A consumer paradigm shift – from Purchase to Pressure

Brand is Purpose. And Purpose and ESG are two sides of the same coin. It has been 55 years since Philip Kotler, widely considered the father of modern marketing, asserted that “a brand is the company’s promise to deliver a specific benefit that addresses a particular need of its customers”. That is as true now as it was in the 1960s.

What has changed is the world. The world in which any brand operates has become more challenging, more worrisome, more globally interconnected – and more self-aware. This has resulted in a dissipation of the transactional relationship. Brands are now expected to go beyond simply meeting customers’ needs on a product level.

Against the backdrop of social and regulatory pressure over the past two decades, investors have been gradually – sometimes begrudgingly – driving purposeful change as part of risk management. Now consumers have realised that they can affect change as well. Once upon a time, it was the product alone which provided the foundation of every successful business – but no more. Consumers are voting with their wallets and the E, S and G are playing a key role in influencing their choices.

Environmental

The climate change walls are closing in, and consumers see it – and feel it. Over the past three years, we have seen the domino effect of environmental events amplifying the need to prioritise the planet. From the Australian wildfires and the Amazon rainforest in crisis, to regular ‘once a century’ floods across Europe, historic warming in the Arctic, and many more. Even with COVID, the link has been made between the unsustainable cities we live in and the spread of a pandemic. We have moved beyond the moment of ignorance, to awareness, soon to be followed by action.

Consumers are increasingly calling for businesses to mitigate their negative impacts and invest in sustainable improvements to the environment, well beyond complying with regulation. And they are prepared to reward (or penalise) brands accordingly. According to the PwC 2021 Consumer Intelligence Series, action against climate change is high on everyone’s ESG investment wish list, with consumers standing firmly behind the corporate race to net zero. And whilst leaders are comfortable that they are responding appropriately across ESG issues, consumers make it abundantly clear that corporate actions matter more than words:

  • Almost three-quarters (74%) of respondents said that companies care much more about the environment than they did ten years ago. But almost as many (73%) said they feel let down by “slow progress”. [PwC 2021 Consumer Intelligence Series]

  • More than half of consumers (57%) say that companies should be doing more to advance environmental issues. [PwC 2021 Consumer Intelligence Series]

  • One in three consumers claimed to have stopped purchasing certain brands of products because they had ethical or sustainability related concerns about them. [Deloitte Sustainability & Consumer Behaviour 2021]

  • Three in five (60%) grocery shoppers in Germany agree they are willing to bear the additional expense to buy products that are better for the environment. Other markets demonstrate a similar inclination: US (58%), UK (57%) and Australia (53%). [YouGov 2021 research]

  • Nearly six in ten consumers are willing to change their shopping habits to reduce environmental impact, while almost eight in ten respondents indicate that sustainability is important for them. And for those who say it is very/extremely important, over 70% would pay an average premium of 35% for brands that are sustainable and environmentally responsible. [IBM Meet the 2020 Consumers driving change]

Social

Consumer expectations of Purpose are no longer limited to preserving and bettering the environment. Social issues also need to be addressed.

With the spotlight finally being shone on diversity, equity and inclusion, consumers are pushing an evolution in leadership: from the stereotypical ‘heterosexual, white male’ who has historically occupied positions of power, to a more varied pool of equally talented individuals – no matter their gender, race, sexual orientation, socio-economic background, etc. As our global population becomes more diverse, expenditure from ethnic minorities, women, the LGBTQ+ community and other marginalised groups continues to rise in tandem – this is reflected in businesses shifting from resisting to embodying this change:

  • As of 2021, consumer expenditures by Black households totalled approximately US$835 billion. Combined spending by all Black households has increased 5% annually over the past two decades, outpacing spending growth of White households (3%). [McKinsey Quarterly]

  • 76% of consumers pledge to discontinue their relationship with companies that treat the environment, employees, or the community in which they operate poorly. [PwC 2021 Consumer Intelligence Series]

  • 48% of consumers want companies to show more progress on social issues (e.g. D&I and data security and privacy). [PwC 2021 Consumer Intelligence Series]

  • Millennials have the highest expectations (46%) for brands “to be brave” when speaking out on social issues, closely followed by Gen Z at 42%. [Kantar ‘Championing Change in the Age of Social Media’ 2020]

  • Two-thirds of consumers say it’s important for brands to take stands on social and political issues. 58% are open to brands championing these causes on social media – the #1 channel for receptivity amongst consumers. [Kantar ‘Championing Change in the Age of Social Media’ 2020]

  • 86% of business decision-makers say that companies have a role to play in tackling racial inequality. [YouGov]

  • 80% of employees say that racial justice and equity issues should be on the corporate agenda. Approximately 40% of employees have said that they would likely quit their jobs if their company did not prioritise addressing social or racial injustice. 70% of employees would be willing to recommend their employer if they prioritised these issues and made it a part of their corporate culture. [Forbes]

Governance

Accepting the above expectations, does the structure of a business facilitate a safe space for change? Executive leadership has an important role to play, not just for investors and employees, but also in creating a positive perception to consumers. The role of the leaders of today has changed significantly over the last two decades. Society has taken a magnifying glass to those at the top, expecting that they are living and breathing the purpose of the organisations they lead – committing to tangible action and allowing positive values to cascade down through the business. The modern-day consumer longs to feel a personal affinity with a brand – if the perception of executive leadership directly contrasts with their proposed values, the business is doomed until change (e.g. Travis Kalanick, UBER).

For businesses to be able to adapt to the shifts in society, it is essential that those at the summit personify those shifts in society. In short, leadership needs to be diverse, not just speak about diversity. Whether it be increased representation of race, gender, sexual orientation, social class, age or any other defining factors that mitigate the echo-chamber effect. This is essential for the make-up of a leadership team. The need for change at the top is also affirmed by a wealth of data that highlights the benefits of diverse leadership, including:

  • Higher representation of women in C-suite level positions results in 34% greater returns to shareholders. [Fast Company]

  • Organisations with above-average gender diversity and levels of employee engagement outperform companies with below-average diversity and engagement by 46% to 58%. [Fast Company]

  • 53% of Gen Z participants expect brands to have diverse senior leadership and 47% expect companies to donate to organisations promoting Diversity & Inclusion. [Quantilope 2021 Insighta Report]

 

Conclusion

ESG only started to make its way to the forefront of business conversation from around 2004. There is still so much more to be done in terms of modernising and embedding new ethical codes into society and for them to become normalised. And while the general consumer may not be completely privy to the intricacies that surround ESG, we have seen that they are able to recognise those that put Purpose alongside profit. With business leaders and policy makers also aligned regarding ESG, companies that solely prioritise profit have become an anachronism.

So, we are beyond the tipping point. We are beyond trends, early adopters, and activists. We can definitively say that consumers expect business to be a force for good and are ready to spend their money – and time – where they see that good in action, and withhold it when they do not. We are witnessing consistent change in consumer spending habits which are not the cause of a paradigmatic shift within society, but a product of it.

 

Paper authors:

Lejohn Dillon, Junior Consultant, Blurred

Yashvee Kalia, Junior Consultant, Blurred

 


             

 


                      

 

 

Stuart Lambert