Drive Profit Through Sustainability

While some might argue that one of these strategies is better than the other, that may not always be the case. We propose that these “uncertainties” can be summarized into two main challenges:

1.    There are many different definitions of sustainability. Which one should packaging companies focus on?

2.     Is there really a willingness to pay for these potentially costlier or more complicated sustainable packaging products?

Definitions of sustainability
In a recent Simon-Kucher study, consumers were asked a series of questions focused on the sustainability attributes of water bottles with the aim of identifying:

1.     How consumers define sustainability

2.     What matters during the purchasing decision

3.     Consumers’ willingness to pay for sustainable food and beverage packaging

The study focused on consumers who had actually purchased water bottles and covered a range of demographics such as age, education, income, household size, and 2016 political region.

There is a variety of nomenclature surrounding the topic of sustainability, and consumers are more focused on certain definitions than others. When asked in a study on water bottle packaging to select the words or phrases most aligned with their definition of sustainability, “Renewable,” “Energy Efficient,” and “Long-Term” were selected by the majority of respondents.

In the same study, consumers were asked to rank the packaging attributes they valued highly. Interestingly, consumers tended to choose attributes that would allow the consumer to play a role in the sustainable “action” taking place (see Figure 2). Recyclable, biodegradable, recycled materials, and reusable ranked the highest, while water efficient, energy efficient, bioplastic, minimal packaging, and eco-label certifications materials ranked much lower.

This makes a lot of sense when you look at consumers’ greatest concerns surrounding the level of sustainability of the products they buy. When asked why they would not use a certain channel for information (after being asked which channels they would use), “bias” ranked highest in almost all major categories that could be influenced by a business owner: social media, product labeling, general marketing, and corporate websites. Social media was the only category in which “bias” wasn’t the top-rated issue, beaten only by “inaccuracy.”

Because the involvement of sustainability in everyday business is a relatively new concept, many consumers are as confused as businesses about what it means for something to be truly “sustainable.” Is it being water efficient or using more sustainable shipping methods? How can companies be trusted that they are truthful in their claims? At this stage in the movement, companies should focus on how to involve their customers in the process. In doing so, they will remove concerns that their sustainability efforts could be just for show. This is where the opportunity lies for paper and packaging companies. In order for a consumer to feel that a package is truly sustainable, they need to be the ones either recycling or composting it, and paper and packaging companies need to facilitate this for the consumer through their offering.

Obviously, being a sustainably-minded company isn’t that simple. A company can’t claim sustainable practices and lay all of the responsibility on the consumer. This strategy certainly won’t age well as sustainability is one of the largest issues in our world today, and companies’ and consumers’ knowledge of the finer details of sustainable practices continues to grow. However, this is the best way to communicate to the consumer that your product is sustainable and make them feel good about it.

Where does value become willingness to pay?

We’ve discussed that consumers are more interested in certain types of sustainable practices than others, but the real question is to what extent that interest translates into dollars. This can only be reviewed in conjunction with another equally important topic: customer segmentation.

Figure 3In the same water bottle study, we found that, unsurprisingly, certain segments of the market are more willing to pay for sustainable attributes than others (see Figure 3). Respondents younger than 55 years old would generally pay $2 more for a “sustainable” water bottle than those over 55.

Figure 4When segmenting respondents by education levels, we also found differentiation in willingness-to-pay. Those in the category of “High Education,” with a Master’s degree or higher, had about $1 higher willingness-to-pay for a sustainable water bottle (see Figure 4).

Figure 5When income level and age were combined, there were some interesting findings as well (see Figure 5). Young and middle-aged regular earners (less than $100k) as well as middle-aged high-income earners (greater than $100k) had the highest willingness-to-pay by approximately $1 to $2. Consistent with the above, older respondents (55+) had the lowest willingness-to-pay overall.

Although sustainability is a rising trend, and almost every consumer is at least familiar with the concept, not all are willing to pay for it. As a paper and packaging company, it is important to ask yourself who your customers and your customer’s customers are. Only in certain segments do concerns for sustainability translate into willingness-to-pay and therefore make it to the bottom line.

In summary, there three key priorities your company should consider when deciding when and how to incorporate sustainability into the packaging strategy:

1.     Focus on involving the consumer in the sustainability process as much as possible.

2.     Know your customers, and their customers, to identify segments that care about sustainability.

3.     Capitalize on the added value to your products and adjust prices according to your customers’ willingness-to-pay.

This article was contributed by consulting firm Simon-Kucher & Partners and was written by William Humsi, Partner, Dylan Vest, Manager, and Rosemary Schatz, Consultant, for the company.