PRODUCT TAG OF “ECO-FRIENDLY” HELPING BUSINESSES GROW

 

PRODUCT TAG OF “ECO-FRIENDLY” HELPING BUSINESSES GROW

Nowadays, tags on products regarding their contribution to the earth are playing a substantial role in the purchasing patterns of consumers. A joint study by McKinsey & Nielsen IQ revealed significant insights about how products claiming to be eco-friendly, environmentally good, or sustainable are experiencing significant sales growth in the US and the global market.

Consumer packaged goods (CPG) companies increasingly allocate time, attention, and resources to instill environmental and social responsibility into their business practices. They are also making claims about environmental and social responsibility on their product labels. The results have been evident: walk down the aisle of any grocery or drugstore these days, and you’re bound to see products labeled “environmentally sustainable,” “eco-friendly,” “fair trade,” or other designations related to aspects of environmental and social responsibility. The most important aspect is what lies behind these product claims—the actual contribution of such business practices to achieving goals such as reducing carbon emissions across value chains, ensuring fair wages and ethical working conditions for employees, and supporting diversity and inclusion. But understanding how customers respond to social and environmental claims is also important and has not been clear in the past.

When consumers are asked if they care about buying environmentally and ethically sustainable products, they overwhelmingly answer yes: in a 2020 US consumer sentiment survey, more than 60 percent of respondents said they’d pay more for a product with sustainable packaging. A recent study found that 78 percent of US consumers say that a sustainable lifestyle is important to them. Yet, many CPG executives report that a key challenge in their companies' ESG initiatives is generating sufficient consumer demand for these products. There are many stories of companies launching new products incorporating ESG-related claims only to find that sales fell short of expectations.

Six types of ESG claims

We identified six types of ESG claims on product packages:

• Animal welfare (“cage-free,” “cruelty-free,” “not tested on animals”)
• Environmental sustainability (“compostable,” “eco-friendly”)
• Organic positioning (an indication of organic certification)
• Plant-based (“plant-based,” “vegan”)
• Social responsibility (“fair wage,” “ethical”)
• Sustainable packaging (“plastic-free,” “biodegradable”)

Not every brand that made a claim saw a positive effect on sales, and the data indicate a plethora of nuance at the product level. In many categories, there is a clear and material link between ESG-related claims and consumer spending.

The following four insights are important for consumer companies and retailers that build portfolios of environmentally and socially responsible products as part of their overall ESG strategies and impact commitments.

Consumers prefer spending on products with ESG-related claims.

Over the past five years, products making ESG-related claims accounted for 56 percent of all growth—about 18 percent more than would have been expected given their standing at the beginning of the five-year period. Products making these claims averaged 28 percent cumulative growth over the five-year period, versus 20 percent for products that made no such claims.

Brands of different sizes making ESG-related claims achieved differentiated growth

The finding suggests that consumers choosing private-label brands may not be solely looking for the cheapest options. Both large and small brands experienced growth in ESG products.

Not one ESG-related product claim outperformed all others—but less common claims tended to be associated with larger effects.

There isn't one specific ESG-related claim (e.g., "eco-friendly," "sustainable," "fair trade") that always performs better than others. Claims that are less common or more unique tend to have a greater impact on consumers, possibly because they stand out more or convey a stronger sense of commitment to sustainability. Consumers don’t seem to consistently reward any specific claims across all categories.

A combination of claims may gain attention.The study also analyzed the effects on growth when a product package displayed multiple types of ESG-related claims. On average, products with multiple claims across our six ESG classification themes grew more quickly than other products. However, this does not mean companies can use these labels without substantiating their claims.

Based on these findings, we conclude that consumers are increasingly embracing the concept of “purchasing with purpose.” The purpose of serving good to nature, the purpose of saving the environment, the purpose of sustainability. Companies are now also aware of these factors and should try to serve authentically rather than just greenwashing.

STAY SMART! STAY SATARK! Blog by:- Simran Gusain