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Module 14: Market Barriers and Business Risks

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Business Risks of Sustainability Marketing

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Market Barriers and Business Risks

Business Risks of Sustainability Marketing

Sustainable Marketing Risks

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:


Market risks

Operating risks

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







Universal Appeal

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.




Limited Impact of Sustainability as a Benefit

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.



Personal and Societal Benefits for Sustainable Products

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.



Niche Marketers

Initial attempts to use sustainability as a key marketing benefit have demonstrated the nascent appeal.

Niche businesses 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.





Green Benefit at the Expense of Other Benefits

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.



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:

Loss in profitability

Loss of focus



Sustainability for Employees

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 believe that they can drive business improvement via a competitive advantage.


Potential Loss of Profitability

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.



Loss of Focus

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:

Negative greenwashing image

Magnified negative impact of an inconsistent action



Greenwashing

Greenwashing 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.



Genuineness

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.



Maintaining Consistency and Effective Execution

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.



Success

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.





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