In the fight against climate change, every business has a simple but often-overlooked tool at its disposal.
The 2021 UN Climate Change Conference, COP26, focused the world’s attention on the need for rapid action on climate change. Business has a key role to play. The scale of the challenge can seem overwhelming; leaders may feel that their business alone is unable to contribute significantly enough to have an impact. But there is a fundamental tool that any enterprise can learn to use to drive change: pricing, and price tags.
This new paradigm requires thinking about the world based on a planet, people and profit (3P) approach. Derived from the triple bottom line concept developed by John Elkington in 1994 to encourage social responsibility in business, 3P is an important part of today’s discussions about the circular economy and sustainability in general.
At its core is the recognition that business success must be about more than pure financial gain. Every enterprise has a duty to ensure it avoids activities that harm the planet, while also taking care of its people through fair pay and the creation of a safe and pleasant working environment.
Price tag as communication channel
Those goals are not new, and an ever-widening array of organizations market their green credentials. But most are missing a trick. The price tag – whether physical or digital – will be seen by nearly every consumer. Supplementing the label with simple ‘planet’ and ‘people’ information provides shoppers with the details needed to make informed purchases – and simultaneously signals the enterprise’s commitment to widening its remit beyond the pursuit of pure profit.
How would such a price tag work? Alongside the price might be a figure for the CO2 produced in making the item, and the minimum wage that the company pays to its employees. Alternatively, the label might show the miles the product has travelled, or the overall rubbish produced by the company, and how many jobs are locally-created. Different metrics would be appropriate in different situations.
Shaping consumer choices
The 3P approach to price tags is already beginning to be used in some sectors – for example in food. Foundation Earth, for instance, is a not-for-profit organization guiding the food industry. Its traffic-light product labelling system is displayed alongside the now-standard nutritional information (calories, fat, sugar, salt and so on) providing consumers with measures for pollution, water usage, biodiversity and carbon.
That information can quickly inform consumer decisions. In the supermarket aisle, shoppers can opt for a product which offers that rich information – such as Finnebrogue’s Naked Pork Sausages – over another brand. It’s easy for consumers to see the environmental impact of a given product. The scheme is supported by global food brands and retailers including PepsiCo, Tesco, Danone and Marks & Spencer.
Growing support of manufacturers and retailers is making action from other businesses ever more urgent. There is growing consumer support: even in 2018, a Nielsen study found that 73% of people were willing to modify their consumption habits to limit their impact on the environment. In many markets, there is a high probability of future legislation. Organizations would be wise to start developing their understanding of 3P pricing and building their ability to implement this approach, with time to embed it into company culture. As well as being prepared for any regulatory changes, early birds benefit from a market differentiator, positioning themselves away from the mainstream.
The world is facing supply chain problems and shortages which have been triggered by the pandemic but are rooted in more fundamental issues – while also experiencing an increasing number of climate-related catastrophes. There is an unequivocal need for change. The 3P-based pricing paradigm can play a part in making that happen.
For example, there is a growing acceptance that we consume too much; (higher) pricing is one way to address that, but on its own it’s a blunt tool. Providing people with a reason for something costing more, such as it being made by a company that has a low carbon footprint, or contributes significantly to its local community, can influence their choice. They either decide to purchase, knowing the item has had minimal impact on the environment, or they elect not to buy, thereby lowering overall consumption. Both options are net gains for the planet. They also benefit the company, which either sells less at a higher price, or more at a lower cost – a carrot for business leaders who recognize their responsibility, but for whom selling less feels counter-intuitive.
For understandable reasons, there is a good amount of scepticism about expecting people to pay more. However, the right product, introduced in a controlled manner, shifts the goalposts. Electric cars provide a useful blueprint; while they remain far more expensive than the petrol or diesel equivalents, booming sales show that people are prepared to pay a premium for something they believe to be ethically right.
Price and the planet
Pricing has always been a fundamental element of the marketing mix. Today even more is vested in how much something costs – and how that is presented to potential customers. Businesses today have a unique – but brief – window of opportunity to use 3P pricing as a tool to change behaviour. It is simple from a consumer perspective, but has the power to put a business ahead of its competition, while also prioritizing the health of the planet.
The goal is to generate a snowball effect; a business basing its pricing strategy on the transparency of its commitment to the environment and society will be driven to fulfil its promises. Ultimately, in creating a virtuous circle, everyone benefits – with a healthier planet, happier people, and better profits.