#4 - The Demand Revolution: How Consumers Are Driving the Future of Sustainable Business insights from my conversation with Nicolai Broby Eckert

This newsletter edition is a result of my conversation with Nicolai Broby Eckert - Senior Partner and co-Head of the Nordics at Simon-Kucher and the co-author of "The Demand Revolution Book".

Before I share some insights from our conversation, check more details about "The Demand Revolution" book written by Andreas von der Gathen, Nicolai Broby Eckert and Caroline Kastbjerg here: https://www.simon-kucher.com/en/insights/demand-revolution

You can also order the book on Amazon here: https://www.amazon.com/Demand-Revolution-Redefining-Sustainability-Transforming/dp/0262049325

We started our conversation with some insights around the idea for the book.

Key challenge pointed out by Nicolai in his research and work with CEOs and and board members who said, “I’m not sure I really believe it when consumers say sustainability is important; they’re not willing to pay the cost of sustainability, and we cannot cover that difference. So, I’m probably going to have to reduce the sustainability initiatives in my firm.”

Based on this and also on Simon-Kucher’s study it became obvious that sustainability is becoming more and more important as a purchasing criterion.

But, a key question was what is the willigness to pay from consumers?

The fatal disconnect between consumers and businesses

Nicolai: “Sustainability has moved from something on the fringes—small segments of consumers willing to pay a premium—to a mass-market movement. But there is a big difference between willingness to pay and ability to pay. When you’re talking about mass consumers, they can’t afford a large price premium on their daily lives. We just had a cost-of-living crisis with 6% inflation in many places. Today’s green solutions are 10%, 20%, 30%, maybe even 40% more expensive than a normal solution, and consumers can’t afford that.

The main disconnect, and what we argue in the book, is that companies have seen sustainability as an add-on: we have the existing business model, the existing products, and we just add “green” on top, which makes it more expensive.

A lot of companies haven’t really looked at how to bring down the cost of sustainability to make it available to the masses. That’s a really important point in the book because, based on the consumer research, there is a pent-up demand for green products.

Consumers are really asking for them, and in the absence of those products, they’re making other choices: buying second-hand clothing, anti-consumption, renting an Airbnb instead of a hotel (because that’s more of a sharing economy than building a brand-new hotel), and so on. They’re finding other means of being green or more green. The companies that really understand this—and truly look at how to reinvent their current business model, and maybe even extend their ecosystem to bring down cost—will see a significant market uplift in terms of volume”

Sustainability is a mega Trend

Nicolai: “There are many mega Trends, but very few are truly transformative. We think sustainability is definitely one of those. Where it is markedly different is that most other mega Trends are technology-driven. You could say they’re “push-driven.” When you invent the internet, that’s a great technology, but consumers don’t understand how to use it. They’re skeptical, so you have these early adopters who love new things and are typically willing to pay a premium. Over time, as you start gaining market share, you start scaling from a cost perspective, it becomes cheaper, and then you reach early majority and eventually mass market. That’s how a normal mega Trend works: you really need to teach consumers how to use a new technology or product.

Sustainability is often just something you put on top, so it’s not necessarily a new technology. You can get instant adoption because consumers don’t need to change. Also, consumers right now are ahead of the market. Consumers weren’t saying “Give me the internet” because they didn’t know what it was. But they are saying, “Give me sustainable products. I want them, but I need them at a price I can afford.”

Sustainability is different because many companies haven’t brought down the cost curve; by becoming more sustainable, they’ve actually increased costs. Instead of falling costs, there’s been a rising cost curve. That creates that fatal disconnect where consumers and companies are not meeting to make a market.”

From the demand-revolution point of view, can this impact a company’s traditional marketing strategies?

Nicolai: “Absolutely. We did a lot of consumer research over three years on how consumers act differently when buying green. This is important because many companies talk about the “green segment.” We’re actually killing that notion: there is no green segment. There are more or less green consumers, depending on how many product categories they consider buying green in.

When a consumer says, “Now I want to be green in a category,” here are some interesting facts: they spend up to four times longer looking for the right product and brand. That’s a gift to any marketing organization, because normally it’s very hard to cut through the noise. But that also means you can’t get away with shallow messaging, because consumers are actually going to investigate. They’ll ask friends, look at social media, look at advocacy groups, and so on, because they really want to make a green choice. That also means they’re more likely to switch brands. Another gift, if you use this to grab market share—sometimes even people who are 40 or 50 years old, and brand-loyal, become open to shifting.

Thirdly, once they’ve shifted brands, they’re more likely to stay. We as consumers don’t have time to investigate to that depth every time. Once we’ve chosen a brand in the category, and if it lives up to its promises, we tend to stay. Not only that, we’re also more likely to buy other products from that brand. We think, “This brand has a green profile—maybe they have other things I can buy.” Tesla is a great example: they sell cars, but also home battery storage and solar panels—three very different products under one brand. That’s a good illustration of what’s possible if you establish a strong green position.

Lastly, green buyers are also more likely to advocate, so from a marketing strategy angle, advocacy strategies are key. They don’t see it as advocating a brand; they see it as advocating a personal choice."

Check the rest of the conversation with some other examples from Nicolai in The Story Behind The Numbers podcast episode: https://youtu.be/RvPrOsfNMzI?si=vx8LVkP5Jg8Ny0eo

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