Adapting to the NEXT Economy

A few years ago I went skydiving for the first and only time. The instructor informed us about an interesting feature of our brain: depth perception doesn’t kick in until you’re 200 feet above the ground, at which point it’s far too late to ensure a safe landing. You have to activate your parachute much sooner than your senses would advise, which of course is not something you can learn through trial and error.

I was fascinated to observe as I was plummeting through the air at about 120 MPH that there was no sensation of falling. Zero. No perception of speed or distance. It was like hovering above a very large (and windy) photo of the world. We pulled the chute and dropped even closer to the earth. My instructor reminded me, “very soon it will feel like the ground is suddenly rushing towards you, but we’re not going any faster than we were. It’s just your brain’s depth perception kicking in.” And she was right.

Organizations today are going through their own version of free fall. Yet unlike skydiving, it’s not just distance that’s changing… it’s the entire economy and ecosystem in which we operate. Like our brain’s depth perception, our sensors aren’t kicking in that we need to change something, and fast. It’s not as simple as pulling a chute. There is no chute. It’s not enough to do something different… organizations must become something different. They need to learn how to fly.

The adaptation imperative

We’re seeing an urgent need for businesses, NGOs and governments to fundamentally adapt to a new economy, one that we call NEXT. The NEXT economy is:

Networked.

We all know that the internet and social media have made a profound impact on our society. From Arab Spring to the Internet of Things, networks are enabling new connections and opening up new possibilities. Yet most organizations treat networks as something “out there.” A new tool for customer or employee engagement, a new way to recruit donors or sell more stuff… essentially a new way to do business as usual. Silos, not systems, still reign supreme. Organizations must gain network perception: they are simply one component in a much larger, networked ecosystem… not separate from communities, customers, competitors, NGOs and the environment, but intimately connected. We’ll be writing more about what network perception means and how to apply it.

EXposed.

Because everything’s connected and networked, there’s nowhere to hide. If you sell consumer goods, you should hop over to www.goodguide.com, a consumer window into what’s in your products and how responsible is your business. This is just the tip of the iceberg; GoodGuide’s new relationship with Target and Walmart’s impending Sustainability Index at POP mean that consumers everywhere will be able to compare brands based on much more than price. NGOs are more easily publicizing missteps via social media, indices like DJSI provide a new lens for investors, and sites like GlassDoor enable employees to reveal what working for your company is really like. Expect significantly higher levels of exposure in the years to come. Ask yourself: what should your organization stop doing, start doing, or change in this increasingly exposed environment? Does your org structure support authentic brand creation and risk mitigation? Most CMOs aren’t empowered or informed to do what’s required to protect and grow brands in today’s transparent environment.

Thrifty.

If you haven’t yet read The End of Growth by Richard Heinberg (or another with the same title by Jeff Rubin that I have not yet read) I recommend that you do so. Our entire economic engine is built on a faulty theory of unlimited resources, unlimited debt, and uncapped growth potential. We have created a disposable, consumption culture that fundamentally cannot be sustained. Companies must apply network perception to expand their scope of responsibility beyond the four walls, not only to supply chain but to what you sell, how you sell it and what happens to it later.  New thrifty models are emerging like the Sharing (or Collaborative) Economy that will have profound impact on large, established organizations. Design thinking, innovation and “job to be done” versus “what we make” will be the new mode of operation in the coming years.

Our big news

We will be folding Fruitful Strategy in Q1 of 2014 and launching a new company based on NEXT principles that will usher organizations through curated, collaborative learning journeys towards becoming adaptive leaders. We believe that the traditional consulting model is part of the old paradigm (closed, proprietary, siloed) and that NEXT service firms will be more like sherpas and mentors, less like outsourced brains. Measurable outcomes rather than PowerPoints will be the new standard. We’re looking for exceptional, like-minded thought leaders to join our cause; we’d love to be a platform for you. We’re also seeking a handful of organizational leaders who might be interested in co-creating your adaptation with our curated team of experts; we’d love to brainstorm what this could look like.

 

Why green product brands fail

The Guardian recently published an excellent article on Why Green Brands are Failing to Capture Public Attention.

The answer is that environmental/social consciousness is only one part of what are much broader and more complex cultural shifts. Picking out this trend in isolation and trying to build brands around it using traditional marketing paradigms has a very low likelihood of success…

Most green branding efforts do not fail because of “lack of consumer demand” – as many have now taken to stating. They fail because the branding efforts are superficial, not grounded in the complexity of current cultural change and end up sending messages that are often the opposite of those intended.

