by: David Wigder
“We will not be measured by our aspirations. We will be measured by our actions”
– Wal-Mart CEO Lee Scott in making sustainability part of his core strategy
Great brands today understand that return on investment (ROI) using hard dollars is not sufficient to assess the overall impact of environmental initiatives. Today, social norms regarding the environment are changing and consumers are increasingly holding brands accountable for what they do (and don’t do) rather than just what they say. As a result, more and more companies are making investment decisions that incorporate brand impact and brand risk into their equations.
Wikipedia defines brand as the “embodiment of all information connected to [a] product and serves to create associations and expectations around it.” Though intangible, a brand may generate significant value for a company based on its ability to create differentiated experiences for consumers – and enable the company to generate and sustain future cash flows as a result.
One way to view a brand is that it can enable companies to charge a premium for what may ordinarily be perceived as a commodity product. Take for example Coke Cola, the #1 brand based on the 2007 BusinessWeek/Interbrand survey. According to the Brand Finance 250 annual report, Coke has the highest brand value – over $43 billion or nearly 40% of its total $110 billion enterprise value – in a highly competitive beverage market.
While taste is indeed an important differentiator, Coke is able to charge a premium for its products – and generate significant brand value – primarily due to the strong brand loyalty of its customers.
Increasingly, leading brand companies are recognizing that environmental issues have the potential to impact brand value – positively or negatively – and are taking action. Coke clearly understands this and is aggressively responding with bold initiatives that are intent on shoring up its green credentials.
For example, consumers today are less willing to accept that a plastic bottle will take 1,000 years to decompose in a landfill. By proactively redesigning its bottle to reduce material use and pledging to recycle 100% of bottles sold in the US, Coke is clearly taking action to stay ahead of consumer brand expectations – and by doing so, defending (or perhaps enhancing) its brand value.
Does reduced material use lower production costs for Coke? Absolutely. Does committing to recycling 100% of its bottles help attract new customers? Not necessarily. Regardless, recycling bottles impacts its brand value – and ability to continue to sustain future cash flows – by strengthening connections with existing customers and mitigating potential risk to its corporate reputation as a result of negative PR.
Today, many leading brands like Coke are responding to consumer concerns about the environment by making investments that strengthen or shore up brand value. Marketing Green believes that there are five actions that define green brand leaders. These five actions need to be considered by companies looking to green their brands:
Be accountable. Companies should acknowledge that environmental issues such as climate change are real and that, despite good intentions, they are part of the problem (and can be part of the solution). At this point, businesses are likely to alienate few consumers with such a statement and can begin to attract the growing group of consumers looking for green brand leadership.
Additionally, businesses should audit their own operations and the lifecycle of their products – including sourcing, use and disposal – to determine their environmental impact and track these metrics over time. Indeed accountability, now considered one of the top pillars of successful marketing communications, cannot be underestimated when it comes to the environmental space.
Consumers are becoming increasingly savvy and increasingly demanding when it comes to the environment. Companies should not be shy in setting high goals for themselves when it comes to the environment; if there’s any time to admit the future needs to be different than the past, it’s now.
Be transparent. More and more, leading brands are providing public disclosures of their environmental and social impact. Today, in fact, 43 of the top 100 brands – including 12 of the top 15 – make public disclosures based on sustainability guidelines set by the Global Reporting Initiative.
This reporting framework – first proposed by Boston-based non-profit CERES, endorsed by the United Nations Environmental Programme and supported by a consortium of leading brands including Alcan, BP, Ford, GM, Microsoft, RBC Financial and Shell – has become the de facto standard for environmental and social reporting globally. Currently, more than 1,250 companies in over 60 countries are making disclosures using this framework.
Another way that companies are demonstrating transparency is through partnerships with non-governmental organizations (NGOs) such as the National Resource Defense Council and Environmental Defense (ED). NGOs provide credibility for a company because consumers view them as industry watch dogs.
Certainly, one of the best partnership examples is the one forged between Wal-Mart and ED to make Wal-Mart’s operations and supply chain more sustainable. In effect, Wal-Mart – not ranked in the BusinessWeek/Interbrand survey because it operates internationally under different brand names – has turned to a respected NGO to endorse its environmental efforts.
This partnership hold such promise that ED announced last year that it was adding a staff position in Bentonville, AR in order to coordinate ongoing work with the retail giant.
Be credible. Today, consumers are skeptical; too many companies have tried to green wash hollow environmental efforts. As such, companies must work hard to build credibility and earn consumer trust over time.
