Sunday, November 15, 2009

The Imperative of Sustainable Marketing

Dr. Sanjeeb Kakoty ,Varshik Nimmagadda, Kaushik Subramanian, Pranab Talukdar| IIMS

“The struggle to save the global environment is in one way much more difficult than the struggle to vanquish Hitler, for this time the war is with ourselves. We are the enemy, just as we have only ourselves as allies.”~ Al Gore Majority of the corporate world is still in the dark about the actual practicality of sustainable business. This article questions the very rationale of development and delves into the world of sustainable business practices with the help of case studies of actual corporations that are changing the way businesses around the world operate.

Whenever I think of the concept of sustainability in marketing, my mind wanders back to a train journey I had undertaken as a young undergraduate. As I sat down and the train began to pull out of the station, an elderly dhoti clad person, sitting next to me picked up a conversation. He came to Shillong as a thirteen year old. He painted for me the picture of Shillong in 1945, with vivid and vibrant strokes of color. His first job was a salary of Rs 8/- a month. He kept on narrating how hard he worked to accumulate his first hundred rupees that became the seed capital to start his own business and also about the achievement of becoming the proud owner of five shops and figuring among the top businessmen of Shillong at the age of 82. Within a space of a train journey he had given me his entire life story and as we neared Guwahati, he suddenly became quiet and thoughtful. Suddenly, he started talking again. He said “Beta, those days are gone”. Talking of profit margins he said “In my days the philosophy was to eat little so that there will be enough to eat everyday! But now days, the idea seems to be to eat as much as you can today and forget about tomorrow!” He proudly spoke of his Spartan lifestyle. He spoke of his hurt when he sees the new generation squandering away the gains made by decades of toil and sweat. He concluded that the “end was near!”
Fast forward to 2009, I find myself teaching sustainability at IIM Shillong. I talk of concepts in sustainable development, of strategic planning, of supply chain management, of integrated marketing communication. But in the end everything boils down to the question: Is it sustainable? I am brought back to the basic argument put forward by my co-passenger on that train, decades ago. That business is not merely about maximizing profits, but ensuring that those profits keep coming in for all times. Was the old man, who had not even attended high school, suggesting sustainable marketing?

The innate logic of his words taunts me. Is it not ironic that a man, who had not passed high school, had practiced what the most educated find hard to accept? That sustainability is no longer an option but the only way forward. That CSR is no longer Corporate Social Responsibility but Corporate Sustainable Responsibility! That the concept of Triple Bottom Line is not a quirk in accounting, but a fundamental tool to ensure sustainable business. That growth rates and GDP’s are not interchangeable with the term development. Incredibly, in the current scheme of things, if one walks instead of using the vehicle, or decides to open a window instead of turning on the air conditioner, his contribution to the GDP is zero! This makes it apparent that development cannot be measured only in terms of growth rates but one has to include parameters of human development as well as the human happiness index.
One might argue that “the business of business is business”. Hence, the purpose of a B school is to teach and train people to become successful business leaders. Their concern should be about bottom lines and balance sheets. Period!
But what about the contention that “the sustainability of business is sustainability”! If this is acceptable, then businesses cannot rest content by keeping an eye on the quarterly returns alone. Long term sustainability has to be factored in too. While doing so, it may be pertinent to keep in mind that sustainability is not merely “going green”. It is more about realizing the fact that resources of the world are finite and scarce, and best business practice demands that these resources be used judiciously and in a manner that allows its regeneration through the natural process.
But this is easier said than done. Ever since the Industrial Revolution, mankind has embarked on a journey that sought to CONQUER NATURE. By this, everything that mother nature offered , be it plants or animals, minerals or water, mountains or seas, all was sought to be subjugated, used, exploited and controlled for the use of man. This philosophy of the conquest of nature provided the justification for the man’s eternal quest to maximize the exploitation of nature. That this philosophy stood in sharp contrast to the ancient wisdom of the orient, that man is a part of nature and that mankind has no option but to live in harmony with the natural world, did not seem to bother anyone. But come the 21st century, mankind is faced with an unprecedented predicament. Human population is at an all time high. Food productions have largely stagnated. The gap between the affluent and the poor have never been so wider. The prevailing political system seems both unwilling and unable to
addresses these issues head on. This has created seething anger and frustration among the deprived millions.
Perhaps the only way out is to redefine the concept of development and ensure inclusive growth. This would entail a paradigm shift in our orientation. And for this business has to lead the way. But here, it should be kept in mind that the leadership expected of business is not based on an appeal to their sense of philanthropy, but merely a call to the performance of duty enjoined by their position. Such companies have the resources, the administrative apparatus and the required leadership to lead this change. What is required is the will and the mindset. And the time for this is now.
This represents a historic opportunity for businesses. If Brands= product + image, imagine the brand leadership a company would enjoy once it builds around itself the image of sustainability. Setting aside funds for R&D to come up with cutting edge technology that would make companies inherently eco friendly is both possible and profitable. Renewable energy sources are viable options. Bio mimicry could provide solutions to most human problems. Resources can be used in a sustainable manner. Alternative and non wasteful lifestyles can be made into fashion statements. For achieving this,

the onus would lie on the business leaders of the world. Whether it will rise to the occasion could well determine the difference between survival and annihilation. Not just of their companies but of mankind itself.