I agree with much of what’s written in the article, especially the observation that there may be plenty of demand that marketers just haven’t figured out how to capture. However, I’d submit that green brands fail precisely because companies have neglected to use traditional marketing paradigms for developing new products. Let’s look at two examples: Clorox Green Works and Nike’s Considered.

Why Green Works Failed: Segmentation 

Now personally, I don’t consider Green Works a failure. As one of the first green brands from a mass-market manufacturer, they demonstrated that there is, in fact, a market for green products outside of Whole Foods. However, after an initial run of success (capturing over 40% share of natural cleaning products in just a year after launch) the brand hit a plateau. While this is in part due to the recession and lack of consumer willingness to pay more, I’d suggest that a good part of this is due to lack of understanding consumer segments.

In our cleaning products research in 2009, 67% of consumers said they were interested in seeking out sustainable cleaning products. While that group includes the bright greens who often shop at Whole Foods, nearly half was represented by a rather large segment that we call Laggards (representing 1 out of 4 consumers nationwide) for whom we found a negative association of green attributes to purchase and loyalty. This group resonates with practical benefits like less toxins and waste, but rejects any typical sustainability concepts and language like “green.” See where I’m headed with this?

Clorox capped their own growth by chopping off both ends of the consumer spectrum.

  • Using insider language and higher prices turned off mass-market consumers. 
    • Clorox Green Works is designed to appeal to a mass-market shopper, but a large percentage of those who frequent mass-market channels are likely turned off by the name. And they’re definitely not willing to pay more for a “nice to have” benefit.
  • Yet they lacked credibility and distribution with bright greens.
    • To be fair, Green Works was never designed for the bright green buyer. But with a name, pricing and brand positioning geared to green buyers, we see a fundamental mismatch.

Lessons learned:

  • To reach the mass-market consumer, don’t use words like green or eco in the name or marketing. Keep the focus on what everyone cares about, which is what made your brand successful in the first place, but strategically use options like an ingredient brand (like P&G’s Future Friendly) or subtle language or experiential cues to capture values-based buyers.
  • Make sure your parent company can build credibility for the product, not detract from it.
  • Don’t charge more for green benefits. You CAN charge more for other benefits (like Method’s design approach) and bake the additional R&D cost into the higher margins captured for creating a higher-value product.

Why Nike’s Considered Line Failed: Brand extendibility

An article in Bloomberg BusinessWeek explains how Nike made the strategic decision to avoid customer-facing sustainability initiatives:

The company launched its first line of environmentally friendly shoes, called “Considered,” in 2005. It had high hopes for a walking boot, made with brown hemp fibers, that looked obviously earthy. Critics called the $110 shoes “Air Hobbits” because of their forest-dweller feel and took Nike to task for a design that detracted from its high-tech image. The boots didn’t sell well, and within a year were taken off the shelves. The lesson for Nike was that its green innovations should continue, but its customers shouldn’t be able to tell.

As I observed in a previous post, this is a brand extendibility issue, not a sustainability issue. They couldn’t have tried harder to fail. “Customers failed to give Nike permission for a shoe that didn’t align with its performance image. A forest dweller shoe is more in alignment with Ecco, not Nike; this is a classic brand extendibility failure that likely had nothing to do with sustainability. If Nike had launched a sustainable performance shoe brand, the results may have been very different. And who knows, maybe not. The lesson for Nike and other brands is to invest in knowing exactly where customers give permission and where they don’t.”

Lessons learned:

  • Know thy customer, and keep the focus on why they buy your brand. But also understand what percentage of your current customer base resonates with values-based products so that you can retain and grow that segment.
  • YOu can also leverage those traditional marketing paradigms of targeting, direct and personalized marketing; these should enable you to capture the values-based segment without turning off those who don’t care as much. Nike could be promoting Flyknit shoes in targeted sites and publications that reach eco- or socially conscious customers.

 

Brands versus engagement on changing consumer behavior

Kevin Moss at BT recently posted an article exploring whether consumers can incite sustainable change. He writes:

But how do companies engage with the consumer? It’s likely that combinations of routes are the answer. One option – and probably the most popular- is to use the brand to engage the consumer. This approach to marketing makes sustainability desirable and helps change consumer behaviour. P&G, for example, is launching their “Everyday Savers” sustainability campaign…

This is great – making sustainability the focus of brand communication and offering accessible and practical advice – but arguably, overlooks the individual behaviours that are rooted in social and institutional contexts.”

