If you ask the wrong question, of course, you get the wrong answer.
We find in design it’s much more important and difficult to ask the right question.
Once you do that, the right answer becomes obvious.
– Amory Lovins, physicist and environmental researcher
While sustainability might be trendy, the question of its profitability from a business standpoint arises. Should it indeed prove profitable, exploring the situations, conditions, and practical approaches for achieving it becomes imperative. The challenge lies in formulating these pertinent questions, which can be notably challenging. Complicating matters is the common occurrence where customers struggle to provide accurate answers. In light of this, the quest to identify the appropriate question and, furthermore, to arrive at the correct answer becomes a thought-provoking endeavor.
In various reviews I have previously addressed, there’s a prevalent theme: our limited understanding of our brain’s workings, its decisions made beyond our conscious awareness, and the factors influencing those decisions. These processes, by nature, remain hidden from our conscious grasp. Given that the brain significantly shapes all aspects of business, considering the viewpoints of both customers and salespeople, an important question emerges: What insights could business leaders glean from understanding brain function, and how could these insights be applied?
With the anticipation that these scientific findings can yield tangible advantages for those engaged in responsible roles, I aspire to foster practical benefits for all.
Markus Kivikangas,
CEO & Founder, Steinheide Oy
markus.kivikangas@steinheide.com
Background
The customer often remains unaware of the reasons behind their product choices or preferences, their behavioral patterns, or the underlying motivators behind responsible or less responsible actions. Naturally, this lack of awareness renders them unable to articulate these factors when queried. However, as anyone experienced in customer interactions understands, customers seldom find themselves at a loss for words. Upon questioning, they tend to provide highly convincing and rational responses, even if these explanations are unrelated to their actual decisions. The consumer isn’t being deceitful; rather, they lack insight. This is why the brain concocts sophisticated sounding yet entirely pseudo-causal explanations that often mislead unsuspecting marketers.
Let’s consider one example among several and examine 350 scientific studies involving 240,000 consumers that explore the connections between customer satisfaction, purchase intent, actual purchasing behavior, and word-of-mouth communication (WoM). As depicted in Figure 1, it’s evident that purchase intent—what customers explicitly state they intend to do—bears little correlation with their subsequent actions (r = .1, >95%).
A similar phenomenon is evident, as seen in purchase intent surveys involving interviews and questionnaires. In these surveys, the breadth of the product range (r = .53, >95%) typically ranks high in influencing store selection. However, when actual purchasing behavior is scrutinized, a negative correlation emerges between the extent of the product range and buying (r = -.39, >95%; Figure 2). Consequently, a store manager basing decisions on such surveys invests substantial resources in expanding the range, only to subsequently face disappointment, to say the least, when the anticipated returns fail to materialize as anticipated.
If your responsibility involves crafting and advancing a product, service, or operational framework, as well as promoting it to stakeholders, it’s worth noting that the brains of these stakeholders, influenced by Innate responses, can pose a substantial challenge for you. Regardless of whether your role is strategic or tactical, the imperative remains to make astute choices and decisions regarding both the course of action and the profitable implementation thereof.
In the process of making these determinations, you likely have access to two types of information: first, internal company data that highlights what should be avoided. It’s crucial not to embark on developing a new product or operational model without this information. Regrettably, the utility of this data is limited to two aspects: a) understanding the specific task’s emergence on your agenda (e.g., dwindling market share), and b) identifying where not to initiate the search for a solution to the issue (e.g., accountability). However, it does not provide a definitive answer on how to resolve the task at hand.
Another source of information comprises individuals, frequently including customers. Irrespective of the stakeholder, they often furnish a substantial amount of input concerning what they claim to desire and the underlying factors that would encourage them to purchase a solution addressing their needs. This is the point where, at the very least, a figurative light should illuminate over your head. If individuals are unaware of the genuine rationales behind their actions, decisions, and purchasing behaviors, the question arises: can you truly place reliance on what they’re expressing to you or on the market research agency you’ve engaged? What if the responses inadvertently guide you down an incorrect path?
This was the “aha” experience that prompted me to transition from university research to becoming a full-time entrepreneur. If you’ve undergone a similar realization, there’s positive news: there exists a solution to this challenge—two, in fact. Rather than relying on surveys and interviews, you can turn to A/B testing. This involves crafting various options and gauging how they impact individuals. If you possess an ample budget and boundless time, this can be done independently. However, if you seek swift answers within your current budget constraints, you can place your trust in scientific research. Science, after all, comprises an “inexhaustible” array of experimental studies that have scrutinized human behavior across a myriad of diverse variables.
