Is Sustainable Marketing the Route to the Boardroom?

The current economic model is unsustainable in the long term.

This is because it is predicated on maximising shareholder value, resulting in a redistribution of wealth towards the owners of commercial resources and the externalisation of many of the costs associated with their operations.

There are signs that this is changing as businesses increasingly recognise the relative importance of intellectual capital, and now the concept of customer capital is starting to gain currency. The presumption of shareholder supremacy is beginning to be called into question, and there is increasing pressure for equitable returns to all stakeholders to become the norm in an age of increasing transparency.

The publication last March of the UN-sponsored Millennium Ecosystem Analysis (MEA) leaves us in no doubt that the earth is poised on the brink. Compiled by more than 1,300 leading scientists over a four-year period, it confirms all our worst fears and calls for urgent action before we reach the point where the damage to our environment becomes irreversible.

As the key driver of economic growth, marketing is ideally placed to respond to this challenge and reposition itself as a driver of responsible growth. In other words, marketers should be looking for ways of creating new wealth while at the same time reducing their operation's impact on the planet's systems.

More than ever, this calls for joined-up thinking from the marketing profession. Product development, for example, can no longer take place in a vacuum. It is not good enough to use innovation to drive up profits at the expense of other stakeholders and society in general.

NIKE: CORPORATIONS UNDER FIRE

Let's take a look at the experiences of Nike. As market leader in its sector it was a prime target when the anti-globalisation lobby wanted to focus attention on the sporting goods industry. For some years the business suffered as protesters campaigned for consumers to boycott the brand on the basis of the violation of human rights and use of child labour in some Far Eastern factories

Now Nike founder Phil Knight is fighting back and leading the sector's efforts to clean up its act. In stepping back from his CEO role earlier this year, he appointed Bill Perez to succeed him, based largely on his record of promoting corporate responsibility. Their corporate responsibility report for 2004 set new standards of transparency by disclosing details of the compliance procedures put in place for all 731 of the factories it uses globally. The aim is 'to build trust and enable stakeholders to judge us not on perception, but fact. Transparency is an essential tool in this process,' says the company.

Contrast this with the fortunes of Shell in the PR wars. Following the Brent Spar debacle and the alleged involvement in the Ken Saro Wiwa affair in the 1990s there was an urgent need for a change in approach. Shell ultimately responded by head-hunting Raoul Pinnell to oversee its branding and image. However, changing the culture of such a vast organisation is proving a much more difficult task and it continues to be blighted by new revelations. One delegate at a Business in the Community conference this year even went so far as to characterise it as a culture of 'corporate mendacity'.

Clearly, then, this issue goes a lot deeper than brand image. For marketing to make a significant difference it needs real influence at board level and, as highlighted by the Shell example, the biggest challenge often lies within the organisation itself.

REPUTATION: THE VITAL LINK

Marketers understand only too well the strong link between corporate reputation and customer trust, which in turn feeds through into brand strength and drives the valuation of the business. That is why it is important for marketing to grasp the nettle and include CSR and other sustainability issues within its remit. Then it can leverage the corporate responsibility agenda throughout the organisation by means of a concerted internal marketing programme, to build brand and corporate reputation from the inside out.

A Chartered Institute of Marketing research report, Paradox in Marketing, highlighted that marketers were strongly driven to act in a more ethical and sustainable way. What was stopping them from doing so was the belief that they had a commercial obligation to generate maximum short-term profits and did not consider that top management would expect them to deliver on non-financial returns, the implications for corporate reputation notwithstanding. This perception – and its tacit acceptance by the profession – of marketing as a tactical rather than strategic activity, is entirely consistent with its lack of representation at board level.

This situation could well be set to change. For example, at last February's World Economic Forum in

Davos, the annual meeting of the most influential international business leaders – not generally noted for their altruism – selected as the top three agenda items poverty, equitable globalisation and climate change.

The dual effects of the MEA and other research creating pressure for legislation, together with a realisation by business that its reputation will rest on its actions is likely to lead to a change in the way corporations operate.

SUSTAINABILITY WILL BE DEMAND DRIVEN

This phenomenon is also being driven by consumers who are increasingly demanding to know about the ethics of the companies and brands they buy into. According to Mori, 82% of consumers want companies to make more effort to show in what social, environmental and fairtrade activities they are engaged. Indeed, Fairtrade has also become big business, with the UK market expanding at more than 40% year on year to the point where it is now the leading Fairtrade market in the world, accounting for 25% of total global demand for the mark.

So there is increasing pressure from consumers for marketers to introduce products and processes to embrace the sustainable future. And now the government has waded in by adding the weight of its procurement policies, and will in future be scrutinising the ability of suppliers to meet the required ethical, social and environmental standards.

There is also a growing realisation among retailers and big consumer brands of the increasing influence of a small but significant number of consumer activists. As Nike found, this vociferous minority has the power to sway opinion, adversely affecting sales and profits. The IMD Forum for Corporate Sustainability Management's research revealed that 60% of businesses had experienced attacks on their brands' reputation.

Major brands are therefore responding by pushing these issues back up the supply chain.

For B2B companies in particular, these and many of the other factors already discussed will result in businesses finding themselves marginalised in their markets if they do not get up to speed, as business customers increasingly insist on sustainable credentials.

So, the drive towards sustainable business is coming from the demand side. It is therefore very much a marketing issue, and as such represents a real opportunity for marketers to take a lead in building the sustainable future.

But what does all this mean for marketers on a practical level?