Here’s my take on the brand question. Not every brand can or should engage with customers. And those that should may engage in very different ways, at different levels of visibility, in ways that align appropriately with the market and the core value proposition. My answer is, “it depends.”

We should tease apart brand versus engagement. When we think brand, we should be building the necessary strategic foundation before starting into communications or engagement. I define “brand” as a promise delivered; we need to first define (or redefine) that brand promise when it comes to sustainability. We have some proven methodologies to help with this. Considerations include:

  • how much sustainability should be visible to the market and integrated into brand positioning. I wrote about this in my last post on Brand-Led Sustainability Strategy; these options include behind the scenes (Walmart, Nike), supporting role (Unilever, M&S) and starring role (New Leaf Paper).
  • how it should show up in the brand portfolio. Those options I wrote about in A Portfolio Approach to Building a Credible Sustainable Brand, and include endorsed/unendorsed product brands (Burt’s Bees vs. Green Works), initiative brands (GE Ecomagination), ingredient brand (P&G’s Future Friendly, Home Depot’s EcoOptions) or master brand (Seventh Generation).

The right answers to these questions depend on several variables including:

  • executive commitment to expanding scope of sustainability beyond the company’s four walls
  • management and operational credibility required to raise the company’s proverbial head above the radar without becoming an NGO target
  •  the size of your total addressable sustainability market (you’ll ideally need to do some segmentation work for this, with some add-on analytics to identify revenue linkages)
  • Competitive activity in the space
  • Overall category trends

Overcomplicated? Some might think so. But this process establishes the business case for brand-led sustainability and the roadmap for how the company plans to capture the opportunity.

Once the sustainable brand strategy has been determined, then we can identify whether a brand should engage customers, and if so, how. Engagement — ideally a combination of education, easy action requests, and rewards — should absolutely be able to change behavior. A big caveat, however, is that more than a handful of companies need to take the lead. Effective techniques include gamification, or leveraging psychological truths like “people do what their neighbors are doing,” or creating awareness about what’s really in those products or how they were made.

However, we need to create a movement.

Not a consumer movement… a company movement. We need more executives to be brave enough to expand sustainability beyond the four walls of their company. To be brave enough to take a stand. To be confident enough that we can create markets for sustainable products and services, not just wait for them to magically appear. This requires leadership, innovation and courage across multiple companies and industries. When consumers begin seeing and hearing this message from multiple angles, that’s when the tipping point will occur.

 

 

 

The Next Wave: Brand-Led Sustainability Strategy

Review just about any public company’s sustainability report and chances are, you won’t see a mention of how sustainability extends to the brand level. With some exceptions like Marks & Spencer, Clorox Green Works or GE, it generally starts and stops at the enterprise. And outside of the occasional cause marketing campaign, brand owners typically regard sustainability as a niche market that doesn’t dovetail with their core brand promises.

Why? Sustainability has historically been about risk mitigation and cost savings; advances in these areas are necessary and admirable, but aren’t often relevant to the general market. Enterprise-led sustainability is often generic by nature, using the same materiality assessments and stakeholder priorities as the competitive set. By contrast, CMOs and brand managers are trained to see opportunities in terms of relevance: alignment with core customer values and the brand promise. And x% energy savings, supply chain engagement, employee volunteer programs, and other behind-the-scenes activities just aren’t relevant to most brand managers. Nor, in many cases, should they be.

Yet chances are, sustainability is more relevant to your brands than you might think. The next horizon for sustainability is shared value: creating competitive advantage and new market opportunities while benefiting society and the environment. And that’s the territory of the brands. It’s time to use sustainability as a lens for innovation, recognizing that there are limits to our current “growth at all costs” mentality and that the brands who survive in the next 20 years are the ones who are fundamentally rethinking their business models today.

It’s time to begin using sustainability as a lens for new products, services and experiences… to stop waiting for the market to magically appear and begin shaping the new world  (and market) that is inexorably coming into existence. That means that senior executives need to put less pressure on short-term results and begin charging brand owners with positioning for the future. A 10% bump in sales today means nothing if your brand gets hammered tomorrow by an NGO, or fails to respond to successful competitive activity due to lack of credibility in sustainability that takes years to build.

The solution: Reverse engineering.

