Transparency in The Supply Chain
In 2010, Harvard Business Review published this article on “The Transparent Supply Chain”, which discussed the evolution of consumer interest in product origins. It provided several key and instructive take-aways for companies seeking to start down the sustainability path. One in particular – transforming marketing – revealed the importance of integrating both marketing and supply chain strategies.
Credit: © Stockbakery | Dreamstime.com
In 2010, Harvard Business Review published this article on “The Transparent Supply Chain,” which discussed the evolution of consumer interest in product origins. It provided several significant and instructive takeaways for companies seeking to start down the sustainability path. One in particular – transforming marketing – revealed the importance of integrating both marketing and supply chain strategies. In the article, the author states that “tools to track provenance will become an important part of the marketing mix.” This new imperative is a huge opportunity for marketers to create new or improve existing brand value in the customer’s eyes. More importantly, it solidifies the significance and the broader scope that the entire value chain has when considering “Place" in the marketing mix.
In “Sustainability Marketing is Simply Just Marketing,” I discuss how most online literature on the topic of marketing sustainability primarily focuses on promotion. Yet, even the two articles I reference, each acknowledges the value of place in these efforts. In one commentary on the Sustainable Brands website, the author provides insight into the benefits to companies selling their sustainable products direct to customers online. At the same time, this article by Precision Marketing Group opines that manufacturers need to incorporate sustainability throughout the supply chain. The reality is that both pieces are correct. Where many companies fail is in recognizing the pivotal role marketing has in both scenarios.
Marketing’s Role with the Supply Chain
“Marketing supports supply chain agility and flexibility.”
Traditionally, marketing focused on selecting the best sales channels, which is evident to most businesses. What is more subtle is the significance of the supply chain in the marketing mix. As I have mentioned in an article on the importance of the marketing mix with branding, place is not just about distribution or reaching consumers. It also refers to the supply chain. Since companies make sourcing decisions during product development, product design must integrate sustainability requirements into specifications provided to suppliers. The result is a value chain that encompasses sustainability, beginning with raw materials, through incremental processing and manufacturing, as well as the delivery of finished goods to the customer.
The collaboration between marketing and supply chain managers is growing in importance. As Gerri Knilans states in Trade Press Services, “Marketing supports supply chain agility and flexibility.” It is marketing’s resources and knowledge – especially related to consumer demand - that allow for informed supply chain decisions. One of marketing’s primary functions is communication, as Knilans demonstrates, it plays a significant role in a well-functioning supply chain (See Image).
Brands with sustainable Value Chains
Both Patagonia and Prana provide excellent examples of the integration of marketing with sustainability and supply chain management. Patagonia is perhaps the leading company that incorporates place into their marketing mix. Their Footprint Stories provide narratives behind their sourcing decisions like this one discussing manufacturing of surf gear. Likewise, Prana also is heavily committed to its supply chain. With their Clothing for Positive Change movement, they work diligently to ensure that their suppliers share their values with an emphasis on respecting the planet and people through responsible practices. Both Patagonia and Prana exemplify the importance of place within their marketing mix. Furthermore, they commit their organizations to ensure that sustainability is at the foundation of their overall value chain.
“We have a responsibility to know where our products are coming from, what they are made of and the conditions of the places where they are made to ensure compliant, responsible conditions across the supply chain and safe products.”
Don’t forget the Value Chain
Marketing must be involved with supply chain management, and it is even more essential in creating sustainable products. The process begins with product development. Marketing ensures that product sustainability requirements included in product design and integrated into sourcing decisions. Marketing also can play a vital role in communicating throughout the value chain – keeping both the raw material producer and the customer aware of the company’s commitment to sustainability. Brands venturing on their sustainability journey need to consider that its sourcing decisions are a critical aspect of its value proposition. These strategic choices belong in the marketing mix. Ultimately, customers will want to know this information, and through transparency and marketing, they will better understand a brand’s value.
RELATED TOPICS ON MARKETING AND SUSTAINABILITY
Sustainable Brands Should Not Use Cost to Set Pricing
Companies deciding to venture towards a more eco-friendly model need to view the added cost of doing so not as an expense, but as added value — then communicate that to their customers. The marketing team makes that happen. By first incorporating the customer’s sustainability requirements into the product offerings, marketing then translates that added value into a monetary value the customer assigns to it, conveying it to them with a price they are willing to pay. Ultimately, their goal is to ensure that the price is neither too high nor too low.
Viewing Sustainability as Added Value
The Top Barriers to Buying Sustainable Brands
Price premium: Globally, consumers cite price premium as a leading barrier to buying sustainable products.
Lack of awareness and trust, and confusion about sustainability claims: Lack of awareness, as well as trust issues and confusion about claims, are also top deterrents.
Source: The Conference Board - Global Survey Asks 30,000+ Consumers About Views on Sustainability (Feb 2020)
According to a survey of consumer views on sustainability by the Conference Board, two factors hinder the purchasing of sustainable products: the price premium and lack of consumer awareness. This is probably not surprising to companies producing more sustainable products. At the same time, "NYU Stern’s Center for Sustainable Business performed a study in which they discovered that 50% of CPG growth from 2013 to 2018 came from sustainability-marketed products. This suggests that many customers are moving away from less eco-friendly products and “voting with their dollars — against unsustainable brands.” (Source: Research: Actually, Consumers Do Buy Sustainable Products).
What does this mean for companies pursuing a more sustainable business model?
First, existing brands should realize their customers need to understand the value being offered — is the price they are paying worth it? Therefore, pricing should be based on the brand or product’s value proposition - not cost.
“For a company like ours, pricing is largely driven by cost structure.”
There is no doubt that companies employing sustainability practices may realize higher costs due to their efforts. Sustainable packaging company — EcoEnclose — provides an interesting example of sustainability and pricing in which they explicitly state that cost structure drives their pricing.
Yet, further reading on that page reveals that the real basis for their pricing strategy is the value chain they provide their customers. As their website states: “EcoEnclose has made informed decisions we believe are essential to living out our commitment to sustainability and offering our customers value and transparency in the form of true eco-friendly packaging.” Specifically, they offer the following seven unique selling points:
They offer “Source Verified and Consistent Recycled Content.”
They have mastered the “Impact of Manufacturing with Recycled Content.”
“Where Items Are Manufactured” is in the United States.
Their “Size of Business and the Type of Operations” — independent nature and smaller size directly translate into increased customer service commitment.
They provide leadership on sustainable “Innovation and R&D”
Their products offer many “Features and Functionality”
“Your Brand and the Customer Experience” benefits from their packaging options serving as the first tangible impression a company will make on their customers.
Therefore, instead of treating these expenses as costs, they should view them as added value for their clients. Rather than explicitly stating why their prices are higher, they could emphasize their unique selling point derived from their sustainability choices. (which, perhaps is the intent of the page)
A simple syntax change – replacing “cost structure” with “value chain” could change EcoEnclose’s discussion.
EcoEnclose is a leading sustainable packaging supplier
Aligning pricing strategy with the unique value proposition of sustainability can help encourage customers into paying more for sustainable products.
Companies deciding to venture towards a more eco-friendly model need to view the added cost of doing so not as an expense but as added value — then communicate that to their customers. The marketing team makes that happen. By first incorporating the customer’s sustainability requirements into the product offerings, marketing then translates that added value into a monetary value the customer assigns to it, conveying it to them with a price they are willing to pay. Ultimately, their goal is to ensure that the price is neither too high nor too low.