One way for a company to do so is to first green its internal operations, followed by its products and services, and then its marketing communications. This way, companies ensure that they take responsibility for their own actions before encouraging consumers to do so with their products or through their messaging.
But this is not the only way to gain credibility with consumers. Companies like Toyota (# 6 ranked brand) started by greening its products (eg, hybrids) first. The risk for a company, however, is that over time its own product enthusiasts are likely to challenge how the product is made. In the case of Toyota, hybrid owners are now pressuring it to green its operations and manufacturing facilities and Toyota is taking action, according to Marjorie Schussel, National Manager of Corporate Communications, at the recent Green Conference sponsored by Ad Age.
In contrast, Dell (#31 ranked brand, in contrast to #3 IBM and Dell archrival #12 ranked HP) started with its marketing communications first, declaring that it was going to be the greenest IT company on earth. In doing so, it essentially admitted that its operations and products were not green yet but that it had every intention to make them green over time. To help facilitate this transformation, Dell created a site called IdeaStorm to solicit input from its customers on ways by which it could go green.
Be an enabler. Leading brands should recognize that consumer expectations have changed. It is not enough for a company to green its products; consumers expect the products that they purchase to help reduce the environmental impact in their own lives too.
Recent research by Umbria, a marketing intelligence company, supports this. Averill Doering, a consumer research analyst with Umbria, made the following observation: “[Consumers] see the [environmental] problem. They want to do something about it. And, they want the companies they buy from to help them do it.”
Such consumer expectations raise the bar and imply that consumers may hold companies responsible for the environmental impact of the products that they buy – across the entire lifecycle. Consumers may increasingly care not just about product sourcing, but about its use and disposal too. The emergence of eco-labels may serve to reinforce these consumer expectations as they will provide consumers with the necessary information to make greener choices by comparison shopping.
Leading brands only need to witness the growth in hybrid sales – 49% during the first seven months of 2007 over the same period in 2006 – to recognize that consumers are actively seeking products that enable them to be greener. Today, every major automobile company is following suit and is accelerating development and commercialization of greener automobiles.
Be visionary. Visionaries are willing to make bold decisions that redefine their strategy or reshape industry dynamics. Today, there are many emerging green visionaries. Among them is Wal-Mart.
In June of 2004, a pivotal meeting took place between CEO Lee Scott, Rob Walton, Board member and son of the late founder, and Peter Seligmann, Co-founder and CEO of Conservation International. Walton and Seligmann were friends and had often discussed the potential impact that Wal-Mart could have as the largest global retailer if it were to change the way it did business.
The pitch to Scott: Wal-Mart had long been criticized for its labor practices, employee health benefits and environmental record. Given its buying power as the world’s largest retailer, Wal-Mart was in a unique position to affect change in the retail space and do so in a way that would greatly reduce its impact on the environment while saving money, growing revenue and positively impacting its brand image.
Over time, Scott has essentially turned this pitch into Wal-Mart’s modus operandi. Not only did Scott set ambitious goals regarding sustainability – 100% renewable energy, zero waste, products that sustain our resources and environment – but he has made it a central component of his strategy and brand positioning.
Wal-Mart first demonstrated the demand for more sustainable products when it began selling organic cotton yoga outfits through Sam’s Club: 190K sold in less than 10 weeks. This year, Wal-Mart challenged itself to sell 100MM compact fluorescent light bulbs (CFLs) and has already surpassed that goal. To do so, it combined its marketing muscle to heavily advertise the CFLs in its stores, and purchasing clout to be able to drive down the cost substantially over just one year ago.
Moreover, Wal-Mart is intent on making its suppliers more sustainable. Earlier this year, Wal-Mart launched Sustainability 360º, a program intended to enlist its employees, suppliers, customers and local communities to help reduce environmental impact. This month Scott hosted a Sustainability Summit to connect Wal-Mart suppliers with vendors that could help them become more sustainable.
Finally, Wal-Mart has expanded its brand positioning to include not just its long time low cost promise, but also “affordable, sustainable products that help [customers] live better every day.” “Save Money. Live Better” is now the Wal-Mart tag line.
Increasingly, companies recognize that environmental issues can impact brand value. In response, leading brands are increasingly incorporating brand metrics into their evaluation criteria for green investments; they are also taking action to green their operations, products and marketing communications.
Smart brand marketers should think twice about simply focusing on near-term green revenue and cost savings opportunities; the path for sustaining growth needs to also start with greening the brand.