Sustainable Brands Should Not Use Cost to Set Pricing
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.