Walmart’s Sustainability Index: The Game Changer?

Sustainability has become one of the hottest buzzwords in the corporate world today but doubts still persisted over the commitment of the business world to adopt something that was perceived to cost more in the short term. But all that is set to change now with the biggest corporation of them all making an emphatic statement toward sustainability. Walmart has launched the sustainability index which it expects will define its commitment toward becoming a greener organization. The impact of this initiative can be gauged from the fact that Walmart has sales of more than $400 billion and more than a hundred thousand organizations supply to it. The potential greening effect resulting from this decision will be enormous.
The Walmart sustainability index is, as the company puts it, a step toward becoming a greener organization by creating a more transparent supply chain, driving product innovation and ultimately providing their customers with information they need to assess products’ sustainability. The index will be introduced in an iterative process and composes of three steps. The first one, supplier assessment, aims at assessing the sustainability of the major suppliers of Walmart in four broad areas, i.e. energy and climate; material efficiency; natural resources; and people and community. Walmart is not grading the companies per se but it hopes to achieve transparency in the system and believes that the market will force the suppliers to change. The second step is Lifecycle Analysis Database in which a consortium of universities will collaborate with suppliers, retailers, non-governmental organizations and government officials to help organizations to analyze the impact that their product has on the environment. The entire effect of the product from the raw material to the wastage and disposal will be covered in this phase and the products will be rated based on their carbon footprint. The third and most important phase is to provide the customers with a simple way to access and use this information. A consumer application will be developed to do this.
An important factor in the development of this index is that although it was started by Walmart, it will be headed by independent organization with no vested interest in the outcome. The threat of Walmart cutting of suppliers who did not meet its criteria would also act as a powerful factor in forcing the supplier to look at alternative sustainable products and greening their value chains. This would play a major role in raising the power of this index. It has also invited other retailers into the process to facilitate wider acceptance and increase transparency in the process.
However there are some major caveats to the process. The entire business model of Walmart depends on competing on price and this in turn has forced its suppliers to turn to low cost manufacturing in the developing countries. It remains to be seen whether the core customer of Walmart would actually pay more price for sustainable products or whether Walmart can successfully adapt its value chain to produce the goods at the same cost. Critics have also pointed out that the Walmart index is less exhaustive than some indexes that have already been formulated by other companies. For example Nike’s Considered Index scheme is much more sophisticated formulation. But the approach being followed by Walmart is more of a ready fire approach in which the company starts off a sort of beta version of the product and use the inputs from the best minds in the country to continually improve on it.
The consensus seems to be that however imperfect this index might be it represents an important step forward for sustainability and will be the game changer that finally contributes to tipping the debate on sustainability. But the ultimate verdict will be in the market place when customers of Walmart accept and embrace this newer and greener Walmart.

Patagonia - A business case for sustainable marketing
“Working for the earth is not a way to get rich, it is a way to be rich” – Paul Hawken
Corporates have realised that by conducting their business in harmony with nature, they become the actual beneficiaries. The benefits can be felt and seen by the companies across different functional domains, but one domain where it can reap maximum benefits from is marketing. This speciality has come to be known as “sustainable marketing”. Advocates of this concept state that conducting business in an environmentally and ethically responsible way creates a positive buzz about the brand image of the company and results in increased customer patronization.
About Patagonia
One such company which has been a pioneer in the field of “sustainable marketing” is Patagonia Shop & Clothing Gear, U.S.A. The mission statement of Patagonia reads thus – “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

Patagonia has kick-started a number of environment friendly programs to promote the cause of a greener and cleaner world. One of their numerous programs include the “Common Threads Garment Recycling Program”, whereby customers can return used/worn out Capelin Performance Baselayers, fleece clothing, cotton t- shirts, certain polyester products etc, which after recycling is used in the manufacture of new clothing.

How does this process work? Once customers return worn out clothing to Patagonia, it’s sent to their centre in Japan, where through the fibre- to- fibre recycling process, new polyester is made. Scientific research has proved that making polyester from recycled material has significantly lesser detrimental effect on the environment than when made out of virgin materials derived from petroleum. Also diverting used materials from landfills reduces solid waste. Similarly diverting them from incinerators results in an energy savings of 76% and CO2 emissions are reduced by 71%.
Another practice that Patagonia follows is the use of recycled paper, certified by the FSC – Forest Stewardship Council, for their catalogues. It’s printed on paper made with 40% post consumer recycled content and the cover is printed on 50% post-consumer recycled content and made with wind power. By doing this they help in conserving energy, reduce wastewater equivalent, solid waste equivalent and greenhouse gases emissions.
Other programs of Patagonia include, Footprint Chronicles, World Trout Initiative, 1% for the Planet, Conservacion Patagonica, Enviro Internship, Conservation Alliance and Organic Exchange.
Positive Impact on their Brand Image
Now how do these initiatives contribute to the success story of Patagonia? The products of Patagonia are targeted at those individuals who are adventure sports enthusiasts, nature lovers and those who are concerned about the conservation of planet earth. In line with their target market, products of Patagonia are nature friendly as mentioned in the preceding segments. Also since Patagonia contributes 1% of their annual turnover to save the planet, customers are inspired to buy Patagonia products and feel good about themselves as they are contributing to a noble cause. As a result of this their recent sales figure stands at around $240 million.

