Consumers are increasingly willing to support their values through their purchases. Indicative of this trend, an IBM and National Retail Federation report released earlier this year indicated that “sustainability has reached a tipping point.”
Among the 19,000 consumers surveyed around the globe for the research, eight in 10 consider sustainability important. Further, 57 percent are open to changing their habits to be more environmentally friendly, while 71 percent would pay a premium for sustainable brands, at an average price difference of 35 percent.
“While millennials have been leading the charge, sustainability, environmental and/or personal wellness attributes are important considerations in selecting brands across every age group—Gen Z through baby boomers,” said Karl Heller, partner and Consumer Center of Competency Leader at IBM Services. “This is a clear mandate for retailers and brands to embrace sustainability as a key piece of their business operating model, from short- and long-term strategy planning to day-to-day operations.”
Sourcing Journal caught up with Heller to discuss how Covid may impact consumers’ shopping decisions and the business impact of better traceability.
SJ: Your report showed that a plurality of shoppers is purpose driven. What does that mean for retailers today, and how do you think recent events have impacted consumers’ thinking?
KH: Approximately 80 percent of consumers fell into one of two segments: Value-Driven Consumers (41 percent of total), who are primarily concerned with getting their money’s worth and select brands based on price and convenience; and Purpose-Driven Consumers (40 percent), who select brands based on how well they align with their personal values and who are willing to “walk the talk” when it comes to sustainability, changing their behavior and even paying more for brands that get it right.
These segments were quite pervasive, spanning all age groups and income segments (middle-income and above). And while there were some regional differences, there was strong presence of Purpose-Driven Consumers everywhere. As interesting as the consumer groupings are overall, it’s also notable how the degree of importance changes when it comes to each product category. For example, when shopping for apparel, only 35 percent of consumers are purpose-driven. However, 44 percent of consumers are purpose-driven when shopping for food, showing that consumers are more conscientious of what they put in their bodies than what they put on them.
It’s still too soon to know the extent that Covid-19 will fundamentally change consumers’ mindset toward different brands or products. However, it’s certainly impacted shopping and buying behaviors, some of which will form into long-lasting habits. And for consumers whose personal or family economies have been impacted, they have likely become more value-driven as they have to take care of their basic needs before they can re-focus on the psychological or self-fulfillment.
SJ: Consumers say they’re willing to pay more for environmentally friendly products but to do so, they have to know about them. How should retailers be marketing their sustainability efforts? What are they getting wrong now?
KH: Consumers do more than just check the list of ingredients on a label. They want details about sourcing, how products are made or processed, as well as how they are delivered. Nearly three-fourths of consumers indicate that traceability of products is important to them. And among those who say it’s very important, 71 percent are willing to pay a premium for the ability to trace products.
Traceability and transparency of how and where products are sourced, made and moved will become a critical capability for retailers and brands over the next five years. This is both to meet consumer demands, and also for the operational gains that come with having real-time knowledge across the entire ecosystem.
IBM has been working with the world’s leading retailers and brands to take advantage of the opportunities that come with better traceability…This work takes time as it requires multiple parties, all of whom have different operational and technical capabilities, and some of whom still don’t see the benefits of sharing data across trusted partners. Retailers aren’t necessarily getting anything wrong, but some have still not convinced themselves that this is the right approach and that the capabilities exist. The companies who are moving now to build these networks will be in a position to set the terms for global trade, monetize the benefits from end-to-end traceability, and improve their brand positioning with consumers.
SJ: As consumers are getting more savvy around sustainability, how is the way they’re rating and judging retailers changing?
KH: Consumers have always employed whatever tools they have at their disposal to judge and rate the retailers they shop and the products they buy. Today, they have many more tools at their disposal with which to rate, and their collective voice has never been louder. Nearly eight in 10 consumers conduct extensive research prior to making a purchase, and consumer ratings are generally considered to be among the most trustworthy sources of information.
As consumers increasingly align themselves with brands that align with their personal values and beliefs, and sustainability becomes a more important aspect of purchase decisions, these needs will only increase.
Eighty-four percent of consumers say brand trust is important—in other words, consumers are using brands as a proxy for the attributes they seek. So it’s vital that retailers and brands pay attention to what consumers are saying about them.
SJ: From our surveys, we’ve found that retailers and brands are seen as the leaders when it comes to sustainability. What steps can they take to influence the rest of the supply chain?
KH: Retailers and brands are generally the “face” of products to consumers. As such, they must take the lead in re-positioning the industry toward sustainability. Further, given the margin structure and profit pools across the apparel supply chain—and many others—retailers and brands have the most to gain.
However, business networks grow only if there are shared benefits across the ecosystem. Our experience building blockchain-based platforms has proven this out. The Farmer Connect platform is a perfect example of this. Consumers can use the Thank My Farmer app to scan a QR code on a package of coffee to access the story behind the product, and further, to donate directly to sustainability projects in the farmers’ communities and, soon, to the actual producers that grew the raw goods.
For consumers, sustainability has hit a tipping point. Reaching critical mass in operationalizing sustainability across a given ecosystem will happen when every participant can understand and embrace the value—tangible and intangible—that they will realize from participating.
An excerpt of this interview appears in the Sourcing Summit companion report, R/Evolution. Click here to read more about how the industry can position for post-pandemic success from thought leaders from Lectra, Suuchi, Tommy Bahama, Accenture and more.