The role of consumer behavior in achieving a sustainable product policy
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Competitive Differentiation
Publication | Update: Nov 2022
Consumers play an important role in promoting sustainable development. People have become more aware of the impact of their purchasing habits on the environment and businesses should respond accordingly.
When asked what makes a product sustainable, the majority of consumers mentioned biodegradability or the use of recycled materials, followed by responsible sourcing, minimal packaging, carbon neutrality and promotion of biodiversity. However, customers are more likely to prioritise durability and repairability over recycling and biodegradability in their purchasing decisions. Surprisingly, only a quarter of customers perceive a product as sustainable if it is labelled as sustainably produced or manufactured, and only a fifth of consumers rate the label as very important in their purchasing decision. However, this could indicate inconsistent labelling, which could lead to consumer confusion.
An independent survey commissioned by SmartestEnergy also showed that consumers increasingly prefer brands that focus on environmental sustainability. Four out of five people think they are likely to choose a brand that is committed to environmental sustainability, the report says. This obviously highlights a shift in consumer attitudes towards how companies treat the environment, with 90 percent of respondents agreeing that it is essential for society to become more energy conscious. Despite consumers' keen interest in environmental issues, the study finds that 45 percent of customers are not aware of the practises used by consumer brands to promote environmental sustainability. As a result, companies either do not implement environmentally friendly policies or do not adequately publicise their environmental impact.
In 2021, price was the main reason customers around the world considered buying more sustainable products. More than a third of consumers said they would buy more sustainable goods if the price was comparable to other products and/or trends. In addition, considerations such as product quality and availability remain key for consumers.
According to a survey by McKinsey & Co., 66 percent of all respondents and 75 percent of Millennials pay attention to sustainability in their purchases. Customers today associate themselves with brands that share their values and priorities. Given that environmental stability is a major concern for many people, it is crucial that companies reduce their carbon footprint.
Finally, a report published by First Insight and the Baker Retailing Centre at the Wharton School of the University of Pennsylvania has shown that consumers are demanding sustainable products. Since the release of First Insight's first study on Generation Z and sustainability two years ago, Generation X consumers' propensity to buy sustainable brands has increased by about 25 percent, and their willingness to pay more for sustainable products has
increased grown by 42 percent. In fact, shoppers of all generations, from baby boomers to Generation Z, are increasingly willing to pay more for environmentally friendly goods compared to only 58 percent, two years before. Today, about 90 percent of Generation X consumers are willing to pay 10% or more for environmentally friendly products, whereas the ratio was 34 percent two years ago.
Despite the increasing availability of sustainable products and the growing awareness, unsustainable purchasing patterns persist. A shift towards a sustainable consumer culture is only successful if customers actively participate in the transformation processes and accept new, environmentally friendly products. Although companies can hardly count on consumers' dedication and expertise, they cannot succeed without their support. Therefore, companies should develop efficient business models and marketing methods to bring sustainable products from the niche to the mainstream market.
 Deloitte. (n.d.). How consumers are embracing sustainability. Retrieved from: https://www2.deloitte.com/uk/en/pages/consumer-business/articles/sustainable-consumer.html
 Recyclinglives. (n.d.). Report reveals that 81% of people prefer to buy from sustainable sellers. Retrieved from: https://www.recyclinglives.com/news/general/report-reveals-81-people-prefer-buy-sustainable-sellers
 Tighe, D. (2022, July). Leading factors encouraging consumers worldwide to buy more sustainable products in 2021. Statista. Retrieved from: https://www.statista.com/statistics/1300835/main-reasons-to-buy-sustainable-products-world/
 McKinsey & Company. (n.d.). The State of Fashion 2020. Retrieved from: https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/the%20state%20of%20fashion%202020%20navigating%20uncertainty/the-state-of-fashion-2020-final.pdf
 Petro, G. (2022, March). Consumers Demand Sustainable Products And Shopping Formats. Forbes. Retrieved from: https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/?sh=1d76249b6a06
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
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The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period.
The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players. This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.
Research Process & Methodology
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The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pretax revenue and its total boughtin costs (costs excluding wages and salaries).
Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from ofﬁcial sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reﬂect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.