In addition to this Patagonia has a highly accredited website which attracts 25,000 hits daily and is a major sales driver. This website gives in detail description of the various sustainable initiatives of Patagonia and evokes interest among the visitors. These environment friendly manufacturing processes, nature friendly products and sustainable initiatives have a tremendous positive impact on the business of Patagonia, since their target market is such, as mentioned above.
In an interview to The Guardian, Mr. Rob Bondurant, VP of Marketing, says how Wal-Mart has approached them to learn and practice environment friendly business similar to that of Patagonia. These statements go on to highlight the fact that Patagonia is a highly successful company whose brand image as “environment friendly”, has not only garnered them newer customers by the day, but also won them the respect and admiration of giant peers such as Wal-Mart.
No further proof is required to substantiate the fact that working for the earth is “the” way to be rich.

BMW: Efficient Dynamics

Charles Darwin said “It’s not the strongest species that survive, nor the most intelligent, but the ones most responsive to change”
What is this change? When will it come? How should we respond to it? These are the questions that a company should be ready to answer.
BMW was one of the first Automobile Companies to realize the importance of this change. The “change” that has become the Buzz word of today i.e. “Sustainability”, BMW realized it way back during mid 1990s. Those days, globalization was becoming more evident, BMW was about to launch its first SUV X5 series and Mercedes Benz was giving a fierce competition.
Initially, during mid 1990s, BMW started developing fuel saving and alternate vehicle concepts through clean production processes. From here on started the initiative which is now known as the BMW’s “The Efficient Dynamics Concept”. Launched as a standard technology fitted into the entire model range, 1.3 million cars with Efficient Dynamics features are already on the road around the world. Between 1995 and the end of 2008 the BMW Group cut fuel consumption of its vehicles sold in Europe by more than 25 percent. On statistic average, a BMW or a MINI brand (owned by BMW) vehicle burns significantly less fuel than the average new car produced in Germany. In emission front, BMW cars have CO2 emission level of 158 g CO2/km which is 18 grams lesser than the next best competitor. On the whole, BMW is better prepared to face the more stringent environmental regulations planned for 2012 and 2015.
BMW Group’s management board declared sustainability as one of the company’s core strategic principles in 2000 .The BMW Group is the only company in the automobile industry to have been listed in Dow Jones Sustainability Indexes (DJSI) every year since this index was established in 1999. In 2009, for the fifth consecutive year, DJSI rated the BMW Group as the leader in its industry, making it the world’s most sustainable automobile manufacturer. Corporate Sustainability is firmly entrenched throughout its entire value chain - from the development of fuel-saving and alternative vehicle concepts through clean production processes to green recycling practices.
From the marketing point of view, the following is the impact BMW has created on the 5 Ps of marketing:
By far the most efficient premium-class vehicles on the German automobile market are built by BMW and MINI. This gives a cleaner image to the already strong Brand of BMW.

BMW is going to new markets like that of India, Malaysia etc. The green tag helps it to get a better image association in these new markets.

The official site of BMW has the Efficient Dynamics as its theme. It wants people to know about its sustainable practices. Its advertisement also it has the green touch. One of its ads shows BMW thanking the nature: “The Soil”, “The Breeze”; “The Water”. Its Efficient Dynamics is one of the central themes of the Geneva car show for quite some time now.

BMW brand is traditionally very highly priced. It targets the premium segment and this segment is ready to pay extra for getting something closer to nature. Though, BMW has been clever in its communication to its customer. It has always been focused on “Saving Green” rather than “Spending Green”
One of Mckinsey’s researches says that 55 percent of the consumer feel that environmental issues are important and should be addressed by corporate executives. The target group of BMW loves driving fun and sporty, yet elegantly designed cars. They have high interest in outdoor activities. BMW is targeting their emotions with the Green image but also keeping its Sexy image intact with its performance.
Future Outlook
BMW is giving focus to its strategic principle of sustainability. It wants to redefine the boundaries of emission and efficiency.

They are coming out with something called the “Thermal Dynamic Generator” which is based on space technology. It basically takes heat from the engine and transforms that into energy which can be used. Thus, when one is pressing the gas, he/she is actually saving energy because heat energy is generated back into the car.

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