For it to deliver maximum returns a holistic approach is essential and sustainability needs to be adopted as a fundamental principle of the organisation. Even without this, many of the concepts below will make a significant contribution to improving a company's reputation and will therefore have a positive impact on marketing effectiveness. However, potential PR benefits may well be lost as bolt-on ethics and sustainability will tend to be transparent to the consumer.

PRODUCT LIFETIME COSTS

It is second nature for marketers to think in terms of customer lifetime value, but increasingly they will be expected to look at the lifetime environmental and social costs of their products and services.

This will become very real for electrical goods companies when the WEEE (Waste Electrical Electronic and Equipment) Directive finally comes into effect in 2006, forcing companies to take back the goods they have produced at the end of their working lives and recycle or dispose of them.

It is also important to be aware that product lifetime starts the moment raw materials are produced. How and where are they produced? Is it done using fair labour practices? How is it transported, is this the best way to minimise pollution, has a valuable natural habitat been damaged in its production or transportation?

It also extends to the point of disposal/dismantling/recycling. This has important implications for design. Can all components be recycled (and made from recycled rather than virgin material where possible)? If not, are there alternative recyclable materials?

Mercedes cars are now made with a minimum recyclability of 85%. But consideration should also be given to how fuel efficient the car is and how much pollution it will generate. Also, how much effort is being put into alternative fuel technologies?

Design can also have an influence on production. How much energy is consumed in the manufacturing process and are there ways of redesigning the product to make manufacture more energy efficient? Can a renewable source of energy be used?

And it's not only the product that needs to be considered. What about packaging? Ethical retailer Body Shop is currently offering gift sets, but half the packaging is superfluous. What sort of message does that send out to its ethically aware customer base?

WHAT IS A SUSTAINABLE PRICE?

Sustainability can lead to increased profit. This does not mean that margins can simply be increased on the premise that customers will be glad to pay the extra as they are getting an ethical product. Margins may be expected to improve in the longer term as reputation grows, but significant damage can be done if there is perceived to be an unfair relationship between costs and price.

For example, some retailers view organic as a great opportunity for premium pricing. While consumers are still prepared to buy, there is growing resentment with some supermarkets that treat it as an opportunity to push margins. They do so at the risk of long-term damage to their brands.

Likewise, petrol companies rush to raise pump prices when the price of crude increases, but tend to be tardier when prices fall. New research carried out by pricing consultancy Sans Prix in association with Managing Change (www.ethicalpricing.info) highlights this as being one of the biggest perceived ethical pricing issues.

And what about everyday low pricing? In their headlong rush to compete on price, supermarkets and other retailers have driven real-terms prices down to previously unheard levels. But these price wars are not consumer driven and are more frequently the result of retailers using their buying power to squeeze suppliers in their quest for market share. Sainsbury's is currently grappling with this issue and is coming under pressure from the small firms lobby group, the Forum for Private Business.

Remember that suppliers also need to be paid on time and in accordance with their contracts. Marketing is rarely consulted when procurement or finance decides to squeeze an extra 14 days out of their suppliers, and yet it can result in considerable damage to the brand if it leads to interruptions to the supply chain and consequent stock-outs and empty shelves.

PLACE: HOW TO MAKE DISTRIBUTION SUSTAINABLE

Distance to consumer – as epitomised by food miles – is now becoming an issue as awareness grows of the vast distances from the point of production. Some retailers, such as Somerfield, are responding by promoting an expanded range of local produce.

There can be other advantages to reducing distance from factory to store in terms of the improved response times that can be obtained. Fashion retailers such as Zara and H&M have increased their sourcing from Europe in a bid to shorten lead times. It also means reduced waste as products are less prone to being over-ordered and this has a positive impact on margins as well as the environment.

Given the rhetoric about sustainability, how much longer will government continue to sanction further expansion of edge-of-town retail developments? It is currently becoming increasingly difficult to shop without a car. According to DEFRA, in 2004 the average consumer travelled 898 miles to do grocery shopping.

In many ways, the ideal solution is to shop from home. However, this presents a dilemma as shopping is actually an important social activity, especially for older people who may live alone, for whom it represents an opportunity for social interaction.

It is probable that a return to the old paradigm of communal shopping areas within easy reach of most centres of population is something that will increasingly be considered in future civic planning.

PROMOTION: THE MARKETER'S DILEMMA

This is a very difficult area for marketing. Are we creating demand for products that are not really necessary, other than to benefit our shareholders? Or do our products positively enrich the lives of our customers?

Given the need to communicate product or service benefits, it should be done in the most environmentally friendly way possible. The more targeted the better, both in terms of maximising response and minimising waste.

For example, many companies continue to send prospects direct mail even where they may have registered a preference for email communications. Reducing print runs and the carbon emissions associated with unnecessary distribution ought to make sense all round.

Consideration also needs to be given to print. Is it on recycled paper or stock sourced from sustainable forests? Are vegetable-based inks used? And what chemicals are used to clean the presses?

Conferences and exhibitions are another area notorious for waste. It is common practice for contractors to send everything to landfill once an exhibition has finished. Fortunately, there is a growing number of sustainable exhibition contractors who are finding it is no more costly to do things better – it just takes a little more thought and ingenuity at the planning stage.

FOOD FOR THOUGHT

This article is intended merely to give an insight into the kind of thinking that needs to be deployed to make sustainable issues central both to marketing and to business, and to use them to drive longterm profitability.

But having the right questions is the key that will ultimately lead to the best possible solutions.

There is likely to be unprecedented change in the way business is conducted as the twenty-first century unfolds; marketing has the necessary culture of innovation and creativity to lead that change and really make marketing matter in the boardroom.

This article featured in Market Leader, Winter 2005.