Balancing affordability and sustainability to meet customer needs
What this means: In the quest for the retail industry to become more sustainable, the ultimate test is convincing consumers that sustainability is a higher value proposition that warrants higher prices. Value-oriented consumers have historically had fewer sustainable options available due to cost prohibition, but brands need to focus on ways to bring sustainable products into the mainstream. Creating sustainability at scale is key to making long-term positive impacts on the industry and encouraging consumer adoption and loyalty to sustainable items.
Sustainability continues to be an important factor when consumers decide which retailer or brands to shop, yet only 41% of consumers globally said they are willing to pay more for a product they believe to be sustainable, according to the Capgemini Research Institute’s What Matters To Today’s Consumer 2023 report. This marked a decrease compared to 2020, when 57% of consumers said they paid higher-than-average prices for products that they perceived as sustainable.
“Brands and retailers should re-evaluate their operations to optimize cost and consider alternative pricing strategies to provide affordable yet sustainable options to consumers,” Lindsey Mazza, global retail lead at Capgemini, told Retail Leader Pro. “Consumer loyalty is built when their needs are met during challenging times. Offering products that are both sustainable and affordable will support consumers during the current crisis while building customer loyalty in the long term.”
More than half (54%) of consumers globally say they value affordability over sustainability when making purchasing decisions. This trend remains constant across all age groups. With consumers concerned about their personal financial situations more, 46% of shoppers are still influenced by sustainability when making purchases.
In turn, Mazza expects consumer demand to grow not just for sustainable products, but also for products that encourage regeneration, such as locally grown organic produce.
“As consumer preferences shift in 2023, there’s an opportunity for retail businesses to reimagine their operational strategy to navigate the current economic climate and pass on price benefits to consumers,” she said. “Specifically, brands and retailers should balance affordability and sustainability to meet customer needs.”
Affordable sustainability
The majority of consumers globally (59%) also said that sustainable products need not be costlier than non-sustainable products, down from 72% in November 2021. Mazza said this is a call for brands and retailers to consider how to reposition products that consumers perceive to be sustainable. For example, whether products are set at a premium price because they are more expensive to produce or merely because they are considered sustainable, retailers should educate consumers on the benefits of sustainability and how shoppers are helping to make an impact with their purchases.
“Being very clear and transparent in promotions and communications on the activities brands and retailers are doing to drive sustainability will help customers accept a higher price in the shorter term,” Mazza said.
In addition, more than half (54%) of all consumers also mentioned they forgo purchasing organic products in favor of lower-priced non-organic products.
“In times of lower discretionary spending, consumers concerned with organic standards were focused on fruits and vegetables that contained the highest levels of pesticides, with specific standards for GMO in grains, and with animal conditions and feed in proteins,” Mazza said. “As more information on these individual conditions becomes available, organic becomes less an all-encompassing category and more one option among many.”
Sustainable products are not necessarily more expensive to produce. For instance, less waste in manufacturing and transportation means less wasted funding toward those business processes, which will lead to reduced CO2 emissions.
“Better demand planning means less cost in making, transporting and touching unsellable products which will also yield less food and product waste, meaning less items in landfills,” Mazza explained. “Using less plastics will mean spending less on buying plastic and less waste produced. I highly encourage organizations to evaluate the end-to-end life of a product from manufacturing through use in consumer homes.There are many opportunities to take costs out of the process that also produce sustainable results. These two factors together are the holy grail to meet consumer demand for affordable sustainability.”
Shifting demographics
Sustainability continues to be an important factor when purchasing products or deciding where to shop. As far as geographic locations, 64% of urban shoppers say that sustainability will be even more important to them in the future versus 57% for rural shoppers. As per Capgemini’s research, nearly half of millennials (49%) and consumers with children in their households (48%) said they’re willing to pay more for a product they believe to be sustainable, while only 34% of baby boomers say the same.
“As groups with greater awareness of environmental challenges and climate change age and welcome new members to their family, I believe they will continue to carry forward this awareness and engage with brands who meet or exceed environmental, fair trade and social justice standards,” Mazza said. “As the consumer base becomes more global and connected, awareness is likely to increase amongst all generations.”
Globally, consumers want sustainable products at an affordable price point, and they expect companies to help them during periods of economic uncertainty.
“Brands and retailers must make it easier on the consumer by reducing their costs and offering new and creative ways to provide both affordability and sustainability,” Mazza said.
What’s considered sustainable this year is shifting as well.
“The expected thinking from organizations is not just about sustainable products, but about products that are circular and regenerative,” Mazza added.
What’s next: As retailers look to keep up with quickly changing consumer demands, they are implementing sustainable practices in the supply chain to make items more cost effective and offset some of the higher prices with savings in manufacturing, transportation and distribution. Retailers and brands can’t afford to look at sustainability in silos, it has to be woven into the fabric of the organization and implemented wherever possible.