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Enhancing brand value through sustainability
Consumer sentiment has been subdued in India. Perhaps for the first time, a fundamental energy resource constraint has driven a period of slow, volatile growth. Almost all sectors of consumption have experienced volatility and a decline in demand in the last 6 months. It appears difficult for our economy to recover without a credible national focus, among consumers and companies alike, about how India will sustain its long run energy (and resource) consumption.
In this context, a focus on sustainability has generated both supply and demand side opportunities for organisations to transform their strategy and develop new brand propositions or enhance existing touch-points between brands and target consumers. In 2013, some of the top Indian brands (ranked by Interbrand) have used sustainability initiatives as a mechanism for growing brand equity.
The growth of brand equity through sustainability manifests in several forms. Where sustainability is key touch-point for a brand, companies can:
• Target early and tap into the willingness of consumers to pay more for green products
• Spark a consumer's recognition of the overall value of a product
• Expand options available to consumers by providing traceability and transparency on what their product is composed of
Tapping into early adopters and willingness to pay more for green products
Interestingly and contrary to common perception, certain pockets of people in the emerging economies are expressing willingness to pay more for green products as indicated in Figures 2a and 2b. Hopefully some of these will also translate into 'early adopters' in countries such as India, China and Brazil. Perhaps this is borne from the consumer experiences in these countries where folks often pay a premium for products and services in face of shortages or to mitigate the risk of pollution and poor quality.
For companies operating in India, there is an opportunity to use green branding to recover costs of green design / operations, and potentially extend margins on products. The opportunity to target green consumers exists in all major product categories (food and beverage, high tech consumer durables, appliances, building materials). Through investment in green branding, an extra 1-2% margin or volume increase in fiercely competitive markets during an economic slowdown is still worth for some companies to consider.
Using brands to emphasize product value
Brands are designed not only to capture the value of products for consumers, but also to enable a dialogue with investors, employees and other stakeholders over what a company is worth and capable of. A sustainability related touch-point, therefore, can usher in a broader market transformation by shifting the conversation to the overall value a company provides through its products. Energy efficiency is one sector of sustainability where this has been tangibly demonstrated.
In many sectors, green products are synonymous with energy efficient products that enable a consumer to recover the premiums paid upfront over a lower usage cost over the lifetime. Cooling infrastructure (Residential ACs, Chillers, Refrigerators), motors, ceiling fans, TVs are energy intensive appliances. Of these, the reduction potential in energy demand (especially peak demand) can offer ongoing savings that are materially important for consumers and influence final purchasing decisions.
BEE standards and labeling programme targets a range of consumer products. Of these, the response of consumers to energy efficiency brands has been incredibly strong for refrigeration / cooling, white goods, and motor transport. Eco-brands have influenced people's purchasing decisions. In the case of washing machines, for example, while there is no meaningful on-going energy savings to the consumer, eco-branding has still influenced people's purchasing decisions as washing machines come under the purview of other household essentials such as fridges, ACs, and TVs for which an eco-brand has become important.
Using transparency and choice to drive consumer behavior
In a recent survey finding released by Underwriters Laboratories, the new-age Indians seem to be keen and more sensitive (as compared to typical global consumer) to understanding the process, material and source of various goods they consume.
Providing visibility into supply chains is a technique for product differentiation. Within a product set, increased visibility of what a product is composed of effectively expands the choices available to the consumer. The provision of extended choice and transparency over the same product set can influence purchasing decisions when 'open' brands are compared to their 'black box' counterparts.There is a well-recognized global trend where consumers are showing a preference for choosing sustainable, eco-friendly brands over products that are “me-too” in nature, and such demand is greatest in the food and beverage sector.
Review of the sustainability reports of leading Indian corporates (refer Fig. 4) reveals that strategies for long term resource sustainability are underway and are gaining momentum. The market has also begun to use carbon emissions as a basic universal metric for comparing the effectiveness of a range of these strategies across industries.
Supply chain visibility and resource management is required to help boost investor confidence, as investors of India-based companies are taking on unprecedented levels of business, market, FOREX, political and environmental risk. However, the lack of capital and increased cost of financing has constrained the ability of most corporates to invest in sustainability during the economic slowdown. Hence, any 're-thinking' in consumption will be incremental than transformational at present.
Undoubtedly, one can expect to see more corporates engaging their customers and investors in a dialogue around sustainable consumption and brand positioning will have a critical role to play. Companies can use green brands to emphasize a product's value, not just an upfront price, during purchasing decisions. The pressure for greening of consumption is only set to increase as consumers begin to demand more transparency, affordability and choice over the things that they consume.
Upendra Bhatt leads cKinetics, a specialised sustainability advisory firm working with investors and businesses.
Riddhi Gupta is a market analyst with Sustainability Outlook. For more information about this article, please contact the authors.
This article was first published in the October 2013 print edition of Sustainability Outlook
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