If you run a small sustainable business there are good chances that you have received some criticisms about the pricing of your products and if you are a person looking to have a more sustainable lifestyle you have probably thought sometimes “Why should I spend more on a product I can get at a cheaper price?”.
As shown in this report by the EU Parliament, while 9 in 10 consumers say protecting the environment is important to them, only 22% had bought products with an environmental label, 31% avoided buying over-packaged products and 32% repaired a product rather than replacing it. One of the main drivers behind this phenomenon, called the intention-action gap, is the price of sustainable products.
In this article, we will look at what's behind the price of a sustainable product, the societal biases that make us perceive them as expensive and how we can actually move towards a sustainable lifestyle.
It’s no secret that because a growing share of the population considers the environmental impact of products in their purchasing decisions, more and more brands, especially big companies, are riding the wave of green marketing. On the one hand, this results in the use of words like eco-friendly, green, carbon-neutral and similar on the product’s packaging to highlight the sustainable features of that product. On the other hand, leveraging on the narrative of high production cost, many of these products are sold at a premium price. A.T. Kearney, a consultancy firm, has calculated that sustainable marketed products can be up to 220% more expensive than "conventional" products.
In 2020 a check run by the EU Commission of a pool of businesses websites, almost 50% of the companies did not back their green claims with real facts. This makes Greenwashing, which is the practice of using false claims to sell products as sustainable (and often for a premium), a widely adopted marketing strategy. Greenwashing doesn't mean that you are shamelessly lying. What many large companies do is leverage one specific aspect of the product that has a sustainable feature to make up for the unsustainable ones. Fast fashion companies for example, make sustainable collections made of organic or recycled fabrics (selling them at a high premium) and then keep releasing 20 collections per year, have poor social performances etc.
Therefore, a great starting point for consumers when approaching a sustainable product is to look at the brand altogether and the values it stands for.
From the raw materials harvesting/extraction to the product delivery to your doorstep, every step of a sustainable production chain needs to meet certain standards that are often connected to higher costs.
It all starts with the materials the products are made of. A sustainable and circular product should come from organic farming, recycled/upcycled sources and its harvesting/production should have a minimal impact on the environment.
Organic farming, for example, does not use chemicals such as pesticides and many other industrial farming techniques as they can harm our environment by killing endangered insects, disrupting the ecosystem, as well as polluting local water bodies. To move away from industrial agriculture means that farms will have to employ more labour for tasks like weeding, cleaning, and reparation of pest damage. The organic price tag reflects the costs of growing produce in environmentally friendly ways.
A very important aspect to consider when buying sustainable products is labour. Providing workers with fair wages and safe working conditions would naturally mean higher costs. And it should not be limited to the direct employees. Many brands have externalised manufacturing leveraging on cheaper production costs in developing countries. This poses high risks as in these countries workers rights are weaker. To overcome this threat, ask for transparency of the brands you are buying from.
When it comes to the transformation of raw materials into products many are the variables to account for. Sustainable production could mean that products are handmade. In this case, higher costs are associated with longer times of production and labour costs. At the same time, handmade products are, on average, of higher quality than those made on an industrial scale somehow justifying a premium price.
Industrial production, instead, requires several resources input such as energy, water, heat and chemicals. In this case, while the adoption of some sustainable practices can bring financial savings (i.e. self-generation of clean energy and energy efficiency measures), others like wastewater treatments, chemicals management or toxic chemicals replacement do imply higher costs.
Also being still a niche market with limited demand, companies adopting such practices are most often small and don’t really get to enjoy economies of scale, which means their fixed costs per unit of product produced is very high. This naturally causes their products to be more expensive. It's a chicken and egg problem: there’s low demand because the prices of sustainable products are high, but the prices of sustainable products could decrease if demand was higher – a vicious cycle!
Environmental certifications can be expensive and that gets either reflected on raw materials prices (i.e. organic cotton) or production cost. Today certifications are rarely avoidable since they offer businesses an official endorsement of their sustainable practices. However, high prices and complex management structures can be a barrier for small companies in getting these certifications and can definitely have an impact on products pricing in some cases.
To meet the Paris Agreement targets, we will have to achieve carbon neutrality, which means achieving a net zero balance of carbon emissions, by 2050. Businesses will have to play their role to support the achievement of this target. A few are moving ahead of time by compensating the carbon emissions they produce by supporting (or buying) carbon offsetting programs. While the morality of abusing carbon offsetting is widely debated, buying carbon offsets comes at a cost that somehow gets reflected on products pricing.
An analysis made by A.T. Kerney shows that for conventional products in food, fashion, electronics, and durables only 10 to 30% of costs occur within the first step of the value chain production. As explained before, three markups can be found at this stage:
Thus, ecologically and socially sustainable production of a wide range of products could occur in the range that most consumers are willing to pay. Costs for certifications impact for about 5% of markups, while the markups for smaller economies of scale differ widely. Surprisingly, the biggest markup of 80% for non-food and 70% for food products are the result of premium or multiplying markups for brand owners’, wholesalers’, and retailers’ profit margins.
Small brands, startups and artisans that have sustainability at the core of their business are having a hard time in being trusted and selling their products at a fair price due to all the greenwashing that is going on at this period of time. There is a powerful tool, though, that they can use to beat the unfair competition of corps and gain the trust and support of consumers: TRANSPARENCY.
Here's the example of WAYZ, a portuguese brand of Footwear that has joined our #NaM community since day 1 (you can learn more about them here). On top of making good-looking and high quality sneakers, they use full transparency in communicating the production costs of their sneakers (showing the cost breakdown of materials, labours, etc.) and the markup on production costs. A few brands are going further to strengthen their credibility by adopting traceability systems that verify their supply chain and give them an Eco scoring (check ZEROBARRACENTO and the system of SUSTAINABLE BRANDS PLATFORM)
In the second part of this article we will look at the societal biases that make us perceive a sustainable lifestyle as a privilege and how to make it affordable. Stay tuned!