Opinion: Monetizing Sustainability

7 October 2024

Sustainable” products are in short supply, despite consumer expectations. “Too expensive for customers and not profitable enough for companies”. All it takes, however, is the right monetization strategy, writes Florin Istrate, Partner at Circle Strategy.

Sales of sustainable products are struggling to take off: they represent only a small proportion of total sales of products and services, and the speed of replacement is still slow. Understanding consumer and business resistance is essential.

Consumers are frequently discouraged by price, often uncertain availability, lack of transparency on a product’s sustainable characteristics, or a failure to understand its added value. Some are even unaware of its sustainable aspects.

Three obstacles are holding companies back. Some lack interest, preferring strategies deemed more profitable in the short term. Others are apprehensive about the investment required, judged to be disproportionate to the expected profits. Finally, many lack the resources needed to transform their operating model.

 

An unclear definition

The monetization of sustainability is emerging as a central issue: finding the right balance between consumers’ willingness to pay more and companies’ extraction of value. But there are several complications to this monetization issue.

On the one hand, the concept of sustainability encompasses multiple criteria and sub-criteria (e.g. environmental impact, health/well-being benefits, equitable distribution of value, etc.). However, a sustainable product very rarely satisfies all of them. What’s more, this value proposition is subjective for consumers: it depends on their expectations, the consumption context and their often poor familiarity with the subject.

On the other hand, sustainability is regularly the subject of greenwashing. According to a report by the European Commission, in 42% of cases, sustainability claims are exaggerated, false or deceptive. A profusion of sustainable labels and the absence of a common legal framework are fuelling practices that lack coherence or transparency. It should be noted that few companies make an effort to educate consumers about these issues.

Finally, the pricing model for sustainable products is biased. The real extra costs associated with sustainability account for only 20-30% of the total price premium charged to the consumer.

The remaining 70-80% can be explained by cost allocation biases or by a multiplier effect on the margins of the various players in the value chain.

 

A 4-steps approach

Consumers, investors and authorities all have a role to play. But companies are best placed to tackle the monetization issue. There are four steps they can take to better monetize their sustainable products. Despite their trivial appearance, few companies apply these steps correctly and systematically.

First and foremost, a company needs to understand its customers’ expectations and behaviors with regard to sustainability. A detailed analysis, broken down by customer segment, will provide actionable levers.

It must then design the most appropriate sustainable offering. A sustainable product must present the main features valued by customers, while avoiding superfluous features that would entail additional costs, and thus create differentiation from the competition.

A third step is to calibrate a suitable revenue model. This involves gauging financial expectations, estimating costs, projecting expected sales volumes, finding the right pricing model and defining the optimum price level to maximize the margin pool.

Finally, getting to market involves creating ecosystems with suppliers, competitors and distributors, acculturating and actively involving customers, and implementing a coordinated sales action plan tailored to sustainable products.

By following this systematic approach, companies will be able to effectively capture market demand and overcome the obstacles to consumers’ sustainable purchasing choices. In so doing, they will promote the development of a virtuous offer and the associated creation of value.

Florin Istrate is Partner at Circle Strategy

Istrate, Florin “Monétiser la durabilité ” in Les Echos, 3/102024.

https://www.lesechos.fr/idees-debats/cercle/opinion-monetiser-la-durabilite-2123137  (in french)

26 December 2024

Opinion : Network banking versus zero banking, who will make history?

BoursoBank, Revolut and Nickel open more accounts than any other network bank in France. But the latter still capture the vast majority of the sector's revenues. Circle Strategy's Christophe Baniol analyzes the situation.In France, 2024 was the year of the online...

24 October 2024

Interview : Will AI (really) revolutionize the banking sector ?

Artificial intelligence promises to reshape the banking landscape, but to what extent? In a compelling interview with Boursorama, Christophe Baniol, Partner at Circle Strategy, analyzes this revolution alongside Laurent Grassin.Artificial intelligence is on...

20 October 2024

Study : AI in Marketing

A little over a year after the launch of GPT-4, Circle Strategy and Square Management, in partnership with OpinionWay, unveil the real impact of AI in this strategic field. This unprecedented study is based on the testimonies of 300 marketing leaders and provides...

19 October 2024

Keynote: Sustainable Consumption for Mumbai in 2047

Discover below the speech delivered by Jean-Marc Liduena, CEO of Circle Strategy, during the Entretiens de Royaumont in Mumbai. This prestigious event brings together leaders, entrepreneurs, and decision-makers to address the major strategic and societal questions...

3 October 2024

White Paper: AI in Retail Banking

AI will be THE transformative technology for the financial sector over the next decade. Its use cases will affect every link in the banking value chain, profoundly reforming the banking industry's distribution, production and risk management models. This revolution...

5 July 2024

P-Val Conseil joins Circle Strategy

Circle Strategy, continues its growth with the acquisition of P-Val Conseil. P-Val Conseil is a consulting firm specializing in transformation strategy, helping customers to align their strategy with their culture and history. P-Val Conseil's Monde© approach...

20 March 2024

Circle continues its reorganization with the arrival of a DGA

Circle Strategy continues its reorganization journey with the appointment of Bertrand Grau as Deputy Managing Director.Bertrand Grau was part of the partner team who launched KPMG's Global Strategy Group (GSG) in Paris back in 2019, where he led the Digital...

7 March 2024

Study: Impact of Kylian Mbappé’s departure from PSG

Since his arrival at Paris Saint-Germain in September 2017, at just 18 years old, Kilian Mbappé has not only made history for the club but has also left an indelible mark on the landscape of European football. His announced departure from PSG understandably arouses...

29 August 2023

Event : Circle Insight 27/09/2023 – AI for Gender Diversity

Events, communities, targeted communication... strategy consulting firms are multiplying initiatives to increase the presence of women. However, these levers only have a limited impact. Today, women represent just 17% of the partnership in French strategy...