Rest assured, you need not plunge into this vast sea of information; we’ve already distilled and refined it into a user-friendly resource for your benefit. A glimpse of this awaits you in the subsequent paragraph.
But before delving into that, what’s the alternative solution? It comes into play when your inquiry is so specialized that scientific research hasn’t happened to investigate it: brain imaging. Brain imaging empowers you to unearth answers without needing to directly question customers.
IS SUSTAINABILITY WORTH IT?
With the aim of swiftly addressing the question posed in the title, we opt for the first solution, while keeping brain imaging as a potential recourse if required. Now, let’s explore what scientific inquiry has to offer: Does sustainability hold any business merit? Is it prudent for a company to prioritize responsibility and integrate it into its business model, or could it be more economically sound to take a different approach altogether?
To unearth the answer, we’ve synthesized almost 200 of the latest scientific studies. These studies delve into the impact of environmental responsibility on various facets of a company, encompassing brand image, brand value, customer satisfaction, profitability, market share, value progression, and operational efficiency (including processes and production). The results are discernible, and notably positive.
The variables associated with both the product and the company’s sales figures exhibit noticeable enhancement through environmentally responsible practices (r = .24 & .23, >95%). However, it’s noteworthy that, on average, environmental responsibility exerts a particularly favorable influence on cost reduction (r = .37, >95%). If the preceding sentence elucidated the subject for you, you’re conversing in scientific terms. However, for those who found it more perplexing than clarifying, I’ve compiled several readily comparable benchmarks below to elucidate the magnitude of the effect sizes mentioned earlier (r = .24 and .23).
You’ve interpreted the table correctly. When environmental responsibility is implemented effectively, it proves just as reliable and beneficial as notably effective medications in enhancing sales, brand image, and cost-efficiency. What’s even more gratifying is that data from 2003 scientific studies conducted between 2013 and 71 reveals that environmental responsibility contributes to a company’s financial success with a modest effect size of 0.06. To put this in perspective, referring to Figure 1, it’s akin to the limited extent people discuss the factors impacting their actual purchasing decisions with acquaintances (r = .05, 95%). This indicates a remarkable improvement in the positive influence of environmental responsibility on business operations today, in contrast to just over a decade ago!
WHEN DOES SUSTAINABILITY PAY OFF?
I previously emphasized the term “environment” within “environmental responsibility,” given its positive influence on a company’s financial performance, as elucidated above. The impact of other forms of responsible business, such as social responsibility, on a company’s success lacks statistical significance. If sustainability itself is your primary concern, outweighing business benefits, your options are open. However, if you seek profitable responsibility, the environment should be your choice.
Another intriguing finding involves the substantial enhancement in partner network productivity when promoting environmental responsibility. This enhancement is in contrast to a situation where a company endeavors to implement environmental responsibility on its own (r = .37 vs. r = .22, >95%). In simpler terms, when a company takes on responsibility in isolation, the resulting positive change is visible but relatively limited. However, when a company integrates responsibility across its value chain, the outcome becomes notably more advantageous. This observation might highlight consequences rather than causes. Companies pursuing environmental responsibility alone might not have embraced it as a strategic cornerstone, possibly adhering merely to minimum standards or even resorting to “greenwashing” in the worst-case scenario. In contrast, companies comprehensively involving their cooperative network likely exhibit greater ownership of the issue, transforming it into strategic capital.
Additionally, the analysis reveals an unexpected finding: environmental responsibility tends to yield greater profitability in industries that aren’t inherently burdened by environmental concerns (r = .28 vs. r = .12, >95%). One might assume that sectors with high pollution levels (e.g., oil and mining) would derive the most benefit from environmentally responsible practices. Although there’s no definitive explanation for this outcome, one possible reason could be that environmental friendliness in heavily polluting industries appears forced and regulatory-driven, while the responsibility of companies operating in low-pollution industries comes across as sincere and genuinely motivated. Regardless, environmental responsibility demonstrates positive business outcomes in both scenarios, with particularly pronounced effectiveness in low-emission industries.
Now, concerning the strategic and tactical steps a company can undertake to achieve the outcomes discussed in this report, I’d be delighted to provide further insights: markus.kivikangas@steinheide.com
