over 10,000 sustainable companies, ranging from the fastest growing eco-friendly brands to single person Etsy shops, we have four suggestions for how to overcome the pressures of the "low cost at all costs" mentality:
1. Commit to sustainability and innovation: Consider these questions:
- Is the brand strong enough yet to stand on its own, without hand-holding the customer experience?
- Will the core customer remain loyal if we cut corners on sustainability?
- Is rapid growth critical to the company's long-term viability?
If the answer to these questions is "no," lean into actionable sustainability and innovation, not into cost cutting.
- Explore new raw materials that amplify your positive impact.
- Launch a repair or exchange program that extends product longevity.
- Take the time to invest in PR and content development to promote and support these efforts.
2. Invest in social media and strategic partnerships: Many consumers lean on Amazon when searching for a new product, using customer reviews to influence purchasing decisions. But, those interested in making eco-minded decisions often look to close networks to guide product exploration. Instead of moving into mainstream channels, cutting your costs and narrowing your margin, keep your current channels while investing in marketing you can control through continued expansion of your social media presence, strategic partnerships with other brands and gaining support from influencers.
3. Avoid mainstream marketplaces and retailers, and find eco-focused ones instead: If the time is right for you to work with wholesalers, distributors and/or online marketplaces, work with those committed to promoting sustainable brands.4. If Amazon and Walmart are part of the plan, move forward with intention: If, and when, your company is ready to pursue mainstream sales channels, move forward with intention. Calculate the loaded costs of selling different products so you have full transparency of potential margins; don't position price points just to be in accordance with competitors. Consider selling just your top product to gain brand exposure without cutting into your margins across the board. With these channels, you don't own or interact with the customer, so consider re-packaging your product in a way that drives traffic to your social media feeds and website.