We need to change the direction of the conversation. Instead of trying to make behind-the-scenes activities relevant to the market, let’s start with what’s relevant (or will be) in the first place. Sustainability strategy should be developed from the outside in, working collaboratively with brand management. First find the market opportunity – whether it’s immediate or longer-term – and reverse-engineer your strategy to ensure your company will be credible making those claims in the future. As the focus on supply chain shifts into value chains and value networks, brand and customer value become the starting point for any sustainability conversation. Brand-led sustainability shifts generic enterprise-level activities into highly relevant, differentiated opportunities for improved reputation, competitive advantage and new forms of growth.

For longer-term strategy, back-casting is key. How will your category, competition and distribution change over the next 25 years? What is the future of retail and how will that affect manufacturers (aka the Walmart effect)? How will your future customer mix, including Millennials and emerging markets, shift overall demand for sustainable products in your category? How must your brand adapt to compete and lead in this new world? The answers should guide today’s sustainability strategy. What works today will not work in the next decade, so start getting ahead of the curve now.

There are plenty of short-term opportunities to consider that are “reverse-engineered,” starting from the brand and market opportunity and working backwards to inform enterprise-level activities. These could include brand risks (like ingredients, sourcing and packaging) to differentiators (like customer experience). Our research shows that “green” or values-driven buyers are still buying the mainstream non-green brands they know and trust… yet what percentage of your current business might be lost if a viable values-based competitor entered the market today? I’d suggest at least 20%; more if you target younger generations or markets like China and Brazil. You likely don’t need to reposition the brand to hold onto their loyalty; minor tweaks in customer experience could do the trick (see “brand roles” below for more.)

Brand roles for sustainability

Sustainability is not an either-or proposition. We see three roles that it can play within brand positioning and portfolios:

  • Behind the scenes: If sustainability is truly not relevant to your current customer, begin building credibility behind the scenes in anticipation of future market opportunity. Walmart might be a good example here. Nike is currently in this camp, but I’d suggest that they’re missing a big opportunity among their Millennial customer base and should be considering the next option…
  • Supporting role: Most mainstream brands can choose this option in which sustainability plays a supporting role via avenues like:
    • Customer experience (Marks & Spencer)
    • Line extensions or new products (Clorox corporate brand uses sustainability in a supporting role, with Green Works being a market-facing proof point in their portfolio)
    • Ingredient or initiative brand (P&G’s Future Friendly, GE’s Ecomagination, Home Depot’s Eco Options)
    • Customer engagement (P&G’s Everyday Acts campaign, with caveats on credibility)
  • Starring role: You can reposition an existing brand (like Brita water filters) to make sustainability a core part of the brand promise. Or create a new brand for your values-based segment (Green Works product brand deploys sustainability in a starring role.)

Bottom line: Sustainability strategy must shift from an enterprise-level, inside-out endeavor. Instead, take an outside-in approach: strategically back into your goals based on market opportunity to enable your brand to compete and lead in tomorrow’s economy.

Next step: Talk to us about our Brand Integration workshop to begin the conversation with your brand teams.

The power of brands to change the world, part 3

This is the last in a series of three posts exploring the role of brands in creating positive change. The previous post explored the first two Ps of creating world-changing brands, power and permission, and we’ll focus this post on the 2 remaining Ps, perception and portfolio. To start at the beginning, part 1 can be found here.

Perception

If your brand isn’t perceived as sustainable, it would behoove you to start proving otherwise or else do a better job communicating your successes if you are operationally credible. Why? Sustainability is one of many attributes that comprise your reputation; having sufficient deposits in this brand-equity bank account is invaluable in the event of a reputation crisis. And on the positive side, it provides another reason for values-based customers to be loyal.

On that note, let’s tease apart credibility and perception:

  • Credibility is whether or not you actually deliver. While most customers assume credibility, that’s unfortunately not the case with influential non-customer stakeholders like NGOs and media.
  • Perception is what the market believes to be true about you. Proof is not required, but is essential if you want to change how your brand is perceived.

As mentioned in part 1, BrandLogic’s Sustainability IQ Matrix is a helpful framework for discussing credibility and perception of our two brand examples, Apple and Nike.

  • Apple continues to enjoy a tremendous amount of perception of (and permission for) sustainability. It’s consistently listed among the top sustainable brands among consumer polls, which implies a passionately loyal customer base that clearly cared about sustainability and wanted to believe the best about one of their favorite brands. Yet while Apple has been building a foundation to support that positive perception, it continues to stumble on issues like fair labor in China and its withdrawal (and subsequent rejoining) of the EPEAT certification standard. Karen Krosinsky of Truecost writes about Apple’s potential as a sustainability innovator, but to date it remains just that: potential. Apple only scores a 4.5 out of 10 on Greenpeace’s Guide to Greener Electronics.
  • Nike worked hard to restore its credibility after reputation-shattering missteps in its supply chain in the 1990s. Back then, perception and credibility were at an all-time low, but the company has made tremendous strides to become a recognized leader in sustainability regardless of sector. You’ll see in the BrandLogic matrix that Nike has much more credibility than perception; as discussed in the previous section on permission, it’s chosen to downplay its sustainability credentials among customers so as not to distract from its core brand attribute of performance. However, this doesn’t have to be an either-or proposition.

Contrast Apple and Nike with IBM, which fundamentally shifted its entire corporate brand to promote a Better Planet. IBM has built the credibility and earned positive customer perceptions. IBM didn’t sit around waiting for customer permission either, although IT inherently has more permission than other sectors.

Lesson: If perception exceeds credibility, start building proof… fast. If credibility exceeds perception, understand your market (is there a segment who’s interested in sustainable products?) and your competition (is there a white-space opportunity?). If the answer is no to both, no worries. If the answer is yes, seriously consider stepping up to be a change-maker among a segment of your customer base in a way that aligns with your brand. Don’t stop doing the things they love you for; you’re a mass brand for a reason.

Portfolio

Here’s where it gets fun. As noted earlier, sustainability and your core brand promise do not need to be mutually exclusive. Let’s see how Nike handles it using our 5 Stages market map:

You’ll see that Nike’s corporate brand is moving into the Transformative zone and sitting firmly in “Green in a Supporting Role” – ie. sustainability is used as a supporting point for the brand, visible to those who care but not to those who don’t. This is a highly desirable aspirational position for most mainstream brands: Nike has built strong credibility and brand equity among non-customer stakeholders and is in a position to lead with customers if and when it chooses to do so. From this position, Nike can use a portfolio approach to dial up or down sustainability based on each product brand’s respective target markets without shifting the corporate brand (for more on sustainable portfolio options, click here.)

  • N7 is a cause brand for Native American and Aboriginal communities; the 7 is a reference to the Native American concept that “In every deliberation we must consider the impact of our decisions on the seventh generation.” It sits slightly higher than the corporate brand due to the social cause, although messaging still soft-pedals the environmental benefits of the product line.
  • Flyknit, on the other hand, is one of the most sustainable shoes on the market but you’d never know it unless you visited Nike’s corporate media section. Just a few references to decreased waste and lighter materials in general communications would trigger a sense of shared values among a very knowledgeable consumer, but wouldn’t be noticed by most.

I’d like to see one or two more products in the upper green zone, Nike. Ones that are strong on performance while also dialing up a bit more engagement with customers who share your values. Don’t be shy. We need your leadership in creating consumer awareness, preference and behavior change… done in a way that is in alignment with your current brand equities (for more on this, see the previous post).

In summary…

As we think about how brands can be world changers, one of the most important things they can do is affect consumer behavior. Unilever understands that “product in use” is the biggest contributor to its negative impacts, so the company developed the Five Levers for Change to begin moving the needle. Yet consumer behavior goes beyond recycling and hand washing; in fact, we need to drop the word “consumer” altogether. Patagonia encourages its customers to reduce consumption and think about repairing, reusing and recycling. A very different mindset indeed; one that is enjoyed more by private companies than public.

It also means providing options for those who want a choice that matches their values… for the ones who will wear your sustainable brand like a badge of honor, or for those who are on the fence but want to feel good about their purchases. It’s about engaging citizens in doing the right thing, like Marks & Spencer does in so many visible ways like Shwopping and Be the Start.

Yet if brands are waiting for the market to come to them, they’ll wait a long time. This is a call to the Nikes of the world – the brands who are doing good behind the scenes – to step forward, leading with their core brand promise but getting above the radar on sustainability with a segment of receptive customers. Let’s start thinking both/and, not either/or. This is also a call to the Apples of the world who are stingy with their brand power and permission… whose laser focus on aesthetics is like polishing the interior of the Titanic.

This is a call for brand leaders who stand for more than top-line revenue growth and product obsolescence. We need a reinvention of capitalism, and for that we need courageous brands that can show us what’s possible.